Tuesday, September 02, 2008

Volatile Markets Reveal Profitable Net/Nets

If you are a deep value investor, market volatility can be your friend; especially if you fish in the net/net pond. Large swings in the markets tend to punish these underfollowed, less liquid and smaller names.

And most investors have become painfully aware about the historically high levels of market volatility we've been experiencing--as measured by daily market movements greater than 1 percent--through endless financial media outlet barrages. In fact the S&P 500 Index has closed plus or minus 1% in 70 out the 170 trading days so far in 2008, or an amazing 41 percent of the time.

Smaller companies have been even more volatile. The Russell Microcap Index, for instance has finished 78 trading days plus or minus 1% so far in 2008; 35 of those days hace been plus or minus 2 percent. Our own Cheap Stocks 21 Net Net Index has finished more than half--86--of its 142 days since inception plus or minus 1 percent.(Yet CS21 Is up more than 25% since inception, but thats another story)

All of this volatility has revealed an increasing number of profitable net/nets; an area of the market that can be very lucrative for those with time, patience and an iron stomach. In fact, our recent search found more than a dozen profitable net/nets, the most we've seen in years. This initial list, however, needs further scrutiny. Once we've completed our research, and confirmed the data, we'll reveal this list in an upcoming post.

2 comments:

Yaser Anwar said...

Why don't you guys have a subscription newsletter? Would be a good addition IMO.

heterocedastico said...

Can't wait to see that list.

I'm not surprised with the performance of your index because in fact we have been seing lots of oportunities in the net/nets area or at least in considerable discount to book value both on the US but also in Europe (I'm form Portugal).

Best Regards