Question
As long-term bottom-up investors, how do you view macro risks such as the current political and economic climate?
Austin Hawley, CFA
We are definitely not macro investors. We are very focused on the fundamentals of individual companies, and that's how we build up the portfolio. However, having said that Rick and I actually spent quite a bit of time talking about macro and issues from the election to geopolitics to inflation and interest rates. What we are always trying to do is be open-minded and just think about the potential scenarios and the way the environment might look over the next five years. We're not trying to let the macro guide us and point us toward where we should look for investment ideas, but it is the backdrop for which we evaluate all the individual companies. What we want to do is we want to try to be as prepared as possible because we know there are a lot of uncertainties in the world, and we want to just be open-minded and think about all those different scenarios and how they might impact both the companies we own and also any companies we're looking at.
And so, when I think about the world today, and I think undoubtedly there's more uncertainty on the political side and geopolitical risks than we've had in a number of years. And when I think about that, there's a couple of things that we try to do. The first is, like I said, we just try to be prepared and think about all those different scenarios. The second is we do think about the portfolio and the balance of exposures we have in the portfolio. And part of that exercise of talking about the macro is to walk through all the different scenarios for the names we own and make sure we are maintaining a reasonable balance of both cyclical and non-cyclical, but also different business models that we have in the portfolio. The other thing that really helps with this, like I said, it makes us prepared for whatever scenario unfolds in the future, and we can take advantage of those opportunities if we get some periods of volatility.
And when I look at the markets today and when I look out over the next 5, 10 years, I do think we're at a starting point with pretty high valuations if you look across the markets in the United States and a lot of uncertainties in terms of politics and geopolitics. And that leads me to a conclusion that we're likely to have some bouts of real volatility over the next several years in the markets. And what we saw in early August might be pretty mild compared to what we could see over the coming years.
And I think that's good news for a strategy like Select, where we have tried to be very opportunistic. We have a wide opportunity set that we can try to capitalize on. It is our job as portfolio managers to keep having those conversations and be prepared to act. The volatility is going to be stressful, it's always stressful, it was stressful in August, but if you are confident and can act and are prepared, you can compound returns over the longer term, over periods of years at higher rates. And that's what I'm hopeful we'll be able to continue to do looking forward.