Matthew McLennan: How to build Resilience Into Your Portfolio

In this article, Matthew McLennan and Kimball Brooker from First Eagle describe how they build resilience into their portfolios and why they think that’s particularly important today. They also share their thoughts on why they tend to be slow to trade and what they think the market is missing today in some of their portfolio companies: Haleon, Shimano, Itaúsa, Douglas Emmett and ONEOK.

Here are the key takeaways

• Value investing requires patience and discipline: Successful value investors must have the fortitude to stick to their principles even during challenging market conditions. They need to be willing to hold positions for the long term and not be swayed by short-term market fluctuations.

• Focus on fundamentals, not market sentiment: Value investors should concentrate on a company’s underlying business fundamentals, such as earnings, cash flows, and competitive advantages, rather than getting caught up in market hype or sentiment.

• Maintain a margin of safety: By purchasing securities at a significant discount to their intrinsic value, value investors provide themselves with a “margin of safety” that helps protect against permanent capital losses and improves potential long-term returns.

• Be contrarian when necessary: Value investors often need to go against the crowd and invest in out-of-favor companies or sectors. This contrarian approach requires independent thinking and the ability to resist conforming to popular market opinions.

• Continuously learn and adapt: While the core principles of value investing remain constant, investors must be willing to learn from their mistakes, adapt to changing market conditions, and refine their processes over time to remain successful in the long run.