By Tom Bradley

“Tom, I agree with your view on stocks, and boy, you’re so right about how negative people are, but ... I can’t help but wonder if it’s different this time.”

It’s different this time. I’ve been trained to never utter these words. They’re the most dangerous four words in investing.

So when I hear my friends, clients, readers, competitors and, in some cases, idols, telling me they don’t like what they see, I’m torn. I know how bad the global economic/debt situation is. I know there will be dislocation, shocks, volatility, perpetually gloomy headlines and earnings misses. And I know we’re navigating all of this without a (government) net. But it’s not that simple because:

  • Mr. Market knows all this. He figured it out in April and has been worried ever since.
  • The corporations we’re investing in have never been in a better position to take advantage of economic and competitive dislocations. They’re the antithesis of weak, overstretched, running-out-of-options governments.
  • Recessions are all about cleansing and adjustments. The gloomy outlook does not take into account the fact that consumers, companies, cities and countries are adjusting to the new reality. The U.S. is learning to live without a real estate market. The resource industries are adjusting to shortages by spending record amounts on developing additional supply. Huge investments are also being made on more efficient power grids, solar panels, networks, air conditioners, cars, buses, aircraft, billing systems, medical procedures and the list goes on. The pace of progress on many fronts is accelerating, which means when the turn comes, it will be faster than expected.
  • When negative sentiment is so firmly planted on the fear side of the fear/greed meter, the downside risk is significantly reduced. Stocks could still go down, but it’s less likely and the magnitude of decline is likely less.

It feels like we’ve entered the ‘it’s different this time’ zone again. Certainly there’s a lot that will be different over the next 5, 10 and 25 years, but I’m not convinced stock market behavior is one of them. The market will continue to over-react to short-term news, trade well below (and above) the intrinsic value of underlying companies and it won’t wait for complete resolution or perfect information to turn around. If the market doesn’t do these things, it will indeed be different this time.