Market Update

Q1 2022 Market Update

Written by

A combination of macroeconomic and geopolitical concerns has led to heightened market volatility during the last few months.  The short-term selling pressure has been acute particularly in companies exhibiting the characteristics we find most attractive for our long-term strategy, specifically: healthy, growing businesses with cash-rich balance sheets.  While it is unpleasant to be on the wrong side of short-term volatility, the recent price action does not reflect the strong business fundamentals and structural tailwinds benefiting our portfolio companies.  For the most recent earnings quarter (ending December 31st, 2021), our 22 Long investments collectively reported a record $478 billion of revenue and $23 billion on a weighted-average basis.  This represents weighted-average growth of +32% versus the same period in 2020 and +68% when compared to the fourth quarter in 2019.  These impressive results and the independent data we monitor continue to support my view that we are invested in dominant franchises that will continue to gain share of the global economy for many years to come.  Given the magnitude of the volatility despite the substantial growth our businesses have experienced, many of our portfolio companies are trading at discounted values not seen since the market crash in March of 2020. 

I believe much of the recent volatility is due to short-term concerns around the Federal Reserve’s response to elevated inflation (i.e. increasing interest rates).  In addition, Russia’s conflict with Ukraine (and the West) has added incremental pressures on inflation and geopolitical stability.  While the war is certainly a human tragedy and the inflation/interest rate dynamics may present short-term economic headwinds, I do not believe these near-term challenges change the long-term trajectory of our portfolio companies.  Our portfolio investments have very limited direct exposure to Russia/Ukraine and the business models have a track record of robust performance in a variety of economic environments.  Specifically, our portfolio companies are growing structurally faster than the global economy, possess significant competitive advantages, provide essential services to their customers, use their pricing power to pass through inflation, and generate substantial cash flow (no dependence on debt).  We continue to monitor data to ensure our businesses are meeting our expectations and we remain willing and able to be nimble should the facts change.

As always, our Partnership maintains a liquid, diversified portfolio with a conservative balance sheet and our long-term investment strategy is unchanged.  I remain fully invested in our Partnership and am excited about our long-term profit potential.  Thank you for your trust and please feel free to reach out anytime. 

Your partner and fiduciary,

Faris Jafar, Chief Executive Officer

Phone: (734) 678-8562