Moving to their own beat: 2 great businesses at a discount

In his 1841 book, Extraordinary Popular Delusions and the Madness of Crowds, Scottish journalist Charles Mackay observed that 

“Whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”

Irrational exuberance seems to have gripped capital markets once again, with social media-led short squeezes and rapper-sponsored cryptocurrencies representing the Tulips and South Sea Company of our day. We don’t know when this current bout of risk-taking behaviour will end, but we do know that markets correct frequently, and sometimes violently.

For equity portfolios to survive and thrive in drawdowns, diversification and sources of non-correlated returns are key; indeed Ray Dalio has described achieving portfolio diversification via owning low correlation assets as the "Holy Grail" of investing. 

At Cooper Investors, we often describe this characteristic in our portfolios as owning different businesses that "move to their own beat." This means we focus on owning companies where a thesis of value creation can be realised, regardless of what is happening to broader markets.

Thankfully, for those so inclined, there are still opportunities to invest in great businesses at compelling valuations, and which have the potential to grow significantly while maintaining steady and resilient business models. Businesses whose underlying drivers should be relatively immune to economic cycles and the "madness of crowds". We invested in two such companies recently in our global funds.

 

Read the full article on Livewire here.