April 2021—Well, let’s just say things are different in 2021. From an investing standpoint—and from our standpoint—it’s obviously a lot better. While we invest in securities that represent ownership stakes in real companies run by real people, we are certainly not immune to the whims of “factor flows” orchestrated by people who have recently deemed “small cap” and “value” as factors with some redemptive value. In 2020, those factors were deemed near worthless. In 2021, they appear to be the equivalent of a hot fudge sundae with a COVID vaccine as the cherry on top.

“Not an obnoxious headwind” is our desired state of an environment in which to work, because our behavioral bias against buying stocks that go up every day—for no reason other than technical fund flows—is at the moment being tested.

Markets seem to be currently parsed into 3 distinct camps:

1. Ridiculously speculative concepts that are doomed to failure.
2. Real businesses whose stocks are grossly over-inflated and thus there should be high expectations for a divorce between business success and investment success for a decade.
3. And “all other.”

We tend to operate more so in the third category, although we don’t mind being early in category 2.

Accordingly, we have seen a number of holdings simply catch a bid after a severe languish, and certain holdings just resume where they were in 2019 after a COVID fall in early 2020. One nice thing about being in the “all other” category is the companies tend to be real businesses with a profitable niche that is deemed boring by those who ply their trade in momentum and excitement. When good things aren’t happening for the stock (or worse) you can make subsequent buy/sell decisions based upon some semblance of fiendishly simple math, rather than stare into the abyss of being down 40% with really no idea what the heck you really own or what the dark, cloudy future holds outside of a Twitter feed. And as people are beginning to become painfully aware, being down 50% means nothing as far as where you are in relation to value. The beauty of performance math is how rates of return can converge. Specifically, the return from buying a 10 dollar stock that goes to 2 dollars is not terribly different from the person who paid $60. Stand in front of investment committee members and tell them how much smarter you are than the guy who paid $60 and let me know how it goes.