Hello David

I hope that you are keeping well.

I am looking forward to your seminal or is it secular review of stock markets as it continues?

In this regard, I would be grateful for any comments on the attached articles on companies which seem to me to share many characteristics of the autonomies or are indeed part of that grouping. I know that you are blessed with uncanny intuition which might, just, enable you to guess which fund group sent them to me.

Having regard to your recent comments about value managers turning bearish too early, do you have any thoughts as to whether you continue to prefer autonomies & other ‘high quality’ shares or value plays (other than late cycle commodities/resources which you often mention)?

Wishing you all the very best

David Fuller's view

Thanks for this interesting email and I look forward to seeing you at our next Markets Now on 10^th October.

Thanks also for forwarding these two articles by Terry Smith, who is always interesting in my opinion.  However, with no disrespect to Charlie Munger, Warren Buffett or Terry Smith, it is easier to talk intelligently about stock markets than it is to invest equally successfully.  That is because the market is often a manic / depressive mob, although it can also be an orderly crowd, depending on events.  In other words, it includes all of us and even at our most disciplined, it is hard to behave as a calm individual in a crowd, let alone a mob.  As Walt Kelly’s Pogo said in another context: “We have met the enemy and he is us.”

For instance, we become more emotional in crowds.  Additionally, even the most analytical of us can easily succumb to group think in a mob.  It is human nature.  For instance, if people in front of us in the crowd suddenly become frightened and start running back towards us, are we likely to observe them calmly, or will our survival instinct kick in and cause us to run as well?  Also, if a section of the crowd is suddenly excited and interested in something we cannot yet see, are we likely to ignore the commotion or go and have a look ourselves?  If they are suddenly buying in a section of the big dealing room, are we more likely to ignore them or ask what is going on?  

Highly experienced and successful Munger, Buffett and Smith are not sitting in large dealing rooms but their carefully constructed portfolios will be affected by what is going on elsewhere in the emotional market.  There are also events, plenty of them, which create both havoc and opportunity. 

The safest time in the stock market is right after a major bear market crash, because everything is cheaper.  Nevertheless, there will be plenty of Cassandras predicting that another, perhaps even bigger downward leg is inevitable. 

Today, Wall Street is expensive; earnings have been flat, on average, for five or six quarters, but shares are still benefitting from low interest rates and abundant liquidity.  I think risks are increasing but the hugely influential US stock market remains near its highs on most indices, led by Autonomies.  However, Transports have yet to follow the DJIA and S&P 500 to new highs for the year, so Dow Theory has not confirmed further upside scope for the broader market. 

See also: Is the Value Premium Disappearing, by Ben Carlson for A Wealth of Common Sense.