Don't make heroic bets on unpredictable outcomes

ON UK INCOME

In February, we highlighted four areas of economic risk in the US, the UK, Europe and China.

Not knowing the future, we made no predictions, but argued investors were not adequately compensated for the risks they assumed. We avoided risky sectors and raised cash from selling more cyclical companies with stretched valuations. We took refuge in high quality global franchises where balance sheets are strong, cashflow is plentiful, and dividends are large and rising. Eight months later, our fears are more mainstream, and markets have shaken beneath a collapse in confidence. While the end of the summer sell-off permitted some buying of good quality cyclical companies at attractive...