When all the Experts and Forecasts Agree

A few weeks ago, the team traveled to California for our first in-person due diligence trip since February 2020. While we have adopted virtual meetings since then, we were eager to get on a plane and sit across the table from other financial professionals.

As you would expect, the planes were full, and the airports bristled with activity. The managers we met with were also keen to meet with us, as we were their first face-to-face meeting in over a year.

We did witness the long line of cargo ships by the Port of Long Beach. We could see the many containers in the distance and the dining places we went to also had “Hiring” signs everywhere. Gasoline prices at the pump were a lot higher than back home. The common joke goes that you should have started your December holiday shopping back in July.

The team met with portfolio managers and investment analysts for several hours to discuss a variety of topics: macro issues such as the impact of higher wages on inflation, Fed tapering and fixed income yield curves, commodity prices and supply chain disruptions, current asset class valuations versus 1999-2000, and China’s recent social and regulatory developments.

We also spent a lot of time discussing portfolio positioning, individual stocks and outlook for several industries and investment themes. As part of our due diligence process, we prepare an investment questionnaire as well as an operational questionnaire. The latter one now encompasses a significant number of questions regarding cybersecurity.

The team usually gets together a few days before our meetings with a manager to review the investment questionnaire. Since we have access to the trading activity and flows, we spend a fair amount of time understanding the thesis behind any new buys or sells from a portfolio. As you can imagine, analysts love to talk about their stocks!

The insight we gain from those conversations is invaluable and would not be available by just investing in an index. The best dialogues happen when two managers are invested in the same company and we get to hear their respective analysis. Being at the intersection of investment knowledge helps shape our asset allocation decisions. The latest exchange revolved around making value and growth portfolios more resilient in case of an economic slowdown as the Fed starts removing emergency monetary accommodations.

One of Bob Farrell’s 10 rules for investing is “when all the experts and forecasts agree — something else is going to happen.” We look forward to going back on the road more often in 2022 and sharing those insights with you.

If you have any questions or want to have a conversation about the market or your portfolio, please contact Liz, Ed, Fred, Scott, Tyler, or myself. Your Sendero team is ready to help. 

Best Regards,
Amaury de Barros Conti
Partner | Vice President Investments