"Street Critique"- Michael Farr, President of Farr Miller & Washington
Wednesday, October 08, 2008PUAL KANGAS: Tonight's "Street Critique" guest says now is the time to bring current earnings guidance for the Standard & Poor's 500 Index companies down to realistic levels. He's Michael Farr, president of the money management firm Farr Miller & Washington. Michael, welcome back to NBR.
MICHAEL FARR, PRESIDENT, FARR MILLER & WASHINGTON: Thank you, Paul. Thank you very much for having me back.
KANGAS: Well, we certainly have had a gut-wrenching couple of weeks in the stock market, and the global economy appears to be melting down. What is an investor to do here?
FARR: You know, it has been really tough. And if you are worried and if you are a little scared, it just says to me that you're paying attention. This has been a remarkable time. I would tell investors now to think about your original investment strategy. You thought about enduring down times when you began investing. You probably didn't anticipate anything quite this bad, but what was your original plan? Were you going to see it through? Were you going to raise a little cash? Whatever that plan was, I encourage you to stick with it. And I would also encourage you not to panic now that we're down some 37 percent. If you're going to buy low and sell high, this certainly isn't high.
KANGAS: Well, somebody is still selling in a state of panic. How long do you think it's going to last from here?
FARR: I remember John Maynard Keynes said that the markets can remain irrational longer than you can stay liquid. So I think that this could probably continue for some time, but it feels like we're near the bottom. Certainly hedge funds that we're seeing a lot of quarter-end redemptions would be liquidating large blocks of shares which would explain some of this weakness.
KANGAS: Right, right. Now let's get back to your call for more realistic earnings guidance. How will that help the market, if at all?
FARR: Anything that adds clarity and transparency to markets, I think, really does help. Some of these earnings forecasts are still well too high, looking for somewhere around $99 for the S&P 500 in earnings. I think that number going to be a good deal lower. As soon as we get a more realistic view, investors have a more stable ground on which they can stand and upon which they can base more rational decisions.
KANGAS: Are there any stocks or sectors that you're looking at buying here?
FARR: I continue to like the consumer staples and medical health care stocks because they're defensive. Though, Paul, I've started to nibble at a couple of financials on this weakness. JPMorgan (JPM) is one that I've started to nibble at. It has got better.
KANGAS: What a bumpy ride that has had, according to the chart. It has been all over the place.
FARR: It has been all over the place. It's 1.1 times book, 4 percent dividend. It might take me a while before I really make money. I think that's a survivor. Also I like Goldman Sachs (GS). I think it's still -- although they're becoming a commercial bank. they still have the finest investment banking operation, in my opinion, on the Street. And again, 1.1 times book. Sooner or later these values will prove that. And we'll have more money I think in these names in years to come.
KANGAS: Michael, do you own JPMorgan or Goldman Sachs shares or have other disclosures to make?
FARR: I do. I own them both personally and I own them in accounts under my discretion, my family owns them as well.
KANGAS: Michael, I want to thank you very much for sharing your insights with our viewers.
FARR: Thank you, Paul. I appreciate their e-mails too. That has really been great since the last time I was on. You're very kind to have me.
KANGAS: Great, I'm glad. My guest, Michael Farr, of Farr Miller & Washington.
