It’s difficult to read the financial news these days without noticing some storm clouds on the horizon. European debt woes, budget shortfalls everywhere, a lackluster economic outlook and falling home values represent a few of the problems the world will grapple with for the foreseeable future. Such uncertainty poses risk for all investments and contributes to the volatility in the market value of securities. On occasion, the volatility can feed on itself and lead to outright fear. Time and again, history has proven that at any single point in time markets are often far from rational and subject to the very real human emotions of fear and greed. We’ve seen exuberance and greed abound in market “bubbles” such as the internet and technology craze and numerous housing booms. Such excess has always been followed by “busts,” which is nature’s way of restoring balance. The good news is that eventually markets do find equilibrium and over the long haul sanity prevails. The absolute truth of the matter is that no one can predict the future of markets (or anything else for that matter) with anything but random accuracy. No one knows for sure whether a historic stock market rally, another financial crisis or, more likely, something in between waits across the horizon.

Fortunately, savvy investors know bull and bear markets when they see them and base their investment decisions on the cool reality of circumstances at hand and not the passion of emotion. At its core, Hardesty Capital Management values securities at their “intrinsic value,” irrespective of what the overall market thinks. Because we know we are not smart enough to predict the future or time our investment decisions to exit by the lifeboat, we rely on the notion that the value of any asset is predicated on the present value of the cash it returns to the investor discounted by the level of risk. So when markets sour and prices drop, opportunity presents itself, all else being equal. The opposite is true when prices rise. That’s how we sail the ship, but we chart the course for every client well before we set our investment sail and don’t alter the course in response to a changing seascape. In practical terms, both the client and the manager should recognize the appropriate amount of risk and the client’s particular tolerance for risk. Once these ground rules have been established, our job is to take advantage of the markets’ emotional swings and navigate the ship safely home. At Hardesty Capital we take great pride in our nimble approach to buying and selling securities and begin each investment committee meeting by reviewing the following credo:

Success Carries a Price.
But Failure Carries a Greater Price.

Be Fearful When others are Greedy
and Greedy When Others are Fearful.

The primary purpose of a business is
to pay dividends to its owners.

Investment returns depend on today’s prices.