Stocks
Since the start of 2023 equity markets were squarely in the hands of the bulls. Nasdaq had climbed roughly 40% with barely a hiccup along the way. It was pricing in a lot of bullish sentiment and discounting most of the possible negative outlooks. Equity markets were priced for near perfection. So it’s not to be unexpected that when the bulls have exhausted themselves we get a market reversal.
I’ve been nervous of the indexes and the larger names and now it’s somewhat comforting to see a market pullback. It makes sense to me. I expect that fear could take hold and we get a more meaningful pullback and if so, we likely get some better bargains down market.
A strong pullback in markets, especially the big stocks which have had such a great move this year, is healthy. It shakes out the excesses. It’s normal and as a long term investor you should want normal markets.
The US Fed and Bank of Canada want, and will get, tighter capital conditions, less money floating in the system. This means capital is getting more expensive. Expensive capital is not good for companies that desperately need it and it starts to compete with other investment opportunities. Capital to companies is like oxygen to living creatures, it’s only important when you can’t get any.
As interest rates climb there will become a bigger distinction between the haves and the have-nots. Companies that are generating cash will become much more valuable than those that are losing money. Raising money will become significantly harder and more expensive. And as companies gasp for air their valuations are likely to sink as investors bail out in fear. Those companies with cash will look stronger and appeal more to investors. They’ll also be in a position to strengthen their market presence and/or to buy out weaker players.
Strong companies and strong investors are always well prepared for weak markets. It’s where they thrive and have the ability to gain further strength. So welcome shake outs in markets. Be ready for market pullbacks. Look for market opportunities in beat up sectors and beat up stocks that have staying power. I suspect we are entering into another market downswing that will give us some great buying opportunities. Markets always do. We just have to make sure we are prepared for them.
Other Stuff
Decent numbers out of Zedcor (ZDC.V) but the market didn’t really care. Revenues climbed 18.3% over the same quarter last year. Earnings were up by 61.8% although a good chunk of the earnings were due to a bonus payment from its business it sold a while ago. I like this one a lot and hold a nice position right now. I’m hoping this is one that sees a meaningful dip in share price so I can add a bit more.
As the big markets pullback, I’m becoming a bit more bullish and hopeful that we get a few more decent buying opportunities in the coming months in our microcap universe. There are enough headline concerns out there that make me think we’ll see another buyer’s market in the fall. While some of the better microcaps have done well this year the sector itself, in general, continues to be out of favor. Institutional capital is still staying up market and if we do see a healthy shake out in the indexes this fall, we could see some fantastic buying opportunities in the smaller names. I’m ready to be a buyer.
Until then I’m happy to be a small “dip buyer”. Some of the stronger movers of late that have seen some healthy dips include the following:
Decisive Dividend - DE.T
