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There are four other bubbles also deserving of attention, according to America’s Bubble Economy: a stock-market bubble, a foreigner-supported-dollar bubble, a consumer-debt bubble and a U.S.-debt bubble. When the five collide in a “bubblequake”…
“Cooper’s most novel doctrine is that investors do not have to be irrational to generate bubbles.” - Financial Times
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April 8, 2009 Abandon all hope, ye who enter here.
- At one of the most painful moments in the country’s financial history, Floyd B. Odlum was saying “I believe there’s a better chance to make money now than ever before.”
- Odlum’s big idea was to buy dollar bills for 50¢.
A fitting title as we begin Mar. 2009. Equity markets have been down six straight months. The Dow Jones was down 15 of the last 17 weeks.
There is a very strong tendency for people to exaggerate the importance of recent events and recent performance. It is human nature. You turn on the t.v., read a paper and whatever is on seems more important at the time than in retrospect. Probably the greatest mistake in investing is exaggerating the importance of, and extrapolating, what happened lately. What has happened over the last 3 and six months has substantially changed the psychology of a lot of people in the direction of betting these recent conditions will continue.
Floyd B. Odlum made a fortune in the Great Depression
So, I’d like to introduce you to Floyd B. Odlum, who died in 1976. He was an investor by profession, CEO of Atlas corp. Functionally he was an opportunist. He made a fortune in the Great Depression by buying up the deeply discounted shares of publicly traded investment trusts, the toxic assets of his day. We can have no finer role model in this, our Great Recession.
None of us can know the future, but like Odlum, we can make the best of a sometimes unappetizing present.
Let us travel back in time to 1930, the first time full year of the great slump. Nobody knew there would be a second such year, let alone a third. They were as much in the dark about the future as we are. In August 1933, the New Yorker magazine ran a profile of Odlum. “His cheerful behavior during this period was a recurring source of wonder and irritation to his friends.”
At one of the most painful moments in the country’s financial history, he was saying “I believe there’s a better chance to make money now than ever before.” As investors we are always so conflicted. We seek out bargains at the mall but shun them with our investment dollars. We loved internet stocks in 1999 at sky high prices, then hated them at $2 per share. Long term U.S. bonds are snapped up today at 3% yields but despised at 14% and more in the early 1980’s.
Odlum’s big idea was to buy dollar bills for 50¢.
Buying Dollar Bills for Fifty Cents
Great investors, world class opportunists, adapt to the times. What makes Odlum a guide and beacon for 2009 is that he saw across the valley of despair. Quoting from a Fortune magazine article about him from 1935: “He has no great faith in the immediate future of the market, whereas he was willing to bet his fortune on the market’s eventual future.” Odlum was bullish on America, as many of us are and should be. But he put money at risk only when the odds seemed right – when the investment has a price tag low enough to afford a margin of safety.
The silver lining of the Great Depression was of course, the prevalence of low price tags. Thankfully, to a lesser degree, it is the silver lining of our Great Recession.
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