Yesterday may have been one of the biggest sucker's selloffs of 2011. Ironically, it was one of the most orderly market declines in some time. Once it became obvious over the weekend that the bipartisan Senate super committee was no closer to reaching a debt-reducing compromise than the entire 100-member Senate, the market prepared for a selloff. But rather than wait until 3:30 p.m. to decline another 2%, the market dropped in an orderly fashion throughout the day and even picked up some lost ground to end the day.
Don't let the market fool you. While the future debt issues of this country are indeed important, the current state of the economy is what matters most. Yet I find it curious that investors are selling stocks on the basis of concerns that won't materialize for another five to 10 years. It's hard enough to forecast what will happen next month, let alone the next decade.
The irony is that the selloff was orderly, precisely because no one really expected a group consisting of an even number of Republicans and Democrats to agree on fixing the nation's debt. For as long as I can remember, concerns over Social Security have always been a part of some political rhetoric. Yet that did not stop the economy from growing, business from flourishing and the stock market from climbing higher.
While an understanding of the macro economy is important to a value investor, it takes a back seat to security analysis when deciding to invest. Thinking about the macro economy five or 10 years from now is downright ridiculous to a value-oriented investor. Businesses such as Visa (V) and MasterCard (MC) are likely going to do very well over the next several years for reasons unrelated to the overall macro environment.
Of course, anytime you have strong macro conditions, businesses and the economy benefit. No one can accurately know what those conditions will be. I don't think anyone polled back in 2006 would have told you that in the next four years, the unemployment rate would nearly double. Since March 2008, when Visa IPO'd at $44, shares are up over 110%, and MasterCard is up 70%, while the S&P 500 is down 10%. A worsening macro environment didn't stop Chipotle Mexican Grill (CMG) from serving more customers, sending shares up over 200% since March 2008. And that increased consumer base likely meant more folks swiping debit and credit cards.
When the economy is strong and people are happy, everyone fails to see the bust, and when conditions worsen as they are today, no one can perceive that things will get better. Pay attention to prices when securities decline. My guess is that Apple (AAPL) is going to sell tons of iPads and iPhones over the next few years. Trading back at $369, shares are looking much more attractive than they did last month at $426. I also believe small-cap avocado producer Calavo Growers (CVGW) will be selling a lot more of its green staple in the years to come. Whether it's at a cheap Mexican dive, at a home tailgate party or at fancy sushi restaurants, the U.S. will consume plenty of avocados now and in the future. Management has a growth goal leading to a $50 stock price in 2013. Shares stand at $24 today.
As the late value investing dean Ben Graham opined, in the short run the stock market is always a voting machine responding to investor sentiment. In the long-run, the stock market is a weighing machine always responding to business fundamentals. Don't be fooled by the market's short-term sentiment.