Patience… by ValuePlays

Patience

“Davidson” submits:

We just had a month of auto sales reported at a 16.77million SAAR(Seasonally Adjusted Annual Rate) and the equity market did very little. We have had months and months of data points indicating advances in employment, consumer spending, industrial production and the equity market hit new highs (SPDR S&P 500 ETF Trust (NYSEARCA:SPY)) only grudgingly, from less than 1pt to a couple of pts. It is these types of market where “PATIENCE” is required in heavy doses.

What markets teach if one listens carefully, is that economic activity once it begins to expand continues till credit spreads between T-Bills and 10yr Treasuries are basically zero. At this point bank lending which has fueled the economy with a constant stream of cash/leverage for homes and vehicles brakes to a very slow pace. Economic activity then slows to a level where all the previously hidden pockets of speculation suddenly become media headlines. Zero credit spreads cause one speculative business/investment after another to collapse. Defaults, employment reductions and a 180 degree turn in investor sentiment rapidly engulfs markets as speculation now turns towards which area of excess should be shorted the most. This has been our investment cycle for centuries. Value Investors study history and have this insight.

As long as credit spreads let financial institutions expand lending, equity investors will see higher stock prices over the long term as economic activity expands. What investors need to do in my experience is to invest in those companies and portfolio mangers with good management histories when things are cheap and most other investors are pessimistic. Then, investors need to let gradually improving economic activity bring in those other investors to drive equity prices higher. This requires heavy exercise of one’s “PATIENCE”. It means doing much, much less than that advised in the media. It requires monitoring economic data, monitoring CEOs and portfolio managers one uses to ensure they continue to perform and make decisions as expected, BUT not judging their performance day-to-day nor even quarter-to-quarter if it appears that their decisions will be benefited by expanding economic activity over the long term.

Investing in my experience is placing one’s capital in front of developing economic positives. Then one needs to exercise one’s “PATIENCE” a sense of history and let it work!!