World Economy

Editor Charles Mizrahi has the engaging habit of leading each issue of Hidden Values Alert with something interesting, perhaps because his fully invested, number-crunching fundamentalist technique is a bit, well, B-O-R-I-N-G.

Recently he reflected on recent brain research into physiological changes caused by threat: “When we panic, the blood-flow activity shifts from the prefrontal cortex (front of the brain), where we rationalize and make decisions, to the middle brain (periaqueductal gray). That’s the area of the brain that gives us the ‘fight-or-flight” response.” Ah.

Mizrahi’s investment conclusion: “My suggestion for when you have the urge to do something — especially during periods of fear — is to take a time-out. If the conditions that existed when you originally made the investment still exist, then don’t do anything. Does it make sense to sell out of your position if the company’s balance sheet is stronger than it was when you bought the stock and the valuation is currently lower?”

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White House budget director Jack Lew tells Meet the Press that there is still time "to get something big" done as lawmakers grapple with debt. Video courtesy Reuters.

“Keep in mind that we’re hardwired to panic when our brain senses danger to our survival. Put investing in perspective: You’re not a zebra being stalked by lions on the plains of Africa … so don’t allow your brain to act as if it’s so.”

What’s particularly interesting is that Mizrahi said this in Hidden Values Alert’s current monthly issue, published June 20, when stocks were at the bottom in their six-week swoon.

So not panicking worked for Hidden Values Alert then — and something has been working for it for quite a while.

Over the year to date through June, Hidden Values Alert is up 11.2% by Hulbert Financial Digest count vs. 6.09% for the dividend-reinvested Wilshire 5000 Total Stock Market Index — making it seventh-best performer of the 180-plus that HFD follows. Over the past 12 months, Hidden Values Alert is up 46.49% vs. 31.99% for the total-return Wilshire 5000.

Over the past three years, the letter is up 15.95% annualized vs. 3.96% annualized for the total-return Wilshire. Over the past five years, the letter was up an annualized 9.67% vs. 3.44% annualized for the Wilshire 5000.

Mizrahi used to lead his letter with a quote from values guru Warren Buffett, although he seems to have backed off as Buffett has come under attack. (See “Buffett fan barreling along.” )

Nevertheless, Mizrahi expressed the fundamentalist faith forcefully at June’s lows.

He wrote: “I don’t know what will happen to the stock market over the next few weeks, but I do know that buying stocks that have strong balance sheets when they are trading for bargain prices is an approach that has withstood the test of time.”

Mizrahi gave an example: “Over the past month, the technology sector has been falling. Companies in the semiconductor industry that we have in our portfolios — such as Intel Corp. INTC +0.58% (-11%), Kulicke & Soffa Industries Inc. KLIC -3.13% (-16%), and Vishay Intertechnology Inc. VSH +0.07% (-17%) — have fallen more than the broad market. In spite of such companies’ rock-solid balance sheets and low valuations, investors are panicking and selling when they should be buying.”

Hidden Values Alert’s “Prime Time Selection” in its current issue exemplifies its value-oriented philosophy: Leucadia National Corp. LUK -3.12%

Mizrahi writes approvingly: “Leucadia tends to seek assets and companies that are out of favor or troubled and, as a result, are selling substantially below the values the company believes to be present.”