On How We Invest
It is never far from our mind that the shares we own have a company at the other end of them. This seems obvious, yet in our experience the most important things in investing are the most obvious (“Rule #1: Don’t lose money; rule #2: Don’t forget rule one.”). Yet it bears repeating -- every single one of the companies in the Elevation Capital Global Shares Fund portfolio are businesses with employees, premises, lunch breaks, janitors and everything else. We, on behalf of our investors, own a fractional interest in these companies. This perhaps escapes the mind of those who trade stocks faster than the speed of light; call us old fashioned -- but we like to own a portion of a company and let it do what it does best.
To paraphrase that great prophet, Warren Buffett, it wouldn’t matter to us if we didn’t have quotes from the stock market for days or months at a time -- for Spotify or Disney or any of the other companies we own shares in. We’re quite certain Disney is going to keep creating top quality entertainment and experiences, and that Spotify is going to be providing you with the music and podcasts you love, and your kids will be entertained by Roblox (we, too, entered the metaverse this year -- if you haven’t played Roblox, you’re missing out). It’s no different to owning shares in a privately owned business: we don’t need confirmation every day that people are still using Mastercard or Visa (two other Elevation Capital Global Shares Fund holdings). We feel incredibly confident that Visa and Mastercard will continue to be used for years to come. We sleep well, we hope our investors do too.
This is the long and short of how we select companies. It’s no different to if we owned the whole company (we would certainly love to own the whole of any of the companies the Fund holds shares in, but alas, we’re not as big as Berkshire Hathaway yet). If the company is well-run and has a substantial competitive advantage then the best indicator of its value is its annual and quarterly earnings, and further to that, its multi-year record. However, the stock market provides a wonderful mechanism for taking advantage of the mispricing that sometimes occurs. This is where we, your investment managers, come in. The more mispriced a stock is the more we like it -- it’s like the proverbial old lady who finds a previously unknown Van Gogh in her attic. The beauty of the stock market is that often those Van Goghs are right in front of you.
Quarterly earnings are a reasonable indicator of where a company is headed. On Wall Street they call this “earnings season” (think of it like duck hunting season, except this happy event happens four times a year). Well -- this earning’s season was a doozy. In the finance sector alone, total earnings were up an average of ~42%! Companies we own shares in also reported whopper earnings. Roblox’s quarterly “bookings” (its metric for revenue) was up +28% year on year, whereas Avid Technology’s subscription growth was up +56.4% YoY. Spotify’s number of subscribers was up +19% YoY -- 172 million people now pay Spotify a monthly fee for the pleasure of a virtually limitless audio library.
These earnings confirm our continued faith in these companies and their world-beating businesses; they also, we think, protect against the real costs of inflation -- recently US inflation was pegged at 6%, a level not seen since the early 1990s. The joy of owning businesses like Spotify is that they effortlessly incorporate inflation; their prices simply go up. The best sort of businesses to own in times of inflation are ones that factor in the change in price simply by default. In that regard, Visa and Mastercard are perhaps perfect inflationary businesses. Their business is, quite literally, taking a very small portion of the billions of transactions that occur per year. It wouldn’t matter to Visa and Mastercard if we suddenly started using salt as a currency, as it once was: they’d surely figure out a way to take a margin from it.
We also like companies which are predictable. There’s a lot to be said for Twinings English Breakfast Tea (a favourite here at the office): it isn’t spectacularly different and there are many more teas out there, but it is consistently predictable. The companies we own a fractional interest in are as steadfast as English Breakfast Tea -- Visa will continue to fuel payments the world over, Richemont will continue to make the world’s most beautiful and exquisite jewellery (if you are looking for a present for a loved one this year, look no further than Cartier) and Madison Square Garden (a recent addition) will continue to be the premiere entertainment venue provider in New York. The world has undergone some major changes in the last ten years (that ancient Chinese curse comes to mind -- “may you live in interesting times”) -- yet the basis of how we invest is unchanged. We’re still drinking copious amounts of tea, and we’re still investing in some of the best companies in the world
