Covid 19, Asian tastebuds and smart tech is driving the 'Supreme' growth in the pizza delivery giant says Insync

Domino's Pizza CEO Ritch Allison told CNBC that the Covid economic reopening has actually provided a boost for the company, helping fuel same-store sales growth during the second quarter.

Allison said that "while the pizza chain certainly benefited from a pandemic-related rise in takeout and delivery orders last year, the company also had to weather a loss of sales at key times such as weekends. Now, as health restrictions ease, that part of its business is returning"

"Think about late-night business. Think about the weekend business when people are gathering to watch a game or have a family event or something like that. That went away last year. It's coming back this year" added Allison, who has served as Domino's CEO since July 2018.

"I'd also like to highlight a few international markets that drove terrific growth during the quarter. China passed the 400-store milestone during Q2 and once again Dash, our master franchise partner delivered outstanding retail sales growth for the brand. China is without question one of the most exciting businesses in the Domino's system with significant long-term runway for growth."

The comments came after Domino's stock hit an all-time high Thursday and finished up 14.55% Thursday, as Wall Street cheered the company's better-than-expected quarterly results released before the bell.

John Lobb, Senior Portfolio Manager for Insync Funds Management noted "It's not just the convenience and value for money that is driving the outstanding growth in Domino's internationally, but their heavy investment in class leading technology across their network that results in incredibly efficient ordering, production and delivery. Domino's are showing that internal food delivery can be profitable rather than relying on more expensive and less reliable external modes such as Uber Eats and Deliveroo"

Insync Funds Management has been an investor in Domino's US since September 2019 as part of the "Food Away from Home" theme, along with 15 other Global Megatrends reshaping our world and driving long runways of growth in the most innovative, profitable and well-run enterprises. These Megatrends have delivered an outstanding 11 year track record for the boutique global manager domiciled here in Australia.

See Insync's background on Domino's :

At Magellan, we deliberately narrow our investment universe. There are large swathes of the market we never approve for investment. Sometimes this means we can miss out on returns as the bandwagon trumpets the latest must-have stock. But we're fine with that.

Why?

Many of you might have heard this one before - the phenomenon commonly referred to as creative destruction, a term first coined by Austrian-born economist Joseph Schumpeter in 1942. As he wrote in his book, Capitalism, Socialism & Democracy, the "gale" of creative destruction is presented as "the essential fact about capitalism" that incessantly "revolutionises the economic structure from within, incessantly destroying the old one, incessantly creating a new one".

In simple terms, this means innovation makes the old ways of doing things obsolete. At the start of the 20th century, the best example of this was the Ford motor car of 1908 rendering the best horse-and-buggy companies obsolete. Some accounts suggest there were more than 250 car makers in the US by the 1920s and the uptake of cars spurred new industries and success stories in retailing, tourism, oil, and industry. The Ford Model T was also eventually superseded by the technology developed by General Motors. In more recent times, we have seen steam turbines replaced with natural gas and oil and now solar, wind or renewable fuel farms. Closer to home, the television replaced radio and is now being dethroned by on-demand, individualised cloud-hosted entertainment.

Much like fashion or technology, where built-in obsolescence is key to maintaining interest, so too the music from that bandwagon, currently spruiking stock picks via internet memes, will also eventually fade.

The idea here is that economic growth is fuelled by creative destruction because as the latest innovations replace the old, significant upswings in productivity are achieved. It is also important to note that despite the excitement of new technologies such as electric vehicles, for example, the rewards of this progress do not necessarily reside with shareholders, but often with society, employees, and customers. This may ultimately hurt hopeful investors where singular success has been built into share prices as seen for a 'market darling' such as Tesla.

This matters because share markets aren't driven by the median stock or the average of all stocks, as many an index proprietor would have you believe. Winners generate all the market's performance when measured over appropriate long-term time frames. In fact, using the S&P 500 Index as a yardstick, 40% of stocks report negative returns over their lifetimes. About 66% of stocks underperform the index in which they are placed over their lifetimes. That is to say, winners drive markets.

While it is unsurprising that some businesses experience negative lifetime returns post inclusion in an index, it is the magnitude that is astonishing. While the facts presented above show that creative destruction has played out over many decades, there is evidence that this phenomenon is becoming more, rather than less, prevalent.

