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Brett Arends's ROI: ‘Volatility is as much your friend as your enemy.’ Panicking about the Dow? Meet the long-term star investor who’s buying

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Mark Mulholland doesn’t pretend to be an epidemiologist, a doctor or a medical expert.

“I have no idea how serious the coronavirus will get,” the money manager says from his office outside Philadelphia. “There’s no question it’s going to put some kind of crimp on the economy. My hope is that we won’t get two quarters of negative growth.”

But Mulholland knows something about investing. The manager and owner of the small, independent Matthew 25 mutual fund may be the best money manager that almost nobody has ever heard of.

Since launching his fund in 1995, he has outperformed the U.S. stock market by an average margin of about 2 percentage points a year. From December 31, 1995 to December 31, 2020 his fund averaged 11.3% annual returns, against 9.2% for the index. And that’s after deducting fees, which come to around 1% a year.

He was up 42% last year, where the S&P 500 SPX, +1.67%   rose 31%. He’s gained an average of 16.2% a year over the past 10 years, far ahead of the index’s 13.6%.

And his take on the markets in this maelstrom on a day when the Dow Jones Industrial Index DJIA, +1.68%  has plunged 8.5%? This is “very much” a buying opportunity, he argues. “I’d already started buying. The extra cash I’d built up, I’ve put that into the market,” he says.

‘I try to think 3 to 5 years out. I’m not just betting on an outcome, I’m owning companies that are valued at a level so far below their intrinsic value that I should be able to make money even if there is great duress.’

Mulholland says it helps during turmoil to invest in things you understand and in which you can believe. “I always tell people, you have to find something you believe in, whether it’s a mutual fund, or individual stocks,” he says.

In his letter to stockholders at the start of the year he wrote, “I will personally try to put some cash aside this year from savings just in case there is any significant market pullback in the future.” He admits now, “The correction came quicker than I expected.”

To be sure, it takes two points of view to make a market — a buyer and a seller — so for every bullish point of view there is another one urging caution, or recommending people sell in case things get worse.

Mulholland accepts that the coronavirus situation may deteriorate further. But as an investor he tries to look beyond the short term. “I try to think 3 to 5 years out,” he says. “I’m not just betting on an outcome, I’m owning companies that are valued at a level so far below their intrinsic value that I should be able to make money even if there is great duress. When I look at the companies I’m buying and the prices I’m paying, I can’t help myself but buy. I feel the fear is so great they’ve built that into the price already.”

And Mulholland’s figures have already been reduced to account for the annual fee of about 1% a year. The gross performance is better still, he said.

That doesn’t mean he’ll be right in the future. Many former star managers have ended up disappointed.

There may be plenty of volatility to come. Despite predictions of by some economists that the economy could tank 4% in the next quarter, Mulholland doesn’t think the economy is in a recession. He adds that there are other factors that should help the economy along, including recent trade agreements with China, Japan, Canada and Mexico.

“There are a lot of things that are going to be stimulative,” he said. “There are factors in the economy that haven’t even kicked in yet.” He compares the recent panic to the sharp slump in late 2018.

His stock purchases in recent days, he says, include property company Brandywine Realty Trust BDN, +2.64%, small Pennsylvania bank Customer Bancorp CUBI, -0.07%, and sports vehicle maker Polaris Inc. PII, +1.03%.

He says ordinary investors can benefit from a system that encourages them to keep investing in a fire sale. “Every day the market is down 1%, make a purchase. I always buy on weakness. Volatility is as much your friend as your enemy.”