The end of October and early November is very busy time for us, as it coincides with the quarterly earnings releases for a large number of our portfolio holdings. Given the acute market and economic volatility of late, this period carries even more significance than usual. With companies typically blacked out from providing any meaningful commentary to the public on either side of earnings season, the quarterly conference calls give us an opportunity to hear how confidently management communicates their performance and outlook. Often the most important things we pull out of a conference call come from a CEO’s tone and composure, as well as by listening for what a company doesn’t say. To date, earnings season has been solid for us and we view the valuation of our portfolio – currently 10.7x our 2016 earnings forecast – as extremely attractive. Recently a number of our holdings have experienced an increase in analyst coverage and as a wider audience begins to recognize these companies as undervalued growth stories (organic or by acquisition) we think it creates a pretty significant amount of demand for their shares.
Talking heads on television love to tell the public that “if there’s one thing markets hate, it’s uncertainty.” While this statement is broadly accurate, its the lack of any specificity means that it is used in relation to everything from commodity prices to real estate prices, interest rates, equities and currencies. Readers know that we do incorporate macroeconomic views when determining our cash balances, weighting scheme and hedging stance in the portfolio, but interacting directly with companies remains by far our most important method of investment evaluation. For us it helps eliminate “uncertainty” and gives us real insight into the health of a business which we then use to forecast earnings and cash flows.
Given that we have managed to protect capital for the past 15 months while many of our peers and global benchmarks have failed to stay positive, we are even more excited for the future. We strongly feel that the best is yet to come for our portfolio and we hope that you continue to allow us to care for some of your family’s investment capital alongside our own.