A recent study by McKinsey found that the average lifespan of companies listed on the S&P 500 has reduced to 18 years from 61 years in 1958. Furthermore, McKinsey forecasts that by 2027, 75% of the companies quoted today on the S&P 500 will have departed and that the average longevity of companies will reduce further to 12 years. Time will tell whether this dire prediction proves true.

When considering this issue of the high proportion of losers within any stock index, it is interesting to examine at a micro level what happens to companies and to understand why so many fail. US investment legend Charlie Munger famously referred to these natural changes in market composition as like human biology; much like creative destruction, new replaces old again and again.

"In biology, what happens is the individuals all die, and eventually, so do all the species. Capitalism is almost as brutal as that," he said. "The one thing I will say is that a lot of the moats that looked impassable, people found a way to displace. Think of all the monopoly newspapers that used to be, in effect, part of the government of the United States. And they're all dying ... A lot of the old moats are going away, and, of course, people are creating new moats all the time. That's the nature of capitalism"

"You have the finest buggy whip factory and all of a sudden in comes this little horseless carriage. And before too many years go by, your buggy whip business is dead. You either get into a different business or you're dead…It happens again and again and again."

Companies that fail are often the former titans, the household names. While many of these operated in competitive industries, some were businesses with such reach and dominance that their competitive advantages, or 'moats', seemed unsurmountable, and indeed the industries have often bustled on while these incumbents failed within them, failing to keep up with new competition.

General Motors, for instance, had the dominant dealer network across the US and had mass-production economies of scale but failed to compete with cheaper foreign cars and changing consumer preferences. US department-store chain Sears dominated mass-market retail and at its peak was larger than its next four competitors combined, conferring significant bargaining power against suppliers. This share was eaten away by the emergence of speciality retailers and Kmart and Walmart. Sears' blinkered view of Walmart was something founder Sam Walton was famously disdainful of.

IBM had a significant incumbency advantage in installed machines across its customers, but its success bred complexity and bureaucracy and a reliance on its mainframe business gravy train. The company invented the microprocessor in the 1970s but this innovation competed with its mainframes. It used Microsoft and Intel as suppliers rather than seeing them as rivals at a time when software was becoming the source of value. Indeed, IBM's support gave these companies legitimacy and early success. Likewise, Xerox didn't take the competition from Japanese rivals who undercut it with simpler and cheaper copiers seriously.

What Munger references and the famous examples above show are classic disruptive threats to strong incumbents. These threats can be multi-faceted, but include:

1. Innovation changing how things are done, such as streaming supplanting DVDs. Simply being a technology company or an innovative company, however, doesn't confer protection. Disruptive technologies are often replaced by new disruptions.
2. Changing consumer preferences such as the move away from sugar consumption or petrol-guzzling vehicles.
3. Competition: Many companies without competitive advantages can survive and thrive for some time, giving the market a false sense of underlying risk while 'times are good'. Strong results will naturally attract competition and erode these favourable economics. Even if there is a giant market to be won, does the value accrue to shareholders or customers? The amount of competition will determine this.
4. Changes in power balances from industry consolidation that can dramatically alter company fortunes.

Often the issue lies within companies. Management fails to be agile and innovative, wanting to protect their legacy businesses while encumbered by complacency and size (versus the default assumption of being advantaged by it). Alternatively, ignoring disruptive change or old-fashioned excess leverage over expansion or poor M&A decisions based on poor short-term incentive structures may be at fault - classic 'agency risk'. But sometimes the changes are beyond management control. These are typically assessed as business risks at Magellan and are often innate to the operations of the company. Outside threats can include:

1. Commodity prices: Shocks in oil prices, for example, have created boom-and-bust scenarios for the extractive industries and the tenuously capitalised companies within. Commodity-exploration companies are notoriously volatile long-term investments.
2. Regulatory changes: The loosening of credit standards for US government-sponsored home-lending enterprises Freddie Mac and Fannie Mae in the 1990s led to a dramatic upswing in subprime lending to more than 40% of their acquired loans by the 2000s from less than 10% in the prior decade. Though not the singular cause, this change precipitated the subprime crisis and then in 2008, the financial crisis with which we are all familiar.
3. Patents: Healthcare companies need to be disruptive to maintain their revenue bases as legacy drugs come off patent and are replaced by generics. Much more money needs to be spent on research and development these days because breakthroughs have become harder and costlier to achieve. To illustrate, only five to eight new formulas out of every 10,000 to 15,000 compounds reach clinical testing and of those typically only one will reach full commercialisation.
4. Geopolitical issues and trade policies: The Chinese Communist Party's subsidies to China's auto, steel and other industries increased competition and reduced prices for western competitors.
5. Fraud: Enron, Tyco and others are notable for this too-frequent cause of business failure.

