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The ship you travel on

We are living through times of maximum global geopolitical uncertainty, war in Europe, inflation seems out of control and the pandemic that continues to kick in with closures in very important areas of China. What can we do? Is this normal? Is it worth changing our approach?

When we decide to invest, the best strategy is to buy the best businesses regardless of the macroeconomic vision we have at that time. If we are long-term investors, it implies that we have a time horizon of at least five years. This long term practically guarantees that along the way we will find global or local short-term problems. Our brain makes us keep in mind the problems that affect us immediately, and the ones we recently had gradually fade away, albeit at an accelerated rate. If we look at what has happened throughout history, within five years there have always been temporary bumps along the way. Today’s problems affect the entire economy, just like a storm in the ocean creates rough seas. When we face a project, we will have to do it in the best possible conditions.

If we are going to take a long journey and cross the ocean, we had better do it in a good ship. The climate with which we are going to find ourselves is uncertain, the forecasts are very changeable and depend on many factors, the weather can be good or bad and the further we go in the weather, the more difficult it is to predict, but what does seem certain is that we will always be better off in a good ship than in a bad one.

The macroeconomy are exogenous factors. Companies have to adapt as quickly as possible to changes, and like everything in life, there are some businesses that are more capable than others. Companies that are leaders in their businesses start from a more favorable competitive position than those that live with difficulties in good times. Lasting competitive advantages, such as brands, customer loyalty or economies of scale, allow managing margins and cash flows to weather the storm and increase the difference with weaker competitors. In these businesses, the virtuous circle of value creation operates. If you start from a strong position, you are the benchmark in the sector, you are the one who sets the prices, the one with the best margins, cash flow and profits, these can be reinvested in the business with a higher return on capital employed than competitors and this reinvestment makes you continue to be the leader and the virtuous cycle is generated again. In short, businesses that are easy to understand, but very difficult to replicate, and there are many of these and, above all, they are listed, which allows us to be partners with the most successful businesses in the world. And what are those? Well, there are many, just look at our shopping basket, that is, buy what you buy.

Many times in investments we try to look for a quick and impressive return, and for that we pay a lot of attention to the macroeconomy and the news of today, when what will really mark our destiny is the news of tomorrow, ignoring the fact that as the saying goes Dress me slowly, I’m in a hurry. Emotions are the enemy of the investor and macroeconomics is a great generator of emotions, as I say, before going sailing, it is best to check the boat, look for the best possible one and then leave. If we are always looking at the weather, we will never go sailing.

Alberto Blasco, Ibercaja.

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