Dear Reader and Fellow Investors,
My agent, if I had one, would suggest that I stop being as sadomastic as i am. However, I cannot let the issue that keeps me awake at night away from you, dear reader.
One sometimes needs to write to ensure their beliefs remain engrained in action and not thought alone. "If you don´t have time to research, you don´t have time to invest" is good to say, but better to do.
A few months ago we started a small position in Monsanto stock, a company I have been following for a number of years but refused to look into any great depth in years past due to its ridiculus market price. However, as it dropped past 70USD, 50% below its previous high, I somehow thought I was getting a bargain. How silly one can be.
The reality was I was purchasing the stock assuming a 7/8% per annum growth, and even at this rate the P/E ratio was close to 10/11 in 5 years time. Clearly this is very aggressive for the fund whose general focus is more conservative assumptions on earnings, let alone growth.
The reality was our lack of study meant we didn´t pick up on the changing market structure, especially for its agricultural productivity business. If we knew what we were doing, rather than pretending due to lack of time to do the proper research, we would have included a significant discount in valuing this business line of the company. Yet, we didn´t. The consequence is that we may be holding a position that can bleed a negative marked to market value for a long time, as the seeds business line may not show impressive growth until 2011/12.
If we value the agricultural productivity business at zero, the stock is currently trading at x20 net income not including extraordinary earnings (this is at a stock price of 49USD/share).
Conclusion: always practice what you preach, there should be no off days.
Always use 5 year average earnings as a guideline. Any difference if feel should be higher or lower should come from understanding the market structure and any potential changes. Otherwise, stay away.
Yours sincerely,
Alessandro Sajwani
Thursday, 27 May 2010
Sunday, 23 May 2010
The General Market Remains Expensive....
Dear Reader and Fellow Investors,
We believe that equity markets in general remain expensive and macroeconomic conditions remain precarious due to the heavy debt load that continues to exist, and indeed is growing due to government borrowing.
We are happy to see that select individual securities are starting to become attractively priced, but this is still the exception as opposed to the norm.
Though we see it probable that central banks will keep rates low for as long as the markets allow (i.e. until government bond yields rise because the market becomes sick of new debt being issued), this can assist the upward rise of risk assets, as can the potential re kindeling of inflationary fears due to the large volumes of printed money being introduced into the financial system.
These two latter factors could well have been the principal drivers behind the increased pricing of real assets (commodities and equities) over the last 12 months. Can they be in the future? Sure they can, but recall that trees don´t grow to the sky.
We have also seen earning results consistently be better than analyst estimates, which were already assuming stong increases relative to previous quarters. There strength overall has impressed me as well as surprised me. I still believe that operating margins will be under pressure over the next few years (due to restricted private credit expansion, which will reduce demand), hence those that don´t increase revenue will generate less profit.
As assets become cheaper, we will be buying more. If they become more expensive, we are likely to hold until they pass our objective value for them, in which case we will be increasing further our cash allocation.
I would like to add that we have no interest in buying 5 year bonds offering 2.5% yields, and have not been buyers of gold. Hence we are principally buying equities, some of which are starting to offer sustainable dividend yields twice the yield of 5 year corporate bonds.
We look forward to receiving your questions.
Yours sincerely,
Alessandro Sajwani
We believe that equity markets in general remain expensive and macroeconomic conditions remain precarious due to the heavy debt load that continues to exist, and indeed is growing due to government borrowing.
We are happy to see that select individual securities are starting to become attractively priced, but this is still the exception as opposed to the norm.
Though we see it probable that central banks will keep rates low for as long as the markets allow (i.e. until government bond yields rise because the market becomes sick of new debt being issued), this can assist the upward rise of risk assets, as can the potential re kindeling of inflationary fears due to the large volumes of printed money being introduced into the financial system.
These two latter factors could well have been the principal drivers behind the increased pricing of real assets (commodities and equities) over the last 12 months. Can they be in the future? Sure they can, but recall that trees don´t grow to the sky.
We have also seen earning results consistently be better than analyst estimates, which were already assuming stong increases relative to previous quarters. There strength overall has impressed me as well as surprised me. I still believe that operating margins will be under pressure over the next few years (due to restricted private credit expansion, which will reduce demand), hence those that don´t increase revenue will generate less profit.
As assets become cheaper, we will be buying more. If they become more expensive, we are likely to hold until they pass our objective value for them, in which case we will be increasing further our cash allocation.
