An Excess of Pessimism Creates Opportunity
In last quarter’s newsletter we spoke about the many mixed signals investors were receiving. Back then, the market lacked a definitive tone. Stock prices were rising and corporate earnings appeared strong. However, at the same time, economic indicators were showing weakness and the scope of the European Debt Crisis was not fully known. Three months later, the market is notably pessimistic. After a steep sell-off on in early August, equities have struggled to find their footing, while generally bonds have continued to perform well. Investors, including us, have viewed every rally as an opportunity to take risk off the table. Every headline seems negative and market commentators are very doom and gloom. It is in times like these, when pessimism seems at an extreme, that the market presents some of the greatest opportunities.