Companies that are low quality or contain excessive business or agency risks will not qualify for our approved lists.

You could argue that companies that have grown to the point of being listed and making it into a major index are already winners. And you'd be right. However, while making it to the top certainly increases a company's chance of success, it doesn't mean it'll stay there.

Companies willing to disrupt themselves are more likely to have longevity, and on average the traditional 'defensives' of consumer staples and utilities also tend to last longer than the exciting ones. Recessions typically 'clean out' companies that were weaker than they might have appeared prior to the shock.

In recent times, low rates and a flood of available capital have no doubt aided entrepreneurship but have also enabled company longevity as it has allowed otherwise failing businesses to continue to operate with increased debt. It is estimated that 'zombie' companies, those generating cash flows less than their debt-servicing obligations, comprise 25% of the S&P 500 at present. These low-quality companies are relying on an ability to increase debt (no increase in risk aversion) and at continued low rates (which a rise in underlying inflation may preclude).

While excessive leverage has always been a source of business failure, this recent escalation does pose a more noticeable risk to markets in coming years.

Looking ahead, we can observe that many of our largest incumbents have not left 'disruption gaps'. Alphabet and Microsoft are investing their substantial annual cash flows into new technologies. Cloud enables low- and high-spec customers to be addressed by the same scalable platform that then precludes the cheap substitute risk. Facebook provides its service at no charge, supported by revenue from a long list of small-business advertisers.

Further, not all companies are at risk of disruption from competitive threats. Indeed, Procter & Gamble, one of the oldest companies in the S&P 500 and incorporated in 1890, shows resilience to disruptive threats today and is one of only 10 US companies that has paid a dividend for more than 120 consecutive years. Similarly, Louis Vuitton is a remarkable brand with longevity, in business since 1854.

Many large consumer brand companies continue to enjoy significant economies of scale and capital advantages and after slow starts have adapted rapidly to a digital world. Changes in consumer preferences in health and wellness, including plant-based foods, reduced sugar consumption and allergy management have seen these companies make substantial investments to ensure their offerings stay up to date.

That is to say, the companies that qualify for our investment universe are in our view addressing and, in many cases, benefiting from disruptive change. In future, it will be harder for upstarts like the Dollar Shave Club to displace Gillette as large incumbents harness their size to innovate and engage with customers via digital platforms.

However, the shift to e-commerce, the utilisation of the cloud and decarbonisation, among other shifts, highlight the threat of creative destruction for dominant businesses. As such, we must reassess the merits and quality of each business as the world changes and as our views around regulatory and geopolitical risks evolve. This cements our focus on taking a forward-looking view and intimately understanding industries and disruption as a threat to competitive advantage.

Of course, a quality business alone does not a quality investment make. These quality businesses must also be purchased at appropriate valuations, but as an important starting point, we don't take our approved list of stocks for granted at Magellan. Monitoring and understanding business risks and how industries and indeed our own lives will change in the years ahead is required to understand the ongoing eligibility of stocks and to avoid being exposed when the 'tide goes out' in markets.

It is an unfortunate, yet widely accepted maxim that good news doesn't sell newspapers. However, as we reflect on the end of another twelve months that leaves us wanting to see the word "unprecedented" banned from the dictionary, we find ourselves feeling optimistic. Household and corporate balance sheets are in great shape, helped along by international border closures. Australians spend $65b a year overseas, and that money is now trapped in our local economy. While we lose out on the $45b we typically bring in from tourists annually, these imported tourist dollars tend to find their way only into very targeted parts of the economy; such as, the travel, tourism, and hotel sectors. By contrast, trapped locals are spending widely across the economy and saving too: we're seeing it in record deposit levels for the banks, in booming retail spend, rebounding new car sales and record used car prices. It's becoming clear that international borders are likely to remain shut for a while yet, so we expect this strength to continue.

