The Berkshire Special 2018

Go west, young investor, but go wisely

Engage in intelligent investing where you have a fighting chance to make a decent return with a margin of safety

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"Go West, young man” was advice popularised in the late 1800s by the American author and newspaper editor Horace Greeley in regards to America’s Westward Expansion. First, Greeley “saw the fertile farmland of the west as an ideal place for people willing to work hard for the opportunity to succeed.” Second, potential success, measured in terms of productive land to farm, luxurious furs to trap, and of course shiny gold to pan, enticed many Western settlers to take significant risks.

Investing requires bearing risk to reap rewards, but there is no definitive causal relationship here. Just because you might be willing to pack up your wagon and head off into the sunset doesn’t ensure you’ll be rewarded with wealth. Today investors should be particularly diligent in assessing risk before setting off on any journey.

On the one hand, the road out of town looks inviting: global economies are growing synchronously, many leading indicators including global Purchasing Managers Indices remain robust, earnings have been strong with expectations anchored around continued growth, and inflation generally remains contained. Looking toward the horizon, however, we can see dark storm clouds building: labour conditions in the US have been tightening while more fiscal spending is on tap (all being a potential precursor to higher inflation levels), and the Fed has pivoted from quantitative easing to tightening and is hiking rates. The scariest storm, chock-full of lightning strikes and cacophonous thunder, for the adventurous travelle

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