What´s Your Outlook for...?

I´ve recently received a few emails from subscribers asking about my outlook for a few of the stocks I have mentioned on this blog. Instead of going thru each stock individually, I have some  general observations to make.

From my perspective, we are currently in a bear market, especially for the micro-cap, "junk" stocks, which I generally recommend for actively managed portfolios.  It´s amazing how quickly market sentiment can turn, but that´s to be expected and it´s precisely why I view the market as similar to casino. Despite the fact that little has changed in terms of business fundamentals for most of companies I follow, many of the stocks have become extremely volatile and drops of 50% plus are are becoming quite common.

There is clearly little justification for these equity movements when you consider the underlying businesses. The declines are I believe more of a reflection of illiquid markets and fewer market  players, or outright gamblers for that matter. With technology stocks, the option scandal is also a consideration, but then again, I´m not bothered by that development since I´ve mentioned in the past that most stocks are merely a mechanism of wealth transfer from individual investors to management. So I´m a bit surprised that people are dismayed by the option "fraud". It´s just part of the game and something you need to consider before investing in any stock (e.g. I rarely purchase a stock with significantly in-the-money executive stock option prices). Eventually, the option concerns will get priced in and blow over.

So what´s an individual investor do? Well, I´m just waiting it out. As long as the business fundamentals of the companies I´ve mentioned here continue to improve, the stocks should bottom and then eventually recover. Of course, the timing for a new bull market is impossible to predict,  but if the companies you have invested in have a strong balance sheet, the odds favor a new bull market at some point and you can wait out the bear with no fear of a permanent loss of capital. It pays to remember that sentiment can and does turn bullish on a dime, and it´s therefore silly to sell into illiquid markets if the businesses are doing OK.  It´s just a question of time.

Finally, there is probably one other thing to remember: In depth analysis is never all that important in the stock market. Aside from the fact that market is most often irrational, sophisticated analysis is clearly not needed in a bull market and in a bear market you don´t want to hear it. In other words, too much information is, I believe, dangerous to the health of your portfolio. If the companies you own have the financial strength to survive a few bad years and the cash flow potential to ignite investor interest in the next bull run, you should be OK. That´s at least been my experience from past market sell-offs.