This article is excerpted from a letter by MOI Global instructor Patrick Brennan, founder and portfolio manager of Brennan Asset Management, based in Napa, California.
Macro and political headlines dominated the third quarter news cycle. Some of the more frequent headlines (we included our quick take) included whether or not a trade deal with China would materialize (unclear), whether or not we were headed to a recession (unclear), whether our Twitter-loving president would be impeached (unclear), how far the Federal Reserve would cut rates (unclear) and whether northern California would really keep cutting power based on unreliable meteorological forecasts from a rather unreliable utility. Admittedly one of these concerns hits closer to home, but its answer looks particularly uncertain. We understand the above sounds flippant, but as we have noted throughout past letters, 90+ percent of investment discussion usually focuses on the macro headlines. While the outcome of these big picture points is certainly relevant for the investing process, the ability to successfully predict this outcome is far more difficult, given the wide range of variables. To make matters worse, even prescient calls don’t necessarily produce favorable investment outcomes if the timing is off (i.e. predicting a recession now that doesn’t occur until 2023).
Broader market valuations appear stretched and bond valuations look positively nonsensical. For this reason, it is difficult to argue that this is an ideal investing climate in aggregate. That said, we continue to see significant upside in several of our names, especially as investors continue to question whether value investing will ever outperform again. We had several company specific developments during the quarter, and therefore we’ll dive right in… while PG&E keeps the lights on.
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