March Update: Take II

When the facts change, I change my mind. What do you do, sir?”

This quote, attributed to John Maynard Keynes, is one I take seriously as an investor. We have to remain adaptable, not because we are uncertain, but because the world is constantly evolving.

Another thing I’ve said to many of you directly is that I have “strong opinions, loosely held.” And when you hear me start an update like this, you probably have a sense that I’ve been reassessing things.

A couple of weeks ago, I shared my view that the current conflict would likely resolve relatively quickly, maybe within 6 to 8 weeks, and I still believe that will ultimately be the case. What has changed, however, is not necessarily the end outcome, but the path getting there, and the potential secondary effects on the global economy.

As this situation continues, the impacts begin to extend further out. And that matters, because even temporary disruptions can start to influence things like inflation, sentiment, and market behavior over the coming months.

We all remember the inflationary period we experienced in 2022. That’s still relatively fresh, and it’s something I’m very mindful of. If certain pressures persist, even for a limited time, they can create conditions where inflation remains elevated longer than expected, particularly if growth begins to slow at the same time.

Now, what’s interesting to me is that markets don’t appear to be fully reflecting that possibility. In many ways, investors seem to be behaving as though the conflict ends tomorrow, everything resets, and we move forward as normal. In my view, that may be a bit optimistic.

Another way to think about it is this: it’s a bit like watching a thunderstorm roll in.

You can see the clouds forming in the distance. It’s not raining yet where you are, and things still feel relatively calm, but you know there’s a reasonable chance of rain ahead.

Most people will just keep going as they are until the rain actually starts. But a more thoughtful approach is simply to bring a raincoat, not because you know exactly how heavy the storm will be, but because you want to be prepared if it does arrive.

And that’s really how we’re approaching the portfolio right now. It doesn’t change our long-term plans, it just means we’re prepared if conditions shift.

When we step back and look at what’s happening globally, the real issue isn’t just the conflict itself, it’s the secondary effects and bottlenecks that can develop beneath the surface.

There are a few key areas we’re watching very closely:

• energy and transportation routes
• certain industrial and agricultural inputs
• and some specialized materials that are critical to global supply chains, including semiconductors

These are areas where disruptions don’t always show up immediately, but they can ripple through the global economy over time.

The important thing here is not trying to predict exactly how each of these evolves, because no one can do that with precision, but rather understanding where those sensitivities exist, and making sure the portfolio reflects that awareness.

It’s also worth noting that North America is relatively well positioned in this environment. We produce a significant amount of what we need domestically, particularly in energy, which provides a degree of insulation compared to other parts of the world.

So, the natural question becomes: what do we do about it from a portfolio perspective?

Over the past week, I’ve made some measured adjustments to reflect this evolving environment.

We’ve modestly increased exposure to areas that tend to benefit from energy and inflation dynamics, and we’ve reduced or exited a few positions where the risk/reward no longer looked as attractive in the current context.

At the same time, and this is important, we have maintained our core positions in high-quality businesses that we expect to perform well over the long term.

Because ultimately, our strategy has not changed.

We are still focused on owning strong, durable companies that can compound capital over time. What we are doing is making sure that, around that core, the portfolio is resilient across a range of potential outcomes.

This isn’t about reacting to headlines, and it’s not about trying to predict short-term market movements.

It’s about staying disciplined, staying aware, and making thoughtful adjustments when the facts change.

So, while there are certainly risks in the current environment, I want to emphasize that:

We are paying close attention, we have made appropriate adjustments, and the portfolio is positioned in a way that allows us to navigate this period while continuing to focus on long-term growth.

As always, if you have any questions, I’m happy to discuss things further.

Vic