With the stock market's latest drop, four years of market growth has been wiped out. It's 2004 all over again.
George Mairs III was born a year before the 1929 stock market crash. In 1931, his father launched what became the venerable Mairs and Power investment management firm of St. Paul. Mairs, now 80 and semiretired but still as sharp, calm and civil as ever, is a good fellow to talk with during turbulent times in the market.
He has helped make millionaires out of many investors in his Mairs & Power Growth Fund, which has consistently outperformed market indexes over the last 50 years with a buy-and-hold strategy of mostly Midwestern companies.
"This credit crisis and market downturn is far more pervasive than anything I've ever seen," said Mairs, who joined the firm in 1952 after graduation from Macalester College and a stint in the Army. "We've moved from a nation of investors to traders, it seems. But Baron Rothschild said the time to invest is when there is 'blood on the streets.' And it's pretty bad out there right now."
Businesses are projecting little to no growth. Credit is tight. Unemployment is 6 percent and rising. Nearly six out of 10 Americans believe another economic depression is possible, according to a poll released Monday by the CNN/Opinion Research Corp. That conjures images of soup lines, economic contraction, 25 percent unemployment and hobo camps.
That's not going to happen, Mairs said.
"I have great faith in the American economy," Mairs said, "but it's going to take a while, two or three quarters, for an economic rebound. The economy will begin to strengthen by midyear 2009. And what we saw [Monday], could be the selloff that will lead to a stronger market. Warren Buffett, who is only 78 and a pretty good investor, is buying. I'm not going to disagree with him."
Yesterday, on the first trading day since President Bush signed the $700 billion financial system stabilization act, the Standard & Poor's 500 and Russell 2000 index of smaller companies dropped by nearly 4 percent. The Bloomberg-Star Tribune index of Minnesota's largest publicly traded companies was down 3.3 percent and is off 24 percent for the year.
These are unsettling times when human nature tells us to cut our losses. Prudent investors should refrain from looking at their retirement-account statements. And keep buying low-cost, high-quality stocks and stock funds with every paycheck. After all, there's a reason why the Mairs & Power Growth Fund is up about 12.5 percent annually over the last 20 years vs. 9.9 percent for the S&P 500. That didn't happen by jumping in and out of the market. Mairs and his longtime associate, Bill Frells, bought good companies and held on to them.
Mairs' holdings, which include companies such as C.H. Robinson, Tenant, G&K, Graco, Xcel, Donaldson, Ameriprise and Best Buy, have suffered. But they will rebound.
We're not out of the woods. Third-quarter earnings, which will be reported this month, are going to be weak.
"This is a big economic downturn," said Joe Barsky, the retired stock analyst and head of equity funds at Ameriprise who now teaches prospective investment managers at the University of Minnesota's Carlson School of Business. "I think the market is in the late stages of this [2007-08] decline. But if you get out -- and miss the two or three biggest days of an up cycle -- then you miss most of the return."
This market is starting to look relatively cheap. After Monday's selloff, the S&P 500 trades at around 12 times next year's projected earnings.
Times are tough. But economic remedies are slowly being put in place. The markets will rebound.
Let the traders and hedge fund managers panic over the immediate future. You should hang in there with George Mairs.
Neal St. Anthony • 612-673-7144 • firstname.lastname@example.org