"Hey Tom, how was your holiday? The weather's been great – skiing conditions must have been calm?"
"Oh Ralphie, it was amazing. Two weeks of Crystal Lake at its best. I'm totally decompressed. But what about you man? You're looking pretty ragged."
"Yeah, I'm ready for a vacation. Work has been tough and the markets have got me spooked. You're a market guy. What do you think about all this doom and gloom?"
"Well, Ralphie, I've been reading this book, The Rational Optimist [by Matt Ridley] so most of what I'm seeing is pretty positive. Our business has been better with me away. I'm skiing well. My Blue Bombers are 4 and 1. That Canadian kid made a great run at winning the Canadian Open. What else? The Ontario corn has been great. And …"
"No, no, I'm talking about the debt crisis in Washington and what's going on, or not going on, in Europe. The U.S. is such a screw-up. They're going to bring us all down."
"Oh, that. Well, we talked about it last summer, and I think the one before that. The debt crisis is a rolling tour and will go for years. It will rotate from country to country to state to county to city to company. Someone will be selling T-shirts at every stop. Fortunately each mini-crisis stimulates much-needed political action. You might as well get used to it, Ralphie, because the Western world has too much debt and is still spending beyond its means. We need to look at each situation differently, though. The media is quick to lump each one into the same category, which is wrong. Greece's ability to dig itself out is far different than that of Spain or Ireland, or the U.S. for that matter. Personally, I'm not crying any tears for poor penniless California."
"That Rosenberg guy that writes in your paper, he's a beauty. He's really worried about the economy. Aren't you?"
"David looks like he's going to be right and certainly has lots of company now. So yes, I'm worried. But I'm not sure we agree on how his scenario will impact client portfolios. For sure, profit growth will be slower going forward, but the companies we own are the antithesis of government. They've got strong cash flows, little or no debt and are growing their dividends. They'll be able to take advantage of a sluggish economy. And for most of them, modest forecasts are baked into the valuations. This isn't a euphoric market that's out of touch with reality like 1999 or 2007."
"Tom, are you out of touch? Haven't you noticed that the TSX is down double digits since April? Did you see how ugly it was this week? I really wonder whether I should be in the market at all."
"Not out of touch, Ralphie, just steady. It would've been nice to own no stocks over the last few months, but you can't get that cute. You were really concerned last summer too, and the fund you have with us is up over 10 per cent since then, even after a tsunami, revolutions in northern Africa, a Gong Show in Washington and the latest market drop. If you want to tilt the portfolio away from your long-term strategy, that's fine, but don't be trying to get in and out of the market. Especially at extremes like now. I can't tell you how many people I've talked to who missed the whole recovery because they were spooked by the headlines."
"I don't know Tom. I find the market declines hard to take."
"Ralphie, listen to me. You're 20 years younger than I am, or so you keep reminding me, and you're going to be adding to your portfolio for a long time. When prices on good assets go down, as they are now, it's a good thing. You should be pumped. You can spend less money and get more shares today than you could in April. I know you have some cash on the sidelines. It's time to start thinking about what you're going to buy with it. Let's talk about it after you've been off-line for a couple of weeks. In the meantime, do you want to borrow my book for your holiday?"
Tom Bradley