Wednesday, November 12, 2008

Shooting At Paulson

Listening to CNBC today and over the past few days I am struck by the frequency of attacks on Hank Paulson. I don't know how the efforts of the Treasury Secretary are going to work out, nor does anyone else I would bet. But if you read Mr. Paulson's resume it will give you some comfort that he as at least as qualified as anyone available.
The critics, most of whom are not qualified to carry Paulson's brief case, are all over him because the problems are not over yet. After all the TARP was passed way back on October 2nd and we still have problems. I mean really, what is he dawdling over ? As far as they can see it is only the biggest financial collapse in 50 years. Jeesh!

today points out a terrific letter by Tim Price that reminds us to step back from the emotion of the moment and put this extraordinary situation we have into long term perspective and judge it against history before making ad lib decisions. Link here and very highly reccommended.
Another perspective of Mauboussin‟s that seems, at face value, to be bad news but which is almost certainly extremely positive for current investors is the paucity of returns over the recent past. He charts the rolling 10 year returns for large cap stocks:
“Over the past century-plus, the market has tended to bottom out around zero percent rolling ten year returns. That happened in the 1930s and 1970s, and that is where we are today. The rolling 10 year figure is worth examining for psychological reasons, too. If the average investor is in a mutual fund, they have lost money after taking fees into consideration. Further, most investors lose an additional 200 basis points due to bad timing. So on a dollar-weighted basis, the average investor has been down substantially in the US stock market in the past decade. That is very psychologically damaging.

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