When interest rates are extremely low, when money is nearly free, almost anything other then cash makes sense. But when money starts to get expensive asset prices change and so do investing strategies. Risk becomes a four-letter word again.
Most investors suffer recency bias. Recent events influence our expectations of the future. We are much more likely to install a home alarm AFTER we’ve had a break in. Recency bias can be dangerous to an investor. Investors tend to have short memories. During a bull run many investors tend to forget the last bear market and similarly during a down market investors tend to become too bearish and believe the market will continue to go lower. To fight this, investors should understand that economic cycles are normal, and markets down go up for ever and they don’t go down for ever. It’s at the extremes in these normal cycles where we see the greatest mispricing of assets.
If you are a long-term investor you need to contain your emotions and stick to your investing strategy. If your strategy involves dollar cost averaging you don’t stop because the markets are uncertain, you certainly don’t stop because the markets are lower. Yes, many investors continue to try and time their investing in individual stocks based on headline events or economic forecasts without a consideration for the underlying price of the investment. When things are good and the market is running higher, any price is good enough to buy, but when things look bad any price is too high to buy. Price always matters.
If you are looking to buy a business, when do you suppose you get the best opportunity to buy the business at the best possible price. When things are great and there are many interested buyers? In my experience the best opportunities present themselves when the future doesn’t look rosy. When there is uncertainty or maybe when the seller is desperate. This is what causes mispricing. Down markets, bear markets, uncertain markets bring these opportunities.
I’ve been following Canadian microcap markets for over 35 years. One thing I know is that no one can predict the future let alone the direction of the markets in the short term. One thing I do know is that these markets currently offer us some historically good risk/reward opportunities. Most equities are out of favor. Microcaps continue to be even more out of favor. And Canadian microcaps are more discounted than their US cousins. Microcaps are illiquid. They are considered higher risk and more volatile. Many are. Yet this is where you find many of tomorrow’s large caps. Many microcaps are innovators creating new industries, solving problems, and disrupting the status quo. Bear market or not it's always a good time to find rapidly growing real businesses that are mispriced and today’s market continues to give us that opportunity. It’s why we will continue to look for the next great microcap regardless of what the headlines are telling us about the economy.
Canslim Contender
Edap TMS SA - (EDAP-Q)
Closing Price: $8.94
A recognized leader in the global therapeutic ultrasound market, EDAP TMS develops, manufactures, promotes and distributes worldwide minimally invasive medical devices for various pathologies using ultrasound technology. By combining the latest technologies in imaging and treatment modalities in its complete range of Robotic HIFU devices, EDAP TMS introduced the Focal One(TM) in Europe and in the U.S. as an answer to all requirements for ideal prostate tissue ablation. With the addition of the ExactVu(TM) Micro-Ultrasound device, EDAP TMS is now the only company offering a complete solution from diagnostics to focal treatment of Prostate Cancer. EDAP TMS also produces and distributes other medical equipment including the Sonolith(TM) i-move lithotripter and lasers for the treatment of urinary tract stones using extra-corporeal shockwave lithotripsy (ESWL).
