Monthly Letter February 2014

In the last couple of months the equity markets have made a few a empts to go lower. In November and December they recovered from intra-month lows to nish in posi ve territory. January was a pre y tough month for equity investors, but the major indices recovered all the lost ground in February. These wobbles are of course recurring events. To handle them is an integral part of managing money. Vola lity provides an excellent opportunity to get stopped out of good posi ons, i.e. not what you want. The reasons for the sell-o s vary, but in the last few years we’ve seen a few coming back on a number of occasions: Chinese slowdown, wor- ries about the Chinese property market and shadow banking, US tapering, Euro banking system, nancial and scal policy errors not to men on the odd geopoli – cal bear-card that can be pulled out of the hat when the nega ve arguments are not enough.

We’ve all seen them, read about them and drawn our own conclusion. With equi es as resilient as they are at the moment we hear more and more other investors saying that investors/the market around the globe are complacent and ignoring risks (trend followers if you like). The alterna ve that comes to our mind is that this is a bull market (not a very well regarded expression is it?). To us the term bull market sounds like something that has a life of its own and is not driven by fun- damenta. Since we do genuinely not believe that the market and investors across di erent asset classes are complacent, we lean towards the bull market terminol- ogy to describe the current environment. The macro indicators are there. We just need the earnings to follow through.

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