The Next Trade

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You are only as good as your last trade is an old adage about short-termism that is a helpful foil for us and our investment approach at times of great uncertainty.

We are at a turning point following the devastating impact of the pandemic on our economies and lives. Governments and central banks have taken significant steps to support economies and livelihoods that have been affected by the measure to close down economies and protect our populations.  Vaccines are being implemented and are having a positive impact despite the issues around changing variants and potential side effects. 

The longer-term the approach the clearer the perspective. The sad death of Prince Philip, Duke of Edinburgh, is a marker that the second Elizabethan age, a way of describing the post-war period, is gradually drawing to its close. It has been a period of great turmoil and conflict but also one of great hope, innovation and prosperity, not least in the dramatic increases in life expectancy and in the performance of markets over that time.  The rivalry between powers, political and social unrest and other adversity we face today is no different than that experienced by previous generations and we have no doubt that we will have to face them in future as well.

The United States is on track to administer 200 million doses by President Biden’s 100th day in office.   According to the AARP (American Association of Retired Persons), 80% of over 65-year-olds in the US are already vaccinated and at the current pace the US is on a trajectory to achieve 80% vaccination of its population by mid-July, an important threshold for herd immunity.  The US has proven its ability to innovate and produce at scale and the discourse is already shifting to what the government will do with the billions of excess vaccine doses that will be produced through this year.  Given the issues in Europe and elsewhere it is striking that once again the New World may come to the rescue of the Old. 

The companies we are invested in have reported strong results and vigorous demand for their products and services.  Our long-term perspective and our fundamental approach is why we are optimistic about the global economy and about the prospects for our investments.  We trade very little and for fundamental reasons only, so each trade matters.  

For us market volatility and sector rotation are opportunities.  Last year we bought ‘value’ as in ‘value/growth’, industrial, consumer and healthcare companies that had been impacted by the short-term impact of the pandemic and that had the promises of significant rebounds in their sales and earnings.  This year we have bought ‘growth’ that has been left behind by the sector rotation.  Market short-termism has allowed us to buy a position in Salesforce, the leading software platform that we had been looking to buy for many years but held off until now because of its valuation, at much cheaper prices than before.

We invest in quality and value for the long term so for us the next trade is always the same as the last: to buy companies with strong and sustainable competitive positions, in good and growing markets, with managements with a record of value creation and balance sheets so strong as to whether any adversity, including the present.  As we write, the sector rotation appears to have reversed and many of our less cyclical and higher growth companies are performing strongly.  

The year to come will continue to be challenging and we have to hope that the vaccine rollout will be effective in reaching people and addressing the issues of variants and side effects as our analysis indicates so that economies can open up throughout the year.  We are confident in the quality and value of the companies that we have invested in and will continue to focus on the fundamentals to take advantage of opportunities as they arise.

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