I would like to add that we have no interest in buying 5 year bonds offering 2.5% yields, and have not been buyers of gold. Hence we are principally buying equities, some of which are starting to offer sustainable dividend yields twice the yield of 5 year corporate bonds.
We look forward to receiving your questions.
Yours sincerely,
Alessandro Sajwani
The Currency Question....
Dear Reader and Fellow Investors,
As an investment advisor for a private bank, I am often asked where currencies are heading over the course of the day.
I am happy to say that due to my lack of foresight in such events, fewer and fewer bankers and clients are asking me my opinion on such short term matters.
However, I understand that clients longer term fears represent a meaningful question that any respectable investment advisor cannot pass.
Though currencies do generate a yield, as anchored by the base rate which is determined by the central bank of that currency, we decide not to determine a currencies value by discounting future expected interest rates (as could be taken from the yield curve of, for example, 30 year government bonds). We feel the potential of error is too large to believe in such an approach.
Instead, our currency allocation is principally determined by two factors:
1.An aim to be (close to) currency neutral relative to the clients base currency
2.We aim to buy assets that are available at good prices. If we do this, eventually others will buy them also. To do so, they will need to buy the currency that asset is denominated
Hence in early 2009 we were heavy buyers of USD assets, much like now we are starting to buy EUR denominated assets. Hence security selection guides our currency allocation. It is important to note we also add a macroeconomic overlay to ask ourselves how the macro environment in a particular currency can affect us negatively (we are not concerned with how it may affect us positively, that will be a bonus if it occurs). If we feel relative to another currency there are bigger macroeconomic problems, we would apply a larger discount before buying securities in that currency.
With regards to the current panic on the EUR, I would quote the great research based investors, such as Mr. Jim Rogers, who over a decade ago talked about the potential problems we are now seeing in Euro land. All that has changed is the media has spread the story to every household, creating a panic that is feeding off itself. No doubt, what Mr. George Soros would call a “vicious circle.”
As for my humble opinion on such factors: Though the USA, and therefore the USD, has more political wealth than the EUR due to its greater unity and therefore greater speed of reaction, economically, they are more similar than we care to believe. It is likely that over the next few years we will be involved in a “currency carousel” as the market judges which of the big three currencies is actually in a worst economic position (the contenders being the USD, EUR and GBP). Unfortunately the paper money of each, in my humble opinion, all need to de value relative to real assets.
Yours sincerely,
Alessandro Sajwani
As an investment advisor for a private bank, I am often asked where currencies are heading over the course of the day.
I am happy to say that due to my lack of foresight in such events, fewer and fewer bankers and clients are asking me my opinion on such short term matters.
However, I understand that clients longer term fears represent a meaningful question that any respectable investment advisor cannot pass.
Though currencies do generate a yield, as anchored by the base rate which is determined by the central bank of that currency, we decide not to determine a currencies value by discounting future expected interest rates (as could be taken from the yield curve of, for example, 30 year government bonds). We feel the potential of error is too large to believe in such an approach.
Instead, our currency allocation is principally determined by two factors:
1.An aim to be (close to) currency neutral relative to the clients base currency
2.We aim to buy assets that are available at good prices. If we do this, eventually others will buy them also. To do so, they will need to buy the currency that asset is denominated
Hence in early 2009 we were heavy buyers of USD assets, much like now we are starting to buy EUR denominated assets. Hence security selection guides our currency allocation. It is important to note we also add a macroeconomic overlay to ask ourselves how the macro environment in a particular currency can affect us negatively (we are not concerned with how it may affect us positively, that will be a bonus if it occurs). If we feel relative to another currency there are bigger macroeconomic problems, we would apply a larger discount before buying securities in that currency.
With regards to the current panic on the EUR, I would quote the great research based investors, such as Mr. Jim Rogers, who over a decade ago talked about the potential problems we are now seeing in Euro land. All that has changed is the media has spread the story to every household, creating a panic that is feeding off itself. No doubt, what Mr. George Soros would call a “vicious circle.”
As for my humble opinion on such factors: Though the USA, and therefore the USD, has more political wealth than the EUR due to its greater unity and therefore greater speed of reaction, economically, they are more similar than we care to believe. It is likely that over the next few years we will be involved in a “currency carousel” as the market judges which of the big three currencies is actually in a worst economic position (the contenders being the USD, EUR and GBP). Unfortunately the paper money of each, in my humble opinion, all need to de value relative to real assets.
