On Recent Market Volatility: Confidence Comes With Preparedness by Jensen Investment Management
The recent market turmoil has been a cause of serious concern for many investors. We, at Jensen, want to share our perspective on this market activity with our valued clients and how we prepare for such events.
We Invest from a Business Ownership State of Mind
For much of the past decade, Crispin Odey has been waiting for inflation to rear its ugly head. The fund manager has been positioned to take advantage of rising prices in his flagship hedge fund, the Odey European Fund, and has been trying to warn his investors about the risks of inflation through his annual Read More
The noise of the media makes it too easy to forget that equities represent ownership of a business. There may be no better way to create wealth than owning a profitable business. For long term investors, looking at daily market closings to judge the value of a portfolio is in direct conflict with a long term investing philosophy. Jensen’s approach to investing is to identify high quality companies and purchase shares of these companies as a buyer of their business, while requiring we purchase their stock at a reasonable valuation.
Disciplined Valuation Methods are Key
At Jensen we believe that high quality companies continue to be supported by competitive advantages, strong balance sheets, robust free cash generation, and consistently high returns on capital. These quality companies maintain their ability to use internally generated cash to fund future growth initiatives while simultaneously increasing dividend payments and repurchasing shares. We believe a focus on companies that deliver consistently high profitability while maintaining reasonable valuations, is a prudent strategy in the current environment.
As noted in our recent quarterly commentaries, while it is difficult to forecast near-term challenges for the U.S. economy at present, we believe that in times of exuberant stock valuations and market volatility, it is important that investors exercise investment discipline, particularly regarding valuation. We believe this volatility will continue as investors react to global economic developments and to the Fed’s comments regarding potential interest rate increases.
The Good News
Volatility aside, the good news is that over longer periods of time, market values reflect the increases in values of businesses. Our suggestion, during times of market turbulence, is to tune out the media noise and accept that market volatility is an inherent part of investing and may provide opportunities for those managers that focus on long term success.
- The Jensen Team