East Coast Asset Management's Q3 Letter

Found via Market Folly.

Valuation is the primary driver that informs our investment strategy. Over time the market is meritocratic and rewards investors when they have purchased a stream of future cash flows at a discount. Conversely, the market will tend to punish market participants who have overpaid. Every investment has an expected rate of return from its quoted price over a given time horizon, it is our primary objective to determine what that expected return is and allocate capital accordingly.

Since early 2009, there has been a secondary driver informing our investment strategy – the developed world’s central bank monetary policy. As noted in earlier letters, central banks have three exit strategies to mitigate their debt burdens: increase taxes, reduce spending, and print money. We expect them to employ a combination of all three strategies but history shows that the printing of money will be the most politically and economically viable. These actions potentially have critical implications for accumulated wealth, future interest rates, and inflation.