Randy Lert of Russell Investments Analyzes The Dow's Drastic Dive
Wednesday, October 15, 2008SUZANNE PRATT: Joining me now for more analysis of today's massive market sell-off is Randy Lert, chief portfolio strategist at Russell Investments. Randy, welcome to NIGHTLY BUSINESS REPORT.
RANDY LERT, CHIEF PORTFOLIO STRATEGIST, RUSSELL INVESTMENTS: Thank you, Suzanne.
PRATT: So tell me, what happened today? What changed so much from Monday and caused this massive sell-off that we saw today?
LERT: Right. Well, I'm not sure that anything really fundamental happened today. We're in the midst of a market that is gripped with really unbelievable levels of fear and uncertainty, and it is really driving investor behavior. It is not normal for stock markets to go up and down by 9 and 10 percent a day, it just doesn't happen.
PRATT: But is it news to investors that we are in a recession or about to go into a recession?
LERT: I think we're almost certainly in a recession at the moment. And I do believe that we're going to have some earnings declines. The question is what level of pricing of stocks is appropriate for that? My own view is that stocks are in the range at 900 on the S&P are pretty attractively priced. That does not mean they won't become more attractively priced. I think that we're going to test the lows from last Friday, and I think we're likely to break through them for short time frames, but fundamentally there are some very good bargains out there. There are some very healthy long- term companies that are selling at attractive prices and high yields right now.
PRATT: So what are you telling your investors, though? What are you recommending that people do? It's too late to sell, but is it really too early to buy as well?
LERT: We have been cautious with respect to our comments to investors about rebalancing back into equities. When we're in periods of this kind of volatility, you can just be caught trading on the wrong day, and that can just create an unfortunate short-term outcome that you have to dig out of. We are basically telling our investors, however, that stocks have been attractive, that you've already suffered a very severe decline in wealth, we're roughly 40-some percent off from last October's peak, and that it's pretty uncommon to lose significant incremental wealth from now on. And so as you have the opportunity and in which we have reasonably what I'll call low-volatility trading days, those are pretty good days to go ahead and start putting some money back to work in the stock market. We are telling people for comfort reasons that they should average in. There's no question investors fear loss more than they like gain, and that's partially what we're dealing with right now.
PRATT: So if you are telling people to average in, what types of things are you recommending that people buy at this time?
LERT: Well, we're pretty much believers here at Russell of very broadly diversified portfolios, and we don't focus on sort of heavy-duty sector bets and very narrow plays. However, it would be conventional wisdom in a market like this that we are going to have a slower economy, we are in a slower economy, I think it will get slower yet before it gets better. We want to be in some large cap companies that have strong names. You want to be in staples. It would be appropriate to look at firms that have sustainable dividend yields that will help cushion some of the inevitable blows. But I want to emphasize, we basically believe in broadly diversified portfolios and not trying to make really clever sector bets. That's actually how you can get very badly hurt.
PRATT: We have to wrap things up shortly here, Randy. But bottom line for investors, should they expect more days like today, would you expect?
LERT: I would expect some more days like today, unfortunately, and I know that's not very comforting news to leave people with, but we are in a market right now where volatility is extremely high. Visibility into next year's earnings is a bit foggy. And that's part of the problem. The stock market is searching for the correct value. Nobody knows exactly yet how this financial crisis is going to impact the real economy and what the actual damage to the economy and corporate earnings are going to be. So unfortunately, we're in for an uncomfortable time frame in the context of most of the damage has been done, and I really believe that investors that on balance are stepping in right now over a three- to five-year time frame are likely to be reasonably well-rewarded.
PRATT: I hope you're right. I think we have to leave it there. Thank you so much for joining us this evening.
LERT: I hope I'm right, too. Thanks very much.
PRATT: My guest, Randy Lert of Russell Investments.
