How to Invest Successfully in a Volatile Market
I’ve just come back from a couple of weeks skiing and let me tell you, it’s like investing. Every turn you make you have to adjust. There are literally millions of adjustments when you’re whooshing down the slopes and you have to trust your body to keep up with your skis. In the same way, the markets are particularly skittish right now and you have to trust your instincts. I’m not saying, talk to me goose.
What I’m saying is, invest small and invest often.
Hit the moguls hard. That’s what we’ve been doing and we’ve had some big wins in the past few months that over 25% plus returns. The good thing is, we think they’ve got further to run.
AVA Risk (ASX:AVA)
This stock is very much at the speculative end of our spectrum, but it has delivered on what I think is the most important front: giving back to shareholders. The company gave back over 16 cents to shareholders in dividends and capital returns (not including franking credits) after the sale of its logistics business. What was left? Its security technology, which is its core business.
Investors got impatient with the lack of deal (well none) of its AuraIQ fibre optic sensing product for mining conveyer belts. In the past week AVA announced it had finally achieved a deal. Not a big one, but enough to indicate that the ball was rolling and that its business was expanding from just perimeter monitoring to also include mining. Bang, we’re through the gates and the stock has so far climbed 36% in a month.
Omni Bridgeway (ASX:OBL)
Arguably the quiet achiever of the asset management space. It turns out that legal claims are quite uncorrelated to markets. Given that this is what crypto was supposed to be and wasn’t, OBL is quite a valuable commodity as the global market leader in litigation funding and litigation funds management business. The thing is nobody, or not many know about it!
Why is that, because it’s complicated. We often find that doing the hard yards on companies that are complicated is the most productive work we can do.
Although, in terms of value, all you need really is basic maths. You apply the win rate to the current portfolio value and get a valuation well north of where it is now. This takes no account of the company’s goodwill, which is also worth a great deal, because taking on class actions requires large amounts of trust. The stock is up 30% since our spec buy rating at the start of the year and we think it’ll keep going.
Small Cap Royalty
What else do you need when you’re skiing? A good core.
Core of the core is the balance sheet. This is the boiler room. If you don’t have a good boiler room, you could go bust. This is an essential element of the Small Cap Royalty stocks we listed in issue 503 a month ago. These included shipbuilder Austal (ASX:ASB), IT services group Data#3 (ASX:DTL) and gold producer Evolution Mining (ASX:EVN).
This is what big sell offs provide. Quality at bargain prices.
Austal has jumped 41% after a potential multi-vessel contract worth billions with the US coast guard.
Data#3 has climbed 22% off the back of pre-released unaudited FY22 result that showed NPAT up 20%.
Okay, we don’t get them all right. Evolution Mining was sold down about a third on missing production guidance and higher than expected costs. But talk about an over-reaction, which can occur in a tough market. This is where the opportunities lie.