Our investment research process is bottom-up: we look first at individual companies, screening for bargains and dividends, checking out ideas, reading SEC filings and news reports.
But certain themes do tend to emerge, as favorable opportunities often cluster in one industry or sector.
Thinking about the big picture, it seems to us that inflation may surprise on the upside in the months and years ahead. The COVID-19 pandemic—suppressing activity on a global basis—may give way to a synchronized global recovery. With not enough production capacity attempting to supply material and goods through a transportation network constrained by the crisis, shortages may lead to higher prices.
Record tides of debt and monetary stimulus may create more purchasing power than there are goods and services to purchase. Therefore, we are striving to avoid low-interest bonds and other investments that expose us to the risk of loss from inflation.
Our most recent additions to the “buy list” reflect favorable valuations in companies we believe to be durable—and fundamental to our lives. We will still require food and shelter and medicine in the future; finding bargain prices in profitable, dividend-paying providers is a joy.
We have revised an older theme—airlines and related companies—to focus on those with the most durable balance sheets. The airline industry has faced new challenges in the pandemic, and an industry under stress presents an opportunity… but we need the companies to survive in order to live through the current difficulties. (Hence the focus on only the strongest.)
Certain natural resource holdings have become market darlings. We began investing in them years ago, sometimes adding at lower prices as we waited for the turn to come. Our patience is being rewarded, and we believe this theme has years to run.
This is not a comprehensive list, of course, but covers some of the dominant themes we are seeing today.
Clients, if you would like to discuss these or offer additional ideas, please email us or call.
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