Songbird Asset Management – October – The Scariest Month?
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Warren Buffett published his annual letter to shareholders over the weekend. The annual update, which has become one of the largest events in the calendar for value investors, provided Buffett's views on one of the most turbulent and extraordinary years for the financial markets in recent memory. Q4 2020 hedge fund letters, conferences and more Read More
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There’s always something scary about October and it’s not Halloween.
For many portfolio managers entrusted with your money, October can bring sleepless nights of fright. The third quarter performance is in and there’s 1/4 of the year left to try to protect the year’s gains or make up for losses. If the third quarter locked in great performance, there are fears that the year’s gains will be lost. If this year has been a bust, there’s anxiety to catch up with only 3 months left in the year. In either case, October is a scary time and I’ve learned that fearful investors can create excellent buying opportunities in the stock market.
As the annual performance race turns the final corner towards the last quarter of the year, portfolio managers may sell their stocks for reasons unrelated to the actual value of the business. And the increased selling can cause prices to go down. Investors scared to roundtrip a winning stock position may sell too soon for fear of losing the gains. Investors anxious to make up for lagging performance may dump depressed stocks for fear of them dropping further. Unlike the first quarter of the year when time is on your side, the final quarter brings heightened pressure to outperform because with it also comes your annual bonus tabulation. But what I’ve found that protects me from the horror show this time of the year is not hanging garlic around my neck or burning sage, but having a sound valuation framework.
Regardless of which valuation model you prefer (e.g., discounted cash flow, comparables, multiples), cloak yourself with a calculated intrinsic value of each stock you own. Having a sense of the value of a business–and ultimately what the stock’s worth to you–will help fight off the fears that intensify in the final quarter of the year. If you can stand firm with this awareness of what you’re willing to pay (or be paid) for a stock, you won’t be so scared when the October demons come out.
What’s scary is when you’re making buy or sell decisions based on fear–or greed. So let’s make October the least scariest month of the year. Try to make buy or sell decisions based on the intrinsic value of the business and perhaps that way, you might be able to enjoy October and end up with fewer tricks and more treats!
Songbird Asset Management – Performance Update
For the third quarter of 2016, the representative portfolio finished up 9.81% vs. the Russell 2500 Index benchmark of 6.56%, outperforming by 3.25%. Year-to-date through September 30th, the portfolio is up 7.12%
Thank you and I hope you enjoyed this small investing insight. Until next month’s newsletter, happy successful investing!
Songbird Asset Management, LLC, is a private investment firm based in Washington, DC, that specializes in small company public equity investing. We manage a high-conviction, focused portfolio of no more than 30 stocks held in separately managed accounts. To learn more about our services, please visit our website or email me at [email protected].
The Story Behind Songbird All birds chirp or make sounds, but not all birds can sing. Songbirds are a special group of birds and scientists have discovered that songbirds are born not knowing how to sing, but learn their songs over time. Birds that sing better are essentially, superior learners. At Songbird Asset Management, we strive each day to be better learners. We are relentless in our efforts to build knowledge in pursuit of our ultimate goal – to help you grow your nest egg of investments.