As investors, we subscribe to certain principles that may not seem relevant through "normal" times.
But, as the last few years have reminded us, things are not always "normal" and it is the periods of turmoil that we must use to remind us of the relevance of our principles and protect ourselves from permanent losses of capital.
For example, we prefer to invest in businesses in which management has a large ownership interest; i.e. they have more to gain and lose based on the company’s long-term value than they stand to gain from growing their compensation by increasing the size, complexity and/or short-term performance of the company. The financial crisis reinforced our conviction around this principle.
More recently, the events taking place in Egypt, Libya, etc. have reinforced our conviction around investing in countries that we believe to have “functioning democracies” and a “growing middle class”. We believe that increasing levels of information, education and communications capabilities are increasing the instability of countries with high concentrations of wealth and power. I think that it is this principle that Warren Buffet was referring to when he made the following reference to the “American System”:
“’There is a resiliency to the American system,’ he added. ‘It does work. It sputters from time to time, it will sputter from time to time, but you don't want to get worried.’”
Mr. Buffett also reinforces our belief that investments in quality businesses can actually reduce the risks associated with inflation and rising interest rates. He maintained that stocks are a better investment over the long term than bonds, saying "it's a terrible mistake to buy into fixed-dollar investments at current rates.”
At a more tactical level, the recent events in the mid-east also serve to reinforce our belief in the value of oil reserves in regions that are geo-politically stable, Canada being one of them.
