Value Microcaps Motherboard

[Bobwins]

Most of us have done very well for the past several years. The economy was in recovery mode and there were many companies that had cut expenses, gotten lean and had big positive surprises once the economy turned up.

Since we have been focused on earnings surprises, we caught many trends automatically, even if we didn't anticipate which industries would prosper during this particular recovery.

China plays, real estate and construction plays, basic industries, financials, energy...... There have been a lot of winners....

I am not naive enough to think that our little dream world will continue without challenges. I think our basic premise is still sound. As you state, we want profitable companies, with low p/e's and strong growth to go along with good balance sheets. Will that work every time?? No. At least not in the short term. If the market heads down for an extended period of time, there will be many good companies that will suffer stock price losses even though they are doing everything right. The trends of the overall market affect all of us, even at the microcap level.

I think it's easier to list sectors to avoid than ones likely to prosper. Real estate and construction related businesses have been on the bad list for how many years?? However, the FED is continuing to raise rates and that is not good for the housing market. Commercial construction may survive longer if tied to the government infrastructure replacement.

If the country goes into a recession, luxury items may become expendable. I have not been able to successfully invest in retail clothing or retail stores of any kind. Most never drop into our category of low p/e no matter what part of the cycle we are in.

You have to find little niches that can survive a downturn. I think energy services stocks could fit in that category. Energy will be in high demand. Maybe energy will be the cause of the next recession, who knows. I still think that the search for energy will be accelerating. That bodes well for energy services companies. They don't get paid by the commodity prices. They get paid for the services they provide. As long as energy prices don't drop thru the floor, they should be in high demand and get a good margin for their work.

During tough times, businesses that rely on govt to pay them do ok. Medical insurance and healthcare companies for the aging baby boomers should provide substantial growth opportunities even if the economy falters. Medicare payments come every month regardless.

I don't have any crystal ball. I do think if you stick to the VMC basics, we will have a better chance of profiting than the typical high p/e, bigger stocks.

You also may need to alter you investing style. May require more scalping of smaller profits to avoid losing short term gains. More defensive posture that requires vigilance and profit taking whenever you hit a smaller profit target than previously. Avoid the big loss is probably the key to surviving until better times with enough capital to rebuild any losses. As you have stated several times, you don't want to lose all those great gains from the last few years.

Good luck, Bobwins