We continued to see significant and broad-based gains in our growth strategies over the last quarter and have significantly surpassed the returns of the overall market averages, which have had pretty nice runs themselves. Given this increase in company values, and the length of this post-2008/2009 crisis rally, many are asking us what to expect going forward the next couple of years? While we certainly expect that a sizable correction is very likely (perhaps greater than 10% down), we simply don’t buy the persistent pessimistic argument that we have been hearing now for the last ten years that “doom” is surely right around the corner. We simply respond, what corner?
Although we are sometimes accused of being “perma-bulls,” as just stated, we expect a sizeable correction at some point over the course of the coming months/years. However, we have found over decades of investment experience that it has paid us well not to “play” the market. As investors, we believe our focus should be purely on the fundamentals of the business in which we are investing. The noise of the market can cause investors to make decisions that are based on technical, market-based issues and not the actual business of the company in which they have invested capital, thus leading to serious and costly errors. While the price you pay for a business should certainly be a consideration before finally deciding to buy, it should not be the only consideration, and is best considered last in the decision-making process.
We are amazed by the amount of emphasis that is placed on “the Market”! The market is an instrument, a technical mechanism that enables investors to purchase or sell; nothing more, nothing less. And yet far more analysis is done on what the market is going to do than is done on the businesses of the companies that make up the market. This is backwards, at least to us. We posit that investors would be much better off considering the business merits of a company than the action of the stock price for shares of that company in determining whether or not to place their hard-earned capital into it. Most of the financial media ask investment analysts what they think “the Market” is going to do far more frequently than they ask about the merits of the business of specific companies or about the environment for business overall.
This phenomenon is not just limited to the financial media -- most “hot” money managers nowadays are talking about how artificial intelligence, machine learning, and new algorithms are going to “enhance” their strategies for “trading” or, for that matter, serve as the sole basis for their entire strategy. The dominance of this trend is simply overwhelming and has taken over the entire world of professional money management. These managers have determined that math is more important than simple business “savvy” in making investment decisions (“investment” being the wrong descriptive term, since these are really “trading” decisions more often than not). Color us skeptical, but we think that is nonsense! And we have decades of proof from Richard Taylor before us, and Thomas Rowe Price before him, that our investment philosophy has lasted longer and has delivered better than average results measured in years, rather than in quarters. The record is clear….