Update No. 114 – 24/05/13

I wrote this post from a Ho Chi Minh city hotel. I will spend the next week visiting some companies we own in South East Asia and a couple that we may or may not own in the future. I have flown Air Asia (an Über budget airline) because I’m a shocking cheapskate and as per my commitment to my fellow shareholders – any costs incurred in improving our investment returns are mine – because I stand to share in the benefits if I can generate outperformance. That’s right, you are not funding my travel costs, I expect to fund them through the fees I earn from the superior performance the knowledge gained provides me. At least that is the theory. It worked in short term practice this week as EGP declined ‘only’ 2% while the benchmark suffered a 3.8% drop.

I will be attending a couple of AGM’s. For companies that are ‘off the radar’ as almost all our investments are, AGM’s can be an excellent opportunity to get a better feel for how a company is travelling. I wouldn’t bother with BHP or CBA, unless I had some specific issue I wanted to hear about. However, I have probably been to a half dozen or so AGM’s in the last year, and with small companies, you can get some very direct access to the Executive. I have been at AGM’s with just myself, the Board & Company Secretary, a couple with just one or two fellow investors.  The most well attended AGM I went to in the last year probably had 20 or so investors, but I suspect there were a number of employee-shareholders, and I was the only one asking questions…

Speaking of AGM’s, the Berkshire shareholder meeting held earlier in May and the extensive media coverage allows rare access to Warren Buffett and Charlie Munger, there are a variety of interviews from the last few weeks that are available the quote from Warren Buffett below comes from an interview (.pdf Transcript) with CNBC’s Becky Quick:

“Nobody knows what the market's going to do the next day. But you shouldn't pay any attention to that. I bought a farm in 1985; I haven't had a quote on it since. I bought a piece of real estate in New York in 1992; I have not had a quote on it since. I look to the performance of the assets.”

The response was issued in response to people who look for ‘pull-backs’ in the market to buy, overlooking the fact that they miss a great much more of the increases while waiting for a 10% ‘pull-back’ to buy into. It is surprisingly simple, but sage advice.

Days like Thursday & Friday this week where the market ‘pulls back’ by 1.5 or 2% or more might potentially be the start of bigger movements, or they might not – don’t think too hard on it. Sentiment is, though, a funny thing, with the Chinese PMI now in negative territory and the removal of US stimulus apparently imminent, what we really need to ask ourselves is ‘do these issues affect the value of my business?’ Almost always with big macro data, the answer will be no. If I owned a profitable dog-washing business, or strata-management company, or fish and chip shop, would I accept less for it because the Chinese PMI was down, or because the Fed is going to turn of the printing presses? The answer, as with most of the businesses EGP owns is no. So as always, we remain focused on the business specific issues that face our holdings. In fact we care so much, we regularly find ourselves in front of management asking specific questions that have nothing to do with Chinese PMI, but much to do with business specific issues!

I report our asset pricing weekly, but you should remember that I do not think of our businesses through such a short term prism. If I like what I hear at the AGM’s, and in discussions with management over the next week or so, you should be unsurprised if the companies still reside in our portfolio in 5 or 10 years’ time, with all the ups and downs a concentrated portfolio can expect to experience. That is of course unless they advance to prices beyond their intrinsic value, or some important factor relating to the business changes – Tony Hansen 24/05/13

EGP Fund No. 1 Pty Ltd. Up by 16.23%, leading the benchmark by 7.22% since January 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 41.48%, leading the benchmark by 27.88% all-time (April 1^st 2011).