Large Cap Commentary – August 2013
There was a considerable amount of volatility in the market in August. Investors were spooked by further talk of “tapering”, the Federal Reserve’s slowing of its purchases of U.S. Treasuries and mortgage-backed securities. The concern over tapering and Fed actions have pushed the yield on the 10-Year Treasury bond close to 3% in a very short order. In addition to potential Fed action, geopolitical concerns also worried investors. This month investors watched closely as the United States and other western nations considered how to respond to events in Syria. Generally speaking, investors are not enthused when discussion turns to military action. That is especially true when the theater of action is the Middle East. Unfortunately, these twin concerns pushed the market from its high and August was a down month for stocks.
Because uncertainties, such as those mentioned above, constantly swirl around us, I am regularly asked how Argent react to these events. Our answer is simple. For every stock we hold in our client’s portfolio we have an investment thesis, or in other words, a good case scenario. Embedded in our thesis are metrics (better sales, higher profits, increased market share, etc.) that, if realized, will drive the price of that stock higher. We monitor these metrics on a continual basis. We call our metrics “short putts”. If a company is attaining its short putts the odds that the company will attain our ultimate good case scenario over the long term are increased.
When an external event affects the market, like talks of tapering or geopolitical events in sensitive parts of the world, we at Argent ask whether the events are likely to impact a company’s short putts. If the answer is yes, then we quantify the degree of impairment and react accordingly. If the answer is no, then we continue with business as usual.
One of the advantages we have on our side at Argent is our time frame. While we strive to beat the market each day and each month, our true objective is to deliver better than market returns over the next three to five years. As a result, in the midst of transitory market turbulence, we are looking beyond the headlines of the moment to the long-term fundamental drivers of the stocks we hold. Oftentimes, in such periods of market skittishness, we take advantage of temporary price declines to add to existing positions in our portfolio or to buy stocks whose depressed price represents favorable odds for our clients.
How all of the current uncertainties in the market will play out is anyone’s guess. In the end, we fall back on our fifteen year investment process to remove emotions from our decisions and look to the long-term for the stocks we hold. This has proved successful.
As always, we appreciate your interest in Argent Capital Management.
Senior Portfolio Manager
Views expressed herein represent the opinion of the portfolio manager as of the date above and are subject to change. Argent portfolio managers may recommend the purchase or sale of these and other securities for their client’s accounts. A list of all stocks recommended by Argent during the past year is available upon request. Past performance is no guarantee of future results.