In 2019 the Avenue team became increasingly focused on the high level of government debt in the United States and we sought to understand the likely path forward over the ensuing years for both monetary and fiscal policy given such an environment. We believed the choice of monetary and fiscal policy would ultimately have a large impact on both the level of inflation and interest rates, which would significantly impact asset prices. At that time, we kept an open mind about what the path ahead would look like. Five years later our view is becoming clearer: investors should expect to be in a prolonged period of higher interest rates with higher levels of inflation.

In this year-end letter, we wish to extend a particular thank you to all our clients. The close of calendar year 2023 marks the 20th anniversary of the founding of Avenue Investment Management.

While we have confidence that over time our investments in high quality businesses will appreciate in price, there are also going to be periods when prices are weak. And it is in weak markets where we find opportunities and build the portfolio for future returns.

We would like to start this quarterly letter by acknowledging that we are in an extraordinary period of financial change and extremes. What has not changed is Avenue’s strategy which we call quality investing, and we believe it is more relevant than ever. Our strategy is designed to be a universal approach to get us through both good and bad stock markets. The first principle is to identify what are the best stand-alone compounding businesses throughout the stock market. Second, we do our best to be patient and invest when these businesses are trading at a fair price.