Any review of equity markets in 2017 needs to start with an expression of gratitude for the fruits of economic expansion and appreciation for a very productive market. The investment commentary norm is short-term, tactical, and skeptical even when the good news is conspicuous. We are happy your results have been so favorable. Looking back to 2009, the duration of the current economic cycle has fulfilled our expectation that focusing on offense and not being tactical in the expansion would deliver strong, positive results. We are most appreciative of the opportunity to partner with you in working amidst such abundance.


We see this expansion as still having gas in its tank. The economic data we study indicates ongoing stability and opportunity. That said, our acquired wisdom based on our experience of investing over decades of expansions and contractions, causes us to be alert. This expansion is long in the tooth; and having a discipline around risk management gains greater significance in the pursuit of long-term success. The quote on page one from Warren Buffett captures the essence of our thinking.

Evidence of others being greedy are plentiful; and into this tenth year of expansion the marketplace shows many signs of euphoria. For the year ahead and (even more so) beyond, we are as alert to the potential risks as we are to the obvious rewards.


In broad terms, our risk management focuses on multiple approaches ranging from asset allocation, to portfolio structure, to our “top-down” consciousness about the correlation between the economic cycle and the marketplace, to our “bottom-up” focus on business quality and valuation in each portfolio. In the context of 2018, the “top-down” and “bottom-up” disciplines take on added significance. With the expansion continuing apace, we are not yet shifting to a more defensive posture.

Simultaneously, we are alert to what we see as significant valuation risks, particularly in the most expensive quartile of P.E. ratios in the market, and are managing for the valuation risks company by company in our portfolios. Risk management in this environment requires this two-pronged approach and a commitment to rational and critical thinking. Aware that much of the rest of the investing herd is stampeding, we are committed to keeping you from being stampeded.


The economic news is good, including corporate earnings. With valuations ranging from pricey to ultra-expensive, bargains are nearly impossible to identify amongst exceptional businesses. The political noise and distractions will only grow with the approach of the midterm elections. It will again be important to remember that, for investors, politics are the tail and not the dog. We are committed to thoughtfully deploying your capital with a consistent focus on outstanding businesses – the emphasis of our Quality at a Reasonable Price discipline. Our performance objective continues to be; better results, via better risk management, over the economic cycle.