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Q1 2019

April 1, 2019

On March 9th, I mentioned to my wife that I needed an idea for my newsletter.  She suggested a retrospective theme to which I replied, “As a matter of fact, exactly 10 years ago today the stock market bottomed out.  I then proceeded to tell her my personal version of the 3/9/2009 story (in great detail, of course!).  Coincidentally, the following week, a friend/client asked if I remembered the market crashing 10 years ago. So, I responded by telling HER my 3/9/2009 story.  I may as well continue the trend by sharing my noteworthy 3/9/2009 story one more time, so here goes:

Following a 2-day conference in Las Vegas, a friend/professional associate and I arrived at the airport in the early morning of 3/9/2009.  My friend’s phone was ringing nonstop as we walked to our gates.  I could only hear his end of several conversations, but they went something like this: “You want me to sell everything?”, “You want me to sell the IBM bonds?”, “You’re done with the stock market?” As we approached a lounge area, we noticed dozens of people riveted to CNBC.  News analyst, Mark Haines addressed the viewers, then President Obama came on, followed by Haines again.  The stock market was unraveling, and Mark Haines calmly stated, “I’m going to step out on a limb here…I think we’re at a bottom.  I really do.”  This legendary quote became known as the Haines Bottom.  Good call, Mark. (Haines passed away in May 2011.)

It’s hard to remember just how bleak things appeared at that moment. (Many of us have tried to erase it from our memories.)  On most client statements, you’ll find the value of your account from 3/9/2009 on the TOTAL line, bottom left (the 3/9/09 value does not account for additions/subtractions in your account since that time).  As further evidence of its significant impact, I offer an excerpt from my April 3, 2009 newsletter:

I’m going to tell you about a myth that’s hurting investors right now.  It is well expressed by Bob Dylan in his immortal song, It’s Alright Ma (I’m Only Bleeding), with the lyrics-“warning against being nothing more than something they invest in”.    

We will dig out of this. And when we do, I hope for a back-to-basics society where banks and other lending institutions promote real growth and long-term value for the economy and where American families have rediscovered the peace of mind of financial security achieved through saving and investing wisely. We need to return to the culture of thrift that my parents’ generation learned the old-fashioned way… through years of hardship and deprivation. Those are lessons learned that the current crisis can teach us again.

If you had a $1,000,000 or $250,000 a year ago, and now you have a lot less, you are still the same person. Making and losing money are not moral issues if you are being honest.  It’s a myth that money determines who you are. So, maybe the past year wasn’t all that bad after all..

Remember, when the chips are down… the buffalo is half empty.

So much has transpired since that memorable day a decade ago, but have we learned from our appalling greed and foolishness?  The jury is out but, hopefully, the residual discomfort keeps us more vigilant today.  Which brings me to much more recent history…the past 4 months.  What happened last December when stocks, (particularly small companies), were pummeled in lockstep?  Then, what on earth occurred in the first quarter of 2019?

Not much has changed on the macro side since last year. Certainly nothing that would suggest the radical changes of direction we’ve seen since small companies peaked in August 2018.  With the absence of any major events, the pattern looks like a classic case of short-term mood swing with investors buying, selling, and then buying again in hurried fashion. December’s wave of indiscriminate selling (negative mood of investors) revealed a disconnect between a company’s operational success and its stock price.  What made this pullback so jarring was its speed and severity.

In hindsight, I would have given 25% odds of the December downturn occurring.  I would have given 0% odds of the rebound we experienced this quarter.  As I recently told a client (who was pleased with his first quarter’s success): “I wasn’t a fool last December, and I certainly didn’t become a sudden genius this quarter.  However, I realized that our companies were unduly punished, and GCM was a buyer when the opportunities arose.”  And that, my friends, is how we make money– taking advantage of senseless selling and market discrepancies.

The absurd valuations with some of our companies in December were accompanied with positive outlooks. Examples – Enphase closed 2018 at $4.73 (now $9.23), Daeske$3.68 (now $5.09), Intellicheck $2.14 (now $3.53)

The article–2020: Why You Should See the Fossil Fuel Peak Coming asked the following interesting question: At what point does a new technology cause an existing industry to start losing significant value?

This may turn out to be the most important economic and political question of the first half of this century, and the answer might tell us much about our chances of getting through the climate crisis without destroying the planet. Based on earlier technological transitions—horses to cars, sails to steam, land lines to cell phones—it seems possible that the fossil fuel industry may begin to weaken much sooner than we’d expect.

This is the major premise of GCM’s investment in Enphase.  Enphase (ENPH) is typically the largest investment in client accounts based on the rapid growth of its stock price since we began buying in 2017.  Even though the shares have appreciated rapidly, the company’s growth is in its infancy.  They have THE best microinverter (convert sun to AC power for the home) technology in the world.

Over the last decade, there has been a staggering fall in the price of solar and wind power, and of the lithium-ion batteries used to store energy. This has led to rapid expansion of these technologies, even though they are still used much less than fossil fuels.  Our premise that solar will expand rapidly, Enphase will be profitable and a worldwide energy leader, and that we are in the early innings, bodes well for our ENPH investment.

How do you leave big money on the table?  Often by not thinking long-term and selling too soon.  The large profits are made with patience, without concern for the short-term noise.

It is reported that stress levels of financial advisors are 23% above the national average. And while stress can sometimes help to optimize performance, it can also shorten one’s life significantly. So, please take it easy on me when this frenzied pace abates 😊

Thank you for your continued trust in GCM and my unique investment style.  It remains my privilege to serve you.

– Len

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.

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