It was Intel’s legendary CEO, the late Andy Grove, who observed, “bad companies are destroyed by crises, good companies survive them, great companies are improved by them.”
In the current COVID-19 crisis all industries, companies and individuals have been impacted. Some businesses will experience permanent change that impairs their value indefinitely, some will recover to their former state, and a select few emerge stronger.
Identifying great companies amidst a crisis
So, when it comes to investing in a crisis how do you identify the select few – the great companies that will capitalise, adapt to change and emerge stronger?
We look for businesses we believe possess characteristics that will help them endure and even thrive in adverse conditions, including those who have weathered a storm before.
Historically it’s been characteristics such as strong balance sheets, products that are deemed necessities and industries largely immune from the economic cycle, for example, consumer staples.
In the current environment, it’s also focussing on companies with tailwinds that have been accelerated by the pandemic – and in particular those agile enough to adapt to technological change.
The accelerated adoption of technology
By necessity, the pandemic has accelerated the pace of business and consumer adoption of technology from what was historically years into a matter of months.
Consumers have been forced to use online shopping channels where bricks-n-mortar stores have been closed, and bricks-n-mortar businesses have had to adapt and evolve their digital footprint to remain relevant and successful. Individuals have proven they can be just as effective leveraging technology while working from home, and businesses have quickly realised cyber connectivity is no longer a choice.
Why stress testing is paramount
Ultimately our goal is to preserve investor capital and achieve long-term growth by investing in businesses we believe have the capacity to evolve stronger over time. That’s why we believe it is paramount to subject all companies to robust research and stress testing before making an investment decision.
This gives us the confidence that should something adverse happen – a third wave, a failure to develop an effective COVID-19 vaccine or something we can’t foresee – that our portfolio is best positioned to thrive.
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