An Open Letter From The Motley Fool

Dear Fellow Fools,

Over the past 48 hours, markets around the globe have dropped, in no small part because of the collapse of Lehman Brothers (NYSE: LEH  ) and Bank of America's (NYSE: BAC  ) sudden purchase of Merrill Lynch (NYSE: MER  ) . Today's volatility is more of the same, with uncertainty surrounding the future of AIG (NYSE: AIG  ) .

We understand that the current state of the stock market and of the financial industry can be disconcerting. But we encourage you to remain calm. You may be tempted to act rashly, but please remember: This, too, shall pass.

And one of the primary reasons it shall pass is because not every financial firm made ill-advised and reckless decisions about leverage. Case in point, the stock of Berkshire Hathaway has actually risen since Aug. 1. There are still plenty of sound, well-run businesses that will reward us for being patient.

And the beauty is that many of those businesses are being sold at a discount to their fair value, simply because financial firms like AIG made terrible decisions. In fact, all of this is merely another turn of the cycle that has allowed so many investors to generate great wealth in the markets. Warren Buffett and his teacher, Benjamin Graham, are right: Over time, the market is a weighing machine. Companies cannot make poor financial decisions without eventually having to deal with the consequences. By allowing the collapse of Lehman Brothers to happen, the federal government and industry giants have indirectly decided to allow the capitalist system to do its work.

We believe this is a good thing -- it is a statement of hope, and we believe you should embrace it. (And we continue to hope that the Federal Reserve will not intervene on behalf of AIG.)

During the next few days and weeks, the markets promise to be extremely volatile. The response from Wall Street and the financial press will range from euphoric to despondent, and much of the advice you hear will be emotional and short-term in focus. We also recognize the very real risks in the market today. More companies are sure to struggle.

But at the same time, we urge you not to panic or react in haste. If we retain our wits, we can't help but make better decisions than the majority of investors. Here at The Motley Fool, we tend to avoid companies with significant debt in favor of companies with unleveraged, cash-rich balance sheets, companies like Buffalo Wild Wings (Nasdaq: BWLD  ) , Quality Systems (Nasdaq: QSII  ) , or Intuitive Surgical (Nasdaq: ISRG  ) . Although the crisis in the financial sector is dragging the market as a whole down, there are opportunities yet to be found.

History has shown that after virtually every sudden drop the market has experienced, it recovered within a few years. Case in point: Six months after the 1995 Oklahoma City bombing, the S&P 500 had gained 17%, and six months after the lows of Sept. 11, 2001, it was up nearly 19%. Even if the rewards aren't immediately obvious, in the long term, objective analysis of the opportunities and risks will prove superior to an emotional reaction.

Thank you for continuing to put your faith in us and The Motley Fool during these volatile times. We are paying close attention to these events, and we encourage you to come to Fool.com, Motley Fool CAPS, and our discussion boards for regular commentary.

For the latest Fool.com coverage of these ongoing stories, check out "The Biggest Financial Story of the Past 50 Years."

Foolish best,
The Motley Fool Newsletter Service Advisors

Bill Mann owns shares of Berkshire Hathaway, but no other companies mentioned. Bank of America is a Motley Fool Income Investor recommendation. Buffalo Wild Wings is a Hidden Gems selection. Quality Systems is a Stock Advisor choice. Intuitive Surgical is a Rule Breakers recommendation. Berkshire is an Inside Value and Stock Advisor selection. The Motley Fool owns shares of Buffalo Wild Wings and Berkshire Hathaway. Try any of our investing services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (29) | Recommend This Article (86)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 16, 2008, at 4:30 PM, jhatlarge wrote:

    MF thanks for your soothing message!

    By the way it is the same we members of paying MF services received courtesy of the Gardner bros. and team. Only that in ours there was no marketing pitch or mention of the valuable freebees you are all getting. like BWLD,QSII, ISRG - Take them!

    Why pay for MF services!?, if you read the MF newsletters you will get good picks for free - That combined with the CAPS service and you will have no need to pay for MF recommendations. + they just can't help posting them here anyway.

    The ones that are mentioned "owned by the fool" (grab those!!)

    Sorry, MF if you are really such eager beavers to spread the word - this just clears things up.

    David and Tom, thanks for making your paying subscribers feel so special.

  • Report this Comment On September 16, 2008, at 4:39 PM, halevay wrote:

    While I concur with the main point that the market will eventually (emphasis on 'eventually') recover, I disagree with Bill that we should make the assertion that since the markets were resilient after Oklahoma City and Sept 11, we should expect them to act similarly during the current credit crisis. Making ties to the late '20s (Great Depression) would have been a more appropriate analogy

    Oklahoma and 9/11 were external (not fiscally related) catastrophes that occurred on top of an otherwise strong economy. The issues of today focus around the core of the problem, the unwinding of complex financial transactions in the backdrop of high inflation, soaring unemployment and falling housing. To draw reference to the former points (Oklahoma & 9/11) belittles just how severe our crisis is and paints a picture that we should be this in short order.

