Markets continue to show remarkable strength. On Wall Street, the S&P 500 reached another record high last week. In our view, that is not entirely surprising. US inflation was better than expected and, above all, earnings season is giving investors plenty of reason to hold on to their shares. Second-quarter profits across S&P 500 companies are more than 30% higher than a year ago, while around 76% of companies have beaten expectations. Earnings growth is also becoming increasingly broad-based, so it is no longer just the technology giants doing all the heavy lifting. For us, that final point may be the most interesting of all. While attention often focuses on the big names on Wall Street, private investors know that attractive returns are by no means confined to shares priced at $100, $200 or $500. Shares costing a few pence, a few pounds or, in any case, less than £10 can also deliver very healthy returns. In fact, that is exactly where we like to look: companies that may not yet have been discovered by the wider market, but where something tangible is happening at a fundamental level. That could be rising profits, a stronger balance sheet, a valuable strategic holding, a recovery in the underlying business or simply a stock market valuation that, in our view, no longer reflects the company’s true value. Of course, this does not mean that every share trading below £10 is automatically cheap. A £2 share can be expensive, while a £200 share can be cheap. What ultimately matters is what you get for the quoted price. It is not all plain sailing Even so, we find it striking how easily the market is currently brushing aside a number of risks. The war in the Middle East is far from resolved, while there has been very little progress around the Strait of Hormuz. In fact, hopes of a swift agreement between the United States and Iran have faded in recent weeks. As a result, oil remains close to $88 a barrel and could rise quickly if tensions escalate again. Higher energy prices could then reignite inflationary pressure. Unless that happens, however, the market appears to be paying little attention. Our own shares do not always have a smooth ride either. That is part and parcel of investing. A share may initially fall after we buy it, results can temporarily disappoint and sometimes it simply takes longer for other investors to recognise the same value that we believe we see. At times like that, there is little point in focusing on the share price alone. Instead, we return to the fundamentals. Is the company making money? What shape is the balance sheet in? What are its assets worth? How are margins and cash flows developing? And do the prospects still match the expectations we had when we bought the shares? If those facts have changed, we must be prepared to change our view. But if the fundamental case remains intact, patience can be an investor’s best friend. As Dutch market expert Geert Schaaij puts it so well: “True value will always rise to the surface eventually.” That is exactly the thinking behind our approach. Opportunities beyond the United States Outside the United States, the economic picture is mixed but reasonably positive. The UK economy grew by 0.4% in the second quarter. That was below the 0.6% recorded in the first quarter, but the services and construction sectors continued to perform well. The good summer weather and the World Cup also gave parts of the UK’s hospitality and leisure sectors an extra boost. That is relevant to us because Marston’s, among others, gives us direct exposure to this trend. Here too, we prefer to focus on the individual company rather than the index alone. An economy does not have to grow spectacularly for an individual business to make significant progress. This is particularly true for shares with a relatively low quoted price, where an improvement in profitability, debt levels or prospects can ultimately have a substantial impact on the share price. That is what makes investing in shares under £10 so interesting to us. We are always searching for the company the market looks at and says, we are not entirely convinced yet, even though the fundamentals may already be starting to tell a different story. A few pounds tell you nothing about true value Private investors in particular should not be misled by the absolute figure shown on the price board. A share priced at 50p is not automatically a bargain simply because £1,000 buys you 2,000 shares. Equally, a share priced at £150 is not automatically expensive. That is why we do not look for low share prices; we look for low valuations. And when the two happen to coincide — a low share price and a company whose fundamental value we believe is considerably higher — that is when things become genuinely interesting to us. Such situations can produce attractive returns. Sometimes within a few weeks, sometimes only after several months or even longer. And yes, sometimes our assessment proves wrong and we have to sell. That too is part of investing. The important thing is not to fall in love with a share, but to remain loyal to the facts. The week ahead The calendar is a little quieter next week. UK inflation figures are due on Wednesday, with the rate expected to rise from 2.6% to 2.9%. Later that evening, the minutes of the Federal Reserve’s latest meeting will be published. Following the better-than-expected US inflation data and weaker jobs report, attention will focus primarily on how willing the Fed is to leave interest rates unchanged for the time being. Our overall view therefore remains positive, but we are certainly not getting carried away simply because the indices are setting records. Strong corporate earnings justify much of the rise, but geopolitics, oil and inflation could still change market sentiment very quickly. As the market grows increasingly comfortable, we continue to