The S&P is down nearly 20% since the 20thof September, turning a lovely and respectable 11.2% total return YTD into an excruciating 10.4% loss. In Europe, the pain has been even more severe. In the UK, the FTSE 100 is down 14.8% YTD; meanwhile the French CAC 40 is down 14.7%, and the German DAX 30 is down 21.9%.
October unleashed a storm upon financial markets. Here in Europe, we hadn’t had one since Brexit, but had many before then, and will surely have many more. Bad weather is a feature of investing, and as the stewards of long-term capital, we need to balance action and inaction during these bouts of market turmoil.
As we wrote in “Half-hearted is half-minded – December 2017” we aren’t big fans of dipping our toes in the water when entering a position, nor of timidly reducing when exiting. If we are right more often than we are wrong, it might feel better to inch in or inch out of a position, but it is a suboptimal strategy.
Benjamin Graham is considered by many as a founding father of value investing. Upon a re‐read of the seminal Security Analysis, which he and David Dodd first published in 1934, one learns that many of Graham’s insights were not simply confined to balance sheets and income statements. In fact, he devoted a significant effort to such topics as psychology, overreaction, under‐reaction, and the consensus view.
Following on the tweet below by President Trump, there is again a lot of discussion of the merits of quarterly reporting, potential corporate short-termism, and the impact it might have on managerial decision-making.