John Hempton of Bronte Capital recently published a “Letter to a Client” in which he discusses the opportunities that currently exist in the market. It is an interesting read and I agree with much of it (though, I think he is missing an opportunity on Hewlett Packard (NYSE: HPQ) in favour of the Google (NASDAQ: GOOG) investment):
Own equities. Don’t kid yourself. Mega-cap equities are generationally cheap compared to other assets – and certainly compared to the cash/bond/levered asset complex.
Just don’t be blind about it. The places that there have been high returns (Asia, small caps, smaller resource companies) are riddled with fraud. Twenty five years of deregulation and the high levels of innovation mean we have high and rising levels of stock fraud. Fortunately there is much less fraud risk in mega-caps.
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I can find dozens of reasons to be bearish – but I look at it dispassionately and I am bullish on big caps, and bullish on America. The problems will sort themselves out and the American exceptionalism (decent institutions, free enough markets and a willingness to take risks) will work their magic again.
Anything that takes you out of real assets (businesses and property that generate real cash flow) and puts you into nominal assets is - with a ten year time-frame – a bad idea. (And why is your personal account any shorter dated than that?)
Just don’t get greedy by buying things you do not understand: you will be ripped off. The underlying fraud level is as high as I have ever seen it.
Read the full letter here.
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