QUALIPORT
Don't Be Afraid Of Buying On A War Scare

By Maynard Paton (TMFMayn)
September 20, 2001

Carburton Street, London -- "Don't be afraid of buying on a war scare." They're the words of Philip Fisher, the legendary US investor and author of the book Common Stocks and Uncommon Profits.

The FTSE 100 has fallen 25% since New Year's Day. That performance follows the 10% stock market fall witnessed during 2000. For most investors, this is uncharted stock market territory. Not since 1973 and 1974 has the London market fallen two years in a row. So, in these dark days, when the talk is of war, recession and further stock market turmoil, it pays to revisit the successful investors who've seen it all before.

Here are some quotes from four well-known stock pickers. We'll kick off with Philip Fisher and continue with his thoughts on a "war scare".

War

"Any decent human being becomes appalled at the slaughter and suffering caused by the mass killings of war... This worry, fear, and distaste for what lies ahead can often distort any appraisal of purely economic factors. "

"The results are always the same... whenever American forces have become involved in any fighting whatever, the American stock market has plunged sharply downward...Nevertheless, at the conclusion of all fighting -- regardless of whether it was World War I, World War II or Korea -- most stocks were selling at levels vastly higher than prevailed before there was any thought of war at all."

"To sell stock at the threatened or actual outbreak of hostilities so as to get into cash is extreme financial lunacy. If an investor has decided to buy a particular common stock and the arrival of a full-blown war scare starts knocking down the price, he should ignore the scare psychology of the moment and definitely begin buying... If war occurs, then increase the tempo of buying significantly." -- Philip Fisher, Common Stocks and Uncommon Profits.

Mental anguish

"But note this important fact: The true investor scarcely ever is forced to sell his shares, and at all times, he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

"Incidentally, a widespread situation of this kind actually existed during the dark depression days of 1931-1933. There was then a psychological advantage in owning businesses that had no quoted market." -- Benjamin Graham, The Intelligent Investor.

Recession

"There was a 16-month recession between July 1981 and November 1982. Actually this was the scariest time in my memory. Sensible professionals wondered if they should take up hunting and fishing, because soon we'd all be living in the woods, gathering acorns. This was a period when we had 14% unemployment, 15% inflation and a 20% prime rate, but I never got a phone call saying any of that was going to happen..."

"Then at the moment of greatest pessimism, when eight out of ten investors would have sworn we were heading into the 1930s, the stock market rebounded with a vengeance, and suddenly all was right with the world." -- Peter Lynch, One Up On Wall Street.

Pessimism

"Nevertheless, fears of a California real estate disaster similar to that experienced in New England caused the price of Wells Fargo (NYSE: WFC) stock to fall almost 50% within a few months during 1990. Even though we had bought some shares at the prices prevailing before the fall, we welcomed the decline because it allowed us to pick up many more shares at the new, panic prices."

"Investors who expect to be ongoing buyers of investments throughout their lifetimes should adopt a similar attitude toward market fluctuations; instead many illogically become euphoric when stock prices rise and unhappy when they fall. They show no such confusion in their reaction to food prices: Knowing they are forever going to be buyers of food, they welcome falling prices and deplore price increases. (It's the seller of food who doesn't like declining prices.)"

"The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer." -- Warren Buffett, Berkshire Hathaway (NYSE: BRK.A) Shareholder Letter 1990

Suffice to say, take heed of these proven investors in the present gloom and doom.

Dealing

Following last week's announcement, Tuesday morning saw the Qualiport (notionally) purchase the following:

* 1,100 shares of Johnston Press (LSE: JPR) at 270p each. Including £15.00 commission and £14.85 stamp duty, the total transaction totalled £2,999.85, and;
* 168 shares of Emap (LSE: EMA) at 582p each. Including £15.00 commission and £4.89 stamp duty, the transaction totalled £997.65.

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