August 24^th marked 6 months since the Russian military descended on neighbouring Ukraine, adding fuel to the already jittery fire that was the markets in January. For the past half-year we have had to deal with rocketing fuel and energy prices, inflated food prices caused by shortages of basic supplies, a global shipping slowdown that constrained trade further, the outcomes of China’s continued Zero-Covid policy on supply chains, and interest rates that are being hiked into a weakening global economy.

As the equity bear market stretches further into the year, we can all be forgiven for feeling somewhat fatigued. Unfortunately the price of our main coping mechanism – our daily caffeine-fix – has likewise become far more expensive! Maybe you, like me and many others, are finding our takeout cappuccino a treat every second day, as opposed to the previous, every day, morning routine? Just one small way of making changes in an inflationary environment.

Despite the economic challenges, markets continued their bounce from mid-June through the earlier part of August, and even had participants betting that this run was the recovery back to the mean and not just a bear market rally. But with Fed Chair, Jerome Powell’s statements following the Jackson Hole conference last Friday that the FOMC will keep raising rates in light of multi-decade-high inflation and keep them there as long as it takes to bring inflation back within the target range, markets responded unnervingly. In the words of the infamous pirate Captain Blackbeard, “Them be fighting words, Arrr!”

I recently came across these 8 titbits and pearls of wisdom from Peter Lynch, widely regarded as one of the world’s greatest investors. Lynch was the lead-manager of the Fidelity Magellan Fund from 1977 to 1990 at a time when it was regarded as the world’s best performing unit trust fund, delivering more than double the total return of markets at the same time!

When asked about investing in choppy and volatile markets, he had the following to share:

1. The most vital organ for investing is without doubt a strong stomach!
2. To be an investor you have to believe that great businesses run by great management teams will navigate their way through any economic turmoil. “When” and “How” is not relevant – you just need to believe that great businesses will continue to thrive over the long term.
3. Remember that more people have lost money anticipating crashes than those who have lost money in a crash.
4. Lynch says he has no idea what the market is going to do in two years…
5. During his 13-year tenure managing the fund, he suffered greater losses than the index 9 times, yet he still doubled the return of the market over that time!
6. Lynch thinks Emerging Markets have been hammered this past while and may offer the best opportunities for investors looking forward.
7. He never worried about the economy when making investment decisions
8. And lastly, he says to not be too rigid in your investment decisions – opportunities present themselves across all sectors, markets, and asset classes.

Many of these are principles held dear in our approach to investing and managing your money too!

Just last week the Investment Committee and I attended 3 days of one-on-one meetings with portfolio and fund managers in Cape Town, with the opportunity to really dig deep into their thoughts on markets, the state of the globe, and macro-economic factors. And to our comfort, most (if not all!) share the same sentiments as Mr Lynch – one such manager regards the equity positions in their funds as trading at an eye-watering 60% upside to fair value, such has been the indiscriminate selling-off of markets this year! Though the short-term remains volatile, difficult, and choppy, remember that the shorter term is not what this is about!

Charlie Munger, partner of Warren Buffet in Berkshire Hathaway and another legend of sage investment advice, reminds us that “If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.”

While we certainly hope markets don’t fall to those levels, the declines this year have already touched 30% on some indices! But the ongoing analysis and fundamental research into the businesses we hold echo the views of Mr Lynch, Mr Munger, and many others – we can only hope the cost of our beloved coffee does not climb any further!