The S&P500 lost 14+% in the 3rd quarter. Fifteen times in the last 50 years, the S&P has lost 10% or more in a quarter. The good news (yes, we’re looking anywhere we can) is that in 12 of those 15 downturns – gains of 10+% were made in the subsequent quarter.
Remember the good ‘ol days when the U.S. sneezed and the rest of the world caught cold? Or the way GM went, so did the U.S (at least according to the GM CEO)? Well, those days are long gone. We are just one piece of the puzzle, a puzzle with growing pieces every day. Now, every day we wake up globally. Investors, professional or not are concerned with: our Congress, China’s economy, the European union, worldwide banking liquidity, natural disasters, etc., etc. What happened to just good ‘ol company analysis? Blame it on the macro, baby, the global macro!
If you compare your month-end June or July statement (on second thought don’t – it’s depressing), you’ll see that the drop the last 60 days was vicious. I cannot honestly account for what happened the last couple of months. There were too many issues, including the U.S. downgrade. But I can honestly tell you this. Of the 50 or so common stocks owned by GCM, I have not seen ONE piece of negative news – NOT ONE! Unfortunately, most are down since July 31st and, for that, I humbly apologize. Yet, the prospects of many of our companies are intact and, given time, should financially reward us. For example, GCM has owned Lpath, Inc., an ocular/cancer biotechnology company for four+ years. The current price is $.85 cents and this report puts a price tag of $8.00 on it in 18 months. Not sure if I agree with this but, regardless, the prospects are intriguing. A PhD friend of mine (in the field of ocular research) visited the company in September and concurred with our assumptions from 4+ years ago. She believes the company’s science is unique, exciting, and the prospects for their technology – excellent. Throw in Lpath’s relationship with Pfizer, and it gets even more interesting. This is just one example. Many of our investments have similar long-term prospects. If only the global markets….. dream on!
So, the news is not all that bad. Here’s another piece of good news (I’m pulling out all stops). Money managers with whom I am in constant contact tell me they’re hearing the same thing from clients – sell or raise cash. This is usually the sign of a bottom. I remember this well in the 1st quarter of 2011. In an age when short-term is all the rage, my compunction is still to own a company for years until there is a persuasive reason not to. The macro is dragging us down; hopefully, the micro will be our salvation.
Please allow me to repeat an excerpt from a prior quarterly letter because it is even more applicable today. The pathology of our investing age – is that financial consumers are constantly being driven to a state of frenzy and high anxiety. If holding stocks makes your stomach churn, then you might be reluctant to buy or own them. Multiply that effect by a few million investors, and it could drive up the risk premium. That, in turn, could generate proportionately higher long-term returns for people who either have a strong tolerance for uncertainty or fear-mongering. As stated, I do not believe that anyone can accurately interpret a thousand data points, but what I CAN provide is a way to put all this scary information into perspective. I truly believe that GCM’s investing style can greatly take advantage of the fear-mongering and negative flow of information. No good news currently = short-term fear mongering.
The fact is that macroeconomic data and policies influencing the economy are having little impact on what’s really important to equity investors – corporate performance. Yet rarely has there been more attention focused on macroeconomic data and policy decisions. Clearly, the solution is to focus (with blinders on) on what really matters to equity investors — earnings and dividends and the price to pay to participate in those sums. Las Vegas housing or Greece’s economy are apt to remain in the toilet while large U.S. corporations that populate the Standard & Poor’s 500 are currently doing just fine. BEWARE the FEAR. Summing up, I believe that stocks are selling on the differential between fundamentals and expectations, and right now…. expectations are very low!
CURSE YOUR WOUNDS
Call it four-letter first aid: British researchers found that swearing can boost pain tolerance. In fact, people who uttered expletives withstood icy water twice as long as those who held their tongues. For maximum pain relief, blurt out the word you find most offensive. Next time the mood strikes, how about…. CONGRESS? I can’t help but wonder who volunteered for this?
Percentage decrease risk of prostrate cancer risk by drinking 1-3 cups of coffee a day – 29%
PLAY IN ADULT LIFE
I am perusing a book of my wife’s about brain development in children and came across the following concept that I thought would be of interest.
In many people, play continues into adulthood and is a major contributor to problem solving. Physical scientists often report having built and taken apart machines when they were kids (Admittedly, I tortured clocks). Conversely, work in adult life is often most effective when it resembles play. Indeed, total immersion in an activity is often the mark of one that is intensely enjoyable – the concept of flow or what athletes call being in the zone. Flow occurs during active experiences that require concentration but are also highly practiced, where the goals and boundaries are clear but leave room for creativity. It is most likely to occur when your abilities are just sufficient to meet the challenge within tasks that are neither easy nor impossible. This describes many adult hobbies from skiing to golf to music as well as careers like surgery, computer programming, etc. Such immersion can make solving a great challenge as easy as child’s play.
Clients often ask me if I plan to retire soon. The way I see it, there’s no reason to. I’m having too much fun. After all, I am totally immersed in my play.
Goldberg Capital Management is an investment adviser registered with the State of CT Department of Banking. This Newsletter and its contents are for informational and educational purposes only. You alone will need to evaluate the merits and risks associated with the use of the information provided herein. Although this Newsletter may provide information relating to approaches to investing or types of securities and other investments you might wish to buy or sell, no information provided in this Newsletter is intended or should be construed as an investment recommendation or endorsement from Goldberg Capital Management. Please remember that past performance is no guarantee of future results.