CSH INVESTMENT MANAGEMENT
Quarter ending June 30, 2007
Enclosed you will find your statements for the quarter ending June 30, 2008. For the year the S&P is down 12.8%. Given the current troubles in the financial sector this isn’t
terribly surprising. With much of the market news so negative what is an investor to do? Should we cash out? Should we move our money to a money market account?
Well I can answer this question by pointing what I believe are several fundamental truths about investing. 1) Your account at some point is going to go down. Such is the nature of investing. An investor by the name of Buffett once said that “The market is there to serve you, not instruct you.” In other words, just because a stock is going up doesn’t
necessarily mean that it’s a great investment and will continue to go up. If a stock has a nice run and advances from $30 to $50 people become excited. It could be a hot sector or maybe a friend has done well with it. They want in on the action. This is human nature. But, there are a couple of problems with this line of thinking. First at $50 a share the implied rate of return on this security is much less than when it was selling for $30 a share. It might have been a good buy in retrospect at $30, at $50 probably not. Also as a security increases in price so does the risk. The risk of loss of principal is greater at $50 than $30. So rate of return decreases and risk increases. Not a good combination. Conversely just because a stock goes down doesn’t necessarily mean the value is permanently impaired. In the short term stocks go up and down based on supply and demand in the marketplace. In the example above if you are willing to invest in a company at $50 a share and it goes to $30 you should be excited for the opportunity that the market has given you to purchase more and lower your cost basis. (Providing of course your analysis is correct. And if a stock moves this much you better do more analysis to make sure your fundamental thesis is still viable. You might sell it if things have changed or deteriorated.)
Another fundamental truth is investing in the main is counterintuitive. Going with the crowd merely because they think a certain way can not only impair your judgement, but be hard on your pocketbook. Of course there’s comfort in being part of the majority. This
is human nature. In truth decisions made on emotion usually don’t end up being good ones. But, yet it happens. People become nervous and move their portfolio to savings or some equivalent. I call this indiscriminant selling. We see it on a market wide basis thsometimes. On October 19 1987 the stock market plunged 30%. (In one day). At the thtime the only investment I had was a mutual fund with 20 Century Investments. On that
Monday it lost over 50% of its value. As we learned later most of this loss was fed by indiscriminant selling. (Mostly by computer programs at large institutional trading firms) The market of course recovered, very quickly, ending the year down a couple of points. Unfortunately many individuals had already sold on emotion.
In summation, I told many of you earlier this year that the first half of the year in my opinion could look rough. Unfortunately, I believe there is some more short term pain to endure. Those of you who have been with me since the late 1990’s know that we came
through a very difficult market in 1999 and 2000 only to be amply rewarded in subsequent years. While the macroeconomic factors that were in place in the late 90’s
are different today, I believe the opportunities and results will ultimately be the same. That great investor I referred to before also said “You should be fearful when others are greedy and greedy when others are fearful.”
Thanks so much
C Steve Henry
P.S. I have decided to disclose all my personal investment holdings which are shown below. I think this is important because a) Most people in the investment advisory community would not disclose such information. And I’m not most people. Also if an
investment goes bad they won’t look smart. b) I think it’s important to know that I put my
client’s money in the same place I put my own.
I do not own any funds but if you own Fairholme, Longleaf, or Third Avenue funds they own many of these same securities.
These are in order from largest position to smallest. Securities are held in individual trust accounts and retirement plans.
1) Photochannel Networks
2) 4Kids Entertainment
3) Berkshire Hathaway
4) Sears Holdings
5) Angiotech Pharmaceuticals
6) Premier Exhibitions
7) Noven Pharmaceuticals
8) Pinnacle Airlines
12) 99 Cent Stores
14) Cavalier Homes