Want to Know a Secret? I'll Tell You in This Rare Moment of Total Candor ...
I'm going to speak to you for a moment precisely as I have to members of my family over the past few days. Candid. Frank. This is intended to illustrate how we feel so please do not take it as harsh or unfeeling because the whole point is to try to leave no ambiguity in our convictions on stocks. I'm saying this so that you understand how an emotional decision could set you back years, if not decades, in your life goals and retirement dreams.
Are you ready? Okay. Here we go.
Right now, if you panic and cash out of your 401(k), people like me and my shareholders are sitting, waiting, in the market with our cash and buying your stocks at 30, 40, or 50 cents on the dollar. We are buying the very assets that you are selling. In ten years, you will sit at home and whine about the wealthy on Wall Street and how the game is stacked against you, and wonder how we ended up with tens of millions of dollars in additional wealth. This is how. If you own good, quality, blue chip stocks, are reasonably diversified, and believe America will be stronger and better off in ten years, now is the time to get rich. Every time you sell shares, there is a buyer on the other end of that transaction. Depending upon the quality of your holdings (we are only interested in strong businesses with little bankruptcy risk), that buyer just might be one of my companies.
That doesn't mean stocks won't fall another 50 percent. That doesn't bother us. We are only concerned with building serious wealth for the future. Who the hell cares if your stocks are getting cheaper as long as the underlying businesses are generating tons of cash and you expect the value to be three, four, five or more times higher by 2018?
To give you an idea of one of the core holdings that I tend to freely discuss, my family and companies have invested huge amounts in shares of Berkshire Hathaway as they have fallen nearly 27% over the past year. I imagine Warren Buffett is doing cartwheels in Omaha at some of the prices he's seeing in the market. As a family, we are glad to have him deploying our portion of the $40 billion cash hoard he's built up over the past few years. We've already seen how he's gotten fantastic terms on the Goldman Sachs and General Electric deals, plus the Constellation Energy purchase of assets at $0.60 on dollar! You would have to be a complete and total idiot to think that Berkshire won't be generating far more money ten years hence. So if the shares fall by half - to $1,950 per Class B share and $58,500 per Class A share, my concern won't be the huge paper loss to my net worth. It will be getting my hands on millions of dollars in fresh, new cash to buy more.
The United States of America is the greatest wealth creating machine in the history of the world. Our system works. Whether you are an auto mechanic or a waitress, you have an opportunity to build your capital and enjoy wealth if you study how money compounds. I know first hand how great that system is because both my business partner and I were first generation college graduates that had to put ourselves through school and start with nothing in building our companies. We had no connections, no capital, and no help, but the American system was so amazing that it enabled us to achieve our dream very, very young. You deserve the same thing, but it is only possible if you are rational, focused, and disciplined.
Personally, if I were working for a company that offered retirement benefits, I'd have run down to the HR department a few days ago and bumped my 401(k) contribution to the maximum $15,500 or whatever was permitted by my employer. Given the volatility, I'd only invest in a low-cost S&P 500 index fund, but I'd be buying everything I could afford.
I’m no stock wiz, but in using common sense, with the stock market in the toilet, there HAS to be highly undervalued, publicly-traded companies out there whose stock price is next-to-nothing but have incredibly solid business models and attractive margins, among other things. That is a mix, IMHO, that is ripe for the taking. Am I wrong?
This guide assumes there hasn’t been a radical, fundamental change in the economic outlook for the US and Global economy. This is dead wrong! We are in totally new territory where none of our past experience is relevant. There’s a reason all stock offers say…
“Past performance is no guarantee of future results”
All past history is irrelevant in this new Global Economy and highly unregulated stock market. There are no cops on the street anymore to arrest the market manipulators!
Think I’m wrong? Then answer “When was the last time you saw a merger the SEC “Cops” didn’t like?”
The fundamental flaw in that logic, Russ, is that some businesses are not only not hurt by the damage, but actually thrive. If you owned a safe or vault company right now, for instance, your sales are exploding upwards of 40%, 50% or more. You are drowning in cash.
During the dot-com bubble, when I was writing about the stupidity of stock prices, there were readers that wrote the same thing: “past history is irrelevant”.
And then they wonder how, year in and year old, men like me and companies like mine end up with more and more money. The rich get richer because of knowledge and discipline.
In the past century, we’ve faced potential nuclear annihilation in the Cuban missile crisis, double digit inflation, gas lines, massive brokerage failures, the Great Depression, the panic of 1907, months-long stock market closures, about half a dozen wars, and a whole lot of other crap.
So, in five or ten years you can look back and wonder how the hell we ended up with your money. No matter how bad the world gets, people are not going to give up their Coca-Cola. Equity prices are nowhere near where they were in the Great Depression and yet, 1 share of Coke bought then with dividends reinvested for roughly $19 is now worth more than $5,000,000.
Thank you Mr. Kennon for telling us what you are telling your friends and family. I appreciate that you do not change whichever way the wind blows. I came across your writings earlier this year and I have looked forward to your views and opinions.
My wife and I are continuing to focus on getting that 6 month cushion as the majority percentage of where we are investing our money. However, it is difficult as I see good buys on good companies.
For those who tell me, “You will lose everything” or something similar, “You should have everything in cash right now”, I say if things get that bad, then even cash is not going to help me. I am investing in a company, not the price of the stock.
The value of my portfolio is not an indication of my skill, knowledge and determination to continue finding ways to enjoy life in spite of morons in government or greedy CEOs.
Mr. Kennon, please continue to tell it as you see it. It is very much appreciated.