GUILD INVESTMENT
M A N A G E M E N T
GLOBAL MARKET COMMENTARY
Investor Sentiment Plumbs the Depths
In this second quarter of 2022, individual inves-
tors’ sentiment hit levels not seen since 2009.
History suggests that periods with historically
low investor sentiment (1) usually precede a
large tradeable rally, and (2) can create an at-
tractive entry opportunity for longer-term in-
vestors. Market tops do not announce them-
selves beforehand, or even as they happen…
and neither do market bottoms. On the con-
trary, at tops, it seems everyone is positioned
for more bull market, and bottoms are often
achieved when bullish sentiment is nowhere
to be found (see chart on the left below).
It’s not just individual investors. Institutional
investors now hold the largest cash allocation
since 9/11 (see chart on the right below).
These past few weeks have been marked by
markets where nothing is spared; not even
inflation beneficiaries, nor some of the per-
Source: Bloomberg, LLP
May 19, 2022
ceived safe havens. Even if the current bear
market cycle persists, expect certain areas
of the market to see investor money rotate
into them. The reason is that values are cre-
ated during periods that see good companies’
shares fall 30, 50, 70 percent… or more. The
bottom may not be in, but after such a rough
several weeks for markets, the phase where
it can pay to be selective may be where we
are now.
The negative individual investor sentiment
could largely be attributed to the rapidly ris-
ing cost of living, and the social discontent that
inflation can breed. For all thoughtful inves-
tors, both individuals and professionals, there
are also the macroeconomic dislocations and
geopolitical fears that accompany war. In this
letter, we want to help investors understand
where we are and where things might be
headed, and share thoughts about what to do.
© Guild Investment Management Inc.
Source: B of A Global Research [FMS = Fund Manager Survey]
 GUILD INVESTMENT 2
M A N A G E M E N T May 19, 2022

EDITORS Before we go further into our • Financial history presents many

thinking, we want to remind our examples of liquidity-driven ex-
clients and readers that we are cess and deviation from long-
here to serve. Every week, we term historical price trends,
invite you to call us with your valuation norms, and valuation
questions and concerns -- and of methodologies.
course, that’s more true than ever • Usually, the source was the
during a time of turmoil. same as today: central bank pol-
icy feeding a nascent mania, or
Where We Are: The Key Ele- responding to the bursting of a
MONTY GUILD ments Impacting Sentiment… bubble in a way that eventually
Founder
and Driving Market Volatility fed another bubble.
• “History doesn’t repeat but it
A psychology of fear has moved rhymes” -- the confluence of
to the forefront. The long-trained events is different this time, but
“buy the dip” mentality fostered the essential structure is not
by endless free liquidity is at an different from many past bear
end, and investors are beginning to markets (particularly the ear-
un-learn that habit. The ridiculous ly 1970s, which also featured
days of Dave Portnoy rolling dice geopolitical and commod-
to choose stocks, and boasting on ity turmoil, stagnant economic
ANTHONY Twitter about outperforming War- growth, and inflation).
DANAHER ren Buffet… those days are gone.
President More rigor, research, and analysis The Market Has Adjusted, But
are going to be required. As we’ve Is the Adjustment Done?
discussed in many recent letters,
a slew of economic, financial, and Large price declines came for
geopolitical forces are operating the most speculative names first,
to slow economic growth, and starting early last year; recently
as for stocks… many individ- they’ve come for the “generals”
ual and institutional investors (the mega-cap leaders, mostly
are starting to doubt the abil- tech stocks).
ity of companies to generate
RUDI
© Guild Investment Management Inc.
growing real earnings. A correction of the excesses is
VON ABELE underway -- valuations are fall-
Senior Research
Analyst Looking Back at History ing; concentration in the biggest
names is falling; interest rates and
12400 Wilshire Blvd What is happening may be gener- expectations are rising; market
Suite 820 ating new fears, but the fact is, this psychology is backing off from its
Los Angeles, CA 90025
environment is not so very differ- faith that the Fed will ride to the
310-826-8600
ent from a script we’ve seen many rescue soon. The excesses are
guild@guildinvestment.com times since our firm was founded being removed -- and no, they ha-
Mon–Fri 06:30–16:30 in 1971. ven’t all been removed yet.
 GUILD INVESTMENT 3
M A N A G E M E N T May 19, 2022

