The recent volatility reflects a struggle between the bulls and bears, says Michael Murphy, but he thinks this is a chance to buy select stocks.

Michael, have you ever seen this type of volatility in a market?

Well, a couple of times back in 1987 it was about this bad. But when you see volatility like this, it’s often closer to a bottom than a top.

What the bull’s trying to do is it’s trying to throw everybody off. One day it throws off all the longs. The next day it throws off all the shorts. The next day it runs for the hills with nobody onboard.

With nobody onboard.

Yeah, and that’s what I think we’re seeing.

Is this fear such a driving emotion now, versus greed?

Well, I think it’s two things. Clearly we have a lot of fear. The downgrade in the US debt actually was followed by US debt getting more expensive as people put money in, so it didn’t seem to have any real impact in the real world. I think people generally are worried about Europe.

But you’ve got a lot of program trading today. You’ve got the high-frequency trading, and it doesn’t take too much at the margin for someone to get worried and then have that amplified through the whole system. Then that, in turn, gets a lot more people worried because they see these 500-point moves up and down.

And wasn’t that the same problem in 1987, the program trading being blamed for a lot of activity.

It was a different kind of program trading, but it was the same thing.

The same thing?

Yeah.

So, what do we do now, just sit back and watch the dust settle, or should some stronger souls step up to the plate?

I actually have been buying. I’m running an endowment account and we put a bunch of money to work this week. I think this is a real opportunity.

There’s a lot of strong factors in the real world that people are selling into, the strength in Asia and the strength in smartphones, the strength in cloud computing. It’s out there.

So, from the companies’ point of view, they’re doing fine. They’re not hiring a lot of people, and so consumer confidence is kind of low, but I think companies are going to surprise to the upside.

But those companies have, not to be negative, but had pretty much given up on the US in terms of where their bottom line was coming from. Most of them now are getting their bottom line from overseas, and as you mentioned Europe is weak, but Asia and China are still doing well.

Yeah, still very strong. China may slow down, but that means they’re still growing 6%.

And you can switch advertising budgets these days. You can switch marketing efforts, with the stroke of a pen, basically. And there are parts of the US market—the smartphone, the tablet market—that are really quite strong, and we’re going to continue to see growth there right through the end of the year. We got a lot of new tablet computers and smart phones that are going to be introduced for the holidays for the holiday season.

Were those the type of investments you were making for the endowment fund?

Well, the endowment fund mostly is in higher-yield stuff, and that’s been a great opportunity too, things like Annaly (NLY) are back up to yielding 15% to 16%, instead of 12% to 13%, and that’s a real quality company.

We did take a position in Arena Pharmaceuticals (ARNA) but it’s only 3% of the fund. It’s our only "racy" position.

Play money.

Yeah, and we’re not going to go beyond that.

Any other things that you’re looking at?

In the technology area, we really like Quick Logic (QUIA) and Tower Stream (TWER).

 Why those?

Well, Quick Logic makes chips for smartphone and tablet displays that make the display brighter, so video looks better, and at the same time it extends battery life.

One of the big things about smartphones is the people who use them have the screen on all the time. It’s not like the old phones, where the screen just lit up when you dialed the number and then it could go dim. So, battery life is a real issue.

Tower Stream has got a wireless Internet connection for businesses in major cities, now in 11 major cities. They provide it about half the cost of AT&T (T) or Verizon (VZ). They can give you a T1 connection, but what they’re introducing is Wi-Fi on the rooftop aimed down at the street, and they’re going to offload all that smartphone traffic.

In other words, they’re not going to sell to the consumer. They’re going to sign up AT&T, Verizon, T-Mobile or whoever it is, and give them an alternative way to get some of that traffic off their servers. Because right now, today, you get a lot of dropped calls in a big city. They’re just jammed.

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