January 20, 2019
Happy (belated) Martin Luther King Day!
And again… what a difference a couple of weeks makes!
Markets have rallied to start the year with tax-loss selling having run its course and a lot of value being found by stock screening programs. You see, if the market price has come down but the projected earnings have not yet been updated, a given stock will appear relatively cheaper than it used to. But this is fool’s gold if it turns out that the earnings are later revised lower on a forward basis.
Such is life in a market of buyers and sellers.
There are several analysts whom we highly respect – who have been right way more than wrong – on both sides of the market. Some guys think we are seeing the last great buying opportunity before the melt-up, and other guys are saying the is the last chance to get out before the next major drop.
Our position – no idea. It isn’t important. Our rules work in either situation and our crystal ball still works in neither… much to my disappointment. We’ll leave the predictions to CNBC.
What we like to do during times like these is shift our focus to shorter-term and bottom-up ideas - where we have an edge – or where the odds are more in our favor.
Bottom up means analyzing investments from the perspective of their business, and valuation - and only then deciding whether you’d want to be invested in that business, at that price – no matter the political and economic environment. If so, wait for the technical signal to buy and get in.
What we don’t do is try to play guessing games on major macro trends that can be influenced and turned 180 degrees in 280 characters (in the form of a tweet) from the President, or other political figure.
While this market is getting bounced around like we haven’t seen in many years, there are several companies that are doing more business with more profit than ever before. We are looking for those companies. These companies may focus on low-cost product solutions – like Ubiquiti Networks (UBNT). As a business owner looking to save money over the next few years (in anticipation of a recession) you might look to UBNT to reduce some of your technology overhead cost. In a recession – we would expect this type of business to thrive.
We have found others like this and we have re-deployed a small amount of capital so far in 2019. We don’t feel like we have missed anything from a return perspective – if you remember last year, we got off to a roaring start too – and look how that ended up.
For now, we haven’t gotten too many re-entry signals on stocks that we are watching. We are patiently waiting for statistical confirmation before getting caught up in the FOMO (fear of missing out) that the market tends to experience.
We have no preference on the market’s next direction. While we always like to make money, we like a good sale just as much – but only when we have lots of cash with which to go shopping, which we have.
Chief Investment Officer
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