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It is all about having a good product

  • Investment Manager
  • Blog post submitted on 17th May 2016
Mvblog

I have been struggling over the past few days to try and come up with a theme for this week’s article. Shall I write about the markets and current developments? Or perhaps continue with the string of educational articles (there’s more of them coming)? Having spent last week on a family vacation in the Swiss Alps, I felt the urge and need to jot down some of my experiences.

I had never been to Switzerland before, nor am I any jetsetter – far from it. But hands down I can easily say that Switzerland is up there with one of the most beautiful countries in the world, both aesthetically as well as in terms of quality of life (and air for that matter) and the level of excellence at which companies and individuals alike strive to achieve in their day to day lives an operations is second to none.

It is all about having a good product. I have no connections whatsoever with the country, but I honestly believe that Switzerland has a lot to offer. There’s no need to mention the high-end watches, mouth-watering chocolates, cheeses as well as the financial industry – we all know about those. But when seen as a whole, it is really impressive, that a country with an 8 million population has managed to remain self-sufficient all these years, without much dependency on the EU.

True, Switzerland can be considered to be an expensive country to visit (a Margherita pizza costs, on average, €22) and the cost of living is sky high. However, the quality of life, the quality of their produce, their level of efficiency, and other things we take for granted such as cleanliness, quality of roads, and punctuality of public transport all makes Switzerland a cut above the rest.

And this is something to look out for when investing in a company, be it either a bond or equity.

Cash Flows, earnings and earnings growth, margins, sector outlook, leverage, liquidity, credit quality.

These are a number of key metrics and numerical data which asset managers closely scrutinise when analysing the balance sheet and financial data of a company in order to determine whether the analysed underlying country / company is (1) financially sane and (2) whether the expected returns on such investment are satisfactory. Apart from getting familiar with the financial data of a company and after carrying out the necessary number crunching exercises, it is imperative for an investor to become accustomed with the products (or services) which the underlying company produces or offers, to get to know the company in greater, and how the industry in which it operates is performing.

Having a great product is one of the keys to a company’s success. That’s the starting point. It is easier to reach the top than actually managing to remain at the top. And that is what Switzerland has managed to achieve over the years, which requires vision, planning, management as well a sound control of finances whilst ensuring that the receipt of revenues is disciplined. These are key attributions which we asset managers have to look out for when analysing companies – apart from looking at the balance sheet, we also give a great deal of importance to management style and management’s ability to adapt to ongoing challenges in attempts to keep companies profitable, liquid and most importantly sustainable in the longer term.

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