As a value investor, while I don't focus on a given day's, week's, month's, or even year's market results, I have to admit that I am intrigued by daily market action these days. It is fascinating to watch the seemingly never-ending market volatility; the momentary ups and downs that either weigh too heavily on some investors, or make them overconfident at times. That's behavioural finance at its finest.
The 1086-point gain in the Dow on December 26 was widely reported as the "best day ever" for the index. While that may have been true in terms of point gains, it certainly was not in terms of percentage increases, which is clearly more meaningful. A nice move for sure, and welcomed, but it should be kept in context.
The volatility is likely not done, either. Three days into 2019, the S&P 500 has already experienced two "volatile" trading days (by my definition, a move of 1% up or down). In the past 14 trading days, nine have been volatile, including a run of seven of eight between 12/14 and 12/26. During that run, the S&P fell nearly 7%, and that includes the day after Christmas's 5% rise.
After a brutal fourth quarter, which saw the small-caps (as measured by the Russell 2000 Index) fall 20% and micro-caps (Russell Microcap Index) drop 22%, early 2019 action has been favorable -- so far anyway. The Russell 2000 is up 2.4%, and the Russell Microcap Index has risen just over 4%. That's just three days of action, a mere minute to a value investor, but there is a reason that I continue to keep an eye on the smaller names, especially in this environment.
Experience has shown me that when there is real market turmoil, not just the garden variety daily ups and downs, the smaller names usually are damaged more than their large-cap cousins. Lower quality, smaller and less liquid names tend to get hammered much more than they deserve as investors head for the exits. This brings with it a great deal of angst for those who invest in those markets, but also potential opportunity in "throw the baby out with the bathwater" market scenarios.
Meanwhile, it was nice to see some stocks in the green on Friday; Fitbit (FIT) was up about 5%, NL Industries (NL) gained 6%, Big 5 Sporting Goods (BGFV) (+7%) also had a nice day and has rebounded 18% year-to-date after an awful 2018.
Even Biglari Holdings (BH) , one of my biggest frustrations, popped 6%. Besides the entire Steak n Shake chain, and other businesses, BH owns just under 20% of restaurant name Cracker Barrel (CBRL) , a stake alone worth more than $770 million based on CBRL's current market cap (but not applying a large stake discount). In the past year, CBRL has paid BH more than $40 million in dividends, about 1/10 BH's current market cap, for what it's worth.
Yet BH's total market cap (it has two share classes) is just $390 million, in what is becoming a larger disconnect by the day. BH had an awful 2018, has been a multi-year disappointment, and should be trading much higher. The market is essentially paying prospective investors to own it; the "discount" in shares is due in my view, to a complicated, unconventional structure, complicated and egregious CEO pay structure and overall distrust in management. In other words, it is a value investor's dream, which has become a nightmare for some of us.
Adding insult to injury, a new, local Steak n Shake -- the first in our area, which was supposed to open in September, still sits idle. Great burgers, for sure, among the best for fast food chains, in my view.