This article is authored by MOI Global Instructor Jim Roumell, president of Roumell Asset Management, based in Chevy Chase, Maryland.
We have long warned of an expensive overall stock market. Due to the lack of compelling valuations during this period, we have been maintaining a defensive portfolio posture with elevated cash balances. That cash provides us with the necessary dry powder to opportunistically deploy capital in a market sell-off.
However, our security selection process, held in concentrated positions, which allowed us to perform well despite a roughly 50% equity exposure over the past few years, has worked against us during the recent market turmoil. When liquidity evaporates for small and micro-cap securities, no matter how well-capitalized, bids drop. During these times, we must reexamine our company-specific assumptions, in light of their current (lower) prices, and decide whether any action is needed. Our belief in the underlying value of our investments is overwhelmingly intact.
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