"One of the fundamental truths that the market fails to grasp is that the lower valuations go, and the cheaper these assets become, the lower the risk of loss over the intermediate term. In fact, the period in which the risk of loss is greatest is during those euphoria periods when valuations are high (significant valuation downside), sentiment is positive (and can only get worse), and the future seems bright (the future is far more uncertain than the market understands)."
Annual Report, December 31, 2015
T. Rowe Price Capital Appreciation Fund
http://individual.troweprice.com/gcFiles/pdf/arcaf.pdf(uncovered wading through a bunch of (print) fund reports I had intended to read earlier )
Comments
Very true. People freak out during market drops, but longer-term, that's the best time to buy, and on a purely capital appreciation basis, indeed, the downside risks are lower then than at any other time -- unless the stock goes lower, obviously. But if you like something at 50 and nothing's fundamentally changed with it since you bought it, then you should love it at 30, and buy even more.
Just received the Bruce Fund's End of Year Report and their management analysis included this:
"We believe that the worldwide economy remains fragile, and is likely to produce
slower activity. With lackluster growth and excessive leverage, the risks are to the
downside and we feel caution is warranted. Lower commodity prices along with slower
growth will likely dampen future investment activity, and thus a more conservative
posture is also warranted.
A few statements attributed to Abraham Lincoln are especially true today as they
relate to the current economic situation:
You cannot bring about prosperity by discouraging thrift.
You cannot establish sound security on borrowed money.
You cannot keep out of trouble by spending more than you earn.
Management continues to screen investment opportunities for their long-term
capital appreciation potential versus the risks that investment might present. Areas of
recent interest have been utility stocks, U.S. treasury bonds, larger capitalization and
dividend paying stocks. The bonds as well as the stocks in the portfolio encompass
significant investment risks."
thebrucefund.com/files/documents/Bruce123115SemiAnnual.pdf
Very interesting. Yep - Those end of year reports seem to arrive very late. I find I digest them better in the print format for whatever reason. Might be because I'm inclined to flip back & forth between different sections.
Curiously, the PRWCX report (linked) was dated 12/31/15 and yet contained reference to the downturn in January '16. My take was that Giroux was "jumping with joy" at the stock sell-off and contemplating putting some of the fund's 15% cash to work.
On another note, Giroux was overweighting junk bonds, which he viewed as a good value (top tier stuff), but the managers of RPSIX were at the same time underweighting junk, which they saw as risky due to the oil implosion. I can only conjecture that the disparity has to do with time horizons. PRWCX may be looking farther out.
Closing: I feel I learn a lot from reading all these different views, though in terms of actionable advice (if that's what one wants) it's always a mixed bag.
Bruce's fund and website reminds me of that simplicity.
For those too young to remember: http://articles.sun-sentinel.com/1985-04-13/news/8501140217_1_james-alderdice-william-alderdice-sentence
In fact, he calls it: "one of the fundamental truths that the market fails to grasp".
Congratulations to you for understanding how simple the concept really is.