November was another good month for Peattie Capital Reasonable Price portfolio. One disappointment: a couple core positions peaked early in the year and have gone sideways for several months, holding back performance somewhat.
I’m referring to my holdings in the Macquarie Infrastructure Trust (MIC) and KVH Industries (KVHI). However, in my opinion, these are excellent long term opportunities and expect to hold them.
The biggest performer in November was ChipMos (IMOS) and two other good performers were JP Morgan (JPM) and Cedar Fair (FUN).
My view remains that, broadly speaking, leading global economies will continue to improve slowly. Parts of Europe are doing better, and China’s recently announced policy of becoming more “market friendly” will (eventually) support growth there.
The most recent inflation statistics from Japan were the highest in 15 years, demonstrating that Abenomics is succeeding. In the US, falling gasoline prices have aided consumer spending, October’s unemployment numbers were very strong, and there have been steady improvements in car sales, manufacturing, and housing starts, among others.
Overall, I think the conditions for equities remain favorable. For example, we still have unusually low interest rates, a positive and steepening yield curve, and extraordinary corporate liquidity.
There’s also a dearth of investing alternatives, funds rotating out of fixed income, a dovish Federal Reserve which may taper relatively soon but isn’t close to tightening, and skepticism on Main St., which is a bullish factor in my opinion.
While I still like the big picture, from a near-term perspective it looks to me like the markets are a bit overbought. For example, sentiment has swung overwhelmingly to the bullish camp, with the AAII poll showing 57% bulls and 15% bears.
The biggest challenge in 2013 has been to stay invested. Despite lingering concerns about possible financial meltdowns, a government shutdown and one of the weakest economic recoveries on record, the market has gone 530 days without a 10% correction.
As I said last month, anyone awaiting such a correction might want to get started by selling a small portion of their investable assets, and dribble more in over time. In my experience those who wait for a correction don’t invest even if one arrives, as they then decide to “wait for things to get a little better.”
A number of cyclical sectors within the S&P 500 have been winners. Among them are airlines, autos, media, specialty retailing and semiconductors. While I don’t expect the same performance from these sectors next year, I think there are opportunities from a cyclical perspective. To me this indicates a market that expects further growth.
Most strategists I’ve read expect a good but not spectacular year in 2014, with the indexes gaining mid to high single digits. That seems reasonable, but consensus is usually wrong.
I’d like to see more volatility, which may come early in the year as Washington addresses budget and debt ceiling issues. Additionally, I have a mild bias for mid- and larger- cap names, and also cyclical companies that will benefit from improving economies and confidence. More so than usual I am looking for companies that are undergoing some kind of change and that have catalysts for earnings growth. In my opinion, the chances for investment success are better in such cases.
DISCLAIMER: The investments discussed are held in client accounts as of November 30, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
