On rare occasions the market takes on a speculative bent as animal spirits run amok. For us value investors, during these periods, it’s always hard to believe that the others, whose behaviour is so odd to us, are competing in the same field. Why would anyone ignore fundamentals, buy purely on price, chase what’s already gone way up, use highly-speculative instruments, assume extreme leverage, or worst of all, purchase something that’s hugely popular—gone viral—a ‘meme’ stock?

The economy, now booming thanks to massive government stimulus and zero interest rates, should accelerate further in the near term as pent-up demand is unleashed. There are notable concerns which could cause the markets to ebb—especially since stocks in general are priced for perfection.

Investors should not take either of these extreme stances. Without a crystal ball, it’s extraordinarily difficult to time tops or bottoms. Speculation is accompanied by too much risk— outsized declines can arrive at any time. Sitting in cash and waiting for a better entry point can have the opposite effect as business valuations generally ascend with the march of time—so most returns are made from being fully invested to benefit from the lift in underlying security values.

While markets could continue their ascent, we believe that extended valuations and exuberance should at least temporarily cap market indexes. We remain defensive, holding some cash and/or a reasonable sized hedge, while we continue to hunt for undervalued high-quality businesses, both here and abroad, especially since overseas investment options are cheaper than comparable U.S. shares.