Seafarer Q4 2013 Portfolio Review

Kenster1_GlobalValue

http://www.seafarerfunds.com/fund/portfolio-review

I believe that the risk of a liquidity crisis or “credit event” in China (i.e., a default of a financial institution or major corporate counterparty) has undeniably risen. Combined, these risks have instilled a degree of panic within the emerging markets, and individual stocks have begun to trade in an erratic fashion.

As strange as it might seem, I am not overly concerned about most of the aforementioned risks. Maybe it is because I have experienced prior circumstances that were similar, and in my opinion, those past events were far more trying than present conditions. Maybe it is because valuations have grown increasingly attractive; in my view, they sufficiently discount nearly all the risks noted above. Maybe it is because I secretly enjoy financial panic. Panic is a brutal force, and it is unknowable. You cannot determine what damage it will do, or the extent to which stocks will fall in its wake; you can only make educated guesses about what might be susceptible. Yet panic is also beautiful, if only for the consistency of its effect: it always delivers better investment opportunities than existed previously. Like any investor, I am frustrated by panic, yet I thrive on it.

Despite this warning, I am not panicking, nor is the Fund abandoning its long-term strategy. We are cognizant of the many risks that surround the emerging markets; as usual, some risks are ebbing, and others are escalating. I imagine that markets will be rough over the coming months. Risks may emanate from many different markets, but China should be investors’ primary concern. For the time being, the portfolio’s construct will remain largely unchanged: we are reasonably confident that the portfolio is prepared for financial distress, even as we cannot know where panic will manifest itself, or how far it will go. Valuations are favorable now, and support a long-term approach, even if the short-term outlook appears rocky.

Crash

Thanks, Kenster. Reassuring. If this fund doesn't start producing decent profits and get us to a decent return by the end of this year, I will be tired of waiting for it to happen, and put the money elsewhere.