  • Report this Comment On September 16, 2008, at 4:49 PM, FOOLBEFREE wrote:

    I do like the recommendation of buying companies with no or little debt, specially now.

    In regard to paying for MF services, I think it is worthy because they will let you know when to buy and sell, and they tell you why.

  • Report this Comment On September 16, 2008, at 5:29 PM, scott0807 wrote:

    i bought aig as an "international play" at the prompting of bill mann in one of his special reports on foreign markets. while i realize it is not on gg's scorecard, what are you saying bill, that aig is getting what it deserves? and what are you saying about the advice you gave in that report? your loyal subject, scott

  • Report this Comment On September 16, 2008, at 5:58 PM, jse17 wrote:

    Props tp Bill for a spot-on analysis:

    "Over time, the market is a weighing machine. Companies cannot make poor financial decisions without eventually having to deal with the consequences."

    One will not be awarded a Nobel Prize for adding, "Either will knuckleheaded, corrupt politicians or the muddled masses that support them!"

  • Report this Comment On September 16, 2008, at 6:02 PM, titanicdwn wrote:

    This too will pass? Yes. However, once a certain percentage of a national economy sinks, it must all sink. Keep in mind that even though it will pass(this time), the direction remains constant and the same. This is a basic financial law of every empire/country in the history of the world. Life, once lost, cannot be regained. This is also a basic law. Financial experts have two basic flaws which keeps them from seeing this truth...1)They are human. 2)They want their own financial income, even beyond the time when it is impossible. They cannot allow themselves to see it coming.

  • Report this Comment On September 16, 2008, at 7:33 PM, CloseToDaEdge wrote:

    It is a shame that the CEOs and other highfalutin corporate bigwigs, who get the big bucks when a company they are responsible for goes in the toilet, don't get what they really deserve!

  • Report this Comment On September 16, 2008, at 8:40 PM, jesse2159 wrote:

    In 1963, Milton Freedman said "of the 100 largest companies in America in 1900, only 16 still exist, by 2000 I doubt any will still exist"

    It's the nature of American capital to fail or reinvent themselves or merge with better partners or become the leaders in their field. I have faith in this system even if it occasionally fails to meet our expectations.

  • Report this Comment On September 16, 2008, at 10:23 PM, Jumper2246 wrote:

    AIG was one of the highly recommended stocks for either Hidden Gems or Global Gains. I bought 45 shares which cost me a few thousand, so I have lost money on this recommendation. That upets me as I trust MF's "experts" to know their stocks. Hope the the others are not as bad. I may request a refund for my Global Gains membership.

  • Report this Comment On September 17, 2008, at 12:04 AM, valari25 wrote:

    Given that AIG probably doesn't know their own company, I don't see how you can expect an outsider to figure it all out.

    Wait....

    It doesn't matter, their advice isn't gauranteed. How many people recommended Enron or Worldcom before their CEO's imploded the company?

    If they were always right, they'd charge more!

  • Report this Comment On September 17, 2008, at 8:43 AM, Stoobz wrote:

    Several years ago I expressed my concern about AIG to my company via the concerns program only to eventually be told to mind my own business. It was the Fool who brought to my attention the dubious nature of AIGs decisions back then...

    On another note - the Fed Chairman should resign. Bring back someone who truly understood what is needed, Paul Volcker. Bernanke is simply in the money printing business.

    200 years to get the first 5 TRILLION in debt, almost overnight to get the second...

  • Report this Comment On September 17, 2008, at 10:23 AM, SteveTheInvestor wrote:

    "jhatlarge" stated 'The ones that are mentioned "owned by the fool" (grab those!!)'. I don't agree. Of my 5 worst stocks of all time, 3 of them were recommended by Stock Advisor and another was recommended by Income Investor. These stocks are way down and I expect they will stay that way for a long time to come.

    So, go ahead and "grab" if you will, but I hope your lucky enough to grab the good ones. Investing is just a crap shoot. If you're lucky, you make money, if not.... you lose.

  • Report this Comment On September 17, 2008, at 10:33 AM, titanicdwn wrote:

    As I said previously in my comment above. 'Financial experts' cannot allow themselves to see it coming, or advise as such. Their jobs would end even sooner than they would otherwise. HERE IS MY ADVICE:Any investment, especially those based in the USA, will become more and more shaky as time goes on. Even stocks perfectly healthy today will not have that same health in the near future. Pull out your money now. The likely hood of major wars in the near future is pretty high. You may want to think about that if your country is either spending to much on one, or actually loses a war. A war in Iran will not nearly as easy as ones we fight now.

