The Sifter Fund has achieved a year-to-date return of 20.4%, with a third-quarter return of 3.4%. However, in September, the market lost momentum, and the fund declined by 1.4%.
Last fall, it was hard to believe that the stock market would rise significantly. Despite headwinds in the macroeconomic and real economic world, high-quality businesses have delivered good results worldwide, which has also been reflected in the rise in stock prices.
Portfolio Changes in Q3
During the 3rd quarter, we examined several promising quality companies in the healthcare sector, but we did not decide to invest in them just yet. We want to better understand these companies’ business models, competitive advantages, and risks.
Analysing potential downsides in business is often more crucial than being charmed by the surface of a potential investment.
During the quarter, we made a few additional investments in high-quality companies in the Sifter portfolio as the Sifter Fund received four million from investors to be further invested.
Difficulty of market timing
The past five years have been an extremely challenging period for investors, especially due to macroeconomic changes. Finding the right time to invest in stocks has been exceedingly difficult because there have always been new negative surprises. We have written an article on this topic: Is now a good time to invest in stock market?
Although stock price fluctuations, or volatility, have been higher than normal in recent years, we do not consider volatility a risk at Sifter.
It is more a reflection of market and investor nervousness than a rapid improvement or deterioration in companies’ business prospects.
Sifter’s investment strategy is to be fully invested in high-quality companies in all market conditions. Many investors also consider the benefits of time diversification, which we have also discussed in our article: Lump-sum investing or Dollar-cost averaging – which is a better way to invest?
What about future returns?
Our mantra is that at Sifter, we do not promise any returns. Although this may sound brutally honest, we do not know where the market will go next. And neither does anyone else.
However, we aim to invest in top-notch companies that have the potential for their stock prices to grow. These companies typically have strong financial positions, a competitive edge, the ability to set prices, and consistent growth. We believe that stocks from such companies can increase in value over the long term.
A company’s strong financial position helps it to weather difficult economic times. On the other hand, steady, even brisk, earnings growth allows the stock price to rise in the long term. However, we avoid companies where the current stock price requires almost miraculous earnings growth. An example of such a company might be this year’s growth sensation, Nvidia, which we do not own.
What we can promise is that we will continue with our proven strategy of quality investing.
