After a long period of calm, global markets have been jolted by a small dose of uncertainty and volatility this week. Front pages have been dominated by the dramatic events in Greece in particular.
Almost as dramatic have been some of the sharp movements in the Chinese stock market, where despite an interest rate cut, local speculators are suddenly a little less sure of themselves.
While the Chinese market may be an extreme example, it is indicative of a broad increased tolerance for risk. In two weeks the Chinese equity market has lost the equivalent value of 10x Greek GDP, much to the dismay of retail investors who thought it was as easy as flipping property in years gone by.
Whether it is Greece (Europe), China or anywhere else in the world, it is likely that authorities will continue to do whatever they can to support financial markets and the tepid global recovery. While this may continue to support global asset prices, it does highlight the fragility of a world that remains overly indebted.
We welcome volatility as it very often leads to opportunity if we can remain calm while others are panicking. While this small bout of uncertainty has by no means led to a great entry point for investors, it has highlighted some weak holders of assets that may in turn provide opportunity. Our focus in times like these remains simple, consistent and perhaps a little dull for some. We continue to focus on a select group of companies that we would like to own for the long-term, irrespective of what happens in Greece or China, and wait for them to trade at an attractive price. We adopt a rifle shot approach as we seek a few excellent opportunities, as opposed to filling our portfolios with mediocre ideas.
In that sense, our approach is similar to Charlie Munger’s who once said:
‘It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.’
From our vantage point, even after this week’s gyrations, most opportunities remain mediocre at best. We are working hard to uncover a few that aren’t, but also have the temperament to sit tight and not pull the trigger until we are confident that the target is right.