Yours sincerely,
Alessandro Sajwani
The Role of Asset Allocation in our Portfolio Construction
Dear Reader and Fellow Investors,
We live in volatile times, you don´t need me to get paid to tell you that.
However, this won´t change our approach to investing. Today it is important we plant the seeds for growth over the next business cycle.
We have been strong proponents of the following asset allocation since bonds started to get a little optimistically valued (since end 2009):-
Cash 28%
Bonds 30%
Equities 30%
Commodities 06%
Structured products 06% (selling volatility)
We use asset allocation as a quick means to describe to our clients:-
1. Which asset classes we feel will perform best over the next 3/5 years
2. How macro economic factors influence our allocation of capital
However, asset allocation can be used by the lazy investor to hide the dirty job of security selection.
We strongly feel security selection should guide asset allocation rather than vice versa. When we can´t find the common stock of good companies at good prices, as a natural consequence our equity allocation will drop. The same is true for all other asset classes.
Recently, the big news on everyone’s lips is the precipitous drop in the EUR/USD exchange rate. We are big holders of USD assets, not because we predicted this “macro” event occurring, but because the prices of USD assets were telling us to come. We obeyed its silent orders in early 2009.
Today, much to the disbelief of others, as was the case when we were buying USD assets, we are starting to increase our equity allocation to European companies which are starting to become attractively priced. Most likely we are starting to buy early when judged on when the equity markets “bottom”. But our game is not to buy at the bottom, our game is to buy good companies at good prices. If we do this consistently, we are likely to make above average equity returns over the entire business cycle.
I would like to finish by assisting the lazy asset allocator – or the individual that does not have time to dedicate great parts of their day to security selection and neither wishes to pay an individual like myself to manage their investment portfolio.
If we use the above asset allocation as a starting point in today’s market environment, for every 10% drop in equities, you should add another 5% of this asset class in your portfolio. The inverse should also be true.
A 40% drop in equities should therefore increase your allocation to this asset class to 50% of the investment portfolio. Should it drop another 10% from there, I would add another 10% to have a 60% allocation to equities. This approach can be applicable to other asset classes, but with triggers to action slightly modified.
As always, we invite you to feel free to ask questions.
Yours sincerely,
Alessandro Sajwani
We live in volatile times, you don´t need me to get paid to tell you that.
However, this won´t change our approach to investing. Today it is important we plant the seeds for growth over the next business cycle.
We have been strong proponents of the following asset allocation since bonds started to get a little optimistically valued (since end 2009):-
Cash 28%
Bonds 30%
Equities 30%
Commodities 06%
Structured products 06% (selling volatility)
We use asset allocation as a quick means to describe to our clients:-
1. Which asset classes we feel will perform best over the next 3/5 years
2. How macro economic factors influence our allocation of capital
However, asset allocation can be used by the lazy investor to hide the dirty job of security selection.
We strongly feel security selection should guide asset allocation rather than vice versa. When we can´t find the common stock of good companies at good prices, as a natural consequence our equity allocation will drop. The same is true for all other asset classes.
Recently, the big news on everyone’s lips is the precipitous drop in the EUR/USD exchange rate. We are big holders of USD assets, not because we predicted this “macro” event occurring, but because the prices of USD assets were telling us to come. We obeyed its silent orders in early 2009.
Today, much to the disbelief of others, as was the case when we were buying USD assets, we are starting to increase our equity allocation to European companies which are starting to become attractively priced. Most likely we are starting to buy early when judged on when the equity markets “bottom”. But our game is not to buy at the bottom, our game is to buy good companies at good prices. If we do this consistently, we are likely to make above average equity returns over the entire business cycle.
I would like to finish by assisting the lazy asset allocator – or the individual that does not have time to dedicate great parts of their day to security selection and neither wishes to pay an individual like myself to manage their investment portfolio.
If we use the above asset allocation as a starting point in today’s market environment, for every 10% drop in equities, you should add another 5% of this asset class in your portfolio. The inverse should also be true.
A 40% drop in equities should therefore increase your allocation to this asset class to 50% of the investment portfolio. Should it drop another 10% from there, I would add another 10% to have a 60% allocation to equities. This approach can be applicable to other asset classes, but with triggers to action slightly modified.
As always, we invite you to feel free to ask questions.
