Investing is a lot like Winnie the Pooh’s pursuit of honey: slow, steady, and guided by a simple but unshakeable focus on the prize. In today’s fast-moving world, it is easy to be swayed by the lure of quick gains or to be scared of volatility, but long-term investors know that lasting success comes from identifying quality businesses and holding onto them with patience. Much like Pooh’s endless search for the perfect honey pot, a wise investor seeks out companies that are fundamentally sound, even if it takes time for the market to recognize their true worth. In investing, as in life, the sweetest rewards come to those who are willing to wait.
August has been volatile, and clearly September is turning out to be volatile as well. There is a lot going on in the global economy and in politics. We are clearly at a key turning point, with the Fed decision on rates expected imminently and formally ending the interest rate cycle which started with the recovery from the pandemic in 2022. The fact that markets are volatile in the run up, and that people are looking to position themselves short-term, is something that is to be expected. It has obviously affected investors and markets in August and will do so going forward as well.
Winnie the Pooh has said that “Doing nothing often leads to the very best of something.” Our approach has been to stick to our convictions and to base our decisions on the long-term fundamental analysis of the quality and prospects of the companies we invest in. Of course it is not about doing nothing, ever. Pooh likes honey at least as much as we like quality companies. It is about two key things: having the wisdom and patience to know when we should act and when we should not; and putting ourselves in a position where we can act out of a position of strength and do not have to react at a time of adversity. We have been able to make the most of the mis-pricings we have seen over the past several years to buy great companies at great prices and to build a resilient and diversified portfolio of globally leading quality companies that has performed strongly through this period of volatility.
Earlier this year reduced the exposure to a number of positions that had performed strongly, because of portfolio, risk management and valuation considerations, and allocated the capital to new and existing positions that we thought offered great prospects. By doing so we did not have to do anything to react to the short-term volatility and have been able to focus our resources on reinforcing our conviction in the companies we hold and working on others that we think are fully priced but may become opportunities in the future as so many of our companies have.
The volatility has largely been due to concerns around macroeconomics and in particular, indicators of a US slowdown, issues that we think are expected. As we have said, the thing about Goldilocks in markets, as opposed to the fairytale, is that it’s never just right, it is always too hot or too cold. That is exactly what we are seeing, and it has been one of the main things that has been a driver for the performance of the overall markets and to some extent also of our portfolio up 18.1% year-to-date in USD at the end of August, with the positive performance we summarize below.
