When you look at the market now-there’s been three or four good years-and you look at history, chances are things aren’t going to be as good in the next three or four years. It just isn’t going to happen forever. But I thought last year was going to be a sort of break-even, dull market. It turned out to be a pretty good market so I guess I feel a little beaten up.
Business has already recovered and prices of stocks have gone up substantially. Maybe inflation will poke up its ugly head again. Also, the bond market isn’t quite as healthy.
They shouldn’t say, “I’m really bullish. Gee, the ‘market has been up, I’ll put it all in common stocks in the most speculative fund I can find.” Or, “Oh, I’m down 20 percent, I guess I better take everything out of stocks and put it in a money fund.” Well, somebody that does that is going to get themselves in trouble.
That’s the new religion. But sometimes bear markets can be very broad. Even the impregnable Japanese stock market reacted to the crash of 1987. Clearly, a lot of people will move money from one market to another, but I’m not sure they’re adept enough. It’s difficult because the number of markets where a great deal of capital can move are limited to what? Great Britain? France? Japan? America?
I really don’t want to go out on a limb on this because these markets are too eccentric. People are very high on Southeast Asia stocks. But those stocks are more volatile than American stocks. They’re just like small companies on the NASDAQ market here. When there is any kind of fear, the prices can drop very quickly. People should look at these stocks as being the high-risk part of their portfolio. Looking at it long term, it’s probably very attractive. Short term, there are risks. How much is the Hong Kong market down since the beginning of the year? Only 15 or 20 percent?
I think Greenspan did the right thing. The question i s whether he did it at the right time. Some might say he did it too soon. The rest of us might say he did it later than he should have. I would have been more likely to have criticized him for being too late, rather than too early. I think it has been evident for a while that business has turned around. Easy money is like pouring gasoline on fire. In the beginning it’s wonderful-it makes you warm. But if it starts burning the whole building down, you pay the price later on. But mind you, greater minds than I, with a lot more power, don’t agree.
There was no intent to manage the funds more aggressively. Look, we want to have as much freedom as we think is sensible. if you look over the years, you’ll find that we use new financial instruments, which were not in existence when our prospectuses were originally written. This change allows us to let our directors decide whether it makes sense. And if we have that flexibility we can make changes relatively fast. If we have to make ‘a change now, you might have to wait a year and a half I look at it as just normal year-in, year-out housekeeping and not really making any change in the way that the funds operate.
The changes were minor and in the future there will be more minor changes. We’re always training new fund managers and the first money that people invest is their own money. We think it’s a good way for people to learn. As long as they don’t spend a lot of time on their account and get in the way of the fund or take advantage of the fund’s buying power or selling pressure, we think it’s a perfectly fine practice. And I think if you look back over the history of the people who have been excellent fund managers, we’ve found that many of them have done a fair amount of personal investing.
Did you read that? Well, we have investments in what, more than 4,000 companies? That limits our time, but if we think that a company is clearly off in a wrong direction, we owe it to our shareholders to express our viewpoint. For instance, if the salaries keep going through the roof and the earnings keep going down, at some point in time you’ve got to say, “Hey, look, aren’t the rewards tied in some way into the kind of job management is doing?”
And I say if any CEO is foolish enough to do something on a short-term basis because a fund analyst tells him, he shouldn’t be managing that company.
I’m worried. I read some book recently where someone said that all you need is 20 years of success in any one company and it will spoil and destroy anyone.
I think you do it through who you promote and don’t promote. How do you treat people who are good politically but aren’t oriented toward increasing productivity? You do it through your reward structure, You have to go to the principle of keisan: measure, measure, measure.
You could almost run Fidelity if you read all the letters from our customers. You can find out what the heck is wrong with the company with no difficulty at all. Probably what disciplines us more than anything else is a good bear market. it’s a very tough, unpleasant discipline, but it’s good for us.
It does, yes. A lot of them have not seen a real bear market. They saw a three-day bear market in 1987.
Well, we all know that during the sluggish market between 1969 to 1982, most of the equity managers left the business. Times are tough in a bear market.
