Congratulations, you’ve just lived through the sixth-worst day in the history of the U.S. stock market. The Dow Industrials fell 634 points on Monday in response to Standard & Poor’s downgrade of the United States’ credit rating, and two days later the volatility continues.

After a day like that, it’s important to step back and get a little perspective. When you see the world around you crashing down, it’s natural to panic. But ask yourself the following questions:

  1. If the United States is now a bad credit, then why did bond investors run to Treasuries as the market was selling off? The yield on the 10-year Treasury note is now near all-time lows. This suggests that bond holders are not the least bit worried about getting their money back. If bond investors aren’t worried, then why are you?
  2. Why is it that Warren Buffett — the most successful investor in history — brushed off the S&P debt announcement and considers stocks to be attractively priced?
  3. And how are stocks “risky” when some of the biggest and most widely-held names — such as Sizemore Investment Letter recommendations Intel (INTC), Microsoft (MSFT), Johnson & Johnson (JNJ), Procter & Gamble (PG), Altria (MO), Philip Morris International (PM), Diageo (DEO), and Unilever (UL), to name a few — now pay out more in dividend yield than the 10-year Treasury does in interest?

When you do your homework and you choose your investments well, you don’t have to worry at times like these. In fact, if you have extra cash at your disposal, you use them as a buying opportunity. That’s what the all-time great investors do.

Long-time readers have no doubt heard me mention the name Albert Meyer, who manages the Mirzam Capital Appreciation Fund (MIRZX). I consider him one of the sharpest accounting minds in the business. I’m also not entirely convinced that he’s human; I suspect that he is a refugee from planet Vulcan, home of Star Trek’s Spock.

Meyer has that certain personality quirk that tends to be prevalent in successful value investors: A total lack of emotion when it comes to the investment process. He dissects a company’s financial statements with the detachment of a surgeon in the operating room. When he determines that a company is a bargain, he buys it; if he determines that a company is expensive, or if he finds its accounting practices questionable, he avoids it, no matter how popular it is.

He also has a second personality quirk that is common to virtually all successful value investors: An ability to tune out the constant stream of noise coming from the media. Meyer, like me, reads the Financial Times religiously. But unlike me, who compulsively has to read it every morning with my coffee, Meyer reads a weeks’ worth of newspapers at once, usually on a Saturday when the market is closed. Oh, and he doesn’t own a TV. (“It’s mostly all rubbish, anyway,” is his rationale, spoken in his professorial South African accent. He’s correct on that count.)

Right now, I’m going to recommend that we play it cool like Meyer. If you are comfortable with what you own — and I most certainly am — then don’t let a wave of hysteria over a meaningless credit downgrade cloud your judgment. You sell when your reasons for owning an investment no longer hold true, not because of a volatile fear-based decline. Continue to collect the dividend checks and add to your positions as your funds allow. You’ll sleep better at night. And when the dust settles, you’re likely to walk away from all of this a lot richer.

Charles Lewis Sizemore, CFA

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1 Response
  1. Roger Heath


    Even after the decrease, the S&P 500 is over priced significantly. Jeremy Grantham puts “fair value” at 920 (a likely return over ten years of 8% to 9%). My investments are tightly hedged, with maybe a 15% exposure, lots of cash and gold. A full allocation of stocks is too risky.

    In 2008, one of my investment advisers who uses value investing said all those things you just said. I watched as S&P went down from 1562 to 677. And what did those paying dividends do? Lowered them. Almost four years later the the S&P 500 is about 30% lower. That’s too long to wait for those with shorter investment horizons.