Long term investing is about holding your nerve during times such as this and using the market volatility to look for opportunities that are thrown up. Owning assets that you believe are valued lower than their intrinsic worth is important and dependant on analysing their cash flows today, the potential for these cash flows to rise in the future and the value you pay for each of these cash flows today. Our analysis highlights many companies that are trading at a discount to their longer term value at present. When the market recovers, these companies will provide significant upside for investors.

Current volatility is being driven by many factors however the primary issue that affects all asset prices in the current environment is the cost of money. Following many years when investors have got used to money essentially being free it is not a surprise that expectations of a rise in the cost of money has led to volatility in equity and bond markets. The transition to higher interest rates is creating volatility but once the transition has occurred investors will refocus on the valuations of well managed companies that have continued to growth their earnings during this period and are best placed to grow their cashflows in the new economic order.

It is difficult to gauge when this will occur, but this is likely to coincide with a peak in realised inflation in the US as the US market ultimately drives risk appetite around the world. Until then, markets will remain volatile and understanding your time horizon and not being a forced seller is key during periods such as this.

Our focus for the year to date has been to manage volatility whilst looking for new opportunities that are being provided to us by the changing global economic backdrop. This has led us to increase materially exposure to Asia where company valuations are low and the economic backdrop is not as challenging as it is in the UK and Europe.

Our Investment Strategy Group meeting is scheduled for next Monday and we will provide further details on our thinking following this. In the meantime, if you have any questions, please do not hesitate to get in touch.