Investing During A Correction

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Investing  During A Correction
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Gerry Frigon, President & Chief Investment Officer at Taylor Frigon Capital Management shares his thoughts on recent market activity, predicting businesses as opposed to the market, and his investment approach during corrections.

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Q1 2021 hedge fund letters, conferences and more

Q1 Market Activity

  • Market activity in the first quarter of 2021 can be best described as “wild.”
  • Volatility, now a staple of the modern market, has taken on a whole new meaning. We would use the phrase “wild volatility” in order to describe what we have been witnessing on a day-to-day, hour-to-hour, and even second-to-second basis.
  • While we have experienced outsized performance in recent years, quarters and months, we have been warning that a correction was due.
  • About mid-quarter, we began to see the correction take form. The excuse was a “rotation” from growth-type stocks to cyclical or “value” stocks, but the reason is irrelevant; it was simply time to “ring the bell” for a correction.

Predicting Businesses Not The Market

  • That said, we have come off a period of very strong stock price performance for our portfolio companies, largely because of very strong business activity in those companies.
  • Despite the aforementioned correction in recent weeks, strong performance overall resulted in outperformance for our growth portfolios versus most major stock market averages again in the first quarter of 2021.
  • Recall that our strategy stays fully invested through market and economic cycles. We don't try to predict the market or economy; we try to predict businesses and let the stock prices take care of themselves. We believe that if we predict the businesses properly, prices will follow over time.

Investment Approach In A Less-Than-Favorable Economic Environment

  • We are very early in the lifecycles for many of the businesses we currently own. We have spent the last few years exiting some very successful companies that had grown to be quite large and had matured enough to where they no longer were meeting our criteria for future growth.
  • As such, we have spent those years positioning the portfolio in many younger, high-potential companies that we believe have exceptional growth still in front of them.
  • We believe these innovative companies are the best defense against what is shaping up to be a less-than-favorable economic environment.

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GERARD J. FRIGON is the President, Chief Investment Officer of Taylor Frigon Capital Management LLC and is the Managing Member of Taylor Frigon Capital Advisors LLC, General Partner to Taylor Frigon Capital Partners LP, a private investment fund which invests in private companies and small emerging public companies. He is the Senior Portfolio Manager for the Taylor Frigon Core Growth Fund, an open-end investment company (TFCGX). He serves on the Board of Directors for ASOCS, Ltd. (a pioneer in virtual Radio Access Networks (vRAN) and a provider of fully virtualized, NFV-compatible virtual Base Station (vBS) solutions, based in Rosh Hayan, Israel), and I-V Access Technology, Inc. (a private medical device company committed to bringing their breakthrough catheter, VENAGLIDE, to the market to transform the venous access experience for patients and clinicians, based in San Luis Obispo, CA.) Mr. Frigon has over three decades of experience in investment strategy, planning and portfolio management for private investors and institutions including over 21 years at Merrill Lynch in the San Francisco Bay Area. During that time, he has managed portfolios with the same disciplined process directly descended from the classic growth philosophy implemented by Thomas Rowe Price and Richard Taylor. Mr. Frigon received his Bachelor of Arts in Business/Economics from the University of California, Santa Barbara in 1985. He founded Taylor Frigon Capital Management LLC in 2006.
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