This article was originally published on EspaceMicroCaps
Author: Philippe Bergeron Bélanger aka Darrrk on our discussion forum.
September 15, I started the challenge to reach $ 1,000,000 in my account savings free of tax (TFSA) from a capital of $ 101,622. As promised, monthly updates allow you to follow the evolution of the challenge. During the month of October, I have conducted no transaction and the market value of my portfolio at month-end amounted to $ 100,021 for a yield rate $ 10 compared to the end of September. Here are the yields of the various indices from October 1rst to October 31th, 2014:
- TSX Composite = - 2.3%
- S & P500 = + 2.3%
- Russell Microcap = + 6.1%
- TSX SmallCap = - 8.5%
Volatility, here is a word that sums up the action of the last few weeks on stock markets. The correction began in September continued at the beginning of the month, before bouncing back in mid-October. The positive indicators on the U.S. economy, which grew by 3.5% in the third quarter, was even allowed to S & P500 finished the month near its historic peak. In Canada, TSX Venture, sealed by the mining and oil companies, values lost 15.4% and is approaching historic lows after the financial crisis. Overall, I am satisfied with the performance of my portfolio and I look forward to the announcement of results in November.
Cash is a position
Addition in the volatility, you should never lose sight of what moves the action price: i) the economic performance of the company and ii) the news affecting the anticipation of future results.
The indices try to measure the overall state of the market and are the result of the movement in the price of the shares which compose them. The fact that the market corrects 10% does not necessarily mean that your investment in a Microcap is now more risky and you should sell. Often, macroeconomic events have a lower impact on the fundamental elements of a Microcap insofar as the opportunity remains significantly.
Take the example of Xpel Technologies (DAP.UV) which has not been spared by the correction after reaching a peak of $ 3.50; the volatility of the market has probably prompted some investors to take profits. However, Xpel sales growth accelerated in the second quarter with revenues higher than 70% from last year, thanks to increased efforts to increase international sales. And the drop in oil prices should help the sales of new cars, not harm it.
In short, instead of selling in panic, ask yourself this question instead: what is the correction in the price of my Microcap is justified? In other words, what is the economic environment in which it operates has changed so as to change the prospects for future profits? The volatility is sometimes only noise around the intrinsic value of a company.
Which brings me to my lesson in October: If the market allows you to buy a company to fundamental solids at a lower price, it is important to have money available to do so. While the market offered interesting opportunities, I was there on the side lines watching the show with a cash position of $ 45.80 in my TFSA. Some titles on my radar picked up 30-50% since their October lows.
My goal in the coming months is to build me a position of the order of 5-10% of my portfolio in cash. To do this, I'll reduce some positions when the assessment becomes richer or the lack of near-term catalysts suggests a period of consolidation. It requires a little more effort to follow my positions, but flexibility will I get in return is of great value.
I suggest you do the same.
To discuss this article: challenge TFSA 1,000,000 shift October 2014 - cash is a position
