Quarterly Letter

“Travel is fatal to prejudice, bigotry, and narrow-mindedness, and many of our people need it sorely on these accounts. Broad, wholesome, charitable views of men and things cannot be acquired by vegetating in one little corner of the earth all one's lifetime.”

- Mark Twain, The Innocents Abroad

What a difference three months make. For the full year 2018, every primary asset class was negative: the S&P 500 lost 4.6%, commodities were down 13.9%, long-dated US Treasury bonds were down 1.6%, and gold gave up 1.9%. Contrast that with the first quarter of 2019 – every one of those assets was up! The S&P 500 rallied 13.5%, commodities were up 13.8%, long-dated US Treasury bonds returned 4.5%, and gold managed to finish just barely positive – up 0.6%.1

As we discussed in our last quarterly letter, historically reliable indicators of investor sentiment such as credit spreads and market breadth suggested the October through late-December equity sell-off was more likely a short-term panic than the start of a full-fledged bear market. As such, we used the opportunity to add equity exposure which we described in that letter.

During the early part of the first quarter, we increased our equity exposure further. In early January, we initiated a position in Facebook (FB). We used the opportunity created by generally negative market sentiment, as well as the negative sentiment toward Facebook specifically, to purchase shares at approximately $138. Facebook grew revenue at over 30% in 2018, with expectations for continued growth over 20% for several more years. Yet, at $138/share the stock traded at a price to earnings multiple of just 16x 2019 earnings.2 At that price, we felt issues around user data privacy were more than priced in. We also increased our exposure to the online travel segment. More on that below.

While we now have only minimal cash positions in both equity and fixed income accounts, our overall exposure is still relatively balanced. We maintain significant positions in “safe-haven” assets such as long-dated Treasury bonds and gold, as well as, meaningful exposure to the more defensive healthcare sector.