Due to its consistent focus on the future, "old-fashioned" investing has stood the test of time.Download PDF version
We often introduce ourselves to prospective clients, friends and strangers as “good old-fashioned, long-term investors”. In an environment where returns are counted by the day, there is a tendency to equate this approach with being stuck in the past and out of touch with the future. Let’s challenge this perception.
Becoming historians is key to understanding company cultures. The tracks they have left, the speed at which they have travelled and the paths they have chosen gives away many clues as to how companies might navigate the future.
We are long term investors
In practice, this means our starting point in any investment journey is to peer at least ten years into the future. We sometimes have a clear idea of what this future should look like and sometimes we don’t. Where we do, we decide to pursue our enquiry further or we stop straight away. Companies that are poorly positioned from a sustainable development standpoint or show little will to evolve fall into the latter category. If a business and its direction of travel fits well with the sustainable development of the economies they operate in, we continue on our path of enquiry. This is still just the starting point of our journey, akin to the first few hundreds of thousands of years after the big bang. Matter as we know it is yet to be formed.
Finance literature is usually accompanied with a caveat emptor that past performance may not reflect future returns. To our simple minds, it is impossible to comprehend the future of anything without knowing its history. Physicists would be scratching their heads if they were asked to predict the future of our universe without any knowledge of its evolution until now. Companies are no different.
So what in the past are we looking for?
Histories of people, companies and economies
The backbone of our investment philosophy is to find owners and management teams with integrity, competence and humility. But why are people important? People create businesses, run them, and can destroy them. Most importantly, we believe that the best managers think ten years ahead and start shaping their business today in order to remain relevant. Any conversation around sustainable development with managers is meaningless if timeframes are ten months and not ten years. Unless we peer into their past we have no way of coming to any reliable conclusions about whether we are backing the right people.
The evidence that companies can address opportunities and risks down the road mostly lies in their culture. Becoming historians is key to understanding company cultures. The tracks they have left, the speed at which they have travelled and the paths they have chosen gives away many clues as to how companies might navigate the future. The best businesses thrive over decades because of these evolutionary dispositions in their culture. Similarly, our views on most topics don’t stand still. We take a Bayesian approach and update them when there is sufficient evidence and reason to do so.1
Sustainable development of economies is more than just a catchphrase. At the heart of it is imagining a future that will be underpinned by more equitable societies, less resource-intensive consumption and the benefits of development reaching everyone. Investing behind this future requires an understanding of what did not work in the past and why. A reading of economic histories and an awareness of cultural nuances is key to predicting the twists and turns in the developmental paths nations take. History also reminds us to pay attention to political systems and their checks and balances. These are risks we simply cannot ignore over the long term. Hence we favour companies that build themselves away from political patronage and thrive on their own merit.
Good old-fashioned – surviving the test of time
As investors looking for growth, our choice is primarily between quality businesses which can continuously evolve and the disruptors. In our view, the current investment climate heavily favours the latter, a feature of investment bubbles. We are happy to back the disruptors for whom profits today is a choice. And their postponement to the future is evidence of long-term thinking and strategy. However, we struggle with businesses where generating profits is outside of their control even if they are well-positioned for sustainable development. Not taking the risk to invest in such businesses is often construed as being old-fashioned. But this old-fashioned approach has worked for us and our clients over many cycles and through many investment bubbles. On the contrary, we should be questioned if we stray away from our tried and tested path.
Milkomeda is not a figment of my imagination. Scientists predict that our galaxy, the Milky Way, will collide and merge with its cosmic neighbor Andromeda roughly 4.5 billion years in the future2. Such predictions would not be possible without a precise understanding of the evolution of these galaxies, their surroundings and literally, their pace and direction of travel. Similarly, our portfolios are designed to contribute to, and benefit from, a sustainable future helped by a sound analysis of the history of people, companies and economies. “Good old-fashioned” has survived the test of time because it always had its eyes firmly set on the future. And the past has served it as a remarkable place of reference and learning.
Perhaps, the caveat emptor should read “Ignoring the past can be risky for future returns”.
View our list of investment terms to help you understand the terminology within this document.
Subscribe to our updates
To get regular updates and content from Stewart Investors, please register here.
This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should conduct your own due diligence and consider your individual investment needs, objectives and financial situation and read the relevant offering documents for details including the risk factors disclosure. Any person who acts upon, or changes their investment position in reliance on, the information contained in these materials does so entirely at their own risk.
We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication but the information contained in the material may be subject to change thereafter without notice. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material.
To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.
Past performance is not indicative of future performance. All investment involves risks and the value of investments and the income from them may go down as well as up and you may not get back your original investment. Actual outcomes or results may differ materially from those discussed. Readers must not place undue reliance on forward-looking statements as there is no certainty that conditions current at the time of publication will continue.
References to specific securities (if any) are included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. Any securities referenced may or may not form part of the holdings of First Sentier Investors' portfolios at a certain point in time, and the holdings may change over time.
References to comparative benchmarks or indices (if any) are for illustrative and comparison purposes only, may not be available for direct investment, are unmanaged, assume reinvestment of income, and have limitations when used for comparison or other purposes because they may have volatility, credit, or other material characteristics (such as number and types of securities) that are different from the funds managed by First Sentier Investors.
Not all First Sentier Investors products are available in all jurisdictions.
This material is neither directed at nor intended to be accessed by persons resident in, or citizens of any country, or types or categories of individual where to allow such access would be unlawful or where it would require any registration, filing, application for any licence or approval or other steps to be taken by First Sentier Investors in order to comply with local laws or regulatory requirements in such country.
This material is intended for ‘professional clients’ (as defined by the UK Financial Conduct Authority, or under MiFID II), ‘wholesale clients’ (as defined under the Corporations Act 2001 (Cth) or Financial Markets Conduct Act 2013 (New Zealand) and ‘professional’ and ‘institutional’ investors as may be defined in the jurisdiction in which the material is received, including Hong Kong, Singapore, Japan and the United States, and should not be relied upon by or be passed to other persons.
The First Sentier Investors funds referenced in these materials are not registered for sale in the United States and this document is not an offer for sale of funds to US persons (as such term is used in Regulation S promulgated under the 1933 Act). Fund-specific information has been provided to illustrate First Sentier Investors’ expertise in the strategy. Differences between fund-specific constraints or fees and those of a similarly managed mandate would affect performance results.
About First Sentier Investors
References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG). Our investment team operates under the trading name of Stewart Investors which is part of the First Sentier Investors Group.
This material may not be copied or reproduced in whole or in part, and in any form or by any means circulated without the prior written consent of First Sentier Investors.
We communicate and conduct business through different legal entities in different locations. This material is communicated in:
- Australia and New Zealand by First Sentier Investors (Australia) IM Ltd, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)
- the European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI ref no. C182306; Registered office: 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; Company no. 629188).
- Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First Sentier Investors and Stewart Investors are business names of First Sentier Investors (Hong Kong) Limited.
- Singapore by First Sentier Investors (Singapore) (Company no. 196900420D) and this advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B) and Stewart Investors (registration number 53310114W) are business divisions of First Sentier Investors (Singapore).
- Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611).
- the United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (FCA ref no. 143359; Registered office: Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB; Company no. 2294743).
- the United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167).
- other jurisdictions, where this document may lawfully be issued, by First Sentier Investors International IM Limited, authorised and regulated in the UK by the Financial Conduct Authority (FCA ref no. 122512; Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB; Company no. SC079063).
To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.
© First Sentier Investors Group