Best time to invest is when public perception is lowest
And the time to invest is when public perception is lowest.
By
Timothy Lutts, Chief Investment Strategist and Editor of
Cabot Stock of the Month Report From Cabot Wealth Advisory 7/28/08
Sign up for free Cabot Wealth Advisory e-newsletterA Pew Research Center survey, released last week, revealed that 86% of Chinese are content with their country's direction. That's not only up from 48% in 2004; it's also 25 points higher than the next highest country, Australia. Furthermore, 82% of Chinese are happy with their national economy.
That's what you get when your economy is growing at a rate of 10.1%.
Their biggest worries? Inflation, followed by corruption among both public officials and business leaders.
Meanwhile, here in the U.S., only 20% of Americans are optimistic about their future, and both Congress and the president recently earned their worst approval ratings ever!
How can the Chinese be so happy, we ask, when their human rights policies are so backward?
How we can be so pessimistic, the Chinese ask, when we have so much?
In both cases, the answer lies not in where we are but in where we believe we are going.
The Chinese, noting how far they have come in recent years, and how far they are likely to go in the years ahead, cannot help but be optimistic. The future is bright, and credit for this, rightly or not, is ascribed to their leaders.
Human rights? That's our yardstick, not theirs. For them, the more important yardsticks are how much food is on the table, the state of their housing, their ability to buy a new bicycle, scooter or car, and the amount of their pay relative to the hours worked. For them, life is getting better all the time.
Here in the U.S., we are rich; there's no doubt about that. Our per capita income is about $42,000, eighth among developed nations, and behind a few select countries like Luxembourg, Qatar and Iceland. If wealth were all that mattered we'd be delirious. But we feel increasingly burdened by debt, and, more important--burdened by the growing realization that our rate of growth is inexorably slowing. For the first time, perhaps, there's a fear that our children's lives will not be as rich as our own.
So what are we to do?
Turbocharge our economy by ignoring individual human rights?
Convert to communism and elect leaders who operate as China's do?
Or, as Bobby McFerrin sang, "Don't worry, be happy"?
No, no and maybe.
There's no way we're going to backtrack on the progress we've made on individual rights. In the long run, we're on the right path. China will get there eventually.
Communism is a non-starter. Fact is, China is booming today because it has embraced capitalism.
And as for Bobby McFerrin's advice? Well, as I write this, I'm sitting in the Fort Lauderdale, Florida, airport, filling a few hours by writing this Cabot Wealth Advisory a couple of days before it's due. I'm healthy, my stomach is content, I've got my favorite tunes playing in my ears through my 3G iPhone, and my loving family at home awaits my return. I'm happy.
But I recognize that America as a whole has lot to complain about today, and does complain about a lot today, and because of this I have three pieces of advice.
The first is this: look on the bright side. Look beyond the headlines to find the good news. Be thankful that you are healthy, educated, well fed...and free.
The second is this: vote the bums out. If you agree with me that poor management by our elected officials is responsible for some of our national malaise, then dare to vote for someone who will manage differently.
The third is this: invest in American stocks now...or next month. The exact timing is unimportant, but the point is this. American stocks are cheap now; after a nine-month bear market, it's time for the new bull to be born. The fact that Americans feel so bad about their economy supports that conclusion!
The worst time to invest in a company or a country is when it is well loved, when it's at "The Point of Peak Perception." That's when it is most expensive!
For Sears, Roebuck and Co., this point came in 1973. Revenues and earnings kept growing for many more years, but the stock got no higher. The dividend was finally cut in 1993. For Polaroid as well, the "The Point of Peak Perception" came in 1973, 19 years before earnings peaked and long before it became evident that digital photography and stuck-in-the-mud management would kill the company.
At the time these stocks peaked they were widely loved; their managements were revered as geniuses, and expectations were that the good times would continue. But when everyone thinks alike, the market has a way of proving them wrong. After all investors have bought, the sellers eventually take control. After you're #1, there's only one way to go.
That's one reason the dollar, which you might view as a proxy for the value of the U.S., is down. It was previously perceived to be the most powerful currency on earth; in recent years its reputation has been in decline.
But I'm firmly convinced that the long-term trend of the U.S. economy—and thus the U.S. stock market—is still up, and that the market will reflect that by climbing out to new highs eventually. And the time to invest is when public perception is lowest! It seems to me we're pretty much there.
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