by Scott Ronalds

From our Quarterly Report:

While Trump, North Korea and Brexit are worrying all of us, it’s a less newsworthy factor that’s most influencing our strategy – valuation. Our biggest problem right now is that we’re not being compensated appropriately for taking risk. Risk is our life blood. It’s what we manage for you. But today bond yields are skinny and we’re paying a high price for a share of the profits when we buy a stock.

Current valuations point to more modest returns in the medium term (3-5 years). Therefore, we’re maintaining a cautious stance towards the kinds of companies we own (higher quality) and the level of risky assets we hold in your portfolio (i.e. less high yield bonds and stocks). To be clear, scary news and high valuations don’t mean stock markets can’t go up over the next year or two. It may take time for rates and stock valuations to normalize, or maybe, just maybe, our managers, Salman and I are wrong in our assessment of return and risk.

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