November 2023 / VIDEO
Our response to a changing world
David Eiswert explains how he’s still focused on finding companies with improving returns
Recorded 27 September 2023.
Look, I want to own businesses that have improving returns. Like when I talk to my analysts, I say, look, it's really simple what we do. We want to buy quality companies where we have insights about improving returns and we don't pay too much. So go find me insights about improving returns. And they say, does it matter what industry it's in? I'm like, it doesn't matter what industry it's in.
It can be an energy company, it can be a biotech, it can be a pharma, it can be a bank, it can be a tech company, right. We're not we're not interested in changing our stripes, insights about improving returns. But we can recognise that the world is different, the game is different, right?
The rules. Someone described investing to me once. It’s like a game of tennis where the rules suddenly change, right. So you go to play tennis and all of a sudden, the court gets wider or gets deeper or, you know, and so the rules are suddenly changing. And really the secret is fastest learner wins, right? The one who figures out how the rules change wins first, right. And really the secret is fastest learner wins, right? The one who figures out how the rules change wins first, right.
So what we're trying to do now is be a fast learner, right, and say, OK, this environment's changing. There's a, there's a high likelihood that inflation is stickier than people think. There's a low likelihood of a credit event, right, because nobody has any debt that's coming due anytime soon.
There's no, I mean, again, look, the mortgage rate in the US is almost 8%. House prices are going up every month and you know what? Nobody wants to build a house because the cost of capital is so high, right? So you actually have a supply shortage of housing in the US.
So actually if you own a house, your assets are going up in price as rates go up, doesn't make any sense, right? So that's this idea that there's a different equilibrium for us. We're going to go around and look at the companies that are going to experience improving returns.
And so I send the analysts out and I, you know every analyst that works for T. Rowe [Price] all around the world, when they interact with me or my team, we say what's your insights and send us your model, what's your insights and send us your model? That's all we do.
My insight is industry structure has changed. My insight is this, whatever, this price is going up, my insight is there's a new product. My insight is this government's doing something. My insight is yield curve control, right? So that doesn't change. And so we do that same thing over and over again.
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