Entering into the new year, market turbulence and fiscal cliff fears subsided as Senate Democrats and Republicans reached a deal to extend most of the Bush tax cuts while levying Clinton-era rates on the richest Americans earning more than $450,000 a year.
Notwithstanding upcoming debt ceiling and sequester, investors cheered and turned their attentions to money printing central banks. With monetary spigots opened wide around the world, a flood of cheap money has lifted all financial boats. In the U.S., quantitative easing (money printing) has lifted the S&P 500 Index ETF (SPY) to all-time highs.
As we enter into this new experiment of unabated quantitative easing, stocks have rallied and seem to be the only game in town as low bond yields have pushed investors of all stripes outer on the risk curve.
As more and more investors pile in to purchase shares to new highs, stocks now appear to have largely discounted future growth. Given this backdrop, we are cautiously adding to our equity positions and at a slower pace.
In the first quarter, we added three new positions across three sectors. The largest of the three acquisitions was Baidu.com (BIDU), the most popular site in China and the fifth most popular site in the world. It is often referred to as the Google of China.
BIDU offers many services, including a Chinese language-search engine for websites, audio files, images, and much more. The company organizes its products and services for users into eight categories: search products, social-networking products, user-generated-content-based knowledge products, location-based products and services, music products, personal computer client software, mobile related products and services and other products and services.
The products under search products include Baidu Web Search, Baidu Image Search, Baidu Video Search, Baidu News, Baidu Web Directory, Hao123.com, Baidu Group Buy Directory, Baidu Open Platform. Social-networking products include Baidu Post Bar, Baidu Personalized Homepage, Baidu Space and Baidu Share.
BIDU’s user-generated-content-based Knowledge products include Baidu Knows, Baidu Encyclopedia, Baidu WenKu and Baidu Experience. Location-based products and services include Baidu Map Search and Baidu Shenbian. Music products include Baidu Ting, Baidu MP3 Search and Baidu TT Player.
PC Client software includes Baidu Browser, Baidu Input Method Editor, Baidu Toolbar and Baidu Companion, Baidu Hi, Baidu Media Player and Baidu Reader. Mobile Related products and services include Baidu Mobile Search, Baidu Yi, Baidu Mobile Browser, Baidu Palm, Baidu Mobile Phone Input Method, Baidu Mobile App Search, Baidu Contacts and Baidu Netdisk.
BIDU’s other products and services include Qunar, Baidu Baijob, BaiduPay, Baidu Games, Baidu Search and Store, Baidu Statistics, Baidu Ads Manager, Baidu Data Research Center, Baidu Top Searches and Search Index, Baidu Sky, Baidu Senior Citizen Search, Baidu Search for Visually Impaired, Baidu Patent Search, Baidu Translation, Baidu Missing Person Search Site and Baidu PhotoWonder.
As we head into the second quarter, the portfolio is positioned defensively due to higher general market valuations and slower anticipated global growth. While we believe it’s prudent to be cautious at these levels, we remain steadfast in our search for opportunities at more favorable prices (attractive discount to intrinsic worth). To learn more about Prudent Value, please click here.
The investments discussed are held in client accounts as of May 1, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.