Nasgovitz Notes - December 2011
Video Transcript:
time for small-cap stocks to outperform?
Hi. I’m Will Nasgovitz, and this is the December 2011 installment of the Nasgovitz Notes. I hope you’re having a great holiday season and I want to thank you for watching this video.
In our last video, we asked for your feedback on potential topics to discuss, and one of our shareholders was looking for our perspective on the inaction of the Super Committee here in the United States, as well as the issues in the European government bond market and how both of these might impact the equity markets. Clearly, this is a very topical question and I think it is important to point out that the issue of government debt and government spending does not just reside here in the United States, or Italy or Greece: as you can see in this chart, it is a global issue.
Central Government Debt to Gross Domestic Product
Past performance does not guarantee future results.
Source: Organization for Economic Co-Operation and Development and Heartland Advisors, Inc.
1/1/2000 - 12/31/2009.
This chart shows Central Government Debt, Total Central Government Debt, to Gross Domestic Product for the 34 countries that are part of the Organization for Economic Co-Operation and Development (or OECD). As you can see in this chart, in 2000, the ratio of Debt to GDP stood at 51% and it ballooned to 70% in 2009. In our view, this relationship is not sustainable and, judging by the recent action in the European Government Bond Market, it appears as though investors agree with us.
The likely retrenchment in government debt and spending going forward suggests to us lower economic growth. So what does this mean to you as an investor? Well, clearly it highlights the importance of continuing to invest in what we believe are financially sound companies. In our opinion, owning companies that are not burdened by excessive amounts of leverage will allow these companies to weather challenging economic environments as well as pursue potentially shareholder value-creating actions such as paying a dividend, increasing their dividends, buying back stock or making accretive acquisitions.
In our opinion, investing in financially sound companies is just a common-sense approach to making money over the long-term. And with that, I want to thank you for watching the video and want to encourage you to submit future topics to us at shareholderservices@heartlandfunds.com. We look forward to seeing you next year, thanks.