One of the most interesting dynamics in the market right now is the fact that inflation is bubbling up. We’re seeing it through wage inflation. We’re seeing it through transportation costs going up. And we’re seeing it through tariffs. Look at the appliance market: washing machines are a lot more expensive since the steel tariffs than prior to that.

So the question that every investor should be asking is, Does my company have pricing power? If they do, we think they can maintain—if not grow—margins. If not, the record high margins that most companies are seeing are likely to go down, and that will significantly impact earnings growth rates. So pricing power is incredibly important, and many US companies have actually forgotten how to raise prices because they haven’t had to for so many years.

The sector that we’re most concerned about is the retail business, where you have vast numbers of low-wage workers. If $15-per-hour wages are implemented nationally, that will create some real margin pressure for most retailers.

Why can’t companies raise prices? You have some big consolidated retailers that actually are blocking consumer-staples companies from raising prices. Think about Amazon and Walmart and Target and Kroger’s. They’ve risen to a size in the US economy where they just can say no, and companies don’t have much alternative in terms of where they want to distribute. So getting around those big distributors is difficult.

I think we’re at the nine- or 10-year mark of this bull market cycle. So stocks aren’t as cheap as they were. Earnings are at all-time highs. Operating margins are close to all-time highs. So it’s not as easy to find companies.

What we’re trying to do is attach ourselves to secular growth companies. We think that’s as true today as it was in 1975, when the strategy was started. Where are we today in terms of the market? Growth is likely to be slower. So those businesses actually should be at that much more of a premium.

I think everybody—whether you’re investing in a portfolio or investing in individual companies—you have to come up with the reasons why are you in this stock. Why are you in this strategy? As long as the reasons—as long as your stock thesis or as long as your investment strategy is still valid—you should stay with it.

And don’t let volatility scare you out of it. And quite frankly, with the extremes in the market that we’ve seen, valuations get to ridiculously low levels and the last thing you’d want to be doing is throwing away dollars by selling a company at the bottom if the business has not changed. So I think you really have to check your conviction. And don’t be scared out of the market because that’s when investors really are subject to making investing mistakes.

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