What should long-duration common stock owners like us do with the news of the horrific flood in Texas, the Category 5 hurricane in the Caribbean, the heightened tensions created by North Korea’s Dictator, Kim Jong-un, and the 8.1 magnitude earthquake in Southern Mexico? What is wise behavior in a more volatile stock market environment created by outside events? More than 30 years in the industry have taught us that outside events come and go, but patience matters. Just look at the similarities with Billy Joel’s 1989 hit “We Didn’t Start the Fire.”1 The song named 100 major people, political and economic events in the first 40 years of his life. As you can see, it is interesting how the same subjects continue to pop up in the 38 years since the song hit the top of the Billboard charts.
Doris Day, Red China, Johnnie Ray
South Pacific, Walter Winchell, Joe DiMaggio
Joe McCarthy, Richard Nixon, Studebaker, television
North Korea, South Korea, Marilyn Monroe
If Joel rewrote the song, he would add Saddam Hussein, the leader of Iraq, who led the invasion of Kuwait, its neighbor from the south in 1990. It was an unprovoked violation of the sovereignty of another nation. Investors were mesmerized by the ramifications and the market fell around 20% from early August to late October. Oil prices spiked to $40 per barrel from the low $20s and the U.S. economy came to a grinding halt.
We didn’t start the fire
It was always burning
Since the world’s been turning
We didn’t start the fire
No we didn’t light it
But we tried to fight it
All of this came at the tail end of a big washout in financial institutions like banks and savings & loans. Defaults on foreign debts from Brazil and other emerging nations had crippled major money center banks and pummeled their stock prices. In late October of 1990, I was in New York meeting with a group of research analysts and investment product specialists at Smith Barney. Virtually every single person referenced their opinions by stating, “all bets are off if a major money center bank goes out of business.” The “B” word (bankruptcy) was music to my contrarian ears because John Neff, Vanguard Windsor’s lead portfolio manager, and John Templeton, the dean of mutual fund stock pickers, were raving about the bargains in financial stocks. Remember, Charlie Munger says that plagiarism is totally acceptable in investing!
