by Scott Ronalds

From our Quarterly Report:

Over the last year, there’s been lots of drama in the news and markets. Throughout, we’ve emphasized having a strategic asset mix (SAM), being properly diversified (Fully Completely) and not getting thrown off by media storms, but rather taking advantage of them – i.e. using bad news and horrific headlines to buy stocks and bubbly times to assess risk and rebalance.

These themes apply today. We don’t know where markets are going, although there’s a cautionary consensus building amongst our managers, Salman and I. Going forward:

• Profit growth will be modest. Heavy debt loads will limit government and consumer spending, and corporate profit margins in North America are already sky high.
  
• Near-zero interest rates are causing distortions in the economy and preventing capitalism from functioning properly – i.e. recessions are a necessary part of the process.
  
• It’s difficult again to find attractively-priced assets.
  
• And last but not least, while elections make great headlines, they rarely impact long-term asset values, but ... the possibility of Donald Trump in the White House cannot be ignored.

Needless to say, we’re again in a cautious mood. In the Founders Fund, our cash reserve is back up to 16% and the equity weighting has been reduced to a normal level.

Read Tom's full brief and the rest of our Report here.