Ann: Letter to Shareholders , page-23

"Economies are edgy, margins are thin and global signals aren't exactly full steam ahead.
Surely some tough years ahead still"

Agree, simply woeful macro-conditions and business headwinds.
And well-documented, too.

Yet this stock has almost trebled in the past 12 months, despite the parlous business environment facing it.

That, I believe, is the beauty of investing on a deep, intrinsic value basis: it provides a margin of safety that renders unnecessary the need to forecast the future.
(Forecasting the future, I argue, is a futile exercise…which is why investment analysts and economists are such an absolute waste of time and should be totally ignored).

By far, my best investments have been made when "tough years ahead" were all the eye could see, economies were "edgy" and "global signals" were appalling.

That’s when stocks get sold down to a level well below the intrinsic value of their businesses, irrespective of whether the world out there subsequently goes up, down, sideways, or takes on any other shape and/or dimension.

By contrast, I look at the poor souls who have been part of the herd investing in recent years in “hot” sectors like iron ore, gold, mining service companies.

Things were the exact opposite of “tough” those sorts of stocks. They were booming.
Trouble is, they boomed until they one day didn’t.

I look at today’s piping hot sector which looks to me like it is something called “graphite” (I never even knew this was a mineral that was mined, and indeed until a few short years ago, I don’t think there was a listed company that sought to mine graphite. Today it’s an entire sector, and the other day I received an invite to a Graphite Conference!)

No Dex, I’ll let the hot stuff remain the domain of the masses.

Me, I like to trawl around the discarded and unloved businesses.

Businesses whose world is described as “tough”, for whom economies are “edgy”, and whose global signals are the opposite of “full steam ahead”.

Why people formulate investment decisions based on views on whether the global economy is going to grow or not, is beyond my comprehension.
(No different, for that matter, to having views on what the iron ore price will do, or the gold price, or the Australian dollar, or whether or not the next company announcement will be positive).

I have absolutely no insights into external mcro-economic or geopolitical variables, and therefore frame my investments in a manner that allows for their total exclusion in the valuation process.

Instead, I prefer to sleep easy in the knowledge that my investments are not subject to factors which no one can really forecast, so that when I make a mistake, then it’s my fault alone.

Pleasingly, with patience, discipline and a focus on underlying cash flows (and their determinants) my mistakes have been outnumbered many times by successes over the past 20-plus years, I am pleased to report.


Adam

PS. If you want to observe a company with not just “tough years ahead”, but “diabolical years ahead”, have a look at some of my lunatic ramblings on BOL. Talk about signals that aren’t exactly full steam ahead.
And to think I've gone and started to buy the stock!
Hardly as sexy as graphite, right now.