Enterprising Investor Forum

Keep your powder dry Tuesday, March 18, 2008

Markets are still experiencing a great deal of uncertainty. Unless you have a 3-5 year investment horizon and can stomach short term volatility, we recommend that you wait for clear signs of stability and turn around.

As you can see in the graph , markets have been steadily moving to the downside and despite many people feeling that we are heading for a disaster, recent activity has meant that value investors have been in a position to slowly accumulate shares of great companies at very reasonable prices.

In a recent article in Barron’s, Bruce Berkowitz talks about running a very concentrated portfolio where you keep on focusing on your best ideas. What we really liked, is that when asked about risk and difficult market conditions, he stated that he considers risk to be the chance of permanent loss of capital and not volatility.Volatile markets conditions simply imply more opportunity.

Focus on fundamentals, take a long-term view and stay away from financials or any speculative plays. There are simply too many quality stocks out there trading a very distressed prices to justify taking unjustified risks on the financial industry. As we saw with Bear, even great CEOs do not know what the extent of the damage is.

Make sure to follow the Fed announcement today as it will be interesting to see what the accompanying statements say about the future outlook and the current economic climate.