When we look back on the COVID period, sitting behind desks and wondering what the future would hold, there was initially much concern about how we would do our job. As bottom-up investors, we have always had a strong belief that “whites of their eyes” conversations with management teams as well as building a 360 degree view of operations through meetings with a wide range of stakeholders (from distributors, to ex-employees to customers) were critical to our buy-and-hold approach.
Whilst we probably appeared to be like caged animals at the zoo, treading back and forth in front of the glass, the fervour with which the world adapted to remote interactions and ability for technology to fill the gap was something that initially assuaged these concerns. Our conclusion at the time was that we were broadly fine – we still had management access (often more easily and at shorter notice than before); we could still arrange expert calls; even remote channel checks and household visits were possible via phone interview.
What has become clear, in the colourful streets of Mumbai, the traffic jams of Jakarta and the packed shopping district of Chengdu is that we missed out on unprompted insights from our time on the ground. Now that we are back into the routine of in-person conversations, we can see that our Zoom interactions were generally of a lower quality. In China, most notably, company management are far more taciturn in front of a computer screen than face-to-face – something we were reminded of by the richness of our experience on the road in China for a second time this year in June.
And we missed out on the sort of additional conviction that site visits can provide – for example, in the case of IndiaMart (see Insight here), the multiple ‘happy customer’ interactions which showed us that the platform really creates value for its subscribers, as well as the ability for us to put numbers behind this in terms of ROI for vendors shelling out for the service.
We likely missed out on other examples of such ‘foregone upsides’ when chained to our desks, as well as the opportunity to more proactively pre-empt those companies likely to disappoint in the very short-term, often due to the unique circumstances of the pandemic.
The recent travels of our teams in China, Indonesia, Brazil, Philippines and Vietnam have also given us renewed certainty in the importance of in-person travel for maintaining a healthy ideas pipeline. In-person management meetings and site visits for candidates which look strong on paper are a crucial component of building investment-level conviction. But in addition, what may initially feel like schedule-capping meetings, or impromptu conversations elsewhere on the trip, can generate ideas which would not have been available back home.
A strong pipeline, of course, generates not just additional opportunities for alpha generation, but also the sort of competition for capital which helps us to cast a critical eye over existing positions. With several highly productive recent trips under our belts, and helped by a prolonged period of emerging markets derating, we feel more positive about our pipeline than we have in some time, and expect numerous new ideas to trickle into our portfolios in the coming months, making them slightly longer lists of 30 or so stocks than we were accustomed to during the last two to three years when we primarily backed known quantities.
