We feel it is appropriate to provide examples of the impact this has on our portfolio, and to explain some businesses that do not pass our “comfort” test.
If we were impartial as to a company’s activities, then our portfolio (at time of writing) would hold less cash and it would have positions (totalling in excess of 10%) in the following four businesses:
- an Australian finance company which engages in short term, high interest consumer lending;
- a Hong Kong listed product manufacturer and distributor to the tobacco industry; and
- two businesses that are listed in the US and involved in the manufacture and sale of firearms. Incidentally, we find it timely that recently one of these companies changed its name from its gun brand to a name that simply associates it with “outdoor activities”.
All of those four enterprises are trading at levels which, if we were to rely solely on our objective assessment, would likely provide attractive returns going forward.
We recognise and accept that our “comfort test” involves subjective judgement, and accordingly it introduces behavioural biases into our process. And, because it results in us foregoing seemingly attractive investment opportunities and at times holding higher levels of cash than otherwise, it may also result in lower Fund returns (although over the longer term this point is debatable).