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November 2023 Monthly Update

This year, as it draws to a close proved 3 things.

First, it is always sustainable earnings and cash flow growth that drives long term stock prices. Both funds again strongly outperformed the benchmark for the month and year whilst meeting their 5 year rolling objectives. It’s an easier more predictable way to invest than trying to forecast where interest rates and inflation may be heading. Our open secret as to how we achieve good returns are Megatrends. For well-run companies (and there are less of these than you might think), megatrends drive our portfolio’s sustainable earnings and cash flow growth. For example, Pet humanization, Health & beautification, and Cloud computing. The companies we hold within them are very carefully selected for resilience in the face of economic fluctuations, and consistently demonstrate remarkable growth rates.

Second, active management for investing in themes is essential. Most players in a megatrend usually do not produce  high quality sustainable earnings, but instead are short-lived beneficiaries of hype surrounding a megatrend or theme. Thus one has to rely on the third thing if not insisting on sustainable earnings and cashflow growth. An active approach shields investors from falling prey to hype and substantial losses, as evidenced by recent events in the renewable energy sector. Take for example the Global X wind ETF launched in September 2021 at the height of this theme’s  frenzy. Since launch, this ETF is down -51%, typical performance of many single focused themes. A recent study by a local fund manager peer empirically proved that thematic ETFs struggle to deliver (email us for the link). Bundling and managing the correlation of the multiple themes is as crucial for success as stock selection.

Third, it may be hackneyed wisdom, yet most investors still ignore it – avoid timing. You are forced to however if  payingif paying head to industry soothsayers otherwise known as ‘commentators’. With sombre authority they espouse that they know where future the future direction of markets and economies are headed. Yet they cannot consistently achieve it. This year, equity market returns proved naysayers wrong - again, leaving those who followed their advice missing out on significant gains. A sense of caution continues to prevail. While we always refrain from making predictions about next year's returns, we note the substantial inflow of cash into conservative deposits and money market funds are a reliable contrarian indicator. Furthermore, historical data dating back to 1957 indicates that in years when a sitting U.S. president seeks re-election, the U.S. market has consistently experienced positive performance.

Global Gaming. A revolution of sorts 


Driven by Gen-Alpha & Gen-Z the video gaming industry has surpassed traditional media entertainment in both size and growth rate. Bigger than Hollywood, it is now a dominant force in the global entertainment landscape.


Large developing economies are no different. Take India and Mexico for instance. Their gaming growth rates exceed 30%. No longer the realm of teenage boys, its appeal is also strong with females and those over 55 too.


This growth in gaming reflects a deep-seated shift in consumer preferences and behaviours.

Younger generations, particularly those aged 13 to 17 (intersection of Gen-Alphas and Gen-Zers), are increasingly gravitating towards gaming, spending 40% more time in virtual worlds than any other form of media.

This demographic shift is pivotal; as these gamers age, their habits are likely to influence mainstream media consumption trends. By example there are now many blockbuster films created off the back of online games.

Video games offer a unique blend of entertainment, social interaction, and immersive experiences that other media forms can't match.


Moreover, the social aspect of gaming has transformed it into a new digital hangout space, further embedding it into the fabric of daily life. It’s common for whole groups of players from multiple backgrounds and countries playing the same game - live.


Technologically, the industry is at the cutting edge of both advanced tech (requiring ever more powerful processing chips for example) and entertainment creativity such as the advancements in augmented and virtual reality that add new dimensions to gaming experiences. Artificial Intelligence (AI) plays an accelerating crucial role, driving innovations in game design, personalization, and in the user experience. More than just the game itself, companies are well advanced in extracting further revenue opportunities from the information they gain and other xcross-selling services beyond game subscriptions.

Problems with using predictions.


Traders making short term trades account for the vast majority of transactions on Bond and Equity markets globally, measuring in the trillions every year. For them, timing is everything as is taking bets on where they think key indicators such as interest rates, GDP, consumer spending and so on will be.


From this has grown an entire industry of people inside fund managers and broking houses, alongside journalists and others claiming some sort of historic crystal ball success. They infer that they can predict the near-term future (next 6 to 18 months). This confuses trading with investing.


Many believe it’s an adviser’s role to somehow predict and position client portfolios for all this for the year ahead. The reality is that predictions don’t work consistently enough within such short time frames. Using proper analysis it is more likely to be correct if taking a 3+ year view, but not on what could happen next year. Most predictions focus on some form of implied gloom – the negative plays to the human psyche for bad news over the good. It sells better tooIn other words it sells!


"Technological advancements are now progressing at an unprecedented pace, causing disruptions across our world. Alongside this comesrapid change, we are witnessing increased volatility and uncertainty. It's no surprise that individuals who claim to have a crystal ball view of the future are more popular than ever. However, for long-term investors, relying on predictions can pose a significant risk.


We'd like to leave you with three thoughts:


I. Take a moment to explore the next page, where we've analyzed the predictions of a globally renowned investor over a span of 12 years.

II.  Consider that fund management processes that don’t that don't rely heavily on predicting future indicators as they tend to generate more consistent returns over time. This approach helps mitigate one of the major risks associated with investing.        

III.  The next time you come across a prediction, ask   yourself whether it truly matters in achieving your financial goals.

‘Rich Dad Poor Dad’ - Robert Kiyosaki predictions of impending doom 2011-2021, and the S&P 500 Republished with thanks to its creator: Ben Carlson, A Wealth of Common Sense (NY- USA)

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