East Coast Asset Management on the Fear of Bubbles: Q3 Letter ~ market folly

Wednesday, November 9, 2011

East Coast Asset Management on the Fear of Bubbles: Q3 Letter

Christopher Begg is out with East Coast Asset Management's third quarter letter to investors. In it, he tackles the latest global macro mess and how the fear of bubbles has captivated markets.

While many equity investors have begun to place a lot of focus on macro events (even betting on macro outcomes), he prefers to stick to his value investing focus. That's not to say that Begg disregards the global macro, though. Last time around, we highlighted how East Coast sees heightened and prolonged inflation ahead.

Instead of letting global macro events dominate their investment strategy, they've simply used macro analysis as a tool to reflect on how various scenarios effect businesses and investments.

Begg aptly describes the current status of financial markets by writing:

"There is a very large disconnect between the prevailing emotional sentiment and truth. The vast majority of investors are tightly huddled in a consensus of uncertainty and fear. Fundamentals and merit appear in solitude at the edge of chaos ... We sadistically love these environments for the bargains they produce."

And he also touches on some of his latest portfolio movement:

"Our new holding in our core portfolio has recently emerged from bankruptcy with a much improved balance sheet. It is in an industry which has been materially improved as capacity has been removed and a more rational shareholder mindset adopted. We bought this business at a free cash flow yield above 15% from current earnings."

As always, East Coast's letters are better read as a whole than summarized and it is embedded below (email readers click the link to read):

Since East Coast's past letters are often focused on timeless educational aspects of investing, we'd recommend checking out their pieces on competitive advantage and gaining an investment edge.

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