Robert Rodriguez is one of the few who got it right about credit crisis and recession. He is still not optimistic. But he is seeing a lot of opportunities and started to deploy capital cautiously.
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We began to commit capital beginning on October 8 and since then we have spent approximately 22.5% of the Fund’s September 30 liquidity or 8.6% of assets. This is the largest amount of capital we have deployed at any point in the last five years. Why did we begin buying on October 8? On October 7, Treasury Secretary Paulson for the first time commented that the U.S. Treasury would possibly have to deploy CAPITAL in the banking system. In our minds, this showed that the Federal Reserve and the U.S. Treasury were finally beginning to understand that the core issue of this crisis is CAPITAL deficiency and not LIQUIDITY
We began buying because the stocks we selected appeared to be discounting a very severe economic and stock market outlook with their depressed valuations. Initially, our purchases will likely show losses since we are buying into stock price weakness. Furthermore, our value screen of the nearly 10,000 companies in the Compustat database showed an explosion in the number of qualifying companies that rose to 447, the highest in over twenty years. In June of 2007, this number was 33—a record low number of qualifiers. Our conviction was enhanced by this positive outcome that this was an appropriate time to begin spending some of the Fund’s long-held liquidity, plus the moths were getting pretty grumpy and tired from being cooped up in our coin purse for these past five years. They were yearning to fly free.
We added several new names, with a majority in the energy sector. We continue to view energy as a strategic area for investing and have communicated this idea to you over the last several years. The rapid decline in energy share prices affords us the opportunity to deploy capital into very attractively valued companies. We also added to some of our existing holdings while in the initial stages of establishing new positions in other industries.
The companies selected have very strong balance sheets and are market leaders; therefore, we believe they will be survivors and thus, they will improve their competitive positions in this down cycle. After this round of purchases, we will slow the rate of acquisition for a period of time to assess how the stock market responds to recent governmental policy actions as well as what other policies might be implemented.
Outlook The worst of this crisis still lies ahead, in our opinion. It will likely be driven by the increasingly severe economic contraction and we expect this contraction to be far worse than what the consensus economic forecast is anticipating. If we are correct, the Federal Reserve, the U.S. Treasury and the rest of the federal government will experience added stress.
Read the complete shareholder letter
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We began to commit capital beginning on October 8 and since then we have spent approximately 22.5% of the Fund’s September 30 liquidity or 8.6% of assets. This is the largest amount of capital we have deployed at any point in the last five years. Why did we begin buying on October 8? On October 7, Treasury Secretary Paulson for the first time commented that the U.S. Treasury would possibly have to deploy CAPITAL in the banking system. In our minds, this showed that the Federal Reserve and the U.S. Treasury were finally beginning to understand that the core issue of this crisis is CAPITAL deficiency and not LIQUIDITY
We began buying because the stocks we selected appeared to be discounting a very severe economic and stock market outlook with their depressed valuations. Initially, our purchases will likely show losses since we are buying into stock price weakness. Furthermore, our value screen of the nearly 10,000 companies in the Compustat database showed an explosion in the number of qualifying companies that rose to 447, the highest in over twenty years. In June of 2007, this number was 33—a record low number of qualifiers. Our conviction was enhanced by this positive outcome that this was an appropriate time to begin spending some of the Fund’s long-held liquidity, plus the moths were getting pretty grumpy and tired from being cooped up in our coin purse for these past five years. They were yearning to fly free.
We added several new names, with a majority in the energy sector. We continue to view energy as a strategic area for investing and have communicated this idea to you over the last several years. The rapid decline in energy share prices affords us the opportunity to deploy capital into very attractively valued companies. We also added to some of our existing holdings while in the initial stages of establishing new positions in other industries.
The companies selected have very strong balance sheets and are market leaders; therefore, we believe they will be survivors and thus, they will improve their competitive positions in this down cycle. After this round of purchases, we will slow the rate of acquisition for a period of time to assess how the stock market responds to recent governmental policy actions as well as what other policies might be implemented.
Outlook The worst of this crisis still lies ahead, in our opinion. It will likely be driven by the increasingly severe economic contraction and we expect this contraction to be far worse than what the consensus economic forecast is anticipating. If we are correct, the Federal Reserve, the U.S. Treasury and the rest of the federal government will experience added stress.
Read the complete shareholder letter
