Capital Market Comment
June 6, 2019
Frank Mastrapasqua, Ph.D.
Principal, Chairman & Chief Investment Officer
In the world of market volatility, volatility can be your friend or your foe. The computerization of many aspects of the financial markets has depersonalized investing, and consequently, often created a “herd mentality.”
In the world of quant models, algorithms, and risk-on/risk-off trades, daily stock price fluctuations in the 5-10% range are not uncommon. Analyst upgrades and downgrades can also generate outsized moves in prices. These are usually short lived, and the stocks typically rebound subsequently.
Many price changes are driven by news items, misinformation, market opinion of political events, disruptions, and emotional responses by traders.
The computers read headlines. Seldom does such a flow of information or misinformation have a bearing upon the long-term fundamentals of a company and the quality of their management. If the fundamentals are intact, the stock will recover in time; the timeline however can be variable and long. When a fundamental event occurs that can have a material effect upon the long-term earnings and revenue trends of a company, we usually decide to sell the stock, but do seek to find a more opportune time. When news breaks on a security, it gets reflected quickly in the price, but inevitably it overreacts, and a better selling opportunity occurs later (i.e. Biogen – the failure of the Alzheimer’s drug).
Often, we may sell a stock not because there is a serious irreparable problem, but because of the estimate of the time to recover versus the benefit of utilizing those funds for a better opportunity. Also, a stock may be sold if its weighting gets excessive, there is a need to reduce a sector, or funds are necessary to introduce a new theme or expand on an old one. Given our focus upon the long-term, we emphasize investment themes that can carry through several cycles. Consequently, we are able to take advantage of the volatility in the equity market.
Concurrently, we place particular emphasis upon the macroeconomic environment and the policy (fiscal and monetary) landscape. Our proprietary Liquidity Index and GRAD Point Model assist in emphasizing the importance of looking at the entire portfolio and altering its characteristics. The sensitivity of the portfolio to the market will change over time as liquidity conditions evolve. In the end, we are attempting to achieve a high return while controlling the risk.
If you have a question or need further information, please contact:
Don Keeney, CFA, CFP, Principal & Portfolio Manager in Nashville at 615-866-0882, or firstname.lastname@example.org
Claude Koontz, CFA, Principal & Portfolio Manager in San Antonio at 210-353-0519, or email@example.com
Mastrapasqua Asset Management, Inc. does business as M Capital Advisors.
104 Woodmont Boulevard, Suite 320
Nashville, TN 37205
200 Concord Plaza, Suite 500
San Antonio, TX 78216
© 2019 Mastrapasqua Asset Management, Inc. All rights reserved.
The information and opinions contained in this report should not be treated as fact or as insight that will produce desired investment results over time. Investment conclusions always bear risk, and that risk may not be reasonable for any particular reader. Obviously the writer, even assuming good intentions, does not know of the reader’s particular financial circumstance and therefore is not able to assess the propriety of whether a named security makes sense as part of a given individual, family, or institutional portfolio. Mastrapasqua Asset Management clients may, from time to time, own some of the companies mentioned. We hold out no duty to give readers of this column advanced notification of when we may change an opinion. To our knowledge, none of the information contained in our column would, when it becomes publicly available, have an influence on the valuation of a particular stock. Investors should receive investment advice based on an assessment of their own particular investment circumstances and not on the basis of recommendations in this report. Past performance is not indicative of future returns.