1) On the 25th anniversary of one of the darkest days in American history, I can't help but look back at what I wrote to the investors in my hedge fund in my September 2001 monthly letter...
You can read the full letter here. Today, I'll share some excerpts – and a big lesson that still rings true today.
As I started the letter...
It is with a heavy heart that I write to you in the aftermath of the September 11th tragedy. Our world has been shaken by acts of terrible destruction. I grieve for those who suffered personal losses in the attacks and extend my deepest sympathy.
I then shared my thoughts on the attacks and the implications for investors:
Terrorists have attacked our country, killing thousands. We are at war with an amorphous enemy. The economy is slowing, more than 100,000 people have suddenly been laid off, and we may already be in a recession.
Stocks have performed dreadfully: The Standard & Poor's 500 Index has declined in five of the past six quarters, the Dow Jones Industrial Average last month had its worst week since 1933 and just concluded its worst quarter in 14 years, and the Nasdaq Composite Index had its second-worst quarter ever.
As I continued, "difficult, uncertain times like these trigger irrational behavior"...
Numerous studies have shown that human beings are prone to making the mistake of projecting the past indefinitely into the future – better known as driving while looking in the rear-view mirror.
A related phenomenon is that people are likely to overweight both recent as well as dramatic events when making decisions. Given the enormously shocking and tragic events of last month, it's not surprising that many Americans are panicking, convinced that similarly devastating attacks are likely in the future.
The anthrax scare has only exacerbated these fears, while the media adds fuel to the fire. It doesn't make very good copy to interview someone who says, "I think an event like this is unlikely to be repeated soon, and so I am continuing to live my life as usual." And what politician or bureaucrat would express similar feelings, thereby risking ridicule and job loss should another attack occur?
Longtime readers know that I'm both a contrarian and an optimist. I said as much back then in my letter back then. And in it, I quoted a point of view from my friend and fellow money manager, Chris Stavrou, in his own letter to his investors:
To me, the September 11 terrorist attack looks like a once-in-a-generation super attack, not the start of many similar attacks. The attack took years of planning. It depended almost entirely on the all-important element of surprise. They had to catch us asleep. Since September 11, U.S. vigilance and security measures have skyrocketed. We are on the alert and are likely to remain so for years... 19 terrorists – on a 3rd class budget and led from a country with a Gross Domestic Product of $20 billion – just inflicted $40 billion of damage on a country with a $10 trillion GDP. Now there are 275 million angry Americans looking for the people responsible.
You won't be surprised to hear that I shared Chris' contrarian view. As I continued in my letter:
I've heard a lot of talk from investors and investment commentators that everything in the markets is different now. Perhaps for those who were speculating or counting on a quick economic recovery, but not for me. Before September 11th, I focused my energies on buying good companies at very low prices, and that's exactly what I'm doing today.
I also quoted Warren Buffett, who had an interview recently published in Fortune at the time. As always, I think Buffett put it well:
Whatever you thought about the stock market before the attack on the World Trade Center is what you should be thinking today. I don't have any feeling that this will cause the market to behave much differently from how it would have behaved without this disaster. It's a market that has been through a bubble. If you think the market was too high to start with, that's what you should still be rationally thinking. What happened doesn't change the productivity of the American worker. It doesn't change my feeling about what to pay for a business that I've been negotiating to buy.
And as Buffett later added, "There's nothing dumber than betting against America. It hasn't worked since 1776." (Longtime readers will also be familiar with my advice to not bet against our country!)
As I noted in my letter, I shared Buffett's feelings. And I said that I had been "more and more eagerly buying as prices have fallen (though I still think stocks in general are richly priced)."
Moving on, I shared thoughts about information – and lack thereof:
Many investors are spending a great deal of time trying to predict the impact of the terrorist attacks – both financially and psychologically – on our country, gauge the odds of success of the war effort against them, and determine the chances of and methods for future attacks. As a concerned citizen, I am thinking about these topics and feel some degree of worry, but as an investor I'm not spending much time on them.
Given the importance of these issues, I acknowledged that this might seem counterintuitive. So as I explained:
I focus my time gathering and analyzing information that is both important and knowable. Some information is important, but not knowable – at least to any degree that would be useful. For example, I'd like to know whether there will be any more crippling terrorist attacks or what interest rates will be next year – and there are plenty of "experts" to offer opinions on these matters – but I view them as essentially unknowable. Other information is knowable, but unimportant. I'm sure I'll catch some flak for using this example, but in my opinion technical analysis – trying to divine future stock price movements by studying past stock price movements – is rubbish. I've never seen any evidence to the contrary, yet many people spend countless hours poring over stock charts.
One might argue that the things I focus on – Are a company's competitive advantages robust and sustainable? Is management competent and shareholder oriented? What will future free cash flows be? – are impossible to know for certain. True enough, but in some cases reasonable estimates can be made and, if the stock is cheap enough, there is enough margin of safety to buy.
After discussing a few of my fund's holdings – including Berkshire Hathaway (BRK-B) – I concluded:
America has fought and won many wars in the past. It will do so again. The economy has gone through many recessions and recovered each time. It will do so again. Patient, sensible investors with the courage to invest during uncertain times have been rewarded in the past. They will be again.
As I re-read this a quarter century later, I wouldn't change a word.
The main lesson is that the headlines are always filled with bad news: tariff wars, shooting wars, political turmoil/setbacks, etc. And sometimes, we experience sudden, shocking, and heart-wrenching events.
But to be a successful long-term investor, you must be able to set aside your emotions and make decisions dispassionately.
My experience is that, most of the time, the right answer is to do nothing because the market has already incorporated the bad news into stock prices.
But sometimes, the market overreacts – which creates fabulous buying opportunities (like October 2002, March 2009, March 2020, and November 2022).
And every so often – maybe only once a decade – the market fails to see a looming calamity (like the run-up and initial phases of the global financial crisis from 2006 to 2008). As I've said previously, these are the times when you want to get defensive.
2) On Monday, I took my cousin's son, Brice (who was visiting New York City for the first time), to the National 9/11 Memorial & Museum. Here's a picture of us:
I highly recommend spending a couple of hours at the underground museum – it's exceptionally powerful and well done.
I also recommend watching this insightful two-minute video simulation of the collapse of the South Tower and this beautiful 46-second video tribute of 2,977 drones (one light for every life lost) outlining the two towers.
Best regards,
Whitney
P.S. In case you missed it, make sure to catch my latest presentation...
Earlier this week, I went on camera to discuss exactly where your money needs to be for the next phase of this market, which is going to blindside a lot of people. In fact, it's just like we saw at the end of the dot-com bubble.
It's centered around a tiny group of stocks no one is looking at – which are poised for huge upside for years to come.
My presentation is completely free to watch – check it out here.
P.P.S. I welcome your feedback – send me an e-mail by clicking here.