In 1991, during the first Gulf War, Scud missiles were shot into Israel by Iraqi forces. The towns of Tel Aviv and Haifa were targeted. An American company, Raytheon, had developed a missile technology to shoot those Scud missiles down on their way from launch. In the middle of that scary war scenario, investors were calling their brokers and asking to buy shares of Raytheon. It was a temporary high in common stock popularity for Raytheon, but it was a low point for businesses which were negatively affected by a massive business slowdown which occurred from August 4, 1990 until the victory that “Shock and Awe” created in January of 1991.

Buying shares of Raytheon might have looked smart, but the far better strategy was to invest in all of the meritorious businesses which sold off sharply during that economic time out. To do so required a willingness to look foolish for an extended period of time. We will present the most difficult investment junctures of the last 40 years, tell you what was popular and what produced the highest future returns. We will consider looking foolish with the goal of obtaining long-term wealth creation in common stock ownership.

1981


Source: Bloomberg. Data for the time period 1/1/1980 – 6/30/1981.

In 1981, Fed Chairman, Paul Volcker, tightened credit and drove 3-month Treasury bills to 18%. Ten-year Treasury bonds peaked at 14.69%. Money market funds were paying 15% and were liquid. If you bought a Treasury bond due in ten years in 1981, you looked very foolish, because you sat with those bonds with capital losses temporarily.


Source: Bloomberg. Data for the time period 9/1/1980 – 9/30/1981.

Learn more about this firm