The economic backdrop is further supported by rising house and record iron ore prices. Put simply, the Australian economy is in the best shape it's been in years. Further, we've managed the pandemic better than other countries, yet the performance of our stock market has lagged, only recently exceeding pre-pandemic highs. As per below, in October our market was one of the worst-performing major markets, despite our economy being one of the most resilient in the world. We made the case six months ago that the Australian market looked like good value in a relative sense, and the subsequent 10% rally likely reflects that.

Source: MST Marquee

Risks to the outlook

1. Inflation

So where to now? The first potential fly in the ointment is always interest rates, given the price of money sets the price of every asset class globally. The main debate raging in markets right now is about inflation. With inflation numbers rebounding off last year's global economic decimation, the debate is over whether it is likely to be transitory (a one-off bump as supply chains normalise post-Covid) or structural (a multi-year demand unleashed and things get out of hand). We are certain that we will see an uptick in the near term in inflation; most of the companies we talk to are calling out pretty significant raw material and labour market inflation, and a desire to pass this through in terms of price increases. So it is definitely underway.

As for what happens after that - exact corollaries in history are impossible to find, but we see two possible precedents:

Is it an echo of the December quarter 2018, when the Fed was raising rates in response to a dramatic uptick in global input costs and associated inflation, only to reverse course (within a few months) as inflation faded due to the immediate demand destruction response? i.e. a short-lived blip?

OR

Is it an echo of the 1970s, when raw material spikes fed into a wage-price spiral that got out of hand for a decade?

Obviously if it is more like the latter scenario, every asset globally is overvalued. However, a few things lead us away from thinking scenario two is likely. Firstly, the 1970s was an era with a lot of directly inflation-indexed wages, which added to the feedback loops that saw raw materials spikes driving a wages/prices spiral. Secondly, debt is a very deflationary force, and the world has a lot more debt now than the 1970s. The increase in global debt levels increases the sensitivity of debt-holders (which include most homeowners) to increases in interest rates. So you get a demand response very quickly when you increase rates, which is what we saw in 2018.

In Australia, we see monetary policy settings stuck in emergency mode, when there is no (economic) emergency. Anyone who's attended an auction recently can tell you interest rates are too low. This will need to be addressed over the next few years; however, in our view, one or two rate rises would likely dampen demand enough to have the desired effect. We do not think we'll see cash rates heading back towards 3% (which would be very bad for equity markets).

So we lean towards thinking structural inflation is a tail risk for portfolios, rather than a base case. In all fairness, this has been the "consensus" view for the last six months, but we note a subtle shift is taking place, with more and more voices leaning towards scenario two. So we think the market is beginning to worry about a more extreme inflationary scenario, which could throw up opportunities.

2. China

The other tail-risk for markets is the worsening diplomatic relationship between Australia and China. We've avoided exposure to companies that generate the bulk of their revenue in the Chinese market. Where we remain vulnerable in our portfolio is through our position in resource companies such as BHP and Mineral Resources. We can't rule out trade disputes spilling into iron ore, however unlikely; mining participants warn us they believe China is willing to "shoot itself in the foot to hurt Australia". In order to mitigate this risk, we invest only in mining companies with diversified earnings (not solely iron ore), and rock solid balance sheets: Mineral Resources is net cash, and BHP should end this year with net debt of only 0.2x EBITDA.

Hitting the road: observations from our travels

We have availed ourselves of reopened state borders to get back out on the road again this year, with trips to Brisbane, the Gold Coast, Melbourne and WA. These trips left us feeling enthused about the high-end, quality operations and the level of innovation being undertaken across the country. In April we travelled to Ormeau, Gold Coast to meet with Kees Weel, CEO and founder of our portfolio holding, PWR Holdings. PWR make radiators and cooling systems for motorsports (supplying every Formula 1 team), high-end original equipment manufacturers (e.g. Porsche, Aston Martin) and a number of exciting emerging applications such as electric vehicles and defence. We were blown away by the level of technical expertise and innovation in walking the factory floor, and it's always good to be hosted by a CEO who greets everyone in the factory by name. This is a true Australian success story; PWR's radiators are regarded as some of the best in the world, and PWR enjoys very healthy economics as a result (c30% EBIT margins, >40% return on invested capital).

In June we travelled to WA and met with a few mining companies. We were left feeling that the shift to a global clean energy system should create fantastic opportunities for Australia, which is rich in many of the mineral resources that are needed to facilitate this shift over the next 20 years. Further, geopolitical tensions could play in Australia's favour, with the desire for countries and OEMs to construct ex-China battery supply chains providing an opportunity for Australia to exploit its position as a low-cost supplier of critical battery materials such as lithium and nickel.

