Jim Chuong is a Canada-based fund manager we met at the Berkshire Hathaway AGM in Omaha, Nebraska last year. He sent an email recently to clients and friends, which is reproduced below. This is how one money manager views the market and how he is acting.
This is Jim Chuong and my latest 2008 stock newsletter can be found at http://ticonline.com
What happened in 2008? Why did things get so bad so fast? You can read it all at http://ticonline.com
For those who asked, "Why do you carry so much cash?" 2008 was your answer! Indeed, when readers looked over the 2007 stock newsletter, I showed over 50% of cash in the portfolio! Readers were shocked that I would hold so much cash in reserve - gimping my returns was a kind way a reader said it. Well, I'm glad that I had the cash!
The PRIMARY problem with the vast majority of stock investors is that they cannot differentiate between the meat and fat. What do I mean by this?
When the stock market is constantly RISING and all the news reports are BULLISH is the RISKIEST time to invest. The price of a stock in this environment has a lot of risk and excess built into it. This is akin to a steak that appears huge but is 10% meat and 90% fat!
But what do 'investors' do during this time? They buy! They pour as much money as they can into mutual funds in and outside of their company pension plans. Fund companies report record profits from fees and huge influxes of capital into their funds.
What did I do? I hoarded cash. I invested tiny amounts in the few opportunities that were available and when my company asked what I wanted to do with my pension contribution? Park it in CASH! Needless to say, many of my work colleagues in 2007 and 2008 said that I was 'crazy' and 'missing out'.
Steak that is 90% meat
When the stock market is constantly FALLING and all the news reports are BEARISH is the SAFEST time to invest. The price of a stock in this environment has had a lot of the risk and excess burned out. This is akin to a steak that may appear slightly smaller but is 90% meat and 10% fat!
| "At the end of 2008 and continuing into 2009 I have been having a spending spree! Almost all the cash that I had hoarded is being funneled into the stock market." |
But what do 'investors' do during this time? They sell! The pull out of their equity mutual funds, they hold off on investments into equities inside and outside of their company pensions until the future is more 'certain'. Fund companies report massive redemptions and profits from fees plummet.
This is time for a pro-tip: waiting until the future is more 'certain' is a waste of time. Why? Unless you're a soothsayer or fortuneteller, the future is never 'certain'. It never was; it never will be.
What did I do? At the end of 2008 and continuing into 2009 I have been having a spending spree! Almost all the cash that I had hoarded is being funneled into the stock market. The prices are so low that they're always giving away healthy companies for free! The DOW fell to the mid 6000s (from a high of 14000) and I was doing a little jig when reading the newspaper!
What did I buy? You can find out in the 2008 stock newsletter. Although I don't explicitly declare what I have bought, you can make a very good educated guess based on the last section of the article. I will reveal the specific purchases in 2009.
For those who are more interested in my month-to-month activities, you can email to ask about subscribing to my quarterly reports which will tell you more detail about what I'm thinking about, and more importantly, what I'm doing.
Best regards,
Jim Chuong
