Welcome to this week’s edition of the Flagship Report.
The rest of the world remains hyperfocused on everything happening in Iran. By the time you read this, the war may have ended for the ninth or tenth time, only to restart before the closing bell.
I continue to be amazed by the amount of trading that takes place around every headline, rumor and breathless television report. Fortunately, we do not have to participate in that circus.
We have our own views about how the conflict will play out and what it could eventually mean for energy prices, inflation and credit conditions. Those factors are important to the broader investment outlook, but they are not what drives the Small-Cap Momentum Portfolio.
In this portfolio, we care about two things.
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We want improving fundamentals, and we want strong price movement that confirms the market is beginning to recognize those improvements.
We do not need to predict the next geopolitical headline. We do not need to guess what a television commentator will say tomorrow morning. We need companies that are producing better results, raising expectations, winning business and attracting buyers.
That process continues to work.
The current portfolio contains 25 stocks spread across industrials, energy, financial services, technology, health care, consumer businesses and a handful of special situations. The average company remains genuinely small, with most market capitalizations well below $1 billion.
Several holdings have delivered exceptional gains. A few have failed to meet expectations. That is exactly what should happen in a momentum portfolio.
Our job is not to be right about every stock. Our job is to allow the big winners to keep running while refusing to let deteriorating companies occupy capital indefinitely.
We are starting this week by ringing a couple of bells - taking profits on positions that are up more than 100%:
This is the part that matters.
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