With the events of the recent past in mind, Jonathan Brodie and Trevor Black, from Allan Gray's offshore partner Orbis, deliver some insights on making investment decisions. They note that successful long-term investment performance requires a partnership: your investment manager needs to have an effective approach to enable it to outperform markets, and you and/or your advisers need to ensure that you do not react inappropriately to short-term factors. Together this partnership can build long-term value?

Much has been written about the turmoil which has engulfed world financial markets for the past 18 months. Rather than a post-mortem, or an attempt at forecasting outcomes, we thought it might be helpful to address a more focused question: given the events of the recent past, how should a long-term investor react?

By describing what we at Orbis are doing, we hope to provide some guidance on how to answer this question.

Increased exposure to technology companies

We currently have a significant exposure to technology companies. This is a marked shift from the end of 1999, the peak of the technology, media and telecommunications (TMT) bubble. At the time, we wrote in our annual report:

"Your Fund has very little invested in technology shares. This does not reflect scepticism regarding the wonderful potential of technological developments such as the internet."

Back then we were concerned about the very high valuation and prices the market was paying for these businesses.

Ten years later, we find that the information technology (IT) industry is more mature. Spending money on core IT is now central to all organisations. Company valuations are supported by real cash flows, while in the bubble they were largely speculative.

We find a number of technology companies attractive as a direct result of applying our existing philosophy to bottom-up stock picking. Each of our holdings appeals to us because of the specific business characteristics involved. The reason for the cluster in the technology area is a response ? we think reasoned and consistent ? to the opportunity set which the market now offers us.

In some cases, such as Microsoft and Samsung, we see solid businesses meeting our criteria for valuable franchises with attractive margins of safety. Google appeals to us as it has a strong competitive position, but the stock has been sold off indiscriminately. And then there are companies where an adverse market cycle has allowed us to buy long-term winners at a discount, particularly in the semi-conductor industry, which accounts for about 10 percent of our portfolio.

The point here is that while we have changed our weighting in technology stocks from what we held in 1999 in response to developments in those businesses, there has been no change in the rigour of our bottom-up analysis or in our investment philosophy. And because we have high conviction in our analysis and our philosophy, we are able to withstand short-term price movements and ultimately to behave logically at times when it has been extremely hard for global investors to do so.

This point is as relevant for investors in our funds as it is for us ? investors do not always stay invested for long enough to enjoy the benefits of our approach, and their investments do not always perform as well as the funds in which they have invested. This is because the returns experienced by the investor depend not only on the returns generated by the manager, but also on the time and timing of the investor?s holding in the fund.

Go to page two to learn how you should respond to the recent turmoil in the markets...