The Straight Talk Blog

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Rob, Rupel and Richard


October 2014

So what are we doing about the markets?
Oct 15, 2014 5:15 PM
Heathbridge Capital Management

You may be disappointed in our answer.

 Not much on the sell side.

 The correction that we are experiencing is a normal phenomenon. They always cause anxiety, as we are feeling now. But the markets still manage to return 9 percent per year in spite of them, on average of course. That means that if the market goes up 50 percent over two years, some declines must be expected in some future year. The trouble is, you can’t tell when that will be and there is no strategy that works to take advantage of this phenomenon.

 We have written before that markets trade below some previous peak about 70 percent of the time. That means that, if the level reached on September 3 of this year was a peak, it will be some time before markets get back through this level. But, it is as inevitable as anything in the market can be that  they will eventually exceed the September 3 top. In the meantime, almost all the stocks in our portfolio universe pay dividends and their collective yield is 2.3 percent, so we will be paid to wait.

 We are not seeing distress in the world economic news. The US is strong and Europe will follow suit in due course. The societal rules in Europe are less conducive to business formation than they are in North America, and some delay should not be surprising. We have also had unaccustomed geopolitical shock in that region which has undermined confidence. In time, both factors will give way to a least moderate growth. We think we are closer to an intermediate bottom than not.

 Our system tends to generate cash, not always a lot, near market peaks as our investments hit trim targets. This happened to enough of the stocks that we own that we ended the third quarter with over two “positions“  in funds that can take advantage of the recent market declines. We have been steadily adding to existing stocks of industry leaders where we had become underweighted with the decline, including some this week. When good stocks are on sale, it is a good time to buy.

 Nevertheless, we expect that in time they will prove to be profitable buys.

 As long as you don’t sell your good company shares, you haven’t lost money. Once you have sold, however, their future potential is lost. Holding on has always been the best strategy.

 The Team at Heathbridge