Why the sell-off? Many reasons were proposed but no one knows. And there may not be a ‘reason’ at all. Stocks don’t need a reason to fall. From time to time, they just do. Not to put too fine a point on it, but assets go up… and then they go down. Always have, always will.
Generally, a credit expansion drives them up. A credit contraction takes them back down. Credit is still expanding, says Richard Duncan. But come the next quarter… watch out.
It hardly matters to us anyway. We buy stocks when they are cheap, not when they are expensive. And US stocks are expensive. Best advice: get out. Stay out, until stocks are cheap again.
We mentioned how life on the ranch toughens you up. Physically, and otherwise. Our business career, for example, has been soft and charmed. Now, in the publishing industry – the only one we really know – cleverness is rewarded. Good ideas and hard work pay off.
But here, it doesn’t matter how clever you are… or how hard you work. Margins are as thin as the desert air. Profits are as scarce as the grass.
When a man reaches a certain age, he is ready for a new challenge. His career winds down… or comes to an abrupt halt. He needs something to occupy his time and his remaining energy.
His wife is usually fully behind him. The last thing she wants is an idle husband… left with nothing to do, he might decide to reorganise the kitchen!
Some turn to golf. Some turn to new businesses. At least one bought a cattle ranch in South America, which turned out to be a good place to grow high altitude Malbec grapes.
We spent all of Thursday and most of Friday ‘cosechando’. That is, we shuffled along the rocky soil on our hands and knees reaching up to cut off bunches of grapes… tossing them into a plastic bin… and then scraping along to the next vine. This went on long enough to convince us that we weren’t cut out for this kind of work. Our knees hurt. Our back and legs ached. Our shoulders were sore.
It really didn’t suit any of the ‘old guys’. Nolberto’s whole body is twisted from a lifetime of hard work. He is one year younger than we are… but has suffered a lot more wear and tear. Jorge is two years younger. He complains of arthritis in his shoulders and arms. Natalio is seven years younger. He has no complaints. But he moves more slowly than the younger men.
An older investor is perhaps a better investor – if he is still solvent. He is a survivor. He is wiser for it. He has seen more scams, crackpot theories, and pie in the sky business plans than a younger man.
But age is no advantage to the cosechero, even one who has been toughened up by life on an Andean ranch.
In business, too, age can be an advantage. An older man is more suspicious and more cynical. He expects trouble and setbacks. He is rarely disappointed.
He is also wary of business plans. Especially his own.
But people run businesses for a variety of reasons, not only to maximise earnings, and rarely to maximise shareholder value. Many businesses are run for pleasure, self-aggrandisement, vanity, spite, or just cussedness.
Art galleries, boat charters, yoga studios, airlines, fancy rental properties… and vineyards… rarely make money. At least, not in our experience.
Most often, they are things that people want to do… and justify it with a hope. Paris pied-a-terre apartments – for example – are bought because people think it would be cool to have their own place in the City of Light. Then, they set it up as a rental, telling themselves that the place ‘will pay for itself’. Sometimes it does.
Likewise, an art gallery is often a vanity project. An art lover feels he should inflict his tastes on the community. So, he sets up a gallery where everyone who walks by will see what he considers decent, or perhaps provocative, works. He convinces himself the project will ‘at least break even on operating costs.’ Perhaps it does, sometimes.
As a general rule, the more attractive a project – socially, artistically, environmentally, or ethically – the more money it will lose. Nobody brags to his friends about his used auto-parts business… or his ghetto payday loans… or his 24-7 liquor outlet. Nobody enters these businesses, except for the money. And the money tends to be good.
The money from an Argentine ranch run by a renegade North American economist? Bad. Details to follow…when we next convene.
for Markets and Money