In a sea of noise, you can always count on Chris Mayer for some calm, rational thoughts about the market.
The co-founder & Portfolio Manager of Woodlock House Family Capital takes the long view and has strategies and techniques to avoid getting his emotions too involved with the state of his fund.
It makes sense because Mayer, you may remember from our interview with him, is also the author of 100-Baggers: Stocks That Return 100-to-1 & How to Find Them.
Here are Mayer’s thoughts about how he dealt with the recent turbulence in the stock market along with some interesting stats and factoids.
by Chris Mayer
To start: I don’t like to follow the returns of my fund’s portfolio too closely. For example, I try not to actually log in to the account unless I know I want to do something.
I don’t want the daily blow-by-blow on prices. It’s bad for the investing psyche; it makes you impatient and lose perspective.
Those prices flashing before your eyes cry out for action.
Feeding that into your brain every day (or worse, multiples times a day) invariably compresses timeframes and makes every day seem important.
Then before you know it, you are one of those people who go around with explanations for why such-and-such stock was up (or down) that day.
Seems a recipe for madness.
I prefer to cultivate a general awareness of where prices are.
But I couldn’t help myself after we closed the books on the month of November because it was an interesting and unusual month.
Also because, frankly, it meted out some unusual pain.
Well, much as I train myself to see price declines in my holdings as not necessarily bad, there is a part of me that frets over them.
After all, I do run money where I have to report to investors.
I’d rather not have my biggest position drop 20% in a month, know-whatta-mean?
Even though, time and time again, such drops turn out to be opportunities – and I know this! – it’s never so easy when you go through it.
Further, as a practical matter, no one buys into every decline. At some point you are full, or you run out of money.
Anyway, November was unusual, as I say. The S&P 500, for example, was barely down. But most stocks were down quite a bit more.
Smaller cap stocks outside the S&P 500 fared even worse.
A friend tipped me to something LRT Capital Management put out, which I think does a good job showing this:
“Through December 1 , the S&P 500 index is down only -4.07% from it’s all-time high, while the small-cap index, Russell 2000, is down -12.08%.”
However, these numbers do not give the full picture of the market decline that has occurred over the past several weeks.
A small group of stocks, primarily mega-cap tech shares have supported the market, while most stocks have been declining for several weeks now.
The disproportionately large impact that mega-cap companies can have on market capitalization weighted indexes has effectively hidden this fact, so while the S&P500 has only declined by approximately 4%, the average stock in the index is down -15.5% through December 1.
To put some numbers around this phenomenon, we looked at all the stocks in the S&P 500 – there actually 505 stocks today in the index – and here is what we found:
“More than half of all stocks in the S&P 500 are down more than double the decline of the index itself.
In addition, the percentage of S&P 500 stocks at one-year lows is at its highest level since April 2020.”
Drawdowns are part of investing, as you know. But it helps to review this point. Even great stocks have nasty, gut-wrenching declines.
I think of the Bessembinder study, which reviewed the top 100 firms that created the most value and found this about their paths:
Again, those were the best.
There are different ways to climb the mountain.
However, I like to think I’m doing what is best in the long run for my capital and my partners’ capital, and that I’m not making undue concessions just because I’m a professional investor.
Of course, I don’t manage billions of dollars and I’m not as rich as some. So there’s that.
I do have a great set of partners and a structure that allows me to take the long view.
For us, November was just one more month.
I think this approach makes a better life and I am confident my returns will be good.