I’ve interviewed Michael Holland many times and have tremendous respect for his analysis. Mike is the Chairman of Holland & Company, which he founded in 1995. He is also the President and Founder of the Holland Balanced Fund and has held many distinguished positions throughout his career. I know you will appreciate hearing his insights as much as I do.
Maria: Mike, thanks for talking with us. Let’s start with what everyone is wondering about, and that’s where you think we are in the in the economic and market cycle. Obviously, we've had a pretty good run from the bottom on March 9th, with the Dow and S&P 500 both up more than 30% and the Nasdaq gaining 45%. How do you see the markets today?
Well, Maria, I think the markets have reflected in the short term the fact that companies have “outperformed” in the face of lowered expectations. After the first quarter, we had companies reporting earnings more than 20 percent above the much reduced expectations, and the stock market moved up accordingly.
I think that's OK for the short term, but longer term, I think it means that we may be getting a little bit of a replay of the bear market and economic doldrums of the 1970s when the stock market actually did surprisingly well in the face of really nasty economic and political news. That was caused by – back then perhaps as well as today – really major declines in securities markets around the world, particularly in the U.S. where the markets are so real time. Every piece of information is funneled through CNBC and the Internet, and you end up with stocks going down dramatically before a bad event, bottoming out well before the economy and the news gets to its worst. It looks as if stocks may well have found their bottom.
Maria: Let’s talk about the whole idea of long-term investing, putting your money in and not worrying about it for 10 years or some period of time. Doesn’t that notion seem up for debate given what has gone on over these last 10 years?
That is a hallmark of every bear market bottom, Maria. Fortunately or unfortunately, I've been through enough of these that I can tell you that it's very much like the bestseller lists. When you read about Dow 36,000 and buy and hold investing is the hallmark of the day, you know we're at a market top. But at market bottoms, people say buy and hold investing is dead and it's a traders' market because you always have to be ready to sell.
Well, it's somewhere in between. Neither end of that spectrum has all the truth in it.
Warren Buffett gets derided at market bottoms and then sanctified at market tops, and I think he's a great example of someone who says that his preferred holding time is forever. But he's very happy to sell when he buys a stock and it goes down. Or if something goes up way too much and gets crazy, he sells it. He's supposedly the epitome of the buy and hold investor, but if you see his activity over the last 20 years, he's very happy to sell things for the reasons that we think make sense.