What we said in our fund newsletters over the years …
2008 – 2009
When stock prices go down and stay down, we fund managers tend to get as depressed as the shoe shine boy at the street corner.
At Yeoman we recognize that manic depressive streak we all have and counter it by going back to the financial statements. We check and recheck the balance sheets, cash flow and income statements of our holdings each time these are released, when the markets are down but also when the markets are up, to make sure that the investment case is intact especially to confirm that there is no impairment in the balance sheets.
Stung by sharp losses on the equity and other financial markets worldwide, investors are sitting in a shell-shocked heap and looking at the future in the most pessimistic and morose way. Considering all that they have gone through in the year past and the numbing barrage of negative news day after day in the media, we do not blame them for feeling like that. Indeed it is in normal human behavioural psychology to put excessive emphasis on the most recent occurrences and tune out the larger perspectives. Objectivity is another casualty in the face of crisis.
We will not join in their sad refrain however, for we seem to be singing from a different score sheet.
According to report, a survey by an external service provider using Federal Reserve data has found that cash levels held by investors in various types of accounts today stands at around 74% of the US market capitalization, the highest level since 1990. In contrast, the cash weight in our Fund at end Dec08 was 0.19% also based on market cap. This seems to be consistent with the spot survey that we ourselves made which we reported in our Nov08 newsletter.
Recognizing the relative merits of owning stocks vs. holding cash such as what we have described above, once sentiment improves and fear fades where do you think the cash will go? Why, back into stocks of course!
If we had known the unravelling that was to take place in the first 9 months of 2008, would we have acted any differently? Probably not. Our stated investment process which is also embedded in our fund memorandum states clearly that performance attribution for us is through securities selection and portfolio construction, not market timing.
Why not market timing? Because it is impossible for us mortals to know the future which makes market timing impossible to implement except on hindsight, which makes it (by definition) impossible to implement especially over a long time horizon and repeatedly.
As a matter of stated process, we invest through all market cycles as we have done in the last 11 years with outcome as presented on page 1 of this newsletter.