Monthly Message

The Wutherich & Co. Composite was down 3.0% in May. This compares with the S&P/TSX down 1.3%, the BMO Small Cap Index down 2.1%, S&P 500 (US$) up 1.4%, the DJIA (US$) up 0.7%, while the NASDAQ (US$) was up 2.5%.

I was reminded of an interesting acronym this month: FOMO. It is short for Fear of Missing Out. I get a sense that portfolio managers are buying certain stocks because they feel they have to own them to chase market performance, rather than that they should own them based on fundamentals. In my nearly 25 year career, I have seen this happen a few times. The most famous example is the TMT (Technology, Media and Telecom) boom of the late 1990’s. While many of the stocks that are being chased this time are no doubt excellent businesses, I don’t believe they are the only stocks worthy of consideration. Furthermore, the intense focus on just a handful of names and sectors probably means that these are well priced. Situations like this often end in tears.

We tend to ignore what everyone else is focused on and buy individual names that we think present good value for their growth prospects. We know that we can be completely out of sync for long periods of time, but we are comfortable with this, believing that we develop better long-term rates of return this way. In the meantime, one thing that we have observed in the portfolio is that there are no small reactions. Stocks react violently to disappointing earnings or fanciful “short-seller reports” (STN and ZCL in the former category; BAD and CRH in the latter). Whenever this happens, we review the fundamentals and stick to our own convictions regarding the stock, be it buy or sell.

To view the complete Monthly Message and Factsheet click here