GoodHaven Semi-Annual Report

The Fund’s capital is being deployed judiciously and we still have a chunk of cash – we are optimistic, but cautious. Although our cash position will decrease as we find new and appropriate investments, the world is still a troubled place and we are mindful that many of the causes of the 2008-2009 financial crises have not yet been addressed. Government finances are in shambles. Many European banks are stuffed with sovereign paper of questionable value and many domestic institutions are struggling with troubled assets, depressed markets, and costly legal issues. Most derivatives remain unregulated and unlisted on exchanges, where collateral and counterparty risk might be reasonably gauged. U.S. growth is subdued and the housing ATM shut down long ago. And although interest rates are bumping around historic lows as the Federal Reserve maintains its policy of zero percent, they are almost certain to rise in future years, perhaps meaningfully. Typically, these sorts of conditions do not make for easy sailing in financial assets.

So why are we optimistic? Tough markets and troubling headlines allow us to plant the seeds of capital growth that may be harvested in future years. Rather than dwell on difficult to predict macroeconomic negatives about which we can do little, we focus instead on finding sensible things to do with money other than a near zero interest bank deposit or low-yielding and long-dated bonds having enormous risk of loss should interest rates rise even modestly. Part ownership of a good business, at the right price, is a better way to deal with either inflation or deflation than many of the alternatives. We are mindful that sooner or later, public markets create opportunity for the prepared.