Liquidity shortages, volatility and opportunity in 2006

While the quarter in question has proven a reasonable one for Kurm in both absolute and relative terms, what is clearly of much more interest are the weeks immediately following its end. Global markets have suffered tremendous volatility and loss in recent weeks. In many places, the sudden loss of liquidity, as well as the correction of recent speculatively high valuations has caused many investors, especially those with leverage, to crystallise losses.

Kurm’s holdings are not immune to such quotational movements. Movements in commodity prices have impacted some of our energy holdings, and our insurance and satellite investments are also facing some challenges. However, such turmoil in markets, while far from over, does provide for opportunities for the cautious long-term investor. Just because other investors are nervous, it does not mean that businesses are suddenly worth less. As others, in a panic, head for the exit, the investor must focus on a rational, unemotional investment approach, based on understanding the business of the company and buying at a price which is cheaper than its intrinsic value. In fact, as Warren Buffett says: “be fearful when others are greedy, and greedy when others are fearful.”