Stock #11
Invisible optionality.
Traditional investing is getting harder. It's just that part of the cycle.
The blue chips of yesterday are the laggards of today. It's not only the difficult business environment globally – it's also what the market is prepared to pay for each $1 of earnings from companies with normal growth prospects – and that number is going down.
At least for the non-AI part of the market...
But no one forces you to take the price that Mr. Market gives you, that's completely up to you. Romantic theories about the market owing us a living and above-average returns end like most romance stories... in tears 😭
I have been talking about phenomena like Terry Smith (of Fundsmith) fame, and warned on their risks for some time. This August the firm felt the squeeze from its investors after years of underperformance, and pivoted to "momentum investing"...
I also warned on the rise of Quality Investing – a modern-day adaptation of Value Investing done badly.
Quality done badly is willing to pay any price for what it sees as quality.
With some people, you just can't win!
So, what does one do?
The mantra for the NED has been to focus on the business first, and make sure it has longevity and predictability. For this to be true – it must have a recognisable moat that will enable the business to continue to do well.
On top of this, the price has to make sense – which usually happens after a company-specific or sector-wide dislocation.
And lastly, it must pay a dividend.
The No-End Dividend Index
The average NED stock is up ~15%, not including dividends they have paid out since added to the index.
Stock 11/25
Today’s NED stock has been around for nearly a century, but it can still grow significantly from here.
Its balance sheet is running in deep net cash, giving the company optionality levers: invest in organic growth, pursue acquisitions, and opportunistically return capital to shareholders via buybacks.
But it's not only about growth – cash offers a margin of safety against even extremely adverse events.
