We will be in Omaha for Berkshire’s annual meeting Thursday, May 4th through Sunday May 7th. If you would like to meet up with us, email info@eaglepointcap.com. The following is an excerpt from Eagle Point Capital’s Spring 2024 letter to clients. Every six months, EPC writes to clients to explain what we own and why we own it. The portfolio-specific portion of each letter is for clients only. Please
Although I’m not in the business of market forecasting, the starting multiple of the S&P suggests the forward outlook for equity turns is not great relative to history. Do you think it may not be the most attractive part of the cycle to own such a strong play on equity market appreciation?
Although Buffett would not prognosticate on market direction, he has made similar observations at AGMs over the years when equities in aggregate were trading at valuations that borrowed from future returns.
Fred - very good comment and we certainly agree that we are not in the business of forecasting general price levels of stock indices, particularly over any short period of time. That said, we certainly do not expect similar levels of stock market returns over the next five or ten years as we experienced over the last five or ten years. Fortunately, from the prices we purchased TROW, we don't believe similar returns are necessary for markets in general to achieve satisfactory returns in TROW over a 5 or 10 year period.
We view the combination of free cash flow yield, margin reversion, and modest equity market appreciation, on average, over the long run is likely to provide satisfactory returns, but that doesn't mean we will be proved correct.
Although I’m not in the business of market forecasting, the starting multiple of the S&P suggests the forward outlook for equity turns is not great relative to history. Do you think it may not be the most attractive part of the cycle to own such a strong play on equity market appreciation?
Although Buffett would not prognosticate on market direction, he has made similar observations at AGMs over the years when equities in aggregate were trading at valuations that borrowed from future returns.
Fred - very good comment and we certainly agree that we are not in the business of forecasting general price levels of stock indices, particularly over any short period of time. That said, we certainly do not expect similar levels of stock market returns over the next five or ten years as we experienced over the last five or ten years. Fortunately, from the prices we purchased TROW, we don't believe similar returns are necessary for markets in general to achieve satisfactory returns in TROW over a 5 or 10 year period.
We view the combination of free cash flow yield, margin reversion, and modest equity market appreciation, on average, over the long run is likely to provide satisfactory returns, but that doesn't mean we will be proved correct.