Monday 24th of October 2022
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Last week ...
Last week Dominion said that investors should be wary of focusing too much on the past, or on the current situation in markets, and try to instead think about the long term. What will the world look like in 5, 10, or 20 years-time, this is what matters for investors, rather than the immediate news stories of the day, whether they be about inflation, the economy, or (as is sadly the case currently in the UK), political incompetence.
This does beg the question: well, what do you mean by ‘thinking about the long-term’?
In other words, what does that mean and how do we apply that as investors in a useful way?
First, an admission. Predicting the future is hard. Really hard. Accurately forecasting the weather more than a week in advance is beyond the ability of the world’s most powerful super-computers. To use another unfortunate analogy from the UK, predicting who will be our Prime Minister next week is beyond the ability of the world’s most powerful super-computers!
If predicting the future is so hard, how can we ever get comfortable investing for the long-term?
What is critical here, and we’re echoing a view shared on a previous episode titled ‘known knowns’, is that investors recognize what things we can predict accurately as well as what we cannot predict accurately. To use an oversimplified example, I have no idea what the weather will be like in two weeks-time on Monday, but I do know the sun will rise and can even tell you the exact time it will rise.
So, what can we predict and how do we use that to our advantage as investors?
Long-term structural growth trends are major changes happening in the world that we can predict with some accuracy over prolonged periods. If we can identify beneficiaries of this change, we can in some cases invest in those beneficiary business models and, in theory, benefit from the structural change happening over the medium- to long-term.
Here’s an example, which we will dig into in much greater detail in the next episode. We know that the world’s climate is changing, with average temperatures rising because of modern human civilizations' use of fossil fuels as a source of power. We also know that there is growing government and private sector action to attempt to tackle this issue. This is not an accurate prediction of what temperature rises will look like specifically, or which specific companies will benefit from investment in climate change mitigation.
But it is a direction of travel for the world that we can predict with an elevated level of confidence. That is the base from which we can start to zero-in on specificities of the trend which we can be confident about, which then can lead to making investments.
There are many trends like this which we can, with high degrees of confidence, predict will happen in some form and as such, set the stage for making investments in companies we think will be beneficiaries of the trend.
Over the coming weeks, we will be digging deeper into some of the biggest long-term trends that we are thinking about, and which offer investors very appealing long-term investment opportunities.
The recent market volatility and declines in equity markets make this especially timely as the entry prices for many of the stocks exposed to these trends are now much lower and so offer even more appealing long-term return profiles.
Dominion Capital Strategies
Sources: Bloomberg, Yahoo Finance, Marketwatch, MSCI. Copyright © 2021 Dominion Capital Strategies, all rights reserved.