I’d like to highlight some of our recent buying activity from the February to April time period to provide some flavor on what we have been seeing and doing. Obviously, one of the major themes during the spring was the Facebook (NASDAQ:FB) data and privacy scandal referred to in the commentary above. This was, in our view, one of those classic “conviction checks” where an investor must determine relatively quickly whether the new information represents opportunity or whether it represents unacceptable danger and respond accordingly. In such scandals, the news often seems very bad in the short term and creates a strong negative media and market reaction. After assessing the information available and its likely near and longer-term impact to the company, we took the position that the Facebook scandal would be unlikely to be terribly damaging to the company in the longer term despite the intense media and political scrutiny. We obviously must acknowledge our limitations at making predictions of this kind, but our view was ultimately that the scandal was an opportunity to add to our existing Facebook investment at attractive prices. As sort of a tertiary decision, we also added to the Fund’s existing position in Alphabet, as that stock also declined under the weight of the media scrutiny.
Our general view remains that both Facebook and Alphabet are extremely well-positioned businesses and, after working hard to better understand them, we think are probably much cheaper on a valuation basis than one might expect given the ever-present FAANG narrative. Of course there are risks associated with owning these businesses, but we felt that the prices prevailing in late February and early March effectively discounted the risks to an acceptable degree.
From Zeke Ashton (Trades, Portfolio)'s first-half 2018 shareholder letter.
