Turnaround Investing Blog

George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Return of Volatility? No, Return of "Normal"

Excerpted from the March 2018 Issue

Over the past few weeks we’ve been reading a lot about “the return of volatility.” The S&P 500 certainly has shown a hefty amount of volatility this past month, falling as much as 4.1% in one day (February 8) and a total of 10% over nine days, only to bounce back to approach its prior peak. But this type of volatility isn’t anything new--it actually is normal. 

It was the remarkably stable period between early 2016 and early 2018 that didn’t have any 5% corrections that was abnormal. Another sign of this abnormality is the fact that going into this past month, the S&P 500 had not produced a negative monthly total return since October 2016, which tied the record for the longest stretch of consecutive monthly gains (15) that was set way back in 1959. 

Sizeable market moves can increase the temptation to sell on downdrafts and buy on upswings; however, we strongly advise against attempting to do that. The chances of getting out at the right time and then back in again before the market rebounds are extremely slim. For example, even if you had been smart enough to bail out of stocks before the S&P 500 fell 37% in 2008, at what point would you have been brave enough to come back into the market?

And how much of the S&P’s almost 270% gain since the beginning of 2009 would you have missed? As baseball legend Yogi Berra once said, “Predictions can be hard, especially about the future.” We always recommend that you put as much of your portfolio into stocks as will still allow you to sleep at night and stick with that allocation regardless of what the market does.  

Read more of The Turnaround Letter's latest stock market advice. Our March issue includes details on five value investing opportunities within the gold industry, four timely turnaround stock opportunities poised to benefit from new management and much more.

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Tupperware: Not a Good Fit as a Turnaround Stock

At first glance, the shares have decent appeal as a turnaround investment. Looking deeper, however, the fundamentals are not as strong and stable as they appear. Surplus cash flow is tight, a key driver is weakening, it is increasingly reliant on China and has other nagging issues. We don’t see the new CEO as a catalyst for change. Despite the “first glance appeal”, Tupperware isn’t a good fit as a turnaround stock. Read More.

Harnessing Activists to Help Find Turnaround Stocks

Activist investors often produce attractive returns for their clients; and you can still use their influence to help your position as a turnaround investor in two ways: Buy a position in a stock with the expectation that an activist will soon follow or buy after an activist takes a stake.

 

Value Investing

 

While one of the many dozens of activist funds might find their way to selecting your particular stock, this approach is likely to be frustrating and unrewarding. A better approach is to buy after the activist makes their move. Once an activist takes a stake in a company, how do you evaluate whether it is worthwhile to follow on? Admittedly, this is a bit of an art... Learn how you can harness the power of activist investors to find market-beating turnaround stocks.

Turnaround Letter Stock Pick Named Top Performer of 2017

 

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What Last Year's Top Stock Pickers Are Buying in 2018

 

This Forbes write-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.

 

George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."