In April 1981, the singer and actress Barbara Mandrell released an album which included a song entitled, “I Was Country When Country Wasn’t Cool”. Over time this became her signature song. With apologies to Barbara, we currently find ourselves in a similar situation investment wise. At Stacey Muirhead, “We Are Global When Global Isn’t Cool!”
The main emphasis of our investment approach has always been searching the world for businesses that possess outstanding business economics that are run by honest and capable management and which are available at attractive prices. Put simply we describe this notion as “Great Business, Great People, Great Price”. We very much agree with the thoughts of the late Sir John Templeton, the legendary global value investor, who often remarked, “If you search worldwide, you will find more bargains and better bargains than by studying only one nation”
Over the last decade, such a global approach faced gale force headwinds relative to staying comfortably ensconced within the confines of Canada. For the ten years ended in June, the S&P /TSX Index compounded at 8% per annum while the S&P 500 Index and the MSCI World Index both delivered negative returns over the same period. This represents an extreme divergence by any historical standard! The reasons for this are well documented with virtually all commodities, which Canada has in abundance, advancing sharply in price over the past decade. Oil, copper, nickel, gold and silver all advanced anywhere from 350% to 850% over the period with the price gains turning exponential since the market correction in 2008. Additionally, the Canadian dollar has been exceptionally strong advancing from about 66 cents ten years ago to well over par today against the US greenback.
Will this trend continue? My crystal ball is no better than yours but the history of financial markets is one which demonstrates that reversion to the mean is a powerful concept that plays out time and time again. A further related observation is that such reversions often occur when the popularity for a particular investment sector or country is at its highest and the rationale for making such investments seems most obvious. At the height of the technology bubble a decade ago, it seemed so obvious to most investors that we were living in a new world where the traditional tools of business appraisal or investment valuation didn’t apply to technology or internet companies. If you questioned either the business rationale or the investment valuation, you were either scoffed at or labelled a dinosaur! Even Warren Buffett was dubbed “Yesterday’s Man” for not showing up at the internet party. Of course, we do know that the party ended badly for most investors back then.
Will the current commodity boom end badly for investors? Candidly, I don’t know. What I do know is that I am excited about the prospects for well run, high quality global companies after a decade of neglect by investors. At Stacey Muirhead, we have patiently accumulated a number of the world’s best businesses at very attractive prices over the last several years. Companies like Nestlé, Reckitt Benckiser, Nike, Microsoft, and Schindler, to name a few of our holdings, make and sell products that people all over the world need and will buy year after year whether or not the prices for commodities continue to increase or not. These companies are all extremely profitable and capable of growing for a long time. They are also exceptional bargains. As Barbara Mandrell sings in her signature song (sort of):
“They call us country bumpkins
For stickin’ to our roots……..
I still act an’ look the same
What you see ain’t nothin’ new
Cause I was global when global wasn’t cool”
Global value investing isn’t cool right now. As Canadian hockey legend Wayne Gretzky likes to say, “Skate to where the puck is going to be, not where it has been” That sounds like a case for going global to me.
“Above the Fray” is a regular blog written by Jeffrey Stacey, Chairman and CEO of Stacey Muirhead Capital Management Ltd., which discusses items of interest related to investing, finance and business. This is not a solicitation.
