The first quarter of 2016 tells many stories. The first six weeks were a lesson in imaginations run wild, as any extreme event imaginable became the potential crisis du jour. Like the boy who cried wolf a few times until that failed to startle his audience, cries of “Chinese meltdown,” “energy collapse,” and “negative interest rates” worked the market into a frenzy and led to the worst start to a calendar year in history.

Once people noticed that the U.S. unemployment rate was below 5%, retail sales in much of Europe were rising, several measures of inflation were positive, and, most importantly in our opinion, numerous stocks were really cheap, the market recovered much of the lost ground.

Volatility Is Your Friend

One of our long-held core beliefs is that short-term movements in stock prices are of no concern to us because our focus is always on the long term.

An interesting aspect of the first quarter of 2016 was that Health Care was the worst performing sector by far, yet we found many attractive buying opportunities.

This is a perfect example of what we mean when we say volatility is the friend of the long-term investor. The first quarter of 2016 was one of the more volatile quarters we’ve seen in a long time. As fear turned into panic during late January and early February, we did what we always do—review our list of what we’d like to own and the prices we’d be willing to pay…and wait. Patience and preparation are key tenets of our philosophy.

Those who know our investment approach have heard us say numerous times that Health Care broadly and biotech specifically were a bubble waiting to burst, though there were things we wanted to own at better prices. With the overall sector down 50+% in the past several months, the bubble has burst. The lows Health Care stocks fell to in February, made several great companies we wanted to own available at what, in our opinion, were panic-selling prices.

You make money in the markets during bad times. You just don’t know it. In a low return environment, it can be very difficult to tell the good from the mediocre. We are in such a world right now. It has never been more important to own the structural growth themes that have the tailwinds needed to outperform what is essentially a zero-return world.

In many ways, this is when investing gets much easier. Valuations on many stocks are, in our opinion, extremely low at the moment. The market may not realize the mispricing on these stocks for a while, but we are investing now for the long term. That is how you make money. I believe very strongly that now is a great time to put in place excellent future returns.

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