It’s difficult for one to see what lies around the corner. Who heard of Brexit (British exit) a few months ago and … was anyone concerned? No one that I know of. When Britain voted to exit the European Union two weeks ago, the worldwide markets tumbled. When asked by a few clients what I knew and planned to do, I replied “nothing”. A credo to live by: things are never as bad or as good as one thinks… particularly if you wait 48 hours.
Here’s Our Approach – First, maintain our wits, knowing that there will always be times when a panicky market tosses our favorite companies aside like the proverbial baby with the bathwater.
Second, pay close attention to what’s happening in the markets. There is no crystal ball to predict what the Brexit will bring, but we maintain our confidence that wonderful businesses will prove themselves through thick and thin.
Most importantly, look at our stocks and portfolios in the context of staying invested for the long term.
The 48 hours have passed and it’s safe to say that no one really understands the long-term implications of the British EU defection. My hunch is that it might be another Y2K (for those who remember this event on the dawn of the new century).
A few years ago billionaire investor, Charlie Munger, was asked how concerned he was that Berkshire Hathaway shares — which made up most of his net worth — dropped more than 50%. He quickly interrupted the interviewer and responded:
Zero. This is the third time that Warren [Buffett] and I have seen our holdings in Berkshire Hathaway go down, top tick to bottom tick, by 50%. I think it’s in the nature of long-term shareholding that the normal vicissitudes in markets means that the long-term holder should have the expectation that his stocks go down by, say, 50%.
It’s hard to grasp how the best-performing stock of the last 20 years could spend the majority of that time with returns that would make you convulse. It’s easy to think that the single-best investment to own is one that would make us smile every morning we woke with it in our portfolio. But it wasn’t. It never is. And it never will be. That is the nature of the stock market.
On the way to making serious money, you spend a lot of time losing serious money. It’s such a vital point to understand as a long-term investor — especially right now as shares take a big hit. That’s not only true for individual stocks, but for portfolios as a whole.
Two tenets by which we invest:
- Focus on the businesses, rather than the short-term share prices.
- Understand that over the long haul, share prices will reflect the value of the businesses.
The root of this philosophy is that we know with certainty that we will go through periods when our individual holdings and portfolio as a whole decline. And during some of these periods, both will underperform the broader market.
GCM owns several companies whose stock prices have been volatile but the prospects are extremely appealing. To name a few: Alcoa, Apple, Aviat, Barfresh, CUI, Global Ship Lease, Chicago Bridge, Qorvo, and Tower Semi. I’ve seen investors become so frustrated that they capitulate before the inflection point. On many of these aforementioned companies, we are facing an inflection point. A couple of key announcements and business accomplishments will set many of these on the right track toward profitability and investor confidence.
Many clients hired me based on three specific factors: my independence, my research, and my investments in small companies where most professionals dare not (or cannot) venture. While we do own many fortune 500 companies, throughout the past 20-years our alpha has come mostly from smaller companies. It’s easy to forget that last year we had two 5-10X gainers – Dot Hill (HILL) and Qorvo (QRVO). This allowed us to outperform the averages in 2015. I concur that we are struggling a bit in 2016, but these types of gainers are still in your portfolios. We’re just waiting for some good news, then the community to take notice!
I understand that many of you may be concerned, hesitant or just plain scared about the market today. But, as always, I have your back and remain mindful of your best interests at all times.
“Never give up on a dream just because of the time it will take to accomplish it. The time will pass anyway.”
― Earl Nightingale
Here’s to a safer world and a fruitful second half of 2016,
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.