Successful selling against the tide

It’s easy to sell mutual funds at the top of the market when the tide is

running with you. But you will do the most for your clients, and

hence in the long run for yourself, when you can sell successfully

against the tide. The tide that is running against us today is the tide

of credibility. But the perception that mutual funds are poor

investments today is not reality. Nevertheless, the tide of credibility is

running against us. And that is reality. I hope I can help you to

successfully sell against that tide. I hope I can help you to establish in

your own minds and in the minds of your clients the credibility of

mutual funds as long-term investments.

The bear market we have at this time has been the longest, broadest

and steepest experienced in over 25 years.

One significant reason

why there is such an extreme degree of bearishness, pessimism,

bewildering confusion and sheer terror in the minds of brokers and

investors alike right now, is that most people today have nothing in

their own experience that they can relate to this market decline.

They have the feeling that no one’s ever been here before, because

they

haven’t been here before.

My message to you, therefore, is: Courage! We have been here before.

Bear markets have lasted this long before. Well-managed mutual

funds have gone down this much before. And shareholders in those

funds and we in the industry survived and prospered.

I don’t know if we have seen the absolute bottom of this bear market.

But notwithstanding the uncertainties that exist today – including the

possibility that the market may go lower – I personally believe that,

right now, good common stocks in general, and well-managed mutual

funds in particular, probably represent the greatest opportunity for

long-term investors that we have seen since early 1942.

Similarities between the current and previous

bear markets

That period and the current one provide some astonishing

similarities. There are differences, of course. But in their very

differences, there is a commonality.

Namely, each crisis is

characterised by its own new set of non-recurring factors; its own

set of apparently insoluble problems; and its own set of apparently

logical reasons for well-founded pessimism about the future.

It’s worth taking a look at the environment in 1942 and comparing

it with the environment today:



First, nobody wants to buy common stocks today. Nobody

wanted to buy common stocks in April 1942.



Today there are thoughtful, experienced, respected economists,

bankers, investors and businessmen who can give you wellreasoned,

logical, documented arguments why this bear market is

different; why this time things are going to get worse – and hence

why this is not a good time to invest in common stocks, even

though they may appear low. In April 1942, any intelligent person

who read the papers knew that it was a lousy time to invest.



Today people are saying: “There are so many bewildering

uncertainties and so many enormous problems still facing us that

there is no hope until some of these uncertainties are cleared up.

This is a whole new ball game.” In 1942 everybody knew it was a

whole new ball game. Uncertainties? We were in a war that we

were losing.



Today inflation is a serious problem. In April 1942, inflation was

rampant.



Today there is concern about the slump in housing construction.

On 8 April 1942, the lead article in the Wall Street Journal was:

“Home Construction. Private builders hard hit.”



Today almost every financial journal or investment letter carries a

list of reasons why investors are standing on the sidelines. They

usually include (1) continued inflation; (2) illiquidity in the

banking system; (3) shortage of energy; (4) possibility of further

outbreak of hostilities in the Middle East; and (5) high interest

rates. These are serious problems.

I

n April 1942, discussing the slow price erosion of many groups of

stocks, a leading stock-market commentator said: “Signs are still

lacking that the market has reached permanently solid grounds for a

sustained reversal.”