Q2 2022 CIO Review and Outlook

In the end, long-term investing is not really about timing economic cycles. Why? Well, for one thing, it’s hard to do. Our macroeconomic discussions also tend to focus less on the general environment. Gross domestic product (GDP), inflation and interest-rate cycles are not front and center of our considerations.

The issues we chew over are more tied to the prospects of companies themselves. Are we investing in countries which have policies supporting markets and the promotion of high-quality businesses? Are we able to find businesses with market power? Can they raise prices when the environment allows and maintain prices when the environment moves against them? Are they in a strong bargaining position with suppliers? Do they have a good or service that their clients will prioritize over other spending? Are they free from competition in providing these goods? And, finally, can we make a decent estimate of valuation?

A lot of this is about understanding companies and their management but also having the discipline to back up the analysis with some kind of fundamental assessment and metric. We don’t invest in fads, fashions and stories. That’s speculation. Growth investing is more concrete. We try to understand the economic environment as it relates to industrial ecosystems. So it’s in this sense that the macro most often enters our calculations.

Look beyond sentiment

It’s undoubtedly been the case that there have been some significant factors playing out within the economic environments and industrial ecosystems of certain markets recently. Take the regulatory initiatives in China, which triggered such a shock on the markets. Here was a government prepared to stand up to the monopolistic power of companies in the online retail trade. That seemed like a foreign concept to many Western investors and yet, we ourselves have the same issues around market power in some industries. Our governments also espouse the same ideals of intervention in the market, rhetorically at least.

But despite the adverse sentiment these policies caused, they did not render China “uninvestable’’ as some have claimed. It simply required an understanding of the motivations behind the government’s actions and a realization that there were other companies that might benefit from having a more level playing field or open architecture in the online retail space.