In March, while many small and mid-sized stocks were going up, Saurabh Mukherjea, the founder of Marcellus Investment Managers, decided to take a different approach. He chose to save money and reduce his investments instead. Since June 2024, he has increased his cash from 3% to 17.5% in his Little Champs portfolio. Mukherjea explained that he is worried about the rising prices of small and mid-sized stocks and the slowing down of company earnings. Because of this, he believes these stocks might drop further.
He told his investors that having cash will help protect against these future drops and will allow them to buy quality stocks at good prices when the market calms down. In March, even though small-cap stocks were up by about 8%, Mukherjea remained cautious. He pointed out that smaller companies are facing serious problems, especially with their earnings going down significantly.
Mukherjea explained the reasons for this decline:
1. Reduced Shopping by People: Many families are struggling financially, which has made them spend less on goods and services, affecting businesses.
2. Less Money from the Government: The government usually helps certain sectors with spending, but this year, this spending has only increased by 5% compared to the previous years’ strong growth.
Given these issues, he is worried that small-cap companies may not see the expected earnings growth for the coming year. He also highlighted that many small companies have increased their market value, but they aren’t earning as much money as they used to, making this valuation seem risky.
Mukherjea’s strategy of staying cautious is already paying off. Stocks he sold since April 2024 have dropped by an average of 25%. Right now, while there is still excitement about small-cap stocks, he is choosing to be patient and wait for better investment opportunities when prices are fair again.
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