Market Corrections Are Normal

08/04/2011 3:50 pm EST


Gil Morales

Managing Director, MoKa Investors, LLC

Corrections are part of the normal cycle, and are useful because they allow new, innovative companies to come to the forefront, says Gil Morales, chief portfolio manager for MoKa Investors, in this exclusive interview with

So, do investors fear market corrections?…Should we be worried about them?

Well, corrections are a natural part of the market process.

You know, we have periods of market rallies, and then we have corrections in bear markets. The purpose of corrections in bear markets really is to clear the debts and to clear out prior excesses.

You could argue that to some extent the excesses of the late 2000s have yet to be cleared out—particularly in the housing market, for instance—but the way we look at the market, we sort of key on the cycle of creative destruction where you have entrepreneurial companies coming up, sprouting out of the ground, and you see new companies.

For instance, this last bull market we’ve seen companies like Netflix (NFLX). We’ve seen companies in cloud computing space, VMware (VMW), (CRM). These are new situations that are keying on the leading edge of the economy where growth is.

Since we are in an entrepreneurial economy—the US is primarily an entrepreneurial economy where you have 70% of the jobs being created by new companies—we sort of feed on that. So every market correction takes down some of the old leadership, tills the ground, and allows new leadership to sprout back up.

I think it presents new opportunities for investors when you have the bull market coming out of the bear market or correction.

Where are you seeing those types of opportunities now?

Well, technology will continue to be a driving force in terms of entrepreneurial growth, and so there’s just a vast open plain of opportunity out there as we move forward with 4G, and with the iPads, and the whole movement away from PCs towards handheld devices, including tablet computers.

So, those are waves there that reach far shores we think with growth potential, so those are areas that we’re keeping a close eye on.

Any examples of companies that we can invest in to take advantage of that rise?

I think a lot of these companies have some pretty long runs, so we’re looking at consolidations, but we still like companies like VMware. Rackspace Hosting (RAX) is a networking company that provides service space to companies.

Also, (AMZN) I think is a very interesting situation, because not only are they a retailer—an e-commerce retailer—but they’re also moving into the cloud, offering service space to companies like Netflix that actually run their system off of Amazon’s servers. So, they’re moving into cloud computing.

Also, Amazon recently announced that they’re going to revamp than Kindle product to be more like an iPad. So, that will be very interesting to see how that develops. But Amazon is at new highs right now.

So, should I look for pullback or jump on it now?

We would tend to wait for a pullback, Karen.

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