Market downturns are a natural part of equity investing. While uncertainty and falling share prices are always uncomfortable, they can also offer attractive buying opportunities for long-term investors.
The value of the Sifter Fund declined by 7.9% during the first quarter of the year (Sifter Fund Global PA class, 31 March 2025). Please note that past performance is not indicative of future results.
Unexpected Trigger Sparked Sudden Market Downturn
In our reports last year, we repeatedly noted that we were not finding reasonably priced quality companies in the U.S. In other words, U.S. markets in particular looked expensive. At the same time, however, the economic fundamentals — such as employment, corporate earnings, and forecasts — remained surprisingly strong, especially in the U.S. There were also cautious signs of recovery in Europe.
Although the U.S. President had hinted at planned tariffs before his inauguration, the scale of the new tariffs and additional demands still caught markets off guard.
Few expected that a president generally favorable to the stock market would be willing to jeopardize it — but that’s exactly what happened.
Sifter’s Expected Earnings Yield Has Risen
The small silver lining in a market correction is that the long-term return expectations for our holdings increase — assuming, of course, that our portfolio companies’ long-term earnings aren’t significantly impaired.
The table below shows the average annual revenue and earnings growth of our companies over the past five years. On the right are Sifter’s estimates for the next five years.
We’ve analyzed the five-year revenue and earnings growth outlook for each Sifter portfolio holding. Our estimates are more conservative than market consensus (with a 10–20% margin of safety), as market forecasts are often too optimistic.
It’s entirely possible that growth will be slower in a given year, but on average, we expect earnings to grow over the next five years.
We believe our companies are well-positioned even in tougher economic conditions. Our confidence is based on the fact that Sifter’s holdings sell critical products and services that customers are unlikely to cut — even in downturns. These types of products typically have solid pricing power, which helps our companies maintain strong margins.
That said, we remain vigilant and continue to assess how a prolonged trade war might affect the long-term earning power of our businesses.
What Could the Opportunities Be?
From the stock market’s perspective, a positive scenario would be that the United States secures the necessary concessions from other countries and the tariffs are partially or permanently reduced. Even the prospect of this outcome would likely lift stock prices. However, this scenario is purely speculative. We simply don’t know how market momentum has shifted.
The more negative scenario, of course, is an escalating trade war, with constantly changing tariffs, increasing uncertainty, and a real impact on corporate earnings. That, too, seems somewhat unlikely, as it would also significantly affect American consumers — especially Trump’s supporters. In this scenario, markets could seek out new lows.
For long-term equity investors, the greatest opportunity lies in moments of market disruption, when fear and uncertainty unduly punish even high-quality businesses.
In these situations, the market often misprices companies, and stock prices overreact on the downside. Companies whose products and services are still in demand, whose competitive advantages remain intact, and whose balance sheets can withstand temporary headwinds — those are the ones we want to add to our portfolio.
We’ll do our best to find a few such high-quality businesses in the bargain bin and add them to the Sifter Fund — to keep them safe and let them grow.
