With the recent turmoil, clients are understandably nervous and wondering what to do.  Some see it as an opportunity while others consider getting out.

I am reminded of  a great presentation I recently watched from Larry Swedroe of Buckingham Asset Management, (and the author of 9 books including The Quest For Alpha),  which I will see if I can get posted onto the site, but in the meantime I would like to share with you the message because it is a good one.  (Note: this is all done from a U.S. perspective)

Let’s start by going back in time to March of 2009 at the very bottom of the market collapse.  At that time, things could not have looked darker, some of the largest companies in the world were collapsing, the global economy was screeching to a halt, the media was pounding us with the message that the world was coming to an end, and investors were running for the hills.

Now imagine that you have a crystal ball that has perfect foresight with respect to the economic climate (but you cannot see what the stock markets are going to do).  So you look into your crystal ball and this is what you see for the next two years or so:

This month’s version of The-World-Is-Coming-To-An-End, the US debt crisis, has come and gone with the (less than shocking) passing of a bill to raise the debt ceiling.

And yet the markets continue to struggle.

With the TSX now back to the level it was at last November, it seems inevitable that investors will be getting frustrated and losing confidence.  Despite the fact that these are the best times to be buying stocks, it is not at all surprising that most investors are doing the exact opposite – running for the hills.

Even though all of the available evidence shows that the best path to success is to stay invested, doing so when sentiment is low and the media is screaming Armageddon (are they ever not doing that?), is not an easy task.

On Thursday, the social media stock LinkedIn hit the street with a stunning IPO that was reminiscent of the glory days of the dot com era. It opened at about $80 USD and traded over $120 before closing it’s first day on the markets at $94.25.

IPOs fascinate me because, unlike most stock transactions where two parties, each with some limited amount of information about the company (hopefully relatively equal amounts of information) from which they derive differing views (i.e. one thinks it’s a buy and one thinks it’s a sell), with an IPO it is not a level playing field at all – it is the owners of the company who are selling.

This deserves some further discussion: who knows more about the company than the owners? Who is more indoctrinated into the potential success of the company than the people who created it? And these people are looking to sell.

Meanwhile, other investors line up for the privilege of paying even more than what the owners are asking for, (which is usually already more than they could have hoped for to begin with).

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