Monthly Message
The Wutherich & Co. Composite was down 7.9% in August. This compares with the S&P/TSX up 0.4% and the BMO Small Cap Index down 0.5%.
The Wutherich & Co. Composite did take a hit in August, though still up 12.9% year-to-date. The balance of our companies reported during the month. While two or three of them showed weak numbers, the rest reported strong, or very strong, results. Numbers, good or bad, were met with heavy selling. In many cases, this seemed deeply irrational when several companies reported exceptional numbers with strong outlooks and still sold off double digit percentages (examples include Baylin Technologies, Opsens Inc. and Xebec Adsorption Inc.).
Clearly, there is a great deal of fear in the market with Trump’s unsettling actions, geo-politics and the maturity of the business cycle all playing a role. Also, small cap stocks, our bailiwick, may react more violently than their large cap brethren. Yet, when we see this kind of disconnect between stock prices and their underlying fundamentals, we become more convinced of their rate-of-return potential. We experienced this during the downturns of 2008-2009, August – September 2011 and the fourth quarter of 2018. In all cases, we increased our holdings in our highest conviction stocks and today, we have gone to minimum cash in the portfolio. No doubt, the market may still throw us a few curves and September is usually a difficult month. However, with the quality and the prospects of most of many of the names in our portfolio, we think we can generate significant returns over the coming years.
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