Market focusing on current news flow and ignoring the underlying facts in 2012

by Ashik Shah on 30 April 2012

The first half of this year is characterised by an intense focus by markets on news flow and guessing business values based on such news flow, or at least trying to predict the impact of such news on stock prices.  In the quarter ended 30th April, Kurm Investments’ performance was very positive.  This was driven by strong performance from North America, and from Kurm’s Asian investments.  At the time of writing in early July, the NAV has fallen due to the poor performance of North America, while Asian investments have continued to do well.

The main drivers of both the increase in values until 30th April and subsequent declines have been the investments in US Financials and a Canadian copper miner.  Short-term prices movements in both of these investment areas are going to be very volatile as Kurm has made contrarian investments, which go against popular trends and attitudes.

US Financials are still impacted by general news about the financial sector and today’s themes are Greece, the Eurozone more broadly, global growth, and now LIBOR.  In the meantime, the underlying businesses of these financial companies are improving substantially, despite concerns about US and global growth.   As I have often written now, the price of many of these businesses is such that, in my opinion, they could be liquidated and return more than two times their market price.  I must state that I believe there to be little chance of such a liquidation occurring.

The investment in copper mining is experiencing volatility because the copper price reflects uncertainty about Chinese and global growth.  However, the investment is not based on such a simple theme, but rather on the potential for very large reserves being undervalued and the fact that the company is run by an experienced, shrewd team, known to have created tremendous value in such businesses.

Both these explanations carry the same theme of the market focusing on current news and ignoring the underlying facts about the progress of the underlying investment.  Investments in Asia, particularly South-East Asia continue to do well despite growth concerns, and the underlying businesses to which Kurm is exposed are very well run companies run by good management teams.  UK investments are largely private equity investments, as Kurm has recommitted to one of the investment teams backed over five years ago.  As you will know from previous reports, Kurm has investments in more unusual places with small investments in the Middle-East, Mongolia, Vietnam and Zimbabwe, and larger investments in other parts of Africa and in Russia.  These investments will take time to produce strong results, but the management teams of the funds in which Kurm has invested are focused, intelligent and have their interests aligned with the shareholders of Kurm.  This is also true for the underlying companies.

There will be more volatility as Kurm invests for the long term in contrarian and undiscovered situations.  However, I continue to believe that such an investment approach, carefully selecting the vehicles and individuals in whom Kurm invests will preserve and grow capital for families with a long-term perspective.

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The views expressed and comments made on this website are not personal advice based on your circumstances. The purpose of this website is to provide information and analysis to help you make your own informed investment decisions. If you are not confident making your own investment decisions you should contact a firm which is authorised and regulated by the Financial Conduct Authority (such as Ashik Shah & Co. Ltd.) so that a qualified financial adviser, after considering your personal circumstances and investment objectives, can make personal recommendations of investments which are suitable for you. Whether you make your own investment decisions or prefer to follow the recommendations of a financial adviser you should always remember that your capital will be at risk and that investments can go down in value as well as up.

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