Yours sincerely,
Alessandro Sajwani
Thursday, 22 April 2010
Political skills are important risk management tools
Dear Reader,
Today the focus of discussion will not dwell on a fantastic investment idea we have developed at the office, nor a macro economic insight that we feel gives us an investment edge in determining how the world economy may develop. We will take a more mundane view on ourselves and reflect on a number of harsh lessons we learnt during the course of the last few months. They can be summarised as follows:-
1. One rarely achieves anything by getting angry with someone you need to do something for you (especially when no one else in an organisation can do it, nor is it relevant how silly or consistently silly past activities from that individual have been)
2. When one can achieve a slightly higher return with a complicated operation relative to a simple one, always choose the simple one
The first point is learnt at the potential cost of a percentage point of performance in the fund. We are deeply upset by this. There are fewer things that upset me more than losing performance for our clients, and admittedly, this could have been potentially avoided if my political skills were a little more developed. Though we remain deeply in profit in the operation involved, I repeat we are not in this business to lose points of performance over sloppy mistakes. Hence this blog is written to ensure this mistake is not repeated.
The issue is we have upset the settlement team at our custodian as we (admittedly, I) got upset with them for making four consistent large errors during the Berkshire Hathway buy out of Burlington Northern Santa Fe, the latter company being one of our largest holdings prior to the buy out offer in Q4 2009. The mistakes were 1. Our settlement team forgot to give us the option to exchange our Burlington shares for Berkshire shares. 2. When we called to confirm why they had not done this prior to the merger completion date, they said the paperwork will come. When we asked after the date, they said the shares will come in a month. When we asked after a month, they told me to go away. I came back with the detailed paperwork indicating my rights as a Burlington shareholder and providing details of all correspondence showing they never gave me (nor another client I manage in a separate account) the opportunity to make this decision. They later said we were not given the option because we were not eligible for Berkshire A shares. I informed them that is why they have Berkshire B shares, and that is why they split the latter shares so the vast majority of shareholders will be eligible for the share offer should they choose. They would later come with other stories which we would have to evidence were incorrect. To cut a long story short they eventually agreed we should have been given the option, and very kindly amended the mistake, two months after we had received the cash. 3. Instead of receiving Berkshire B shares, we received Berkshire A shares. There was great joy in my eyes and soul when low and behold there was a 25000% increase in the portfolio valuation within a single day. However, there was a little more frustration building up as it meant I could not sell the shares as the settlement team would have to change the paperwork to Berkshire B shares beforehand. On the day they were correcting this mistake Berkshire B shares fell more than 1.5%. 4. When we received the Berkshire B shares, we remain suspicious that the correct number have not been sent. This was the final straw and I blow up a hornets nest with the email that I sent to settlements with my opinion of how they handled the whole issue. We now have the settlements team working against us rather than for us. The only real solution is to leave this team and find another custodian, which is what we are doing now. Since then we have sold the Berkshire B shares, but at a cost less than the cash we originally received to get the shares. This is earth shattering for us. Though it is not even a few percentage points lost, losing money in this manner is totally not our approach to risk management. Our political skills are obviously just as important in managing risk as our valuation skills, and we better appreciate that sooner rather than later.
All of this means we have lost a small portion of the large profit we made from simply holding the cash they originally sent to us (the simple operation). We are currently pleading for a re calculation and making claims for the errors done, but cannot assume they will be processed to our advantage. This is in the domain of hope, which is not the land where consistent above average returns are generated.
We apologise sincerely for this mistake which we take responsibility for to our clients who entrust us with their wealth. We will be keeping these two points learnt vividly in our minds to ensure future mistakes will be avoided, and that we interview our custodians in a more thorough manner before agreeing to do business with them.
We thank you for your continued support in us and invite you ask any questions you may have.
Yours sincerely,
Alessandro Sajwani
Today the focus of discussion will not dwell on a fantastic investment idea we have developed at the office, nor a macro economic insight that we feel gives us an investment edge in determining how the world economy may develop. We will take a more mundane view on ourselves and reflect on a number of harsh lessons we learnt during the course of the last few months. They can be summarised as follows:-
1. One rarely achieves anything by getting angry with someone you need to do something for you (especially when no one else in an organisation can do it, nor is it relevant how silly or consistently silly past activities from that individual have been)
2. When one can achieve a slightly higher return with a complicated operation relative to a simple one, always choose the simple one
The first point is learnt at the potential cost of a percentage point of performance in the fund. We are deeply upset by this. There are fewer things that upset me more than losing performance for our clients, and admittedly, this could have been potentially avoided if my political skills were a little more developed. Though we remain deeply in profit in the operation involved, I repeat we are not in this business to lose points of performance over sloppy mistakes. Hence this blog is written to ensure this mistake is not repeated.
