Posted: Wednesday Apr 6 11:54:42AM 2005
The markets have been very difficult over the past 6 weeks and as indicated in our trading summary, our activity has lessened considerably. Many investors I have recently spoken with are sitting on the sidelines or are sitting with significant cash positions. I have also observed that the market is presently reacting for a very short period of time. If a company puts out positive news I have seen a short period of buying which then tapers out and decline set back in. In particular, illiquid situations see a modest improvement in liquidity following good news but within a few days is back into a pattern of very limited activity. Negative news is met with selling with very few buyers willing to take a new or increased position, thus generally resulting in a declining market value. Some investors may be doing well in 2005. In particular, the oil and gas sector has posted some significant gains in 2005; however, most of these gains have been in stocks already trading at price to cash flow multiples well above the historical average. Will oil prices continue to climb and will price to cash flow multiples continue to expand? That is a decision that all investors will have to make for themselves but over the past 3 months it seems that the "expensive" stocks have become more expensive while the lower multiple stocks have been stagnating. Eventually this situation should correct itself but the trend remains intact for the time being. Over the past 10 years, the average price to cash flow multiple in the energy stocks has been in the 3 to 5 range while currently this multiple is running anywhere from 6 to 9 times. QIS Capital will continue to invest in companies trading at low price to cash flow multiples as this is our niche where we have been very successful, but so far this year most of the gains have been had in the higher multiple companies. We are currently doing research on a number of new companies which we hope to bring to light over the next few weeks. We continue to work at identifying quality, fundamental companies and hope that the market turns back into our favour in the next short while. All the best to all of our followers.