Whilst it is not a satisfactory (or cheerful) situation to lose money over any period, let alone to lose 7% in a single month, we have managed to outperform the market by about 1.1% in what has been (and continues to be) a very volatile environment.

We are pleased that we have been able to add to our holdings at such exceptionally “cheap” valuations. Our portfolio of 14 names all have niche or market leading business positions (either locally or globally) and all have very conservative balance sheets with low levels of debt (several have net cash). All our businesses are growing operating profit, have long term and experienced management teams in place and are currently trading at between 6x and 12x after tax earnings. These earnings convert to real cashflow and are being used to pay dividends, pay down debt, share buybacks, expansion capex and for special dividends.

We do not know if the world economy will continue to slow but we are sure that our portfolio of companies will continue to thrive within the overall economy and are well placed to benefit when the environment starts to improve. Holding a portfolio of market leading companies priced extremely cheaply with strong balance sheets is not an uncomfortable situation to be in.

The current high levels of individual stock volatility, coupled with economic uncertainty, may well be the reasons why we are seeing a significant rise in the number (and absolute size) of short positions in the UK stock market. Whilst this exerts short term negative pressure on the market it will also be a source of buying if the market continues to fall and it will be the rapid unwinding of these short positions that will move the market ahead as the economic climate becomes less of a concern.

Overall, whilst we may be in "uncertain" economic times, our portfolio of sound fundamental businesses continue to do well and generate solid cashflows and we believe that at some point in the next few months, as future prospects become clearer, our portfolio will benefit greatly and this time will be seen as having been a really good buying opportunity.

In the words of an old proverb....."It is always the darkest before the dawn...".

Chris Broadhurst
CEO