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James B. Lebenthal, President |
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What I Discovered About Courage Of Conviction As A Nuclear Submariner I used to drive nuclear submarines in the US Navy for a living. One grimy, rainy day a fighter jet took off near where my sub was berthed. It did a long barrel roll over my head as it shot gracefully into the cloud bank and out of sight. Despite being upside down in the submarine’s conning tower trying to close out some repairs, I felt no jealousy toward my fellow patriot. He chose his path in the military and I chose mine. I admired the beauty of his maneuver and the effortless nature with which he slipped out of the drear and into the clear. The two extremes -- the conviction of the fighter pilot in his choice and me in mine -- comes to mind in the current economic and investment crisis. Hedge funds are blowing up left and right. The until-recently lauded private equity mavens have fallen to earth. Luminous investors of all styles are laid low. Commercial banks have failed. Investment banks have gone bankrupt. Insurance companies have been effectively nationalized. How the mighty are fallen! And what should the individual investor do in the face of all this? Believe. In whatever your gut tells you. If you believe you can divine the future from stock charts, then fine. Believe. If you believe that buying industrial companies at less than book value will work, fine. Believe. If you think investment grade bonds are the only ticket, fine. Believe. If you believe the world is not going to end, fine. Believe. And stay invested. For the record, your author thinks we are in a vicious and overdue cyclical downturn. It would be far worse had the government not taken dramatic and excessive action. In 12-24 months, the economy will start to recover. Our politicians and central bankers will be so scarred by this ordeal, that they will be loathe to remove much if any of this year’s stimulus. The result will be a boom and then an inflationary, overheated economy. These beliefs guide my investing.
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If you believe the world is going to end, fine. That is your right. Just please don’t expect me to buy your argument. It is far too arrogant to think that any of us are so special as to be the generation that will witness cataclysmic change when the world has survived centuries of boom and bust cycles. I ask you to stick with your convictions. No matter how scared you are that you may be wrong. No matter how disheartened you may be to find few fellow believers. If you’re a fighter pilot or a submariner. If you’re a value investor or a growth investor. If you specialize in small cap stocks or only stick to mega-caps. Just stick to your guns. The point is not that you shouldn’t be afraid. You should be afraid. But the way through the fear and the crisis is by sticking to what you know and what you believe. There is a word for the ability to take action when faced with paralyzing crisis. It is called the courage of your convictions. ___________________ J. B. LEBENTHAL RULES • Identify great businesses with superior management and solid balance sheet. • Pay the right price. • Compare cash flows, P/E to growth, valuations within the rest of an industry. • Be true to a discipline of holding 3-5 • Watch out for undesirable correlations and undue concentration in sector or style. • Be willing to accept risk...by design, not by accident. _______________________ J. B. LEBENTHAL REPORTS Q1 '10 Newsletter |