One particularly exciting opportunity is in lithium. In order to meet our Paris Agreement targets, the IEA estimates the world will require over 40x more lithium than was used in 2020, driven by a 25x increase in EV sales.

Source: IEA

Unlike other battery metals, whose demand profiles are greatly influenced by the way battery technology develops over the next few decades, lithium demand is relatively immune to the way battery chemistry ends up going.

On the supply side, the industry has just gone through its first proper boom/bust cycle. With lithium prices more than halving from their 2017 peak, many new projects were scrapped and mines put on care and maintenance. Now, with demand picking up, the industry looks set for a supply deficit emerging as early as next year. As such, we would expect further price rises.

Source: Credit Suisse

This is good news for two portfolio holdings: Mineral Resources, which operates Mt Marion and (currently mothballed) Wodgina mines, and Wesfarmers, which recently acquired Kidman Resources and is developing a lithium hydroxide plant in Kwinana, WA. For Mineral Resources, we think their lithium business has the potential to be worth >$3b, well in excess of the current c$1.2b we believe the market is valuing it at today, or $10 a share on today's $50-odd share price.

Overall, we feel the future is bright for a number of Aussie industries and businesses, and we remain happy co-investors along the way.

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Within the last 12 months the market narrative has switched from fears of deflation to concerns of inflation.

This narrative is often coupled with the forecast that "value" is likely to outperform "growth". In this article, I discuss why, rather than focusing on economic predictions, or market themes such as value or growth, we prefer to focus our efforts on a concentrated portfolio of 10-15 high quality companies whose earnings are likely to be materially higher in 5-10 years and whose current price should allow the fund to meet its long-term return objectives of returning 8-12 per cent per annum (p.a) ― regardless of what economic outcome prevails.

Let's start with the inflation/deflation question.

Those arguing that inflation is on the way like to point to the following factors - a rapidly growing money supply, artificially low interest rates, growing budget deficits, wage pressures and rising commodity prices. It makes for a pretty convincing argument.

However, when I talk to the deflationists, they like to point to ageing demographics, record debt levels and the ever-present deflationary forces coming from technology. They also note that after the global financial crisis (GFC) the same narrative that quantitative easing (QE) and high commodity prices would lead to inflation, has so far been wrong.

Those arguing for inflation will point to the Austrian economists and the experience of the 1970s, while the deflationists will point to Japan and more recently the period following the GFC.

To be honest, I find both camps make reasonable arguments. This is why, when asked by clients, my answer is quite simply "I don't know". Experience over many years has taught me that things the "experts" tell us are "obvious", often don't come to pass.

Below I list some "obvious" events that never came to be.

One. In the late 1980s it was "obvious" Japan would come to dominate the global economy, just before they entered a 30-year period of relative economic decline.

Two. The stock market crash of 1987 that would usher in what some people thought was a new "Great Depression". In reality, share indices were up in that year and the economy did not experience a recession for another three years.

Three. The GFC that would lead to a new "Great Depression" and a lost decade. In reality, the US achieved record low unemployment of 3.5 per cent in 2019 and the stock market is up over six times from its 2008 lows.

Four. The exit of Greece from the Eurozone and the impending collapse of the Euro in 2012.

Five. The collapse in oil prices by over 60 per cent in 2014, when "experts", including the Federal Reserve, said oil would remain above $100 per barrel indefinitely.

Six. Less than one third of the "expert" pollsters actually predicted Brexit.

Seven. Only two major polls predicted that Trump would win the US Presidential Election in 2016 and ― even if you got that forecast right ― who then predicted that the market would rise by 14 per cent p.a. during his Presidency? As an aside, I also remember the narrative ― very similar to now ― that Trump would spend large amounts on infrastructure and reduce the market dominance enjoyed by the large technology companies. This actually provided a very nice buying opportunity for large cap technology.

Eight. In 2008 I did not see one single economic forecast that suggested in 2021 we would have negative yielding bonds, double-digit budget deficits and people talking about modern monetary theory (MMT).

Nine. The "experts" at the Treasury who forecast that COVID-19 would see the Australian economy shrink by 20 per cent, only to see output at a new record high in Q1.