What Should One Do? Stay Calm and vigilance.” To say a little more about what we
Keep a Clear Head counsel, and what we’re working to do for our
clients…
Stay focused on the big picture.
• For our clients, we have avoided “Ground
• Optimism leads to better results, because Zero,” that is, the most vulnerable industries
the trajectory of history is progressive, and and market areas, the most exposed to a
we believe a wide view of history bears out contraction of valuations and the most ex-
this belief. Therefore, track the news posed to inflation risk -- which we identified
and the risks, without letting yourself as a major threat at the very beginning of
be swamped by pessimism and cyni- 2021.
cism. Stocks are challenging, but there • Since early 2021 we have also counseled ex-
is nothing comparable for long-term posure to inflation beneficiaries. Some infla-
returns. tion beneficiaries have been working – some,
• Opportunities are being created by such as gold, are not yet working as we ex-
sharply declining stock prices. This pected they would. But we think that day is
is the number one thought through coming, and we are patient.
which to filter incoming information. • Be selective. Darts or dice are not likely
• The engine of profit growth remains com- to help you. Here are two slides from our
panies’ innovation and excellence -- techno- May 5th Zoom call illustrating who we think
logical, operational, or both -- and innovation actively benefits from inflation, and who is
is ongoing. Nothing that’s happening is de- likely to be less impacted or protected from
railing the new industrial revolution and the inflation. These are areas where we expect
rise of transformative technologies that will to find better opportunity right now.
power earnings growth for decades to come.
• Markets have weathered storms like this,
and worse, many times in the past century,
and will weather this one. There are always
solutions that can mitigate risk, even if they
can’t eliminate it, and we’ll describe what
we’re doing below.
• Active management can adapt to changing
circumstances, while passive management © Guild Investment Management Inc.
increasingly gives the prospect of depressed
returns for a decade or more into the future.
We choose active, and believe that you
should too.

Our Strategy

As we highlighted in last week’s letter titled • Stay liquid. Maintain a cash balance to
Time for a Bear-Market Playbook, we advise that both blunt volatility and to provide option-
investors have “some cash, some patience, and ality. Not all assets or all securities will bot-
 GUILD INVESTMENT
M A N A G E M E N T
tom at the same time. After everything
has been declining in lockstep togeth-
er, the breaking of that correlation can
be one sign that a bottoming process
is underway.
• Allocate among asset classes according to
prevailing economic conditions. Program-
matic investment strategies don’t
adapt in this way; we’re big believers
in supplementing the numbers with a
qualitative view informed by politics,
geopolitics, and history.
• Allocate a portion to commodities and to
commodity producers as long as inflationary
and trade pressures remain elevated. We
think that will be for a long time. Look for
“necessities with increasing scarcity.”
• Be alert to companies whose growth story
is intact, and who have defensible intellectual
property or operational moats… but price
matters. Wait for price to reach or over-
shoot a long-term norm of fair value on the
downside.
• Focus on companies with good earnings and
assets, strong balance sheets, and current
growth prospects. Now is not the time for
“hopes and dreams stocks for the future.”
• If you have the knack for it, tactical trading
can capture some gains from volatility.
• Evaluate and re-evaluate all holdings regu-
larly (we do this work every day) to con-
firm (1) that the narrative is intact, (2) that
there has been no material adverse change
in anticipated revenue and earnings trajecto-
ry.
• Don’t be afraid to trim or even entire-
ly sell winning positions if you believe
that remaining upside is limited. That
way you can maintain your cash buffer.
• We don’t think this is a time for a rigid “buy
and hold” the market mentality. Averaging
into high-conviction positions will help re-
duce the risk that accompanies trying to
4
May 19, 2022
time the market’s overall bottom.
• If you are still in the income-earn-
ing phase, don’t stop making regular
contributions to your retirement ac-
counts; indeed, you might want to in-
crease them. It is impossible to catch the
bottom exactly, but by making discriminating
high-conviction allocations after significant
declines, you are more likely to capture the
very large gains that accrue once the bottom
has been found.
• We also don’t think it’s the right time for
investment tropes such as ESG. The data
coming in these days show that there is lit-
tle difference between ESG funds and other
funds… besides the higher expenses associ-
ated with ESG. The declines are similar and
in a bear market, platitudes offer little help.
At Guild, we do employ values-based
investing, and many of our clients have
individual values-based rules about
what securities they want to hold. How
we do it is a far cry from just blanket
ESG strategies that rely on some ESG
“scoring” methodology.
• Remain alert and always looking for opportu-
nity, regardless of market volatility. First find
the theme; then study the company’s strate-
gy, management, historical execution, indus-
try positioning, and prospects; then evaluate
whether the price on offer is a good one. If
not, wait; but don’t forget.
© Guild Investment Management Inc.
Thanks for listening; we welcome your
calls and questions. We will also repeat
what we said above: we want to remind our
clients and readers that we are here to serve. Ev-
ery week, we invite you to call us with your ques-
tions and concerns -- and of course, that’s more
true than ever during a time of turmoil. We’ll
be hosting another Zoom call on June 20 --
be on the lookout for the link, and please
send us your questions ahead of time.
 GUILD INVESTMENT 5
M A N A G E M E N T May 19, 2022
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If you are an investment advisory client of GIM who is receiving this newsletter, please note that the fact that a general recommendation is made of a particular security,
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