The second quarter of 2017 ended with little fanfare but was rife with speculation that the markets needed at least a correction and perhaps were teetering on a new bear market, to be brought on by recession. The catalyst for this reemergence of pessimism was the May jobs report which showed a tepid 138,000 jobs created for that month. Suddenly the headlines crowed about the Fed tightening credit just at the time the economy was weakening which was surely to be a harbinger of calamity. It was “risk off” again and many of the best performing stocks in our portfolios over the last year were hit relatively hard and sharply.
We have grown accustomed to this type of hyperbole from the punditry (not to mention those that either make their living on shorting, or trading, and require “volatility”), and have learned over decades of professional investing that we are best served when we follow closely the businesses in which we are invested and, generally, ignore the movement of the stock prices of those companies. Obviously, the term “generally” is there for a reason. There are moments when it is necessary to assess the value a company has attained and determine if it is time to sell. For it is never appropriate to assume that great companies can continue to grow eternally, and the challenge of determining the time to “cut the cord” is truly the art of investment management.
Our general view is that the climate for investing is very positive, despite the constant groans of the crowd. That said, corrections can come at any time, and we may well be due for something more “scary” to the tune of 5-10% down. This would be healthy and a reason to position ourselves in some companies that we have on the “observation deck.” As we have stated in recent commentaries, should the government be successful in trimming regulation (which has already begun) and reforming the tax code, we believe we would see a substantial revaluation of general stock prices to the upside. Stay tuned.
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