The past month saw more consolidation in the market and ended broadly flat. The arm wrestle between in economic impacts of the COVID-19 response and central bank stimulus continues, with many and varied predictions about as to the outcome.

In aggregate, corporate profits are linked to economic growth, and economic growth is significantly correlated to the size of the monetary base.

The IMF calculated that the global monetary and fiscal stimulus tallied $US9 trillion as at 20th May. Such policy settings have not been seen previously, and the full impacts are yet to be felt, however, they are supportive of asset valuations.

Our approach as always is to instruct investors to consider the sustainable earnings of the businesses they own, and apply a reasonable price relative to qualitative and quantitative aspects such as earnings, balance sheet, moat, margins, management, sector etc.

Innovation is a crucial element in sustaining earnings. Many commentators have called the end of sensible investing, based on fundamentals.

The world is indeed changing, giving rise to digital platforms and online marketplaces. Whilst we are cognisant of technological change, we also understand that survivorship bias, coupled with natural herding behaviour, can be financially problematic.

We have seen manias before, and they are all obvious after the event. Adopting the adage of ‘history never repeats, but it often rhymes’, the Poseidon boom and dot-com boom come to mind. Sage, sensible investors did well in those mania, particularly in the aftermath, whilst ‘dream chasers’ who purchased ‘stories’, regardless of fundamentals, ran the risk of ‘buying in haste – repenting at leisure’. It can be an expensive lesson.

Investors must always be selective. There are many wonderful businesses, and many time-bombs; sorting the former from the latter takes a great deal of patient work.

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