In May, the shares of two stocks in the Peattie Capital Reasonable Price portfolio performed well: Make My Trip (Nasdaq: MMYT) and ChipMos (Nasdaq: IMOS).
Both these names are not well-known and MMYT is particularly speculative, so they can be volatile. However they are both worth holding in my opinion, especially in growth-oriented portfolios.
Other holdings that performed well included SBA Communications (Nasdaq: SBAC),Tronox (NYSE: TROX), Macquarie Infrastructure (NYSE:MIC), As I mentioned last month, QCOR (Nasdaq: QCOR) is being purchased by Mallinckrodt (NYSE: MNK), and I have closed that position. It should be noted here that past performance isn’t always indicative of future returns.
Shifting to the broader market dynamics, in my opinion at some point the current buy and hold environment for stocks will change and I watch a number of indicators for insight into when that might happen.
Generally speaking, hedge funds tend to be much more active traders, which may explain their ongoing performance problems. A Financial Times article posted on May 20 pointed out how the choppy markets had hit hedge fund returns hard. As the article noted: “The average hedge fund is suffering the worst start to the year since the financial crisis, making just 1.2%.” When my hedge fund friends tell me they are “buying and holding” that will be a sign to me that this phase of the market may be nearing an end.
Another factor to watch: Midterm election years are bumpy, so I wouldn’t be surprised to see a 5% to 10% correction somewhere along the way, which would be normal and healthy.
Ned Davis Research recently published a note stating that when May’s return is over 2%, then the subsequent June – October period averages a 3.9% return, compared to 2.7% otherwise. I don’t invest based on seasonal tendencies, but it’s helpful to know they exist.
The recent downwardly revised GDP number is largely attributable to the weather and a late Easter, as far as I’m concerned. In my opinion, investors should expect economic activity to accelerate going forward. In addition, the weak GDP number was widely expected, and had little or no impact on the markets.
Inventories were light, but that suggests to me re-stocking will begin, which I view as a net positive. Consumer spending was up 2.1% and final demand grew at +0.6%. The latest ISM report showed improvement for the 13th consecutive month. Bottom line: I don’t see a recession on the horizon.
Unlike many of my peers, I don’t pursue any one investment style over another, or limit myself to stocks of a specific size. I believe in being flexible and opportunistic and will go anywhere in equities if I believe the opportunity is there.
For the most part, I am fundamentally driven, and believe earnings drive stock prices more than any other single factor. I am as comfortable owning a $200 million market cap company as I am a $50 billion one.
In addition, I am constantly reviewing the overall environment for equities, based primarily on liquidity, valuations, and sentiment or investor psychology. Hays Advisory Group uses this framework, and I have been following it since early 2000, when I began managing money on a discretionary basis.
I read a number of newsletters and equity strategists such as David Rosenberg at Gluskin Sheff & Associates, Whitney Tilson at Value Investor Insight, and also have an extensive network of other professional money managers, several of whom have over 30 years of industry experience.
Meanwhile, SodaStream International (Nasdaq: SODA) delivered its second consecutive disappointing quarter. This one is on a very short leash.
DISCLAIMER: The investments discussed are held in client accounts as of May 31, 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.
