Tuesday, March 05, 2013

the wild circus

Value investing ultimately wins, but in the process it passes through a wild circus of lunacy.
-- Ron Suskind

January 2013 has gone down in the books as having the highest levels of inflows into U.S. equity mutual funds since March 2000, the dying days of the dot-com bubble. The week ended Jan. 11 alone saw net inflows into funds of $8.9 billion -- the fourth-largest amount ever recorded, according to B of A Merrill Lynch Global Investment Strategy, EPFR Global, and Lipper FMI. This, of course, came right on the heels of the legislative agreement to avoid the fiscal cliff that solved the most recent in a too-long series of macroeconomic crises that threatened the global economy.

Well, consider us saved -- at least for a few months.

Take a look at that opening paragraph again and consider the implications. The last time so much money came pouring into stocks (using stock mutual funds as a reasonable proxy), valuations were really, really high. About that time, Warren Buffett said stocks were so richly priced that he expected the overall market returns for the decade to be in the low single digits. For this, and for his unwillingness to buy into the "New Economy" companies, Buffett was derided as having lost his touch. The scoreboard suggests otherwise.

It's my observation that intelligence and analytical firepower are less important for long-term investing success than simply having the confidence to invest when others are fearful. Those who bought in March 2000 have, on average, suffered more than a decade's worth of negative returns.

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