East Coast Asset Management’s Christopher Begg picked up on a similar theme in an investor letter earlier this month: Embracing Uncertainty.
We observe a general misclassification between uncertainty and risk. Looking forward, we also anticipate the general perception of “risk” versus” risk-free” assets will change. Central bank intervention to mitigate the effects of the inevitable deleveraging cycle will raise the cost of capital and compromise the value of paper currency. We expect this could be a disappointing realisation for those seeking long-term shelter in cash and bonds. We will share some insight on these observations in this year-end letter…
We are favouring the positively skewed “certain uncertainties” of the equity of competitively entrenched global businesses which we define and discuss as compounders. We own and continue to buy these businesses at attractive IRRs. We also continue to find mis-pricings in the equity investments of our transformation and workout categories. For liquidity, we are using short-term bonds and a modest amount of cash. We continue to maintain a gold allocation which we have viewed as an attractive alternative to some of our fiat-currency money market assets.
Read the full thing at Market Folly.