Mr. Market going to throw a tantrum this holiday? Don’t worry about it – Vitaliy Katsenelson

US-based fund manager Vitaliy Katsenelson pens some of the main talking points in his latest quarterly investment letter to his clients. Despite US stock market indices at all-time highs, many of the second- and third-tier stocks have felt a lot of pain, with the mega-cap tech companies driving indices performance. As a result, many active managers have fallen short of their respective benchmarks in 2021. Unless you owned Apple, Microsoft, Google, Tesla, your portfolio is probably lagging the major indices, which are traditionally benchmarks of investment performance. Vitaliy explains to his clients that despite trying times, his conviction in the companies he owns is steadfast. This is at a time where cryptocurrencies named after new Covid-19 variants become a near 10-bagger in a single day. A sign of the times. Nevertheless, Vitaliy says his strategy remains simple: to own companies that generate high-quality cash flows with solid and reliable management teams. A formula for success. Justin Rowe-Roberts
This Holiday, Will Mr. Market Eat Too Much Pi?

Four times a year I write a letter to IMA clients. These letters are long; the most recent Fall letter is 27 pages. I try very hard to bring IMA clients into our thinking about the economy, investing, stocks and decisions we’ve made in their portfolio (in this essay I explain the reason for their length.) Over the next few months, I’ll share with you excerpts from the Fall letter. I believe the relationship with my readers has evolved over the years such that we don’t need to sanitize and rewrite these excerpts into essays: I’ll leave them in the raw, original, more honest form. Enjoy!

This Holiday, Will Mr. Market Eat Too Much Pi?

Mr. Market was less than kind to our portfolio over the last few months, and especially the last few weeks. I cannot tell you how little it worries us what Mr. Market thinks about our stocks at any particular point in time. We love* our portfolio even if the Mr. Market doesn’t fancy it today.

Also, before we take Mr. Market seriously, let us tell you about the rationality of Mr. Market lately. The World Health Organization (WHO) names each variant of the Covid virus by going to the next letter of the Greek alphabet. After Delta, which is currently the most predominant variant of the virus ravaging the world, there must have been nine others that were not important enough because we never heard of them. Why nine? Because when the latest variant of concern was found in South Africa, it emerged that the letter Nu was supposed to be applied to it. But Nu sounds a lot like new. WHO didn’t want to confuse people, so it skipped to the next letter in the Greek Alphabet, which is Xi – oops, that’s the Chinese supreme dictator. So, for the sake of global political stability, that letter was skipped, too.

This brings us to Omicron, the name of the latest variant.

This is where this story gets a bit more interesting.

There happens to be a cryptocurrency, one of thousands, that is also named Omicron. I still cannot grasp the logic behind it, but that cryptocurrency was up 900% on the day the South African variant was christened. There must have been a trading algorithm or a lot of bored investors looking for the next gamble, to drive something seemingly worthless up 900%.

That is the drunken Mr. Market that is pricing our stocks today.

I am going to repeat what you will find me saying several times in the letter: We own businesses that are priced, not valued, by Mr. Market thousands of times a day. We have done a lot of work on each company in the portfolio, and through diligent research we have reached the conclusion that each is worth more than the price it is changing hands at today. Are we going to be right about each and every stock? Of course not. This is a numbers game. But we use a time-tested methodology centered on common sense and the cash flows these businesses generate. Also, this is not our first rodeo. We’ll go on making small tweaks, taking advantage of Mr. Market’s manic-depressive moods, at least when it comes to anything that generates cash flows.

Of course, we could change our investment process and load up on the cryptocurrency called Pi Coin, which happens to take its name from the letter in the Greek alphabet that follows Omicron. But I think we all agree we should stick to our knitting, buying high-quality businesses that are significantly undervalued. (Anyway we already loaded up on pie during Thanksgiving.)

Our advice – enjoy this holiday season. Spend time with your loved ones; don’t look at your portfolio. Let us worry about it – after all, we own the same stocks you do.

We wish you joyful and safe holidays.

*I shared a draft of this letter with some close value investing friends.  A few of them politely pointed out that I should not use the word “love” to describe my views towards the portfolio.  They are right.  Love is almost by definition an irrational emotion.  Our view towards stocks we own are not an affection or emotion.  In fact, we work relentlessly to extricate emotion out of our process.  We look at ourselves as scientists (we would wear white coats to work if we thought we would get away with it and not constantly spill coffee on them).

Our opinion on any company we own is just a thesis that will be validated or invalidated by time. We’d like to invalidate them before time does.  So “love” is not the word that I should use to describe what we think of our portfolio, it is a flawed shortcut for saying – we own high quality, significantly undervalued companies that are run by good, sensible management teams.

Vitaliy Katsenelson, CFA is CEO of IMA – a value investing firm in Denver.

How can you safely invest in a market this speculative? Check out his free series on The 6 Commandments of Value Investing. To read more articles, go to or listen to them at
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