    I know something about war. Iran(and others)will let you bomb them all you want. Sooner or later you send in the troops, then you pay as every man woman and child is trying to kill them. Iran's population is not divided like in Iraq. Consider other Islamic countries who have/are getting the atom bomb now. And if you think that will not affect your stock values, better think again.

  • Report this Comment On September 17, 2008, at 1:47 PM, x4babcock wrote:

    Your open letter is exactly why I subscribe to the Motley Fool. I know that all of the day to day drama is interesting and gives us something besides the weather, or really bad "reality TV" to talk about around the water cooler or out in the smoke pit, but panic never helps. Have you ever seen something get fixed because everyone went bats&(*t! ?

  • Report this Comment On September 17, 2008, at 2:16 PM, titanicdwn wrote:

    When the Roman emperor Honorios(spelling not correct), saw the visagoths cross over the seventh hill, did he know the Roman Empier was about to die?

  • Report this Comment On September 17, 2008, at 2:30 PM, kwill10 wrote:

    I agree that this isn't exactly like the 9/11 drop; perhaps a better analogy would be the tech bubble. A lot of money disappeared in a short period of time, but it didn't sink eBay, Amazon, or Yahoo! The strongest survived then, and the strongest will survive now; some investment firms are getting burned, just as many investors got burned when many .coms went under. Analogies to the Great Depression are comically exaggerated. The lines today are longer at Wal-Mart and Target than they are at the soup kitchens...this is a recession, not a depression.

  • Report this Comment On September 17, 2008, at 2:35 PM, titanicdwn wrote:

    It is not a matter of going 'bats' for me. I am not one of those people getting their life trashed in the stock market right now. However, I think 'lifeboats' would be an excellent investment. On the Titanic, rich people were grabing those before the lower income people knew what was going on. Or, to put it another way, pray for an overseas transfer. WHY? Example:The company I work for is sending only their best people to live overseas. I am begging my boss for one and he tells me I at least three promotions short of any hope for transfer. If you have so much money to invest, invest in me getting out of this country. Poor people were more than welcomed to first class cabins right before it sank.

  • Report this Comment On September 17, 2008, at 2:38 PM, ashercarter wrote:

    Too much going on in the market to have motley fool attempt to sugar coat the market. Each day more bad news. Where will the money come from to bail out these mismanaged trillion dollar failures. I wish that Ihad no exposure in the market at all but unfortunately I do.

  • Report this Comment On September 17, 2008, at 4:21 PM, 3646rej wrote:

    Thanks guys, you turned a +40% portfolio into a -40% portfolio, and I paid for this garbage! RJ

  • Report this Comment On September 17, 2008, at 4:23 PM, QuirkyDi wrote:

    Sometimes, cash is King...this is one of those times. I'm not even sure I should continue paying my mortgage since recent

    talk of the renewal of the RTC will probably allow you to buy your old house back at 30-40 percent of todays value.

    The banking and financial system is completely insolvent, good solid companies be damned.

  • Report this Comment On September 17, 2008, at 4:26 PM, QuirkyDi wrote:

    One other comment...

    Ron Paul was right !

  • Report this Comment On September 17, 2008, at 7:07 PM, imadethis wrote:

    Thank you Motley Fool team. Well said!

  • Report this Comment On September 18, 2008, at 3:02 PM, parkallee wrote:

    I appreciate the TMF's letter to the paid subscribers and to the free service, as I think both are excellent resources. Last time I bought stocks was in 2001/02, another time 'when the world was coming to an end'. I used only the free service to choose my picks then, and several of them turned into multi-baggers since.

    This time I am using the paid as well as the free services for my research, to pick up more stocks while the world is coming to an end again, while there is blood running in the streets and everybody is full of FEAR. My portfolio is currently mostly flaming red, like everybody else's. I , too, was stupid enough to buy FMD, even though I knew nothing about that company, and the name should have been a give- away (as in the first marble head to roll).

    I will continue to buy shares every month via cost averaging, this time sticking to the stuff I know, which are global stocks covering alternative energy, garbage, recycling and the green industry in general. On days that my portfolio is particularly down, I print a statement copy to keep on file for my amusement in 5-10 years, when hopefully it will be all green again , and hopefully I will be kicking myself then that I didn't pick up more when it was all so incredibly cheap.

    Yes, the Roman Empire did fall eventually, and all the folks in their occupied territories in Europe and North Africa were very relieved when that day finally came. Rome is still a major city today, Italy is still an important country, the pope still resides there, Latin is still the language of science, it was the Italian Christopher Columbus who discovered the Americas, and we still get to enjoy Italian fashion, Italian opera music, Italian cuisine and Amore.

