Discover more from Grit Alpha
Volatility is Opportunity
I have been investing in the public markets for over a decade. Throughout this time I invested in multiple industries, businesses and researched over 500 different companies.
From personal experience, I can confidently say that public market investors are an interesting breed. Investors in this space will claim to be long-term investors. “We invest with a time horizon or two plus years,” they will say. But despite the “long-term” mandate, they will focus 90% of their effort trying to predict what the next quarter will look like. Something I too have wholly fallen victim to.
As an example, I’ll spend months trying to figure out how a company generates free cash flow. I’ll talk with industry experts. Speak with the management team. Tour facilities. And use all publicly available information I can dig up to forecast what free cash flows will be in the future. But despite my long-term approach to cash flows, most of my time tends to be spend on figuring out what next quarters cash flows will be.
As a public investor, it’s hard not to get into this mindset. When valuations move up or down 20 plus percentage points based on a single earnings event, its tough not to become a quarterly investor. Making matters worse, Mr. Market quotes what your assets are worth every single second of the day.
Getting quoted an asset price every single second of the day is what makes public equity investing one of the most interesting asset classes out there — and frankly, one of the best places to make money off of others emotions.
Take the COVID-19 pandemic as an example. Was there any other asset class that lost over 30% of its value in a single month outside of public equities that you could have easily invested in? I don’t think so.
Sure real estate prices and the small business down the road might have lost 30% of its implied valuation, but the owners of those assets couldn’t just dump them into the markets as there wasn’t liquidity. And anyone who wanted to buy a house or small business during middle of the pandemic just couldn’t as liquidity dried right up.
But not in public equities. In fact, if you wanted to buy equities during the March 2020 lows it was very easy to find liquidity as everyone was dumping everything they had. By taking a long-term approach to owning a business, anyone who bought in the March lows made an absolute killing.
What I am trying to say in this long-winded letter is that public equity investors tend to have short-term time frames, are highly conscious of volatility and equities tend to get priced based on the next quarters implied cash flows — not the long-term ability of a business to generate cash.
How Terrence Howard Is Reinventing Hollywood
With Hollywood gatekeepers deciding who gets to be a star or which shows get made, too many talented people and creative projects don’t see the light of day.
That’s why Academy Award-nominated actor, Terrence Howard, founded Holly – cutting out Hollywood middlemen and putting the power back into the hands of the people.
Holly connects talent directly with producers and empowers individuals to showcase their skills on a global stage.
And for a limited time, you can join Terrence Howard by investing in Holly. Here's why this is a game-changing opportunity:
Future of Hollywood: It’s a revolution that democratizes the creative industry and gives talented individuals the chance to shine – regardless of various constraints.
Breaking Barriers: By investing in Holly, you're empowering creatives to take control of their careers and providing them with a platform that bridges the gap between talent and opportunity.
Power of Celebrity: It’s one thing for crowds of creatives to clamor about change in their industry, but don’t underestimate the potential for Terrence Howard and other celebrities to get the ball rolling.
Don't miss your chance to be part of the revolution in talent discovery.
*This is a sponsored post
If you want an edge in the market remember these points
Volatility is opportunity. Where is another place on earth where you are quoted different prices of an asset every second of the day? Use this opportunity of constant pricing to buy an asset when Mr. Market hates the asset and sell when Mr. Market loves the asset. If you can control your emotions, an investor focused on owning businesses for a great price will outperform.
When volatility comes knocking remember you are buying a portion in a business for its long-term ability to generate cash flows. The cash flows generated over the long-term are what really matter here. Not the how much cash flow can be generated in the next three months.
Take advantage of other investors emotions. When an asset price falls double digits in one day it is time to take a closer look at what the long-term value of that business is worth. Investors tend to overreact to negative and positive events. When bad news comes out investors sell first and ask questions later. Ask intelligent questions and make business like decisions.
Some Insider Buys
There were a few big insider transactions at Big Lots (BIG) over the past few days. Two EVPs bought $50k each (here and here). The CEO also bought $250k. Big Lots is down 75% in one year and has a market cap of only $176 million. Short interest is 40%. It doesn’t look like it is profitable and there is a decent amount of debt on the balance sheet. There is real potential of the equity getting wiped out here but it could be good for one last puff.
The CEO of Hibbett (HIBB) bought $271k shares in the open market.
The CEO of Frp Holdings (FRPH) bought $240k worth of shares. FRPH has a lot of interesting land assets, including an aggregates business, that should do well over the long-term. Over the past five years the stock has been dead money. This one should be on your watch list and a name any value guy should know well.
Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.
Alpha Letter is a publisher of financial information, not an investment advisor. We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.
THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.
No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.
Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.
The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.
Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.