"Street Critique" -Michael Farr, President, Farr, Miller, & Washington
Wednesday, December 03, 2008PAUL KANGAS: Tonight's "Street Critique" guest says in times like these, investors need to be patient, because it's too late to panic. He's Michael Farr, president of the money management firm Farr, Miller and Washington and author of "A Million Is Not Enough." Michael, welcome back to NIGHTLY BUSINESS REPORT.
MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON: Thank you, Paul, for having me very much.
KANGAS: When you were last with us in November, you said that the market would retest its lows and it certainly has and then some. So have we put in a final bottom here or not?
FARR: I don't know, Paul. I think we're certainly in the process of establishing that bottom. We've seen a top-to-bottom drop of some 52 percent, 53 percent, something like that. It would make sense that we would go down below 8,000 and test some of those lower levels and hope this time that they hold.
KANGAS: Would you imagine if they do, we'd get a very, very strong comeback rally?
FARR: I would expect more violent rallies in this ongoing bear market. You see these violent bear market rallies and they really are enticing. You want to buy them. So, yes, a rally but not the final rally. I think we could be in this trading range as the economy works itself out for some time.
KANGAS: OK. Now earlier this week we learned that the United States officially entered a recession a year ago. You've done some historical work on recessions. What does history tell us about the current situation?
FARR: I think this is kind of good news, Paul. The average recession in the last century, I mean, starting around 1900 lasted around 14 months. The economic data is not average this time. The economic data are not average this time, I'm sorry. My English teacher would come after me on that. And therefore I don't think that this recession will be average. I think it will be a little bit worse. But even if it's 20 months or a little longer, we're 12 months into it and 12 months of that suffering is behind us.
KANGAS: What are you telling your clients about the recession and their portfolios?
FARR: Well, again it is too late to panic. If you're going to panic, be the first one to panic and we're well beyond that. Now we're down some 6,000 points from the highs. I think it's a time to really find some courage and go in and evaluate your portfolio. Take a hard look at that, bright lights issued by some of those really bad numbers and say, all right. Has this stock declined because of a fundamental decline from which it may not recover? And if so, cull those positions. Take a look at your stronger positions. And then make a plan for your cash. Figure out how you want to fill out your portfolio. Invest those other proceeds in a very disciplined, patient way.
KANGAS: We just have about a half minute left. What groups do you think will lead us out of this bear market?
FARR: Right now, I'm over weighted in consumer staples and health care is my two defensive names. I'm over weighted also in industrials and in technology stocks. And within technology and all of these companies you've got to look for solid balance sheets that don't need the capital markets for cash, lots of cash, strong management and opportunity on the up side. I particularly like some of the software companies. Money will continue to be spent there as a lot of those companies evolve out.
KANGAS: But no specific recommendations at the time, just the shopping list?
FARR: Those are my shopping areas and I'm looking and studying closely.
KANGAS: Good. Michael, thanks for being with us again.
FARR: Thank you, Paul.
KANGAS: My guest Michael Farr of Farr, Miller and Washington and author of "A Million Is Not Enough."
