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Now's the Time to Buy, Legg Mason Exec Says"
BOARDMAN, Ohio -- People don't go out and rush to buy cars, or appliances, or gasoline when they see prices rising. And they don't stay away in droves when they seeĀ prices falling.Yet when most small investors decide to buy stocks they enter the market when prices are going up and shy away when markets are falling.The psychology of trading in stocks runs counter to the psychology of buying and selling just about everything else, W. Talbot Daley told a group of investors and potential investors last week. For this, he and his colleagues at Legg Mason Funds are grateful, he says."We need fools in the marketplace," Daley says. "We need people to buy high and sell low so we can do the opposite."This is a good time to invest, counsels Daley, senior vice president and director of marketing at Legg Mason Funds, Baltimore. His tacit message: With the help of the investment counselors at Legg Mason's Boardman office, his audience stands an excellent chance of beating the markets.Stocks were cheaper in 2000, 2001 and 2003; that period was the first time since the late 1930s that stock market averages fell three consecutive years, Daley said. As markets continue their recovery along with the economy, investors can find a lot of undervalued stocks and buy them."We argued in May, June and July of 2002, that was the time of by loading up on equities," Daley says.Only 8% of the stocks advanced and 92% declined. Legg Mason sensed that markets were getting ready to rebound, Daley says, and his firm, most of whose offices are in the eastern United States, was right. In 2003, its investments saw a 37% median return."Bill Miller loaded up with some of the ugliest companies you've ever seen," Daley recalls.Miller is the funds' president and trades its domestic stocks. He picked right as markets came coming back along with the recovery, Daley says; Miller increased Legg Mason's portfolio 13 years in a row. Most stocks he bought are worth, four, five or six times their purchase price.He accomplished all this as an investor, not a speculator, Daley says. "We are risk-averse in our firm."Comparing Legg Mason's approach to baseball great Roberto Clemente, Daley noted 72% of the Pittsburgh Pirate's 3,000 hits were singles. Likewise, while the good investor may hit occasional home runs, a lot of solid investments will earn him the income he seeks. And while he may not always get a hit, he will build his portfolio. "The market is emotional," Daley says.People get caught up in bubbles and too often buy when markets are close to or at their peak, he adds. Reviewing market history of the last decade, Legg Mason analyzed companies and chose more winners than losers. While news reports focused on the technology bubble, Legg Mason avoided it, seeing that the bear market began not in late 2000 as Bill Clinton's term as president was winding down -- as is popularly believed -- but in 1998, Daley reports. The tech stocks carried the market but the various averages masked the market's weaknesses, he said. From 1998 until 2002 was "a 5-year nasty bear market," Daley notes.How bad?So bad, "The market value lost in those five years, as a percent of gross domestic product, was the same as in the Great Depression," he declares. "It was very, very ugly."Daley's presentation was as much an economics lesson as it was an advertisement for Legg Mason. Citing, but not naming Joseph Schumpeter, Daley iterated why "creative destruction" is what allows the United States to enjoy the wealth and high standard of living its citizens enjoy.When the car industry got rolling, the need for horse-drawn carriages and buggy whips all but evaporated. Companies that made carriages and whips went out of business as the auto industry created jobs, better-paying jobs. And those who bemoan the loss of jobs in the manufacturing sector miss the point, Daley says. The increased productivity translates into lower prices for consumers and greater sales for U.S. manufacturers (as does as a falling dollar) as they find themselves more competitive.While he has sympathy for those who lose their jobs, Daley points out that protectionism is not the answer. Those who made carriages and whips found other employment and the U.S. economy grew. Likewise, those who were downsized out of jobs because of a changing economy must look for other employment, employment that can allow them to make better use of their talents."The United States steals more jobs than any other country," Daley says. "We steal more jobs than we lose by a wide margin."Acknowledging that message may not play well in the Mahoning Valley," he says, "Protectionism is not a good policy" because it costs more jobs than it saves and hinders economic growth and inhibits investment in markets, cutting off companies from the funds they need to make rational economic decisions."