Dear Clients and Friends of Insight,
All of us, now, have been meaningfully impacted by the novel coronavirus and the world’s abrupt response to this pandemic. We hope you are all healthy and staying well. Our team is healthy and well, and we are staying sane. Our operation is functioning quite smoothly and normally, considering all that is happening. We all have a home office and conduct our activities remotely, in the cloud with secure firewalls.
This crisis is upon us. Its seriousness and duration are still unknown. Most of us have lived through several in our lifetimes. All of them felt unique and seemed to leave us in uncharted territory. Recall the feeling of uncertainty and lack of control which weighed heavily upon our thoughts and decisions, and unfortunately, may have damaged our investments, as well as more important aspects of our lives.
This crisis is no different. ALL financial markets around the globe (stocks, bonds, currencies, etc.) were hit with violent waves of selling, mostly from systematic and algorithmic traders. The speed and unprecedented degree of price declines were so stunning that even reasoned investors, surrendering to their emotions from the uncertainties ahead, joined the selling. Better to be safe than sorry. I truly hope it was a once-in-a-lifetime experience for you and me … never mind that Disneyland is closed.
How should investors navigate this storm? As we have shared with you routinely, we believe investment success comes from selecting securities with a disciplined application of conservative, time-tested investment principles. The resulting portfolios should be dominated with highly profitable, industry-leading businesses with good growth prospects and sound finances.
Employing this process, which we strive to do at all times, is even more imperative during times of extreme economic disruption such as now.
As recently as last month, from a strategy perspective, we felt very confident that client portfolios were appropriately positioned for a potential slowing in global economic activity. Our “pre-crisis” decisions led to portfolios with considerably large exposure to areas of the economy that have inherently strong and more reliable growth prospects such as the Technology, Communications, Health Care and Consumer Staples sectors. Conversely, that means we have very minimal exposure to those areas whose fundamental results are less consistent and controllable such as the Basic Materials, Energy and Consumer Discretionary sectors.
Suddenly, there is now the threat of global recession, or worse. Not surprisingly, we remain very comfortable with what has now become our “in-crisis” portfolio. We have extreme confidence through our due diligence that these companies have the right combination of financial strength, valuable assets, innovative culture and management resources to grow their business and leadership positions as America recovers from this set back.
Of course, we are not standing still. We are taking advantage of sharply lower prices to add a few new ideas, while also scaling back on a few stocks whose nearer-term prospects have shifted. Our goal is two-fold. To further strengthen the portfolio’s defensive characteristics and downside safety while the economic disruption plays out. Yet, to also ensure that the portfolio is positioned to meaningfully participate in the stock market’s eventual “post-crisis” revival, once the ensuing economic recovery is more confidently anticipated by investors.
Before concluding I would like to share two thoughts. First, is to paraphrase the CEO one of our widely held portfolio companies in his recent report to shareholders. PACCAR is one of our most economically sensitive stock holdings, yet the company produces consistent profits and is by wide margin the world’s leading truck manufacturer with their Peterbilt and Kenworth brands.
“PACCAR is celebrating 114 years of success and delivered record revenues and record profits to its shareholders in 2019 – the best year in company history. This is also the 81st consecutive year of earning a net profit – a remarkable achievement…. an impressive record considering the cyclicality of the capital goods business…. Our shareholders have enjoyed very good returns.… annual dividend growth of 11% in the last twenty years and the $2.30 per share extra dividend paid in early 2020. The embedded principles of integrity, quality, consistency of purpose define the course in PACCAR’s operations.” – Mark C. Pigott
The second is a simple quote from legendary investor Benjamin Graham.
“To be an investor you must be a believer in a better tomorrow.”
Rarely has the uncertain direction of the global economy and financial markets challenged investor fortitude to this degree. We believe that during uncertain times such as these our experience and counsel are the most valuable to you.
Put simply, we confidently believe in our country’s future prosperity, and encourage you to join us! Just as in the past, our economy will recover and resume its growth path as America rises to the challenge at hand. All of us at Insight have absolute conviction that our clients’ portfolios will benefit tremendously as investors eventually realize that the true value of American business has not changed much over the last several weeks or months. This realization will be the foundation for higher stock prices in the future. Perhaps much higher.
INSIGHT INVESTMENT COUNSEL