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THE INVESTOR
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J Squared Photography
Theglobal economicrecovery
hassofarbeenverypatchy.
Does this impactportfolio
constructiondecisions?
The only impact that could have on us
is that predictability and confidence
are important for the businesses
being able to execute their plans and
strategies. For example, with Lennar
the US housebuilding recovery has
been very slow and we are a long way
from the peak level of housebuilding
starts.Recovery will happen, but we
do not knowwhen. If you’re willing
to think long term and avoid trying
to guess the cycle, it can work to the
advantage of both the business and our
own ability to understand the industry.
Howhasuncertaintyover the
USelectionimpactedmarket
behaviour?Does it create
opportunities foryou?
Presidential elections, in themselves,
are not relevant. Some presidential
policies are impactful, others are not;
appreciating which is which, and what
the impact has been, is measured in
multi-decades.The legacy of Barack
Obama will clearly be affordable
healthcare, but we will not know if
that has been good or bad for society,
the economy or business for at least
another decade.
INTERVIEW
you would not have thought there was
much room for appreciation. But the
newCEO’s success was in partnering
with hospitals by, for example, taking
over their catheter laboratories rather
than simply selling products.
At Lennar, a large US housebuilder,
the management teamhas transformed
the business over the past decade in a
way not appreciated by others. It used
to simply build single-family homes:
now it builds multi-family homes,
some for sale, others for investment;
and that has a different cycle to building
single-family homes. It also owns Five
Point,which develops ex-military bases.
That’s a long-termbusiness – it can take
20 years for the project to complete.
Are theresectorsandor
industries that seemtofityour
processbetter thanothers?
We have diversification mechanisms as
part of our process to mitigate biases
towards certain sectors or industries.
Over the long termwe have found
that certain businesses tend to be
more easily differentiated than others,
but some sectors, such as technology,
yield better opportunities than others,
such as banking.Technology firms tend
to have very high shares of the available
market, tend to be steady, long-term
and difficult to disrupt. Financial
companies are less differentiated, so
services offered by one company are
available to others – for example, if one
bank issues an innovative credit card,
there is no impediment to competitors
launching a similar product.
USequitymarketshavebeen
strong for twotothreeyears.
Areyoubeginning tosee the
valuations inyourportfolio
becomingstretched?
The stock market has very little
influence on our decision to buy
or sell a
business.Ofcourse, the
markets do follow a cycle, but we
would not want to get into the trap
of trying to pick market timing.
Our decision on
when to buy and
sell a business is very
little dependent on
the stock market
Asset allocation as at 31 March 2016