In the midst of the panic last December, and as described in my last letter, we got a visit from a hysterical Chicken Little and his friends. As you know, Chicken Little is chronically bearish – always looking at the glass as cracked and half empty. Henny Penny goes with the flow and tends to get caught up in the emotional tide of markets – selling when her friends are worried and buying when they’re optimistic. Ducky Lucky is able to keep his emotions in check – he sticks to a long-term plan and re-balances his portfolio when allocations drift away from targeted levels. Ducky Lucky best embodies the Warren Buffett maxim to “be fearful when others are greedy and greedy when others are fearful.” After such a strong move in the first quarter, the threesome stopped by our office again in late March to get our current take on the market.

Most of us are familiar with the idiom taken from the old folktale of Chicken Little: “the sky is falling.” This central phrase from the folktale has been adapted for modern times to describe an unreasonable fear—and today is used to describe the irrational behavior driving the current “risk off” market environment. In this quarter’s letter, J. Dale Harvey, Poplar Forest Capital’s Chief Investment Officer, discusses how macroeconomic fears are creating distortions between good business fundamentals and valuation multiples. We believe many of the current overriding fears in the market today are unwarranted, thus creating a great buying opportunity.

"At Poplar Forest, we approach investing the way I shop at Oliver’s – by focusing on what’s on sale. We don’t buy every special (some things are on sale for worrisome reasons), but when we see a good deal on a great stock, we jump on it. I think this bottom up approach is better than preparing a list at home (equivalent to a top-down forecast), then simply buying everything on that list. And can you imagine the index fund approach to grocery shopping – simply buying a little of everything in the store?" - J. Dale Harvey