Capital / Investing / Markets / Private Equity / Stocks / US Markets

Have you kept your powder dry?

Gun PowderIf you have followed our two years’ worth of predictions (read Grace Century press release in 2014 and Grace Century press release 2013), you have profited well and were prepared for the recent pull back in the markets.

Any time a market, any market, moves more than 8% in a year to the upside it is exceptional. Some equities have increased individually 300%, while the overall U.S. market last year was up 30% for 2013. We wrote in late November that this scenario was scary.

So where are we now and the big picture? To date, stocks are down on average only 5% for 2014. That’s it!

The sun will rise in the morning, the snow will eventually melt, the birds will chirp. However, I am here to make money so what do we do? We look at valuations and not the winners that have already happened but where are we going to be down the road. We do not panic and buy high and sell low.

When trying to decide what to do with an existing position, if you got caught with something at the top, you have to ask yourself ”If I didn’t own it…would I buy it today?” This one simple technique will eliminate a lot of the stress you might be feeling and help you with a decision to exit or cost average.

I urge you to look for markets, industries, or sectors that will happen. For instance, it was reported today that electronic medical records in the healthcare sector will increase from $10B (USD) to $17B in the next 3 years. That’s a 70% increase; why wouldn’t you want to be there? One word of caution, as many of these companies have already increased dramatically in anticipation of this. “The cat was out of the bag” when the U.S. government mandated this years ago. Many of these stocks are trading at multiples that are almost impossible to validate: 180PEs. This means that the market says that someone is willing to pay $180 times what $1 of earnings is today. The trick is to find new companies in the space that have a better mousetrap than the existing ones. These start-ups, and Grace Century’s specialty and area of interest, are what excite us.

Other examples are drugs, as the Baby Boomers get older. You can go as far as looking at investments in cemeteries and funeral services…if you are really a forward riflethinker. There are only two guarantees in life: “death and taxes.”

The trick is to have the liquid cash set aside to take advantage of these. You can have tomorrow’s newspaper today, but if you don’t have the capital available to take advantage of them, it is worthless.

In conclusion, don’t get swayed and react to market moves. The media loves to be euphoric on the way up and “doom and gloom” on the way down. Fear and Greed are terrible siblings.

Have a game plan, be patient, and make sure you keep your “powder dry.”

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