Don't Panic, Reason Well
Shawn Ouderkirk
Operations executive specializing in start-ups and difficult turn-arounds.
“There are those who reason well,
but they are greatly outnumbered
by those who reason badly."
Galileo Galilei
The second quarter ended with a big splash that turned into a barely perceptable ripple. “Brexit” was all over the financial news networks and global markets reacted immediately and negatively. We discussed the implications internally, and whether we should pause the execution of our strategy given the intense negativity in the media and the reaction by markets around the world. In the end, we decided to proceed without interruption. Why?
The UK is less than 5% of global GDP. No one knows for sure the implications, good or bad, that Brexit will bring. Let's say it impacted the UK economy negatively, and by 5%, which would be huge. We would still be talking about a 5% reduction in an economy that represents less than 5% of global GDP, or an impact to global GDP of less than a quarter of one percent. Sure there are ripple effects beyond the UK, but consider the magnitude of the primary event. The process of Brexit, according to the experts, is likely to take a year or longer. So was it rational that markets around the world would instantly drop by as much as 20%? This did not seem to us, to be the reaction of well reasoning investors. While not unanimous among our fellows, we pressed on with our strategy.
In Q2 of 2016, our strategy yielded a +13.1% return. Since inception during Q2 of 2015, our strategy has yielded +59.2%, or an annualized return since inception of +65.5%. Over this same period, the S&P 500 is still down.
In short, we continue to see stellar returns from our strategy. My “shocked face” is becoming less common as the returns become common place, but no less awesome. Thanks again to all our fellows at Purple Peaks, who continue to make these stellar returns possible. A part of me still thinks I am going to wake up and realize it was all just a dream. Let's not get complacent. Let's keep executing what we have developed. Let's keep pushing hard to reason well and to continue to improve, for although “only the paranoid survive”, only the paranoid who reason well, thrive!