A Reminder That Time May Lag, Yet Value Ultimately Wins Out

Something I forgot to mention in my previous post about Tim McElvaine is him quoting Chris Davis' grandfather, founder of the Davis Select Funds:

"You make most of your money during a bear market; you just don't realize it at the time."

That should certainly strike a chord in you and me. As McElvaine says in the same June 30 letter to partners, "we make our money on the purchase." I've heard real estate investors say something similar -- "I make my money on the purchase, not the sale."

Now, as McElvaine writes -- and virtually every value investor knows these days -- just because you buy a stock at a good price doesn't mean it won't be selling for a great (read: lower) price after you own it. The risk is that maybe you misjudged the price and the margin of safety. But if not, this is where we separate the men from the boys (and I should add the women from the girls). We invest with conviction and weather the headwinds. If we're right, the value ultimately gets realized by the market and we've scored a winning investment.

Over time, that is.

Time can move painfully slow. That's always been the case in testing the patience of investors. And the Internet just multiples that effect many times over. Gone are the days when an investor waited to check stock prices in the tables in the morning paper. And looked at their brokerage statement arriving in their mailbox once a month.

Now you can check stock quotes constantly, look at your brokerage account online and trade it anytime you want, and even sign up for news updates about any stock to be emailed to you as they happen.

Don't get me wrong, I love all that stuff. I do try to stay away from it all except for at most a couple times a day (it's part of my personal approach to time management). But sometimes a news event will happen and it later seems like it occurred a month ago -- then I discover it actually happened last week. As in a few days ago. So I think we can count on the Internet to make riding out this Bear with patience a more trying task. At least for me.

I was reminded on value investors being early on things when reading Jonathan Davis' (no relation to Chris Davis as far as I know) appreciation of John Templeton in the Financial Times the other day:

Many widely held opinions about Mr Templeton’s investment record turn out to have been oversimplifications. For example, while he is famous for buying into the Japanese stock market in the 1960s when no other investors would touch it, less well known is that he sold out many years before the Tokyo market peaked in 1989 – a decision that caused him a lot of soul-searching thereafter.

And this bit about meeting Sir John 5 years ago:

When Mr Nairn and I visited him in his office in the Bahamas in June 2003, for example, he deflected our questions about the stock market to tell us that his major concern was the emerging “bubble” in real estate. “In most nations in the world, real estate prices are way above the cost of reproducing the building, and that’s dangerous. This is a very big bubble because the amount of money in real estate is several times as big as it is in stocks.”

Several years can seem like several lifetimes, especially in the Internet Age. Yet they're just a blink of an eye in history and markets.

Comments

[hopton]

Great post... really important stuff.

[John]

Thanks, hopton!