Opportunities in smallcaps header image 2

It’s all about performance

July 12th, 2008 · No Comments

It’s a very difficult market for stockpickers. There are excellent values out there, but just when you think they’re now at compelling values, the market takes another lurch downward and the compelling values become, well, even more compelling..

After a good start, we ran into some trouble with some of the stocks we’ve recommended, although our main featured company is a big winner. Our main error was not taking our own pessimism about the overall markets sufficiently into concern when recommending some stocks that we thought provided excellent value at the time.

Good value they might have been, the falling market which we predicted rightly made them into even better values. We’re mainly talking about TSL and EFUT here. We have no reason to think that they won’t recover strongly once the market bottoms out, which might be sooner rather than later, actually.

DRYS is sitting at exactly the point where we gave it a buy (and it has gone up considerably in the meantime, there were two points at which we advised to lighten up). As we argued many times before, it’s highly unpredictable as it mostly moves to the drybulk day shipping rate index, the BDI, which is explosively volatile.

SIGM has fallen way below the $20, where we advised to buy, but this one also went almost 30% higher before lurching downward. Luckily with this one, we advised a stop-loss just above the $20 purchase price. The problem is twofold, it’s main markets are developing a bit slower than most expected and management has lost a good deal of credibility.

IOC, our main featured company, has gone up some 50%, and we strongly believe it will go up much more within 1-2 months. This might very well already start next week, if we get DST results.

However, whether some sort of rally we’re expecting in the near future turns out to be a typical bear market trap remains to be seen. The economy is really ugly, and we would like to know to what extent the housing market (we think that’s the critical variable) slumps further and what happens in the rest of the world (outside the US).

How much is the rest of the world going to decelerate further will also have an important bearing on whether we’ll be at a relative or absolute bottom. As we have argued earlier, we do think that the oil market is topping out (bar some political crisis or supply disruption).

We are not timing that to the exact day, but we would be very surprised if there would soon be another strong lurch upwards in oil prices. The world economy is decelerating and behaviour is changing enough for it to cause a slowing of demand for oil.

It’s also noteworthy that we’re hardly alone. In this market, even the mighty fall.

According to this article, some of the most famous investors and fund managers (guru’s, according to the website where information of their performance is gathered) had negative returns between -20% and over -40%! How the mighty have fallen..

Tags: The Markets