The cornerstone of our approach is to always invest in businesses, not in share prices. Equity represents a share of a company’s business. As a rule, if you can buy a share today at a price that is attractive in relation to the company’s future cash flows over the next 3–5 years, your investment will be lucrative.
Why do we believe in businesses?
“Corporate executives are constantly thinking about how to earn more money for the company and to shareholders. This is why we invest in businesses,” Hannes Kulvik says.
Another advantage of investing in companies is that we can analyze them: companies are real and their value can be analyzed, which is more than you can say for certain other asset classes.
“What is the value of gold? What determines it?” Kulvik asks.
Unlike gold and other precious metals, for example, business grows and pays dividends.
“A bar of gold does not grow or produce anything. It just is.”
The long-term returns of stocks have been higher than those of other asset classes
In the long run, stocks are also safer than fixed income investments because companies can adapt to changing circumstances. By raising prices, they can adjust to changes in the value of money and thereby protect themselves from inflation.
Conversely, fixed income investors usually only receive the nominal value of their investment at maturity.
Holding shares in high-quality businesses pays off, even during challenging times.
In fact, high-quality companies perform better, in relative terms, during difficult times in particular.
They can also take advantage of the situation and buy out their competitors at attractive valuations.
When Hannes Kulvik first established the Sifter Fund, he also considered fixed income investing and private equity investing and even made some investments in private equity instruments. However, investing in listed companies turned out to be the best way to access superior businesses and returns.
Listed companies have several advantages over private equity investments
There is a tremendous breadth of choice out there – 65,000 different choices in Sifter’s universe – and you can buy shares on any trading day.
Conversely, private equity investments can usually only be made during specific investment rounds or when one of a small group of investors decides to sell their investment.
This means that investing in stocks is flexible in many ways.
Investments in listed companies are also easier to sell than investments in non-listed companies.
Through the Sifter Fund, for instance, you can invest in 30 high-quality companies globally. You can subscribe and redeem fund units on every trading day. The Sifter Fund makes it as easy as possible to invest in high-quality businesses.
Investing in non-listed companies in the early stages of their life cycle involves entirely different kinds of risks than investing in companies that have already proved their revenue model works. Another advantage of listed companies is that it is easy to find audited financial figures to support analyses.
Companies are the backbone of the economy
“Everything stems from human curiosity and the idea of building a better future,” Hannes Kulvik says.
He highlights fifth generation mobile networks as an example.
“We can’t even predict what kinds of innovations 5G networks will enable,” Kulvik says. He goes on to give an example of the cumulative benefit of innovation:
Back in history, when there was only one telephone in the entire town, it was almost useless. When there were two telephones, you could use them to contact each other.
When telephones become more widespread, they gave rise to an entirely new method of communication, which enabled greater efficiency in other businesses as well as new innovation.
We can only guess how much efficiency 5G and other innovations will contribute in years to come.
Everything starts from growth and productivity
Business growth is driven by population growth and the growth of productivity. Productivity growth has historically occurred in surprising leaps. Why would this pattern not be repeated in the future?
And who will benefit? The companies that have the ability to take advantage of the new opportunities.
That is another reason why we believe in high-quality businesses.