Hanging in there is tough, no doubt about it

October has been a brutal month.

I saw this crisis coming years ago, and my returns have benefited from that foresight, but this hasn’t kept me from feeling the pain.

I was feeling pretty good about myself at the end of September. Having beat the market by more 8% over the last two years and by more than 4% over the last three years (annualized, after fees), I was feeling pretty cocky.

But, that was before October. In October, my returns have paralleled the market’s path down. I haven’t enjoyed the ride, even if I started from a higher place.

This has been particularly frustrating because I’ve invested in some of the strongest companies around. You’d think the strongest businesses would be untouched, or much less touched, by recent turmoil.

That hasn’t been the case. When people are under a lot of pain, they do crazy things, like selling great companies at huge discounts to underlying value. Many of those investors were probably buying on margin. Some were hedge funds that were forced to sell long positions and cover short sales after the SEC banned shorting certain companies.

What’s been happening is the usual capitulation you tend to see when markets are bottoming. People are under so much pain that they’re selling everything, regardless of the price they’re getting.

This isn’t fun for a value investor like me because I hate to see my clients’ money or my own money decline in value. I work hard to be sheltered by the storm, even though I know some markets are so brutal that everything goes down.

What’s a person to do? I’m on a buying spree.

I’m taking the opportunity to sell strong performers and buy poorly performing great companies. I’m finding some absolutely astounding bargains and, most likely, boosting future returns. And, although it’s no fun to see the market and portfolios go down dramatically, I’m having a lot of fun putting things in place to benefit when the market does recover.

When will the market recover? No one knows. The market could go down by another 33% to hit historical lows reached in the past, or it could rally by 67% (a 40% decline requires a 67% increase to get back to break even) as it’s also done in the past.

You don’t need to be a fortune teller or have a crystal ball to make money from here, you just need the gut wrenching fortitude to buy great companies at great prices–now. As long as you believe our economy won’t permanently collapse, this is a great time to invest.

Although it’s no fun to live through, I’m quite confident that buying at times like this make for very high long term returns in the future.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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