In June of 2013, I penned an article for GuruFocus and mentioned that upon my move to Texas how perplexed I was by the highway signs that saids “Various Lanes Closed Ahead.” It would seem problematic for even the most experienced driver because there was no way to really prepare for what was up ahead. The left lanes might be closed or the right lanes might be closed, but it left the driver with no clear sign on how they might prepare for the unknow before them.
At the time of the article I was rather pessimistic about the situation of that current stock market and was attempting to relate the unknown situation and signs on the highway with how we might be reading the signs of caution ahead for the volatile market.
Sir John Templeton’s famous quote headlined the article: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”
Fortunately, many of us do learn some lessons. I may still be rather pessimistic five years later on the current market, but I’m still in the market. My portfolio has changed some, but not drastically, and I hope I’m wiser for sitting mostly still.
Two weeks ago, I was on my way to pick up my daughter on the very same highway that I wrote about nearly five years ago, when several red tail lights started to appear suddenly ahead of me. There was a lighted sign above the highway that stated clearly, “All Lanes Closed Ahead.” There was another sign placed to the center of the highway with the same message, “All Lanes Closed Ahead.” Because the trip involved my daughter, I had decided to leave early. I wasn’t particularly worried about the sudden traffic blockage with the full knowledge that we would all be routed off one of the next two exits. I knew I would have plenty of time and I knew my way around.
While I was sitting still in traffic, my original article came to mind. Then I began to look at the drivers as investors and made several observations.
First, I realized that in spite of the obvious anxiety of many of the people surrounding me, I was comfortable with the situation. In a center lane, I wasn’t in a panic to force my vehicle to the far right to exit. It would happen naturally with the flow of things. That comes with experience. Ah, Warren Buffett (Trades, Portfolio)!
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” --Â Warren Buffett (Trades, Portfolio)
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” --Â Warren Buffett (Trades, Portfolio)
Buffett had taught me to carefully pick the best stocks that I can and unless I realize something has drastically changed in the story or I’ve missed something -- sit still. I did learn the lesson. I was sitting and there was no sense of panic or apprehension.
What were the other investors on the highway doing? Well, most were heading toward the exit like a herd. Honking, gesturing with fingers, forcing their vehicles into spaces that Einstein might have had to rewrite a new law of physics on. It was full on panic. They really could not go anywhere. That many cars onto an offramp with a traffic signal along a service road is very slow to say the least. This is how I picture the market at a big crash. It wasn’t pretty.
Then there were some who were running out of room as the lanes merged, and those investors weren’t about to let anyone get in front of them. Those are the ones that just know better than you. Get behind them because you were too slow and they will show you how it’s done. They actually would not look at you. They looked straight ahead to force their car in but wouldn’t make eye contact. No thanks. Just move.
Believe it or not, there were some that were actually moving into the “fast lane” because many were moving to the right. Presumably, they thought they could squeeze some more profits or another quarter mile before they were forced to leave the highway. These are the ones that ignore all the signs and take all the risks.
I’ve been reading signs for those five years and longer. When I wrote the original article, I mentioned that gurus John Hussman (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) were every bit as pessimistic as I was, if not more so. We still need to be watching signs. We still need to observe the signs. We need to be cautious. If I had left the market five years ago, I would have been much poorer.
I would be interested to know how some of you cope with the gloomy reports that you read about and the low predicted returns ahead. How do you read the signs?
I usually have a lighthearted approach to everything. I started collecting social security this year. I realized that the first “sign” of getting old is when you see a silver alert sign on the highway and you look to see if it’s you. If it’s not -- all is well.
