The world may be a mess, but investors in well-run businesses headquartered in America remain actively engaged. Buyers are more enthusiastic than sellers. Thankfully, we emphasise the kinds of companies investors are eager to own.
At the end of last year, summing up your strong result we wrote, “The greatest killer of investment results is over-confidence, and we hold ourselves as able as any to suffer from such bouts of stupidity. We realize that we must make decisions with a great deal of uncertainty, and for periods of times crowds are right. We will consider that the consensus now building is that a good economic outcome over the next few years is possible. It is possible! We will continue to seek opinions contrary to ours. We will consider with open minds, the good, the bad and the ugly. But we will always stick with quality, factually measured.”
Increasingly, investor sentiment is very bullish. The same people screaming in horror last year about how high interest rates were going to massacre everything are now joining the crowd advocating that higher for longer is good! I guess the crowd has learned that when digging oneself into a hole, the best way to get out is to stop digging. Sensible advice.
Now, I come from a time that knows that there is life above 4 degrees of interest, but I also come from a time when economic turbulence occurred more frequently than it has in the past 15 years. Today, government bails everyone out at the first sign of trouble. As we hear all too often, ‘It is election time south of the border’ and that means big promises: jobs and money for all. This keeps the crowds happy. Happily, the crowds are mostly employed and spending. ‘High’ interest rates so far are not hurting enough! But cracks are forming. They may only be creaky noises, but there is the occasional groan too.
Increasingly, it’s not just ‘poor people’ who are suffering, but so too lots of businesses are feeling the pinch of renewing their loans. Worse yet, we are seeing growing signs that the desire of lenders to refinance loans is diminishing quickly. It’s not just small business but also the ‘biggens’. Traditionally when this starts to happen, people start losing jobs. Usually when jobs are lost investors become unhappy.
All of this is to say we remain on heightened alert. We are not economic forecasters, rather we are investors in businesses whose values are increasingly reflecting optimistic forecasts. A rising tide floats all boats, but a rising tide occurs when it’s getting darker.
Like we said in January: “This is where things get tricky.”
Your portfolio continues to rise at a pleasing pace, increasingly augmented with safe short-term investments returning more than 5%. Our hope is that investors become cranky—as they tend to do when partying too enthusiastically. We would be happier if we could invest in a less crowded room.
When you know what is coming, prepare. When you do not know what's coming, position. When the future is uncertain, you can position. No one knows what is going to happen with the economy or the stock market, but you can position yourself against potential disappointment by carrying extra cash. Cash pays attractively these days. We feel the fund is well positioned for turbulence.
