What follows is a condensed and edited version of Mr. Royce’s remarks.

How do you interpret what investors have been through over the last two years?

It has been an extraordinary period in every way. We all recognize that the pandemic was a unique event—and not the sort of thing anyone was ever thinking about, planning for, or having conversations about. There was almost nothing in our collective psyche to tell us how to think about or respond to it.

What was useful for me to think about from an investment perspective was that, as unique an event as the pandemic has been, it was a similar experience in terms of the market’s volatility. The pandemic-driven down market had all of the same features as other market cycles. Part of the heritage of the firm is that we’ve always thought of volatility as our friend.

Are you investing differently now as opposed to before the pandemic?

I would say that ‘differently’ is probably the wrong word. The pandemic reaffirmed how we think about how we invest. We have always had a long-term view. In many of our strategies, we have a strong bias towards quality. I think investing in high quality has tremendous advantages in these out of the blue settings because companies in the quality zone tend to be better prepared. They have a system of being sort of ready for these unexpected events. They are of course under-leveraged, so they have flexibility and a margin of safety—which give them enormous advantages.

Now we didn’t say, “what if there was a pandemic?” but certainly we talk about the skills of these high-quality businesses.

What are you currently focusing on?

We’re always looking for these super quality companies. We have exceptionally longstanding folks on the portfolio management team who have long histories in this high-quality area. We have years' worth of insights into what makes a strong company. We’re talking to their ecosystem—their competitors, customers, ex-employees, other people that interact. We want to know about their culture and leadership, which is not a simple thing, so we must have a dialogue around the ecosystem to confirm our instincts about the company.

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