The fertile fields of future growth

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Comments from Gerry Frigon, President and Chief Investment Officer at Taylor Frigon Capital Management, about Q3 and the current investment climate.

Gerry Frigon comments on Q3, key questions for investors and growth opportunities:

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Q3 2019 hedge fund letters, conferences and more

Q3 Overview 

  • The investment climate in the third quarter of 2019 was marked by significant volatility but little net progress in overall market averages driven by an economy showing signs of slowing down.  
  • The result was that the average large stock moved a little higher, small stock averages were a little lower, and interest rates continued to slide giving bond prices the biggest boost of all major asset classes.  
  • Thus, none of the net changes in asset prices for the quarter caused much change in the above-average returns that stock and bond markets have experienced so far in 2019.  

Key questions

  • We expect this “correction” in growth company prices may continue, as we navigate the historically weak fall season, before resuming strong performance as more clarity on trade issues and the economy comes into view.
  • We are witnessing an abundance of consternation regarding the state of the economy.  
  • Will the trade war with China finally derail the long economic cycle that has persisted since the 2008-2009 financial crisis and accelerated in the last few years?  
  • Is yet another “inversion” in the yield curve a sign that we are headed for recession?  
  • Is the toxic political climate going to make it impossible to get the myriad issues that face the country addressed by government (healthcare, tax simplification, immigration, homeless and vagrancy in many large U.S. cities)?

Good businesses are resilient

  • It never ceases to amaze us how the saying our mentor, Dick Taylor, often expressed: “we get by in spite” is so simple yet also so poignant.
  • It underscores that people continue to keep working, creating, innovating, managing their businesses and providing for their families in a way that keeps moving us forward. 
  • This is not to say there are never setbacks -- there are.  And they are rarely ever obvious before they happen.  
  • This is why we adhere to another saying that came from Dick Taylor’s own mentor, Thomas Rowe Price: “the great fortunes in this country were made by men who owned well-managed businesses in front of fertile fields of future growth, through multiple market and economic cycles.”  
  • We are constantly repeating this, and we will continue to do so, because we have seen it work very well for our clients over many years.

Fertile fields of growth 

  • Currently, the "fertile fields" we are focusing on are largely in technology companies that are “virtualizing” those tasks which used to be done with hardware; building microchips that allow for much longer battery life; creating and allowing us to experience virtual and augmented reality; and using new methods to secure networks from cyber-attacks.  
  • Distributed-ledger computing and blockchain are still emerging but we believe these technologies also promise to transform computing in the coming decade.
  • Fertile fields are also found in medical technology where new ways of discovering drugs utilizing artificial intelligence, genomics, and re-programming DNA are driving great progress in treatment of diseases.  
  • And they are in medical device breakthroughs in the treatment of cancer and eye diseases. 
  • New business processes are driving innovation as well, whether it be more productive manufacturing methods based on nanotechnology, digital textile printing or advanced machine learning tools that provide businesses with levels of situational awareness that improve productivity and, ultimately, profitability. 
  • Financial technology is transforming the way people save, invest and make payments. 

There is always uncertainty in the world, financial and otherwise. The current climate is no different than ever before, although it may seem more upside-down at times. Nonetheless, sticking to these tried, true and simple investing rules makes for the most assured way to invest hard-earned money we have ever seen in our six decades of professional investing.  

About Gerry Frigon, President & Chief Investment Officer at Taylor Frigon Capital Management

GERARD J. FRIGON is the President, Chief Investment Officer of Taylor Frigon Capital Management LLC

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