Sent: Tuesday, May 19, 2009 5:39 PM
Subject: Global Market Update 5-19-09
Is virtue boring?
In Jane Austin’s Sense and Sensibility Marianne Dashwood falls for the debonair Mr. Willoughby, while the staid Colonel Brandon watches from the side. Eventually, the mercurial Willoughby breaks Marianne’s heart, and the patient Colonel Brandon helps her pick up the pieces of her life.
Austen’s point seems clear: sensible decisions often seem unimaginative and dull, while romantic adventure seems exciting. But with excitement can come risk, and often we would have been happier with the sensible choice.
Many investors have learned this lesson the hard way. First the dot-com bubble offered a whole new way of doing business, where profits didn’t seem to matter. After that went bust, the housing bubble promised ever-growing riches built on a rising tide of home equity. But home prices can’t outstrip household income forever, and that bubble burst. In investing as well as in relationships, value must be based on fundamental stability.
As the market readjusts, it’s timely to remember that stock prices ultimately depend on a company’s profits. At present, many great companies with rock-solid plans are selling at historically low values. The business may be boring, but in the long run, its stability and character are likely to make us happy.
Douglas Tengdin, CFA
Charter Trust Company