The Importance of Thematic Investing
One of the most important lessons I have learnt in more than a decade in markets is that successful investors always have a long term horizon. Every investor will get things wrong at some point in the cycle. It’s a part of life, we can’t always be perfect or correct. But two things get investors out of trouble – quality and time. Investing in quality assets over a long period of time has proven to be an excellent method of creating wealth over the past few centuries.
Take some practical examples. Online publication The Real Deal published an interesting note on 15 May 2015 about Don Bren, regarded as being one of the most successful real estate investors in the United States. The California-based investor who is the majority owner of Manhattan’s MetLife Building, is worth $15.2 billion, making him the richest real estate investor in the country, according to Forbes. His firm, Irvine Co., owns 500 office properties, 50,000 apartments and more than 40 shopping centres.
Bren is the perfect example of an investor who saw opportunity in the market collapse of the 1970s to purchase quality, long term assets. By 1977, Bren and his investment partners started buying shares of the Irvine Co., a former cattle ranch-turned developer active in Orange County. Bren started with a 35 percent stake, and armed with a $560 million loan, spent the next few years buying out his partners to become the absolute owner of the firm by 1996. Along the way, he had to force out the great-granddaughter of Irvine Co.’s founder, James Irvine, according to Bisnow.
Taking a stance
When Bren purchased Irvine shares in 1977, sentiment in the property space was at rock bottom. Many apartments in Manhattan were being given away because of their monthly maintenance costs. Today, some of those exact investments have grown by 1000x. Bren was a thematic investor – he had a conviction on long term trends, population growth and the credit cycle – brave enough to follow his instincts in taking over the Irvine Co. at a time when share prices were low.
Bren is just one example of a successful thematic investors. There are many others who have created a lot of wealth through long-term thinking and backing quality names. There are also countless investors who have lost money on broad investment themes that didn’t work out. We all know companies who have promised the world in biotechnology, online, mining or energy and have destroyed huge amounts of value for shareholders.
Diversification is the key
So investing over the long term on a broad theme isn’t enough. Investors need to ensure that their investments have diversity. Some themes work out, others don’t. The world we live in is fragile, Mother Nature adapts to change. Black Swans occur (google this term if you haven’t heard it before in the context of investing). Having a diversified basket of exposures is what helps get investors out of trouble in the long term and gives them the ability to have a long term horizon, which is important to successful thematic investing.
Invast PortfolioInvestor Platform
We’re very proud at Invast to have launched a dedicated platform to thematic investing. It currently has around 30 investment themes which investors can chose from. Each of these themes is carefully considered, measured, analysed by our investment committee and diversified enough to ensure that one single stock cannot have a large impact to the overall performance. A portfolio of themes further ensures that single stock exposure is minimised. We take the Don Bren vision of investing and add a new layer of technology to ensure that individual investors can take advantage of large investment changes. Bren was fortunate enough to have a $500m loan to purchase Irvine Co. Many people don’t have that luxury, but technology helps us bring the concept of thematic investing and diversification to the individual investor market.
Exclusive Chinese Market Insights
A kindly reminder that I will be in Guangzhou during September, meeting some of the most prominent Chinese investors and investment firms. China’s impact on the global economy is huge and we want to get a feel for how investor sentiment is tracking. We taking this into consideration when building our themes. We don’t just sit in tall buildings and make assumptions on spreadsheets. We travel the world to bring the very best insights to our clients.
During my time in China, I will be writing several exclusive blog posts for Invast clients. If you want these insights, make sure you sign up to the full range of research that Invast clients enjoy. This blog post is just a small part of the full research range.
The Australian banks look like they are in the foothills of a major reversal. What does this mean for your portfolio? I will be presenting on the Australian Banks this month, make sure you get in early and register for the upcoming webinar by clicking here.
These are our initial impressions only, for further details please do not hesitate to get in touch with the Invast team.
Chief Market Analyst at Invast Financial Services