"My experience is that most of the high quality, durable,...

"My experience is that most of the high quality, durable, well-managed businesses I want to own or add more to are already fully or egregiously priced, and a key driving factor of that is a more accommodative market environment caused by loose monetary and fiscal policies. That doesn't look like it is going to change any time soon if the jawboning of various policymakers is any indication, and hence my dilemma with how to deploy capital going forward. As a quick exercise, take a look at your own holdings, especially those that represent a "buy-and-hold forever" sort of proposition. How many of those would you actually buy more of today (excluding portfolio weighting considerations)? I think you'll find the pickings are very slim."

Yes, you are right that the overwhelming of my "buy-and-hold-forever" stocks - the likes of AMC, APA, ARB, ASX, BRG, CAR, COL, CSL, DTL, MQG, NHF, REH, RHC, SDF, TCL, WES - are not attractively priced on any objective measure. But not all of them, mind: AUB, CGF, CTX, GUD, FLT, PTM and TNE are all what I consider to be highly-durable businesses which have become attractively valued - for a variety of extraneous or "technical" reasons - which has allowed capital to be deployed in recent weeks/months.



"My sense however is that most of these opportunities tend to be concentrated in lower quality businesses or in the very shallow end of the market where the lack of liquidity and analyst coverage leads to mispricings. As a matter of prudence, you cannot be punchily weighted in both those kinds of investments."

Why not? Prudent investing comes from a fundamental understanding of industries and businesses within those industries, the risks involved, the strategies undertaken by company executives, and - most important of all - valuation. That analysts don't cover certain stocks or that their share prices are volatile due to lack of liquidity is unrelated to prudent investing.


I know what you are trying to say, but my rebuttal is twofold:

1. While at heady times like these, most market "darlings" are indeed overvalued (ridiculously so in many cases), at any given time there are still some that can be safely and prudently bought.

2. Then there is the group of "future market darlings" that are out there to discover, because that's where the real wealth gets created. As cases in point, when I first started buying shares in non-"blue chip" companies such as APA, ARB, AUB, BRG, DTL, NHF, REH, RMD, etc., their Revenues and Profits were a fraction of what they are today [*]. Point being made is that the future APA's, ARB's, BRGs, etc. exist in the market today; they just need to be identified.

For example, over recent months I have compiled a list of small companies to evaluate; ones that I have only recently come across and have just started researching or which I have known about for some time, but have not gotten round to researching:

3DP, 8CO, ACF, ACR, AJX, ALC, APD, BLX, BWF, CGL, COG, DN8, DNA, EAS, ELO, EVS, FLC, IDX, IME, KPG, KPT, LCM, LON, LBL, LPE, M7T, MNF, MVP, MYS, OGA, OVN, PGC, PIN, PME, PWH, RUL, SHM, SKF, SOM, SPZ, SSG, SW1, TNY, UOS, VHT, XF1.

Now I acknowledge that in that list of stocks there are a lot of micro-cap, early-stage and even quite conceptual businesses, but that for me was also the case with, say, ARB and BRG and REH etc. when I first encountered those stocks.

For example, I remember that when I read an ARB Annual Report for the first time (the company's market cap would have been less than $80m at the time), I thought to myself, "These idiots are spending tens of millions of dollars of shareholder capital - a big chunk of the market value of the company at the time - expanding their factory, building distribution centres , and rolling out new stores nation-wide. Sounds like a case of Build-It-And-They-Will-Come, but I can't see who is going to buy this crap?"

The rest is history and two-odd years later I bought my first shares in the company, and have added to my holdings on numerous occasions since.

I can tell very similar stories for other businesses in which I own shares (and sadly, many in which I am not a shareholder).

So sure, one probably end up coming up with just one or two princes after kissing all of those 50-odd frogs in the above listing of stocks (or maybe none at all), but that is the nature of the investing cycle; it is not static - when the things one knows are no longer attractive then one needs to look in places one has not looked before.


Point being made is that equity market cycles vary: sometimes it is possible to invest in companies familiar to one; at other times - maybe every decade or so - those market darlings become over-loved (or those once premium-companies undergo a financial fade which is a perfectly natural part of the evolution of the corporation) and one needs to look for the next generation of premium compounders.


[*] And that is not to say that I'm any sort of gun investor; far from it; I missed out on plenty of companies that went on to be even better investments (sensational ones in many cases) than the ones I made.
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