Friday File: A Volatile Quarter, A Rumored Buyout, and Future Buying Opportunities

Thoughts for the Irregulars on NXP, DIsney, Short bets and future bargains

By Travis Johnson, Stock Gumshoe, September 30, 2016

I’ll be fairly brief today with my Friday musings for you today, because I’m off to the Grant’s Interest Rate Observer Conference on Tuesday next week and I expect I’ll be writing a few extra notes for the Irregulars based on what I see in those presentations. I’m particularly interested in hearing the thoughts of Seth Klarman and Jeffrey Gundlach in their afternoon sessions, but I’m sure I’ll come out of the day with a more nuanced understanding of current interest rate and bond markets — and I hope that will mean I’m able to be a more rational investor in the months ahead. So look for some notes or comments from me on that next week.

What’s happening this week in our little world? Well, beyond the market-dominating world of interest rates, we are careening toward an election that scares the heck out of the markets… so there’s a good chance that things will be volatile over the next five weeks. So what does an investor do? Personally, I think we’re better off trying to keep that long view, and trying to think about owning shares in companies that can be successful whether the 10-year note is at 1% in two years or at 3%. I’m feeling pretty well prepared for a volatile fourth quarter, with some cash on hand if prices get cheap enough that I’m compelled to buy something, but I don’t know what’s going to happen to the markets and I try to avoid spending too much brain power pointlessly spinning my wheels in trying to predict the future.

Better, I think, to keep that cash reserve handy, maybe a little more cash than you normally hold, and be prepared for market corrections… but keep your eye not on the market as a whole, but on individual companies and what they might be able to do in the future. Those who were able to look at the world with that kind of focus and avoid the macro panic of the day in 2009 (when things were, in case you’ve forgotten, dramatically worse than they are today, and when the doomsayers were far more believable), bought bargains that look absurd in retrospect… great companies with staying power and strong balance sheets like Starbucks at $5, or 3M at $30. When the world has you fearful, think about what it would take to make ...

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