Some Wise Words from Park Avenue ...

As many of my readers know, I'm a big fan of Tweedy, Browne & Company. The Park Avenue value-investing powerhouse started as a brokerage firm serving Benjamin Graham, and later Warren Buffett, before becoming a full-fledged money manager for the wealthy as well as advisor to a small family of high quality mutual funds.

Today, as I sit in the chilly Midwestern air, with the window to my office open, reading past archives of their shareholder letters, I came across a fantastic section detailing their advice for investing during times of disaster or market crashes. It can make all of you very wiser, more patient, and wealthier. Here's what they said ...

The time to prepare for a disaster is not after it has occurred, but before it happens. We adhere to a few simple rules which we believe, perhaps naively, permit us to survive unforeseen crises:

1. Never borrow money to buy stocks. Borrowing to buy stocks means you are yielding part of the power to decide when to sell to someone else. That someone, most likely a bank, may panic far sooner than you would.
2. Do not invest money you know you will need in the foreseeable future. Your need for such monies may force you to sell stocks at an inopportune time and, thus, lock in what may be temporary stock market declines.
3. Avoid stocks where there is no connection between market price and underlying value. Examples of these would be the dot.com stocks and technology issues of a few years ago whose share prices were more a function of the fact that they had been rising because of "price momentum" than any historically proven earning power. When panic ensues and general stock market enthusiasm disappears, these are often the first issues to plummet. Waiting for them to their old highs may be a triumph of hope over reality.

The firm offers a compilation of letters, research reports, and other materials that they've put together over the years, and I highly, highly recommend you get your hands on a copy. They have a lot of valuable things to add to the discussion on Wall Street and, if more investors took heed, I suspect there would be far less financial ruin in the world.