Fellow Partners,
The most important organ in investing is the stomach, not the brain.
Peter Lynch
In broad strokes I know three types of investors:
Those who focus on future value: What could go right? They buy potential for growth.
Those who focus on present value: What could go wrong? They buy reversion to the mean.
Those who focus on relative value: What assets are cheap vs. other assets? They buy and sell a lot.
Some common phrases from these groups are 100 baggers…margin of safety…macro for context and micro for conviction…bulls and bears make money while pigs get slaughtered.
We all have our own proclivities, but I have learned a great deal from all three types. There is practical wisdom within each group, and part of our job is to find and apply it.
What is the zeitgeist of each group today?
Those who focus on future value: “How can such great assets be so cheap?”
Those who focus on present value: “We’re finally starting to see a few bargains.”
Those who focus on relative value: “All that matters is to survive. The rest is just words.”1
Which brings us to today’s markets.
What is going on?
Doubt is an uncomfortable condition, but certainty is a ridiculous one.
Voltaire
Broadly speaking, economic warfare is causing substantial uncertainty. How can businesses plan when they don’t know how input costs will change? How can countries plan when they’re questioning who their friends are?
This creates substantial volatility in asset prices, which turns those using too much leverage into forced sellers at any price. And this creates reflexivity in the market: selling begets selling. Time is compressing.
What are we up to?
Drawdowns are only bad if you can’t take advantage of them.
Ian Cassel
First, I would like to remind you of what we were up to last time asset prices were this volatile (link HERE, from January 2022). We were zigging when others zagged. Not all at once. But through the uncertainty. What we did then formed the basis of our substantial returns since then.
Before our present turmoil we raised some dry powder, today we are holding on to quality, and over time I expect us to get some great deals.
We understand the territory we are in. We know what we are after. And we have the ability to get it.
Our goal through this season is to exit it owning more of the wonderful assets we held before it.
Most importantly: we are set up to survive forever. Read that again. All clouds eventually run out of rain. And when the present ones do, we will still be here.
Compounding Trust
Patience is a product of confidence and trust.
Peter Kaufman
Moments like these accelerate the rate at which we are compounding trust within our partnership. As you have heard me say over and over: if we compound trust at high rates, the other things we want to compound are likely to follow.
As Peter Lynch noted above, I know volatility is hard to stomach. As always, please reach out if you would like to talk.
It is an honor to serve you.
All the best,
John
Founder and Managing Partner
Borrowing de Gaulle