Whiskey. Tango. Foxtrot.
I think everyone knows the meaning of those military call signs. In investing, it's the feeling one gets when one opens one's stock price app and sees a stock at a value that is new and unusual. It could be up, it could be down, but dramatic changes in share price must make one question one's investment thesis on the individual "WTF?" name.
I'm having such a moment today with Navios Maritime Holdings (NM) . Actually, as Yogi Berra said, it's deja vu all over again, because I had the same moment Friday. Navios shares have skyrocketed in the past two trading days, as the dry bulk sector has jumped to the forefront of "Trump plays." Inauguration Day was apparently the day the market decided Trump's policies wouldn't hurt dry bulk, a market in which 96% of the activity occurs outside the U.S. Another factor was the stronger-than-expected Chinese GDP report, showing 6.8% growth in the fourth quarter versus expectations for the normal "put it in the bank" figure of 6.7%.
I write a newsletter called Microcap Guru (I recommended Navios in my August issue at $0.96), so I should be the last person in the world to be surprised that small-caps -- Navios' market cap is about $230 million today -- can move sharply in either direction. That said, it's breathtaking when it happens, and it can really be a distraction. This is year 26 for me of analyzing equities, so here are a couple of rules of thumb for handling "WTF?" days for your portfolio holdings.
- Do not, under any circumstances, follow the individual tick-by-tick trading of a stock. It's mesmerizing, and especially pretty when the ticks are in green, but it is a tremendous waste of your time. One way to know you are committing this cardinal sin is if you are using a browser-based trading program and you find yourself hitting the refresh button. Stop it! If you think the shares are at or near fair value, put in a limit order and walk away.
- Look at a chart for historical perspective. In the case of Navios or any cyclical stock, it's so easy to miss the forest for the trees. Sure, NM shares have had an amazing run from under a dollar in August to above $2.10 today, but go to the Way-Back Machine and see that NM used to be afforded a much higher value by the market. Navios was above $4 a share as recently as April 2015, and a longer-term view shows the shares at $9.46 in August 2014. I actually took screenshots of the Google Finance long-term charts of NM and sent them to my clients Friday. A crude but effective way to say, "Hey guys, this run is great, but there's still more upside here."
- Follow the other classes of security for the company in question. It was exactly a year ago Friday that I added Navios Maritime's Series G Preferreds (NM-G) as my Real Money Best Idea. They were trading at a "the end is nigh" valuation of 14 cents on the dollar. Today they are trading at 55 cents on the dollar. The fixed-income market has realized that Navios is not going to die, and that is also evident in the marked improvement in prices of Navios' Senior Notes (which can be accessed on FINRA's homepage by using "NM.AK.").
So relax and enjoy a cocktail at the end of the trading day (responsibly, of course). Just never forget that a stock's price is a real-time summation of the information available to the market. I have built a business on finding and exploiting inefficiencies in the market, but I always remember one core truth: The market tells you what the company is worth, and not the other way around.