The issue is we have upset the settlement team at our custodian as we (admittedly, I) got upset with them for making four consistent large errors during the Berkshire Hathway buy out of Burlington Northern Santa Fe, the latter company being one of our largest holdings prior to the buy out offer in Q4 2009. The mistakes were 1. Our settlement team forgot to give us the option to exchange our Burlington shares for Berkshire shares. 2. When we called to confirm why they had not done this prior to the merger completion date, they said the paperwork will come. When we asked after the date, they said the shares will come in a month. When we asked after a month, they told me to go away. I came back with the detailed paperwork indicating my rights as a Burlington shareholder and providing details of all correspondence showing they never gave me (nor another client I manage in a separate account) the opportunity to make this decision. They later said we were not given the option because we were not eligible for Berkshire A shares. I informed them that is why they have Berkshire B shares, and that is why they split the latter shares so the vast majority of shareholders will be eligible for the share offer should they choose. They would later come with other stories which we would have to evidence were incorrect. To cut a long story short they eventually agreed we should have been given the option, and very kindly amended the mistake, two months after we had received the cash. 3. Instead of receiving Berkshire B shares, we received Berkshire A shares. There was great joy in my eyes and soul when low and behold there was a 25000% increase in the portfolio valuation within a single day. However, there was a little more frustration building up as it meant I could not sell the shares as the settlement team would have to change the paperwork to Berkshire B shares beforehand. On the day they were correcting this mistake Berkshire B shares fell more than 1.5%. 4. When we received the Berkshire B shares, we remain suspicious that the correct number have not been sent. This was the final straw and I blow up a hornets nest with the email that I sent to settlements with my opinion of how they handled the whole issue. We now have the settlements team working against us rather than for us. The only real solution is to leave this team and find another custodian, which is what we are doing now. Since then we have sold the Berkshire B shares, but at a cost less than the cash we originally received to get the shares. This is earth shattering for us. Though it is not even a few percentage points lost, losing money in this manner is totally not our approach to risk management. Our political skills are obviously just as important in managing risk as our valuation skills, and we better appreciate that sooner rather than later.
All of this means we have lost a small portion of the large profit we made from simply holding the cash they originally sent to us (the simple operation). We are currently pleading for a re calculation and making claims for the errors done, but cannot assume they will be processed to our advantage. This is in the domain of hope, which is not the land where consistent above average returns are generated.
We apologise sincerely for this mistake which we take responsibility for to our clients who entrust us with their wealth. We will be keeping these two points learnt vividly in our minds to ensure future mistakes will be avoided, and that we interview our custodians in a more thorough manner before agreeing to do business with them.
We thank you for your continued support in us and invite you ask any questions you may have.
Yours sincerely,
Alessandro Sajwani
Sunday, 11 April 2010
Is the market cheap?
Dear Reader and Fellow Investors,
In the previous blog we have shown how long term pricing data for the standard and poor index suggests that equity investment returns oscillate around an average compounded annual growth rate (CAGR) of approximately 6.5 - 7%. However, this does not give us an intuitive feel of whether the index is cheap or expensive at the moment. We can use the data to do this.
Below you can see how the standard and poor index has evolved since 1927 by discounting past data with a rate of 6.53%. We use this number as we assume this to be the average CAGR of the index. Should we use a larger number, past values will be larger (i.e. the 1929 peak would have been even higher). Please note the data is up to January 2010.
At first glance the data would suggest that the index in January 2010 was not expensive, as the average seems to be approximately 1,250. This can go a long way to explaining why the markets have rallied so strongly in the last 12 months. Indeed, at first glance, the chart could be interpreted as suggesting the rally could still have sufficient steam to rise another 10-15% with a suitable probability of success. However, we could also note that when the S&P falls below 1,000, it usually hangs around for quite some time. The only other time that did not occur was in the great "bear market rally" of the early thirties. However, that rally was eventually totally liquidated. However, the rally lasted for 3/4 years.
Though we continue to buy the equity of companies that meet our strict criteria, we remain deeply sceptical and only buy opportunities we feel offer deep value and hence sufficient protection to reduce the possibility of a permanent loss of capital should an aggressive market decline occur.
