Why bad news is the best news for investors

Dozens of fund managers and strategists say Americans ought to get in touch with their greedy side.

By TheStreet Staff Nov 7, 2011 12:22PM

By Robert Holmes, TheStreet



With no solution in sight for Europe and economic growth slowing in emerging markets and here at home, investors will have to find a new way to generate gains.


Thankfully, dozens of fund managers and strategists meeting together last week in San Francisco at Schwab's annual investor conference offered an in-depth view of their plans and advice to clients.


The investment managers don't see eye to eye. After one portfolio manager said he expects a soft landing for China's booming economy, the next strategist asserted China will slow drastically. As one person talks up corporate debt of emerging-market companies, someone else touts the attractiveness of U.S. blue-chip stocks.

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Even though investors at home are uncertain about the future, investment professionals understand that the capital markets offer some long-term attractive opportunities now. Investors who have been fleeing from equities, bonds and commodities need only to recognize those values.


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Mark Travis, president of Intrepid Capital Funds, said clients showed trepidation at his annual shareholder dinner. "The best values occur in the capital markets when people are the most afraid," he said.


George Evans, director of equities with Oppenheimer Funds, said when investor confidence is shaken, "people that are given to react to short-term fears are putting on selling pressure."


"The most important thing people have got to understand is that, over a reasonable holding period, there are going to be many different macro situations," Evans says, referring to shifts in global economies. "Prices are usually good when fears are at their highest."


The professionals all agree on one thing: Investors with a long-term horizon should be in the market now. Evans says equity investing should be "measured in years, not months or quarters."


Some investors welcome big swings in the market.


"I get very excited when there's turmoil and volatility in the world. That's how we make money," says Stephen Jones, chairman of Jones Villalta Asset Management. His firm's mutual fund, the Jones Villalta Opportunity Fund, carries the tagline: "The long term is the only term."


"If it's just a flat, steady, even-as-you-go pace, that's not a good time to be a stock picker," says Jones, who takes the same approach as other value investors. "Volatility and bad news are really our friend."


Omar Aguilar, chief investment officer at Charles Schwab, said investors will have to get used to slow growth and a high level of uncertainty.


"Volatility is something that has dominated the market for many years," Aguilar says. "It's not a new crisis. It's just a different one. What we see today is a lack of confidence from both investors and corporations."


Aguilar makes the case for owning equities now, saying company profits are robust and debt is lower than it has been. "There are great opportunities in the equity market where yields are relatively attractive," he adds.


David Marcus, chief investment officer at Evermore Global Advisors, said "investors are in panic mode. They're freaking out. Today, there are more opportunities than ever before because so many people have left the markets."


Marcus favors corporations based in Europe that operate globally. "Investors are reading headlines about Europe and they're dumping stocks indiscriminately," he said. "There are good companies based in Europe. We're seeing companies trading at single-digit multiples."


Heiner Skaliks, portfolio manager of the Strategic Latin America Fund, says Latin America has been overlooked, particularly fixed-income securities from Brazil and equities from Mexico, Peru and Chile.


Elsewhere, Luz Padilla, a portfolio manager at DoubleLine specializing in emerging-markets fixed-income, says corporate bonds are alluring because of the potential for an improvement in credit.


Here in the U.S., Craig Hodges, president of Hodges Capital Management, said investor confidence is the lowest he's ever seen it.


"I don't know when the economy will get better," he said. "But I do know that at some point greed will return. When it does, small-caps will do fantastic."


Liz Ann Sonders, chief investment strategist at Charles Schwab, said equities should outshine fixed income and commodities.


"I'd be biased toward U.S. equities," she said. "There is a tremendous number of investors who are underexposed to U.S. equities. Stocks will find some investors moving from the fixed-income area, particularly if we see a tick up in yields."


So bad news is the new "good news'? And the answer to everyone's problem is that we all need to get greedy again. Really? Seriously? Spoken like a true Goldman Sachs executive. HA!


What the investment managers all know on and agree is that it's probably a good time to pick up on some good deals. The tough sell is getting the disgruntled masses who've been taken for a ride on the volatility train to put their hard earned money back into a crap shoot. Good luck with that! 



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