(Image: Zen Buddha Silence, by Marilyn Barbone)
April 19, 2020
The great value investor Seth Klarman has remarked:
In reality, no one knows what the market will do; trying to predict it is a waste of time, and investing based upon that prediction is a speculative undertaking.
Legendary value investors Warren Buffett and Charlie Munger also believe that no one can predict the stock market in the short term. Here’s Buffett in the fall of 2008, during the Great Financial Crisis:
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month—or a year—from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
Buffett has said repeatedly that the only thing he’s sure of is that the United States will move forward over time. Buffett again, in the same New York Times Op-Ed from October 16, 2008:
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Buffett’s point is that the United States will always encounter big challenges, but that the country has overcome every challenge it has faced in its history. If you’re a long-term investor, then whenever the stock market declines significantly, it’s a wonderful opportunity to buy more stocks.
Many individual countries are already on track to gradually reopen their economies in a phased manner. At the same time, the fiscal stimulus and the monetary stimulus in the United States are at record levels. Moreover, scientists and researchers around the world are focused on developing a cure and also a vaccine for covid-19.
We don’t know precisely when the U.S. economy and the world economy will fully recover from the challenges associated with covid-19. But we do know that the United States and the world will beat covid-19 eventually and will proceed to new highs—both for economic output and for the stock market. If an investor waits until the world economy has fully recovered, which could be in 2021, then there’s a good chance they will have missed this year’s buying opportunity. Buffett again:
What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
BOOLE MICROCAP FUND
An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time. See the historical chart here: http://boolefund.com/best-performers-microcap-stocks/
This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: firstname.lastname@example.org
Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.