    Everybody around here is still driving to work everyday in their cars, and their houses are still filled with cheap stuff from China and all sorts of electronic gadgets. The water is still coming out of the faucets when we turn them on, and electricity is still coming from the wall sockets, and the supermarkets are still stocked with a mind-boggling array of foods.

    My portfolio too is 25% in the red today, and it might fall much further. That means I have 70% left of it today, which is still a lot more than what billions of people in this world have, who would be happy just to have access to clean water, or to have just a corrugated tin roof over their heads.

    The housing bubble busted, but that does not mean that houses are worthless now, it means that finally people can buy again, they can finally afford to cover their mortgage with the income they earn. I just moved into my newly build, affordable house, and I know many other people who are in the process of buying homes, because now they can.

    If you are giving into the temptation to liquidate your stocks today because you are afraid to loose more, you are locking in your losses for sure. If you wait, you are keeping your chances to win open. SteveTheinvestor is right when saying it's a matter of luck to make money with stocks. It's also a matter of luck to wake up alive and healthy every day.

    Turn off that TV, ignore the Panic, and count your blessings instead. I will go and reread the section in one of Peter Lynch's books, where he describes in his humorous way, how he would appear on TV together with other financial experts at a round table periodically, lamenting the end of the world, while they were actually making money from buying through that time.

  • Report this Comment On September 19, 2008, at 1:32 PM, richardrollo wrote:

    Yes, I agree with this article. Good quality stocks with good products, sound cash flow, and cautious spending and debt management will survive almost any market downturn. I find it interesting that I spent this week watching WAMU (where I have my bank accounts) much more closely than any of my stocks, which are doing fine. But, I concluded ten years ago that ALL Southern California real estate was grossly over valued, and it spiraled insanely upward from there. This madness of crowds is playing out like a musical dance number. I only worry that the politicians will do things that will really make a mess of the economy.

  • Report this Comment On September 19, 2008, at 2:05 PM, ContrarianProfit wrote:

    I don't know about you, but the U.S. government's ever increasing presence in areas not outlined in the Constitution is instilling more panic, not less.

  • Report this Comment On September 19, 2008, at 5:14 PM, Fool2beKC wrote:

    It's stunning what the consequences of greed and risk in the form of "NINAs" taken and spread like a plague throughout the entire financial system have done and may yet do in terms of "freezing" the market's ability to "value" anything for now. And after viewing the transcript from the NPR "This American Life" podcast recently shared by TMF detailing the end-to-end dishonesty of recent mortgage finance from loan applicants through to the former investment banks on Wall Street and then to have the Federal regulators open up the markets for naked shorts to drive any stock they chose to oblivion - well I sure hope this level of economic destruction is eventually "creative".

    It's also an eye-opener about how there is almost no such thing as "diversification" when even money-market funds can't keep a dollar at a dollar in value recently in two cases.

    When "everything" appears to be broken there may never have been greater reasons for panic, but panic is still pointless. It's a good time to be intelligently (but honestly) "greedy" and to use common sense about the longer term. Almost everything is "on sale" now. I just wish I had more smarts & cash to make my own valuations about what to invest in. I for one plan on spending a lot more time on the TMF boards and more time with the "reading list" so I can make better investments going forward. I'm sure there are opportunities out there in the 5- to 10-bagger range that Peter Lynch liked to aim for.

  • Report this Comment On September 20, 2008, at 10:12 PM, derfrolf wrote:

    I am and have been 90% fixed income and bonds for the last 8 months. My 10% stock holding now represents about 6% due to loses. I'm not getting back into stocks until after new year.

  • Report this Comment On September 20, 2008, at 10:54 PM, Unbelieverstill wrote:

    If I followed your advice over the past year I would be sitting here watching my stocks fall into oblivion. A lot of so-called strong stocks have plummeted and many more are on the brink.

    I appreciate the desire to sooth the market and stop the blood letting, but don't do it at my expense. I expect you to provide me with advice that will help me to maximize my profits.

    Right now I am profiting greatly from oil, gold, shorting and just holding cash. Once the market bottoms and starts a rebound I'll be ready to be a Motley Fool again. See you in a year or two or three.

  • Report this Comment On September 21, 2008, at 2:07 PM, theprimeminister wrote:

    you are righ to say no one should panic as this is what the puppet masters want !

    we can go and test Thursdays low again in the next week and if so Buy

    as for what ex Goldman banker Paulson wants ? this whole matter should be approached with caution by Congress as there are toooo many present and ex Goldman advising everyone that is caught up here and maybe it would be first best that Goldman merges with Morgan Stanley so this wild beast Goldman Sachs can be controlled or better still with JP Morgan and truly watched as they have alot to answer for in thsi whoole debacle

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