The legendary Ben Graham was not one for economic or market forecasts:

"I have never specialised in economic forecasting or market forecasting either. My own business has largely been based on the principle that if you can make your results independent of any views as to the future, you are that much better off."

Like Ben Graham, our investment process is totally devoid of any economic or market forecasts. You will not see our daily investment meetings start with an analysis of the latest musings from the Federal Reserve or the latest production numbers from China. It is not to say we don't read newspapers and have our own personal views, but we deliberately exclude projections about the economy, markets, themes or sector "bets".

Focus on quality companies

We control our overall risk through the quality of our portfolio companies. Rather than forecasting economics or markets, we simply prefer to focus on earnings power, balance sheet strength and sustainable competitive advantage.

To look forward, we always start by looking backwards, and our first point-of-call is to analyse how our businesses have fared in tough times - the GFC usually provides an excellent case study. Not one of our companies got into any form of financial difficulty, was forced to cut its dividend, or raise emergency capital.

Over the last decade, the average earnings growth of the companies in the portfolio has been 12 per cent p.a. and across the portfolio, the weighted debt/EBITDA is 0.5x.

As to sustainable competitive advantage, the operating margin across our portfolio is 25 per cent ― nearly two times the average US-listed business, and the average age of companies in the portfolio is over 80 years, with the oldest dating back to 1866. This does suggest some form of sustainable competitive advantage and resilience!

As a result, this financial resilience and earnings power allows us to be confident that our companies are well placed to weather the inevitable adverse economic events when they occur. Knowing this, we are free to spend our time looking for companies with long-term sustainable competitive advantage and earnings power, rather than trying to forecast how economies and markets will affect the short-term cyclical prospects of what we own.

Growth versus value

And as for all the talk about buying traditional, beaten down "value" stocks? For argument's sake, let's assume the "experts" crystal ball is in good order ― should we switch from "growth to value"? What does this actually mean in practice?

Well, first of all, we would be forced to sell a portfolio of competitively advantaged businesses (and pay a lot of tax and brokerage) to put together a portfolio that had exposure to banks, oils and other more cyclical businesses. This collection of businesses would have lower margins, higher balance sheet leverage and reduced long-term earnings power.

An alphabetical perspective

To take it one step further, let's assume you owned all of Alphabet (the parent company of Google) - would you really be happy to sell a business currently growing revenue at over 20 per cent, with over 90 per cent market share, a rapidly growing Cloud business and net cash of $120 billion?

Would you really be happy to buy a collection of European banks, where instead of net cash, your equity is leveraged 10+ times; you have limited visibility of the loan or derivatives books and decreasing confidence in times of stress; your profits are at the whim of Central Bank interest rate policy experiments; and where capital allocation is also determined by the same regulatory authorities, bearing in mind banks were required to suspend dividend payments by the European Central Bank during the COVID-19 pandemic.

Alternatively, would you really be happy to sell your dominant search engine monopoly to buy an oil business, whose profits are determined by a volatile commodity price input ― and in the long-term may potentially become extinct owing to new technology or inadequate reserve replacement. Any rational business owner would tell you this makes no sense at all!

To put this in terms most Australians can understand - this is like selling the Vaucluse mansion with harbour views to move to a remote suburb, as it's "better value" and could have better short-term relative performance.

Carrying on with the Google example. The company listed in 2004 at $85 a share and has since delivered a return of 22 per cent p.a. Over that period the Fed has met 136 times, which provides plenty of fodder for the economic and market prognosticators. How many of those "experts" predicted the GFC, the Euro crisis, Brexit, Trump becoming US President, COVID-19, negative yielding bonds, MMT etc?

It did not require a huge leap of faith to see the Google search business was clearly superior to any alternative, with an increasing economic moat, driven by an incredible network effect, informational advantages and capital resources to hire the best talent and maintain its technological dominance.

A long-term investor (as opposed to short-term speculator) would have generated a more predictable and healthier return by just buying what was clearly a great business and doing nothing. But no Doctor ever really achieved fame and fortune by recommending two aspirin and an early night!

In summary, we believe what makes sense as a business owner, makes sense as an investor. We try not to forecast hard-to-predict events ― and even more importantly we don't sell great companies that we know intimately, to buy mediocre ones based on economic or market forecasts that are quite likely to be wrong.

As Warren Buffett so aptly puts it:

"I am a better investor because I am a businessman and a better businessman because I am an investor. Time is the friend of the great business, the enemy of the mediocre."