Sunday, September 18, 2011

From Sir John Templeton: Thoughts for the Frustrated Investor

From the early 1980s through late 2007, investors benefited from an "equity friendly" market but the current era requires a new playbook. The late Sir John Templeton, a pragmatic value investor who predicted the U.S. housing crisis and focused on buying stocks at the level of maximum pessimism, had a very insightful observation:
“The stock market is broken, and it will take some time, maybe years, to repair it. Mass media, especially TV today is so short-term that few in its audience grasp the lasting damage and corrective impact which will continue to linger from the greatest financial crash in world history." 
He liked government bonds in countries with no trade or fiscal deficits and a high savings rate and he had a bias toward industrial stocks.

MY TAKE

  • While Sir John would not like the current investment landscape, he would understand it.
  • Today’s high-speed trading environment quickly reacts to changes in news flow, price direction and sentiment.
  • On Friday’s market close, the risk monitor moved to “risk on” for equities in several markets including Brazil, Canada, Finland, India, Mexico, Portugal, South Africa, Taiwan, Turkey, U.K. and the U.S. But investors should note that: 1) small and midcap stocks are weaker on a relative basis, 2) U.S. and European credit markets, while improving, remain under stress and 3) prices for copper, gold and other metals are weak. 
  • Bottom line: An improving but mixed picture, with an upward bias for equities in selected markets.

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