How do investors sustain an edge within investing in a rapidly changing world?
Justin Maloney, co-manager of the award-winning Melville Douglas Global Equity Fund, replies:
IN a nutshell, one should seek to capture the power of compound returns by buying and holding some of the world’s most sustainably profitable companies.
The investment approach must be active as ‘an investor cannot simply buy and forget’. Competitive advantages are rarely permanent.
Testing the strength of a company’s defences is an ongoing task. At Melville Douglas, we find some of the more sustained competitive advantages can be built around factors such as value-adding brands and high switching costs.
Brands should not just be well known, they must add value. A great example is the cosmetics industry, where premium skincare products are purchased by customers that perceive these items as essential.
Another way that brands can add value is through lower search costs. For example, many people buy online through Amazon without bothering to check prices elsewhere. This is because trust is more important online than offline.
By contrast, some competitive edges are fleeting. A low-cost oilfield can only generate attractive profits over a finite time.
Only a small group of businesses sustainably defy competitive gravity and enjoy years of high profits and shareholder wealth creation. Once unearthed, these gems should remain prized holdings in any investor’s portfolio.
Melville Douglas is a registered business name of Standard Bank Jersey Limited which is regulated by the Jersey Financial Services Commission and is a member of the London Stock Exchange. Standard Bank Jersey Limited is regulated by the Jersey Financial Services Commission. Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ. Registered in Jersey No 12999.
