W
e continue to search for companies
that can grow, regardless of
macroeconomic headwinds. Strong
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. Five years ago, for every
100 companies we studied we could nd
ve ideas.Today, we look at 300 companies
to nd one idea. Going forward we believe
growth will be more important than ever.
Valuations are higher today than they have
been at any time since the onset of the
nancial crisis and the market is discounting
a more positive economic outlook.
Therefore, the way forward involves nding
growth and not paying full price for it.
This year we were able to take advantage
of market volatility to add to some of our
existing positions and initiate new positions.
We like to say that volatility is the friend
of the investor who knows the value of a
business and the enemy of the investor who
does not.With that in mind, we were happy
to see the return of volatility and remain
pleased with the collection of businesses in
your portfolio and are excited about their
long-term prospects.
EDGEPOINT
Satellite manager: Global Equity
The way forward involves finding
growth and not paying full price for it
Today, we look at
300companies to
ndone idea
Tye Bousada and Geoff MacDonald
C
orporate balance sheets are interesting
because they tend to move in herds.
We spend our time looking for black
sheep. Many corporates like to talk about
‘e cient balance sheets’, a classic piece
of nancial jargon which, regardless of its
origins and underpinnings, often results
in companies deciding that debt is good
and that at low interest rates, more debt
might be even better.As we are investors
focused on capital preservation, we are
much more interested in companies with
‘ine cient’ or‘lazy’ balance sheets – what
the man on the Clapham omnibus might
call‘safe’ or‘conservative’.This is not only
because companies with cash reserves
preserve capital better, but also because
companies with cash to spend can be far
more opportunistic than those with debt to
service. One of the best ways a management
team can add value to their company is by
being the buyer of good assets when they
are priced cheaply.We extend the approach
to our views on banks.Those with the most
capital (the‘laziest balance sheets’) will be
able to lend in times of need, thus making
higher pro ts than those who enjoy the
boom and are left in damage limitation
mode. Bank Pekao (Poland), Standard Bank
(SouthAfrica) and Bradesco (Brazil) are
three of the well-capitalised banks we have
chosen to own for clients.
FIRST STATE
Global Emerging Markets
Companies with cash to spend can
be far more opportunistic
We aremore interested
in companieswith ‘lazy’
balance sheets
Jonathan Asante
THE INVESTOR CENTRE
THE INVESTOR
|
31
H
oward Marks points out in his
wonderful book
The Most Important
Thing
that shares are unlike almost any other
asset. Normally, when prices go up we want
to buy less of something, not more, and
similarly when things are selling at bargain
prices we should want to buy more.This,
unfortunately, tends not to be how stock
markets work.This apparently illogical
behaviour is a function of the de nition of
performance as a gain or loss relative to a
benchmark over short time periods. If you
are paid on the basis of your performance
relative to the index it is not surprising
that you might feel compelled to buy or
sell, irrespective of the gap between price
and value, and we believe this activity
leads to boom and bust.This process of
short-term benchmarking can lead to some
poor investment decisions and this is why,
very deliberately, we do not measure our
team on this basis.We think, however, it
is a reasonable expectation of investors
in our funds that we should outperform
a benchmark over the longer term. By
focusing on real risk and owning high-
quality companies at reasonable valuations
we hope to avoid the excesses that lead
to permanent loss and be in a position
when bargains present themselves to take
advantage of low prices.
FIRST STATE
Joint manager: Worldwide Managed
and Worldwide Opportunities
We do not measure our team on
short-term benchmarking
We hope to avoid the
excesses that lead to
permanent loss
Jonathan Asante
