S
trong performance globally has made
nding attractive investments more
di cult.Although it’s still possible to
uncover businesses with good long-term
growth prospects without paying full price
for that growth, today we need to look much
harder for these opportunities than we did
a few years ago, which is more consistent
with a normal operating environment. Price
uctuations will continue to be inevitable.
Recently, we’ve experienced almost nothing
but upward price movements, but that
can’t continue into eternity. However, we
don’t view volatility as risk. Rather, we see
risk as the potential for permanent loss of
capital, while volatility just creates bumps
on the road. Often these bumps provide
opportunities to purchase businesses
at more attractive prices.We recognise
that short-termmarket movements are
completely random.We try not to ascribe
too much meaning to these blips and
instead pay attention to adding value for our
investors. No matter the investment climate,
our goal is to buy high-quality, undervalued
businesses with strong competitive
positions, defendable barriers to entry and
long-term growth prospects that are run
by competent management teams, and
hold them until the market fully recognises
their potential.We search for companies
that can grow in spite of macroeconomic
headwinds and build our portfolios around
our proprietary insights.
EDGEPOINT
Satellite manager: Global Equity
Finding attractive investments is
harder in stronger climate
Short-termmarket
movements are
completely random
Tye Bousada and Geoff MacDonald
W
e recently met one of the leaders of
the emergentAamAadmi (Common
Man) Party in India.The environment is
not the most opaque of the countries in
which our companies operate, but it seems
that Indians have reached the limits of
their tolerance for corruption. Formed in
November 2012, the party won 40% of the
seats in state elections in Delhi on a platform
of anti-corruption and transparency.
The party leader told us many anecdotes
about local entrepreneurs who have been
empowered to stand up to small-scale
corruption, such as the chai seller who
refused to bribe the local policeman for the
right to sell on a patch of street.Although
governments in emerging markets have a
habit of taking a step backwards for every
two forwards, small improvements can have
big implications for companies, not only by
reducing their cost of capital, but also by
opening up new opportunities previously
closed o to those unwilling to cut corners
to win business.We have observed over the
past two decades, in India and elsewhere,
those groups that have succumbed to the
temptation to cut corners and those that
have not, and although it is very di cult to
predict the pace or trajectory of improving
governance, we are con dent that the
companies we own are well placed for the
long run.
FIRST STATE
Global Emerging Markets
Our companies in India are well
placed for the long run
Indians have reached
the limits of their
tolerance for corruption
Jonathan Asante
THE INVESTOR CENTRE
THE INVESTOR
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31
T
here are signs that the global economy
may not be improving, although the
nance community’s expectations are
rising. Real income in the US is below
where it was in 2000. In the markets,
however, valuations are at high levels.
Margin lending (borrowing to invest) on
the NewYork Stock Exchange is above
where it was in 2008 (the last stock market
peak). During periods of exuberance,
particular sectors of the market are often
pushed to very high valuations. In the
nancial bubble of 1929 the automobile
and radio sectors were particularly strong,
while internet stocks made spectacular
gains in 1999.We believe this might be
happening with companies related to social
media today.Twitter recently oated on a
valuation similar to Google’s initial public
o ering, despite the fact that Google was
pro table for ve years before oating and
Twitter recorded a loss of $140 million
last year. Facebook’s deal to acquire the
messaging applicationWhatsApp is hard to
justify on any rational valuation.
FIRST STATE
Joint manager: Worldwide Managed
and Worldwide Opportunities
Real income in US below 2000
levels but valuations are high
Signs that the global
economymaynot
be improving
Jonathan Asante
