High Growth Stocks Mazeltov!

Monday, November 10, 2014

Congratulations of finding those high growth stocks!

Most Americans who have lived in a large metropolitan area have come into contact with Jewish people and have thus been involved, either at the periphery or directly, in a Jewish Simcha or happy occasion.

If this resonates then you have likely come across the phrase Mazeltov which is said at a simcha for good luck or congratulations.

Have you ever wondered what the word mazeltov means and did you know it actually contains the formula for material success?

Let me explain.

The Talmud, compiled in the 5th century CE, provides a detailed commentary of debates between Rabbis regarding the interpretation of what is commonly called the Old Testament.

In the story of creation, book of Genesis, we are told that the world and all that’s in it was created by virtue of utterances (words) by God. Thus we are taught that words have energy and energy can translate into things. The letters used in words contain the formula or energy for that object or action.

So the word MaZeL or luck contains the letters M, Z and L (vowels are generally ignored for these purposes in Hebrew).

The letter M is found at the beginning of the word Makom or Place;
The letter Z is found at the beginning of the word Zman or Time and;
The letter L is found at the beginning of the word La’asot or To Do.

Thus the word mazel or luck is created by being in the right PLACE at the right TIME and by taking ACTION!

So why bring this up now Greg?

As market students we are constantly poking holes at our outlook to see where we may have it wrong and to discover what we could do differently to the consensus – uncovering opportunity so to speak.

The thing that has had us perplexed is the speed by which fear enters the market during sell-offs. We had nonchalantly thought the conditioned mind of millions of investors was to avert pain at any cost – not wanting to experience a repeat of 2008 they were thus selling at the earliest hint of red.

While that reasoning is sound we did not appreciate the degree to which most retail investors are barely invested in equities. An informal poll of wealth managers suggests that cash holdings are generally much higher than usual as are holdings of hybrids – securities that pay a yield and have potential for capital growth such as MLPs, REITS, preferreds, convertibles etc. etc. high growth stocks are generally underweight if not completely absent.

The rapidity of the selloffs in June and again in September with large downside gaps suggests to us a market dominated by professionals rather than the investing public which is consistent with the low volumes over the last 3 years.

Thus if we have reasoned correctly then it means the public has not yet entered into the market in the way they have done near prior bull market tops (1999 and 2007 for example). Which means this five year old (historically) long bull market may yet have a while to go to higher prices!

As hard as it is to believe, the area of the equities poised to offer the best returns are likely the ones that have already done well and are restructuring the very core of industry – new economy tech stories such as Linkedin, Facebook, Yelp etc.

Thus per our formulae for riches – Mazel – we have :

  • Place – Growth Equities
  • Time – the buying mania is still in the future 2 to 5 years away (?)
  • Action – Buy the ACG / OGA growth equity portfolio

Please note we are not saying this market will move higher uninterrupted – we would expect more hair raising falls but the general trend should be higher and a lot higher for some of those stocks.

Regards
Greg

p.s. this view – stay with equities – has been espoused by JP Morgan’s Tom Luddy who runs their large cap fund – he describes it as companies are issuing cheap debt to buyback stocks based on a generations psychological aversion to stocks.

p.p.s for those market nerds try reading “Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages” by Carlota Perez to get a deeper understanding of the profound shift technology is causing in society today and the value it will unlock.

Greg Silberman CFA®, CAIA, CA(SA)

Chief Investment Officer

Advisory Services offered through Atlanta Capital Group.

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