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Tickers in this Article: CRESY, CF, SBUX, MCD
Mr. Market's optimism appears to have lost some of its luster recently. That's because Mr. Market can often get quite emotional both ways. Long periods of pessimism can lead to times of unchecked optimism and vice versa. Looking ahead, it's really important to realize that as individual investors, Mr. Market could care less about us.

IN PICTURES:
Eight Ways To Survive A Market Downturn

The Fallacy of Assumptions

First, never assume that a truly cheap stock cannot get any cheaper because it can when pessimism takes hold. It happened back in March when asset rich businesses like farming giant Cresud (Nasdaq:CRESY) was trading for less than $5, despite the fact that stated book value was nearly three times as much and actual book value is probably a lot higher because its principal asset - land - generally appreciates over time. Market history has shown that markets can both overshoot and undershoot in their quest to find "fair value." (For more, see The Madness Of Crowds.)

On the other hand when the market was peaking two years ago, names that looked attractively valued from a long-term perspective, like fertilizer name CF Industries (NYSE:CF), still weren't spared a thrashing. No matter what you own, it's important not to take stock price gyrations personally. You are not smarter than the rest when you buy a stock that goes up and you aren't necessarily dumber than the rest when you buy something that goes down.

Macro Matters
Despite the pervasive notion that value investors ignore the macro view, nothing could be further from the truth. You just don't often see the macro view as the first thing value investors consider before making an investment. But macro matters.

Consider the unemployment rate today of near 10%. All indications suggest that the unemployment rate will very likely exceed 10% next year. Further, it's going to take an awful lot of job creation to get unemployment back to 6%, and I can't see that coming from the private sector anytime soon.

So knowing that this is a very plausible scenario, it should immediately make you skeptical of investing in businesses catering to the discretionary consumer. This has nothing to do with whether or not management is good or bad or if the stock price looks cheap or not, but it has everything to do with future earnings which weigh heavily on future stock prices.

For instance, despite its turnaround efforts Starbucks (Nasdaq:SBUX) would not be of any interest to me unless the price was completely off the mark with respect to value. In other words, at or near book value which is about $4 a share - today it trades at $19. The company is introducing a lot of cheaper beverages - a good thing, but if the company's past growth was based on $4 lattes what does that say about the future growth if the company has to rely on selling $1 cups of coffee?

These businesses are going to have a real tough time of it going forward and you won't be able to forecast the future numbers by looking at the past five or even ten years of data for these types of businesses. The competition will be brutal - McDonald's (NYSE:MCD), which can be found near many Starbucks locations, now sells high end coffee for a buck.

Embrace the New Normal

A future characterized by a slower growing economy should be respected but not feared. Just understand the overall picture for businesses going forward and it will be far easier to make it through what some are calling "seven lean years." (For related reading, check out Profiting In A Post-Recession Economy and Recession: What Does It Mean To Investors?)

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