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The week that was and what it means for investors

Undoubtedly a tough week for markets, with US stocks suffering their worst loss in eight months and Australian markets following suit. Interestingly the sharp sell-off has come from concerns that in response to the US economy growing too fast a rapid deployment of interest rate increases will apply the brakes too hard. The knee-jerk reaction has been felt most hard at the highly-priced end of the market, amongst tech stocks, where multiples have become extreme. Glennon doesn’t have much exposure to this end of the market and are happy with the underlying fundamentals of our portfolio. Because the sell-off has affected all stocks, we see these fundamentals working their way back into valuations and a restoration of value in time. Of course, we also view this as an opportunity to access some ideas that we have kept an eye on which are now trading at attractive prices. It is always interesting to watch everyday operating businesses that are trading on reasonable multiples suffer severe market corrections for no reason other than the market is going down. Markets are likely to rebound unless there is something more fundamental than the drivers we saw this week. It happened post February and we expect it to again. This no GFC. Stocks like Emeco and Macmahon. We know, through our many contacts in the industries Emeco serves, that there is already a shortage of mining trucks and equipment. The stock is in its sweet spot, with utilisation and prices rising, and that nothing Donald Trump says is going to undermine it (excuse the pun). Macmahon has turned around its loss-making contracts and started on a string of new contracts in pretty strong underlying market conditions. International markets are not going to slow that momentum. The risk to each is really just internal error, but we have confidence in both management teams. In our (frequent) meetings with management of the companies in our portfolio, as well as those that we are researching, we look at a number of factors to determine the quality of the business; product, product appetite, profit margins, dividend policy, sales, recent structural changes, quality of management to name a few. Our process is diligent and detailed and allows us to determine whether it is appropriate for our portfolios and that the price is one we are prepared to pay. Investing with the aim of preserving capital, generating returns in the form of dividends and growth requires experience, discipline, good systems and above all, a strong constitution - especially when markets get twitchy. To quote the esteemed Warren Buffet "Be fearful when others are greedy and greedy when others are fearful". Glennon is more than happy to ignore the noise and take advantage of whatever good falls our way.

Any information has been prepared for the purpose of providing general information only, without taking account of any particular investor's objectives., financial situation or needs, It is not an offer or invitation for subscription or purchase, or a recommendation of any financial product and it is not to be relied on by investors in making an investment decision. Past performance is not a reliable indicator of future performance. To the extent any general financial product advice is provided in this document, it is provided by Glennon Capital Pty Ltd ACN 137 219 866, AFSL No. 338 567. An investor, before acting on anything construed as advice, should consider the appropriateness of such construction and advice having regard to their objectives, financial situation or needs.

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