Thoughts on volatile markets

March 28, 2020

Dear Fellow Investors,

 

Firstly, thank you to all of our loyal and supportive shareholders and investors, it’s certainly volatile times in financial markets. The one factor that provides some comfort is that the market is presenting some attractive opportunities to buy companies. We continue to expect that markets will be volatile and this will impact share prices and our performance. It also means that new opportunities will arise for us to deploy capital and we may sell some of our existing holdings if more attractive opportunities come along or if they start to look less attractive based on the impacts of COVID-19 to their specific business model.  We have spoken with the management of most of our investments, but many just don’t fully know what the financial impact will be on their business, which explains the huge volume of guidance withdrawal announcements being released.
 
We are in one of the most challenging economic environments both domestically and globally. Thousands of people are losing their jobs, businesses have started to feel the impacts and it will continue to flow through the economy. Listed companies Flight Centre and Webjet have been suspended pending capital raises which will be at significantly discounted prices (we don’t own either company). While many if not most businesses will survive some will not.
 
As I said last week, we deployed some capital and reduced our cash levels to 38%, taking the opportunity to buy some over sold positions. One of the positions we bought into was Credit Corp. We bought shares on the Friday, by the following Tuesday we were down 30% on our investment, on Friday morning we were up 40% and when the market closed Friday we were roughly back to where we bought the shares the week before.  We invested in Credit Corp after the GFC and it was one of our best performing investments for several years after the GFC. Similar extreme volatility was seen in Afterpay which had a trading range in the week of between $8 and $24. The concern with Afterpay is the ability of the demographic of the users to repay if they have no job.
 
In this environment our investments in professional services businesses give me some comfort. Fiducian, Sequoia, Shine and Countplus, continue to earn revenue in this market, (albeit slightly lower) which places them in a good position relative to businesses like retailers and direct consumer facing companies where the revenue has stopped.

 

Aside of the business and financial impacts, I hope you and your families are well. There has been enough written about the seriousness of COVID-19 that I won't reiterate it here, other to pass on my best wishes to all of you.
 
If you are concerned about the market or your investments and would like to have a discussion about the market please email me (michael@glennon.com.au) your phone number and I will give you a call, as I have always said, I treat all shareholders as business partners and I’m happy to discuss how the business is positioned in these times.

 

Stay Safe

 

Michael

 

 

 

 

 

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