As always, please feel free to post us any questions should you have any.
Yours sincerely,
Alessandro Sajwani
In the previous blog we have shown how long term pricing data for the standard and poor index suggests that equity investment returns oscillate around an average compounded annual growth rate (CAGR) of approximately 6.5 - 7%. However, this does not give us an intuitive feel of whether the index is cheap or expensive at the moment. We can use the data to do this.
Below you can see how the standard and poor index has evolved since 1927 by discounting past data with a rate of 6.53%. We use this number as we assume this to be the average CAGR of the index. Should we use a larger number, past values will be larger (i.e. the 1929 peak would have been even higher). Please note the data is up to January 2010.
At first glance the data would suggest that the index in January 2010 was not expensive, as the average seems to be approximately 1,250. This can go a long way to explaining why the markets have rallied so strongly in the last 12 months. Indeed, at first glance, the chart could be interpreted as suggesting the rally could still have sufficient steam to rise another 10-15% with a suitable probability of success. However, we could also note that when the S&P falls below 1,000, it usually hangs around for quite some time. The only other time that did not occur was in the great "bear market rally" of the early thirties. However, that rally was eventually totally liquidated. However, the rally lasted for 3/4 years.
Though we continue to buy the equity of companies that meet our strict criteria, we remain deeply sceptical and only buy opportunities we feel offer deep value and hence sufficient protection to reduce the possibility of a permanent loss of capital should an aggressive market decline occur.
As always, please feel free to post us any questions should you have any.
Yours sincerely,
Alessandro Sajwani
Mean reversion of investment returns: Why we are long term investors
Dear Reader and Fellow Investors,
In a now famous presentation by Mr. Buffett in Idaho in 1999, he stated he felt the most probable return in the next 17 years for equity investments would be 6%. Upon reading this, I asked myself where did he get this number from?
The graph below I believe goes a long way in answering that question. It shows explicitly the 15 and 30 year compounded annual growth rates of the S&P index using data from 1927. The fifteen year CAGR average is 6.93% according to the dataset we collected. Realising the large premium to valuations relative to historic standards, Buffett was willing to bet markets would have to show below average returns in the next decade and a half to ensure earnings caught up with valuations. How right he was.
We can clearly see the mean reverting properties of the equity markets. The data seems to suggest that the equity markets exhibit a cycle like behaviour that requires 35 -40 years to go full circle. Seventeen years would be half the cycle: historically speaking, we seem to be about two thirds through this down cycle. We therefore find comfort in the fact we see markets being overvalued using our valuation techniques, they seem to be well aligned with what long term pricing data would suggest.
Going forward, we remain cautious in our estimates for earning growth due to macro factors (please see "rare macro view" entry in our sensible investing blog), the history of pricing patterns and the distorted increase in operating margins many sectors of the economy have experienced particularly strongly in the last 5/6 years. We remain focused on buying the equity of companies that are available at the market with pricing that considers such scenarios.
Yours sincerely,
Alessandro Sajwani
In a now famous presentation by Mr. Buffett in Idaho in 1999, he stated he felt the most probable return in the next 17 years for equity investments would be 6%. Upon reading this, I asked myself where did he get this number from?
The graph below I believe goes a long way in answering that question. It shows explicitly the 15 and 30 year compounded annual growth rates of the S&P index using data from 1927. The fifteen year CAGR average is 6.93% according to the dataset we collected. Realising the large premium to valuations relative to historic standards, Buffett was willing to bet markets would have to show below average returns in the next decade and a half to ensure earnings caught up with valuations. How right he was.
We can clearly see the mean reverting properties of the equity markets. The data seems to suggest that the equity markets exhibit a cycle like behaviour that requires 35 -40 years to go full circle. Seventeen years would be half the cycle: historically speaking, we seem to be about two thirds through this down cycle. We therefore find comfort in the fact we see markets being overvalued using our valuation techniques, they seem to be well aligned with what long term pricing data would suggest.
Going forward, we remain cautious in our estimates for earning growth due to macro factors (please see "rare macro view" entry in our sensible investing blog), the history of pricing patterns and the distorted increase in operating margins many sectors of the economy have experienced particularly strongly in the last 5/6 years. We remain focused on buying the equity of companies that are available at the market with pricing that considers such scenarios.
Yours sincerely,
Alessandro Sajwani
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