Trepidation has certainly crept into financial markets in recent months, and rightly so! We’ve seen a self-inflicted slowing of China’s economy following a wave of tough private sector regulations, rising and persistent levels of global inflation, and supply chain issues which have gotten worse, not better. If anything, it is remarkable markets have remained as robust as they have (US equities hit a new all-time high last week).
An important lesson for stock market investors is to remember that constituents of stock markets do not necessarily represent the whole economy. Periods of weaker economic growth, higher inflation, even pandemics, can coincide with strong growth in revenues and profits of some listed companies. It’s those special cases we think deserve most attention from the alert investor.
Not all companies are born equal. Many firms across varying industries are good, solid businesses. Some stand out as better than average, often down to high quality management teams and business cultures. But a rare few are truly fantastic, firms whose technology, culture, market positions, and barriers to entry offer unique long-term investment opportunities.
It’s often said nowadays that we are living through a ‘period of uncertainty’. The truth is, every period in history, ever, was a period of uncertainty. We never know what is around the corner, in our personal lives or as investors. Where you can find confidence and conviction as an investor is a valuable place to be. Investing in fantastic business models offers both.
Alphabet dominates internet search, owns the leading online video platform (YouTube)… oh, and 72% of the world’s smartphones use its operating system… and it’s a global leader in Artificial Intelligence and driverless cars. Nike is leading the transition to communicating and selling direct-to-consumer (DTC), leveraging its position as global number one in sports apparel to dominate a highly lucrative growth industry. Healthcare R&D leader Charles River Laboratories is now a ‘must have’ service provider for any biotech or pharma company looking to develop new treatments or vaccines, a unique and incredibly powerful position in a high-growth, high margin sector. Microsoft has long stopped being a business led by its windows operating system, today it’s a global technology behemoth with unique leadership in the transition of global enterprise to the cloud.
These businesses and many more like them are core holdings in Dominion’s investment funds. Times are always uncertain, these times no more or less than others. Rather than getting bogged down in the rollercoaster of emotions of the daily financial press, we prefer to focus our energy on discovering and investing in the business models which will power ahead, and transform the world, wherever we are in the news and economic cycles. It also helps us get a good night’s sleep!
US economic data continues to look strong
The IHS Markit Services PMI for the US climbed to 58.2 in October, up from 54.9 in the previous month, easily beating market expectations and indicating a strong rise in expectations for the largest sector of the US economy. The IHS Markit US Composite PMI (measure on outlook for the whole economy) rose to 57.3 in October from 55 in the previous month, again signalling a faster pace of expected expansion in total business activity in the US. The S&P CoreLogic Case-Shiller 20-City Home Price Index increased +19.7% year-on-year (YoY) in August, and new home sales soared by +14% in September, well above market forecasts. Recent predictions of a slowing US economy may have been a little premature.
Disclaimer: The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Capital Strategies Limited or its related companies. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.
