Frankly, while it is never fun to watch our portfolios drop in value, we have always said that it is a healthy byproduct of a functioning market that these abrupt, and sometimes violent, price movements happen. We have experienced significant appreciation in the value of our growth portfolios over the last several years and sometimes the "payback" for that is what we are experiencing in the last few days.
We suspect this will take a few weeks to fully blow over, but the reasons for these machinations currently being lauded in the financial press (ie. China trade wars, higher interest rates, slowing economy, inflation, a too "hot" economy, a flat or inverted yield curve, Italy, the Supreme court battle, the mid-term elections, the Federal Reserve's monetary policy, etc., etc.) are all non-starters, in our view. We would react to NONE of these issues, even the ones that directly contradict each other!
This is about the time that we trot out one of our mentor's, Richard Taylor's, favorite lines when navigating ugly markets: "are you going to let 1% of the shareholders of your businesses drive your decisions about what represents the true value of those businesses?" In other words, since on any given day the trading volume in stocks represents roughly 1% of the total shares outstanding (of course, give or take), we don't want to let the trading tendencies of "traders" dictate our long term investment decisions.
We could comment on each one of the "reasons" for consternation in the markets today and refute them, or maybe even agree that there is reason for some level of concern regarding some (for instance, China trade wars). But we would reiterate that none of the "issues of the day" are cause for us to change our overall views regarding narratives that are driving long term value creation in our companies. Even potential drawn out trade wars could ultimately serve to drag China into the 21st Century with respect to the rule of law and property rights related to another's intellectual property. Could you imagine how much more value would be created if the rest of the world's software IP wasn't regularly pirated by bad actors in China (while the Chinese government generally looks the other way)?
Nonetheless, if one is laser-
focused on the businesses of the companies they own, much more so than the daily fluctuations of the stock price of those companies, we believe value will ultimately be sorted out reasonably, And in a properly diversified portfolio, it will more often than not be sorted out favorably, over time, for the true investor! Stay tuned.
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