08.15.2011

Rough Market Cycles Reward Monopolies

08.15.2011
Terry Flanagan

“Investing has never been tougher, and we can no longer blindly put our faith in others as we once did,” said Gregory McCall, co-founder and portfolio manager at Rock Crest Capital, a Connecticut-based hedge fund sponsor. The firm provides services to equity pooled investment vehicles.

“Investors need to become more involved with their portfolios,” noted McCall, citing that the recent downdraft of the U.S. equities market has propelled investors to become hands-on about their portfolio holdings.

McCall said that investors harboring memories of the 2008 financial crisis turn to plain vanilla steady performers, but moreover that the fear rampant among today’s investors is an expected aspect of the market cycle.

“Having been through many cycles since 1990, a simple rule I live by is that the best growth companies are the “last to go down and the first to go back up,” McCall wrote to Markets Media. “They’re generally those who exhibit monopolistic tendencies and have some element of growth.” Other market portfolio managers would call this style GARP—growth at a reasonable price.

McCall encourages names that harbor more growth. Apple, which superseded oil giant Exxon Mobil as the “most valued company in the U.S.” earlier this week (exceeding in market cap at Wednesday’s close), Starbucks, Chipotle Mexican Mill, Deere & Company and Lululemon Athletica.

Other portfolio managers would agree that investors flock to quality during roiling markets, but such names are solid income-earners, such as Coca Coca and Johnson & Johnson. McCall confirmed that investor will salute historic names first, but that others get a chance from the trickle-down effect.

“In general, you will see a move into the larger companies first and then it will broaden out over time if it sustains itself for more than a day,” he said.

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