A Moment with Minsky

Hype and Hot Air

When the markets were rocked by the September 11 tragedy, we encouraged our clients not to make any hasty judgments about the general direction of the market, and instead stick with their long-term plan. Since then, we’ve been avoiding small-capitalization growth stocks because of the tendency for those stocks to move more on hot air—and at times, news events—than on sound fundamentals.

And when it comes to international stocks, there’s hype there, too, but on the opposite side of the ledger. We think the risk in those stocks (in developed international markets, not emerging markets) is overstated, and encourage our clients to look more closely at this asset class.

The question relevant to all of these investments is one of time. Time is called the great neutralizer because a well-thought-out plan is meant to smooth the short-term effects of the market. As markets have shuddered under worries wrought by the problems in the U.S. housing market, it’s important to maintain a long view.

We tell our clients to let the traders worry about the headlines—the rest of us have day jobs and can’t change our in-vestment strategies based on what happens from one day to the next. When the traders are most worried, investors with long-term investment horizons often emerge. Case in point: Warren Buffett bought U.S. Bancorp stock as the housing crisis started to blossom. There won’t be any Minsky moments for him.