Andrew Hallam

(The investment  information for Investor Club members is confidential and has been withheld. For the complete report on the current holdings, Investment Club Members should Log In with their password and read the post immediately below this one.)

Investors:

You might be aware, however, that the International stock market index is down about 50% over the past year.  But I just mentioned that we’re barely down on it.  What does that mean?  How can we be “barely down” on something that has dropped 50% this year?  Simply, it means that when it dropped, we got aggressive and we “averaged down”.  This means that we bought more shares at lower prices, when most investors were selling–rather than buying.  A dropping stock price or a dropping market simply means that there are more sellers than buyers.  The stock market–like any financial market–is influenced purely by supply and demand.  Full stop.

For someone who was “afraid” of the dropping markets, they’d be facing a 50% reduction in the value of his or her international index (assuming they owned it one year ago).  The U.S. stock market has dropped roughly 40% during the past year, and the international stock market has dropped about 50% during the same time period.  Results for mutual funds have generally equalled the same returns (as an aggregate) before fees.  After fees, their average returns have been far worse.

Back to “investor’s fears”.  Their fear would have probably ensured that they sat on their duffs, watched it drop, or, heaven forbid, even sold some or all of their holding.  We know that LOADS of people and institutions sold all the way down–otherwise the markets wouldn’t have fallen.  Market movements really are that simple.  Again, the price of gold, stocks, real estate, sugar, is all due to supply and demand.  When people buy, it reduces supply.  So prices increase.  When people sell, it increases supply, so prices drop.

A 50% drop requires a 100% gain to break even. Sounds bad, doesn’t it?  It would be.  But thanks to the fresh, regular cash infusions we received from Andy and Patrick, our international stock market index is nearly at the break even point.  In March, it really got hammered.  And we bought as much as we could.  This lowered our average cost price.  Since March, the international stock market index has recovered quite a bit.  (It was down more than 60% in March, but now it’s down “only” 50%)  But our aggressive, cheap purchases, have insured that we’re nearly at the break even point.  Rather than being down 50% (which most of you probably are, with your current international funds) we’re down about 6%.  We were greedy when others were fearful–a common Warren Buffett axiom.

When (not “if”, but “when”, because at some point the markets will recover) the markets reach the same level they were at this time last year, our international stock market index will have doubled in value.  Very cool.  While many individual investors would be at their own “break even” point, we would have doubled our money on this holding.

Thanks,
Andrew