The Value of Taking the Long View

  You've tried to stop my brilliant ideas with common sense a thousand times.
—Yogi Bear, fictional animated character
A V-shaped snap-back helped equities recover from the fourth-quarter selloff of 2018. The move reflected a stark change in mood from the pessimism that ruled during the previous period, yet the fundamental narrative for companies was largely unchanged. 
Earnings growth projections remained muted, and global trade tensions persisted. Data began to confirm earlier forecasts of a slowing economy, as shown in the Citi Economic Surprise index below. Even the Federal Reserve’s decision during the period to suspend its program of raising rates, which was cheered by investors, had been widely anticipated for months.
Decelerating Data
Heartland Advisors Index Value Chart
Source: Bloomberg L.P., 3/29/2018 to 3/29/2019
The Citigroup Economic Surprise Indices measure data surprises relative to market expectations.  A positive reading means that data releases have been stronger than expected; a negative reading means data releases have been worse than expected.

Risky Devotion to Emotion?

While the strong performance is welcomed, we remain frustrated by the persistence of what we see as a bear market in logic. Volatility of the past six months has been long on what Yogi Bear might describe as “brilliant” ideas and emotion but short on common sense. 
The impact of emotion is driving many investors to pay too much attention to the short term and thus overlooking businesses with solid fundamentals and valuations. Instead of chasing an investment horizon of just a few weeks or months, we take the long view and are sticking to our time-tested 10 Principles of Value Investing™ when evaluating opportunities.

Taking the Long View

With uneven economic data and emotions running high, we think volatility is likely to persist in the broad indices over the next several quarters. But whether the ride is bumpy or smooth, eventually, we believe, perceptions and fundamentals will converge. And as always, our focus remains on the fundamentals. 
For example, we continue to seek companies that can capitalize on opportunities even in changing economic conditions. That takes balance-sheet strength, which is likely to be a key differentiator in the quarters ahead, particularly given the significant runup in corporate debt. 
The fact that we continue to find exceptional valuations 10 years into a bull run is a remarkable reminder of the value of a bottom-up approach. We remain unwavering in our efforts of finding these compelling opportunities and believe these are the type of companies that will thrive over the long run.
We thank you for your continued trust and confidence.
Your Heartland Team


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