By: Ross Silver, Chief Entertainment Officer of SylvaCap Media
Up, down, up, down, sure feels like we are riding on a swing doesn’t it? For those of you stressing and trying to make sense of this chop, stop wasting your time for your own good. Markets are going to do what they will do and the only thing you can control is you and YOUR money. I don’t mean to sound like one of the CNBC nitwits that states the obvious, but opportunity is knocking in a market such as the one we have now and hopefully I can provide some useful insight to you. One thing is for certain and that is VOLATILITY IS BACK, which is a good thing. I emphasize volatility in all caps because some of us having been getting our teeth handed to us for over 5 years waiting on volatility and now it has finally arrived, woo hoo! Those of you parked in comfort aka FANG stocks (Facebook, Amazon, Netflix, Google), one thing I have learned is that investing in what is comfortable is a great way to lose money. It is a time to think out of the box from the lens I look through. For those of you who know me, you know I am an active options trader and the options market is alive again with some big fat juicy premiums that are starting to border on the insane, yipee! I also invest in heavily microcap and microcap has been off quite a bit since January, which too represents opportunity, at least I think it does.
So let’s dig into my macroeconomic thinking starting at the 30,000 foot level and working ourselves down to planet Earth, shall we? Several of the indexes I track were off in March. Those indices include the Conference Board Consumer Confidence Index, the Present Situation Index, and the Expectations Index; all of them were down last month.
Additionally, the Consumer Confidence Survey conducted by Neilsen (a leading global provider of information and analytics around what consumers buy and watch) also showed a deline in consumer confidence in March after reaching an 18 year high in February. Lynn Franco, Director of Economic Indicators at The Conference Board said that, “Consumers’ assessment of current conditions declined slightly, with business conditions the primary reason for the moderation. Consumers’ short-term expectations also declined, including their outlook for the stock market, but overall expectations remain quite favorable. Despite the modest retreat in confidence, index levels remain historically high and suggest further strong growth in the months ahead.”
Without boring you to tears with the full data set, in short, Consumers’ assessment of current conditions eased in March. Consumers were moderately less optimistic about the short-term outlook in March. The percentage of consumers anticipating business conditions will improve over the next six months decrease. Consumers’ outlook for the job market was also less positive. All of this activity has caused a spike in Sylva’s proprietary, “Oh Shit” Index. While corporate buybacks and tax cuts are likely to help stocks in the near term, we’ll keep an eye on the indicators going forward, to see if sentiment continues to slip.
One industry that has been a great place to lose money as of late is biotech. Biotech peaked at the end of January and has gone down, with a brief bump up at the beginning of March. I am VERY bullish biotech as of Monday, wherein I added two new names to our mock portfolio which you can see here. Worth mentioning that as of this writing, the Sylva Portfolio is up almost 11% year to date.
Biotech trades at a price/earnings-to-growth ratio of 1.28 times, compared to 1.45 times for the S&P 500, a 19% discount that makes the industry look significantly undervalued when compared to the long-term average premium to the S&P.
The biggest catalyst for biotech stocks is the increase expectations for earnings for 2019. The Street now expects biotech’s earnings growth will exceed the S&P 500’s by 20 basis points, a reversal from the past two years, when biotech was expected to lag the index. If history is any guide, this should be a driver of multiple expansions for biotech, meaning the group is trading cheaply at the moment. Carpe Diem!
When Stupid Meets its Match (Enjoy This One Folks!)
I was unfortunately was born with pragmatic genes, I say unfortunately because my brain requires me to make sense of anything I do or see, you get the point. Many people I know simply accept actions, statements of “fact”, responses, etc. and I wish I could be them because I have to understand the why of everything, a true burden. So recently, a wonderful public servant known as a police officer, thought my rate of speed was a danger to society (I was driving downhill in a section that went from a 45 mph zone to a 25mph zone, what an evil trap). I was cited for my action and was told I could attend Traffic School and after completing Traffic School, the citation never happened. As a reminder, I live in a small city in Oregon and therefore I am exposed to the real America. The America I live in is night and day different relative to metropolitan areas where the restaurants have organic paper for their organic menus; we have Olive Garden (not knocking Olive Garden, just laying some foundation). In my Traffic School class there are no “Wall Street” types, no insanely wealthy people, just normal middle class people looking to get a citation removed so that our insurance doesn’t sky rocket. The class was taught by a gentleman who used to teach anger management classes and just as we are getting started with learning traffic safety, in comes a teenager taping on his cell phone and 15 minutes late. Let’s call the teenager Dave.
Dave is dressed like it is summer (it was 42 outside) and Dave is pretty much checking off every millennial stereotype box there is. Dave of course sits next to me despite there being empty chairs in the row in front of me; I for some reason am a magnet for crazy people. The teacher starts talking about speed and the dangers of speed and not even three minutes into his speech, Dave chimes in disagreeing that speed is a significant contributor to injuries in accidents, I already hated Dave, now I really hate him. We are 30 minutes into the class and Dave’s cell battery dies and he interrupts the class to ask if anyone has an iPhone charger. I will give Dave credit for being bold in asking strangers for a cell phone charger but poor timing and now everyone in the class hates Dave. 45 mins in, Dave has a cell charger and randomly bust out in laughter. The teacher asks what is so funny and Dave said he received a really funny text from a friend. If I was teaching the class, I may have murdered Dave but remember the gentleman teaching the class used to teach anger management. The teacher kindly asks Dave to put his cellphone away and Dave does. No joke, 5 minutes later nitwit’s (Dave) cellphone rings, he picks up and starts talking to whoever called. At this point I am convinced I am being set up in some kind of gotcha Ross, but no, this is not a joke on Ross. Teacher asks Dave to end the call and Dave does. At this point I asked Dave if he had any relatives and he told me he does and guess what folks, Dave’s father is a FUND MANAGER. I wanted to make sure I heard him correctly and asked him if his father manages others money and selects stocks to invest in for a living, Dave looked at me like I was an idiot and said “of course”. There are many more Dave incidents throughout the class and the second class that I also had to take, happy to share for those who want to learn how I avoided killing Dave. The point of me sharing this is that many retail investors are intimidated by institutional money, thinking it is the smart money. Folks, it is not, not even close, there are plenty of mega morons running money. The fact that the majority of fund managers can’t beat the performance of the S&P 500 tells you all you need to know about how smart some institutional money is. Don’t get me wrong, some of the smartest people on this planet manage money but many morons do as well. I later learned that Dave’s father inherited a small fortune from his father and has been doing the best he can managing the money he inherited and the money others have given Dave’s father but Dave’s father has been having a tough time over the past few years, so much so that he brought Dave in to help him find ideas. God Bless America!
Have a great month and be sure to visit our website www.sylvacapmedia.com to stay up to date on our favorite small cap investment ideas and economic commentary.
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