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Volatility goes with the territory, investment adviser says

| Wednesday, March 11, 2015, 12:01 a.m.
Robert Hapanowicz is president and founder of Pittsburgh-based Hapanowicz & Associates Financial Services.
Trib Total Media
Robert Hapanowicz is president and founder of Pittsburgh-based Hapanowicz & Associates Financial Services.

Investment adviser Robert Hapanowicz knows what a wild stock market looks like, and today's market doesn't scare him.

Hapanowicz, president of Downtown-based Hapanowicz & Associates Financial Services, witnessed the Black Monday crash when he started in the business in 1987, and boom and bust cycles since. Market volatility is normal, but investors must be careful, said Hapanowicz, 58, of Collier in discussing his strategy for finding bargains in the market. Below is an edited transcript.

Trib: There's been a lot of volatility in the markets because of low oil prices and troubles in Europe. What are everyday investors to make of all this?

Hapanowicz: It's typical that as a bull market extends ... volatility increases. In baseball terms, if we're in the sixth inning, that's about where we think we are in this bull market, then it's normal to have volatility increase.

Trib: Your overall message is that investors should not be concerned about this volatility?

Hapanowicz: Correct. In fact, I would tell people that there's a couple of overriding themes right now. First, stock prices follow earnings. That's Investing 101. Corporate America's balance sheets have never been healthier. Secondly, we have a very, very supportive Fed. With interest rates near zero and at these low historical levels, it favors investing in equities over bonds. In addition, the central banks from around the world are very, very accommodative. The European Union just announced a $1.3 trillion stimulus plan.

Trib: The common wisdom says buy low. Is now the time to buy oil?

Hapanowicz: I personally think that investors can nibble in here. If you look at a chart on oil prices, they are volatile, as are all commodities. The last time we saw oil prices this low was about five years ago.

Trib: What about European stocks, given all the problems abroad?

Hapanowicz: There's a difference between a bad company and a great stock. I'll give you an example and then I'll tell you how that relates to European stocks.

If you remember seven or eight years ago when GM needed a bailout, the United States bailed them out so they wouldn't go out of business. That was the ideal time to buy that stock. So, I'll give you another example. Equitable Gas. Great gas company. Two, three, four, five months ago was a horrible time to buy that stock. It was trading high, in valuations.

My point is that with Europe, the time to buy things is when they're cheap. Europe is committed to a $1.3 trillion stimulus plan. They're doing it. Now they're going through the negotiation process. I happen to think European stocks are relatively cheap and that they should play a role in investors portfolios.

Trib: Where are you telling people to look?

Hapanowicz: I think that with the dollar and the Euro near parity, small-cap stocks should have a place in investors' portfolios because they are less affected. They don't get as much of their revenue overseas; they are more domestic in nature.

Trib: When was the last time you had a big win?

Hapanowicz: We bought a drugstore chain several months ago, and we sold it in three months and made a 50 percent profit. Our latest one that we have is a technology company we bought at $11, and it's trading at $17 today.

Trib: And were these big wins the result of some lucky guessing on your part, or did you see something that ultimately played out?

Hapanowicz: What we do there is called SSE — special situations equity. We look for companies with balance sheets that need repaired. They can't be dream companies. They can't be the latest biotech that doesn't have any revenue. These have to be companies with balance sheets, with income statements, with employees with products that people buy.

We screen down every U.S. company, and we particularly look for companies that are priced below $5, because the large hedge funds and the large mutual fund managers typically don't look at those stocks. We can research it and push the button to buy before those larger guys do.

Rather than be predictive in nature, we are reactive in nature. We wait for that event to occur that changes the fortunes of that company. And once we sense that, we try to measure how much of a gain we think we can get from that company and decide to buy it.

Chris Fleisher is a Trib Total Media staff writer. Reach him at 412-320-7854 or cfleisher@tribweb.com.

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