Moats - a change from just talking about Evergrande

If you are anything like me – your news feed is littered with people who discovered Evergrande a few months ago and profess to be an expert at the intricacies of how things are unravelling there.

Personally, I found the various interviews with Michael Morrell a good way to appreciate how complicated the Chinese government is. As a former CIA operative in China, he explains that whilst Xi Jinping leads agendas; how provincial governments act on certain issues may differ from province to province. In short – most people, myself included, have no idea what support lays in store for Evergrande…

Back on to the article; what about Moats (or organic growth)

As an investor - the best thing you can hope for is that when demand for a product dies, a company can continue to re-invent itself. Below are a few examples of companies that do this well. These are not by any means companies which I recommend, however, more an example of good innovation

Microsoft - People DO actually use LinkedIn

Although everyone knows that Microsoft has its fingers in many pies, it is interesting how strongly Azure, gaming, LinkedIn and Office 365 have offset the falloff in their traditional products.

Novartis - Sleepy big pharma never runs off

As a general rule, I do not invest in anything related to pharmaceuticals. This is simply because I do not understand the regulatory framework or R&D budgets. That being said the bigger and more boring players (e.g. Novartis, Roche & Danaher) do have such a wide variety of services that even as they run-off, there is a suite of other things to backfill it.

Macquarie Bank - All of the profit is in "other"

Macquarie also has proven skilled at redeploying funds into new business lines (often without M&A). A recent example includes the sale of their UK metering business captured in “other”. It is worth noting that Macquarie employees capture a fair chunk of that upside.

Nestle – Replacing water with Petfood

This one seems less impressive, however, inside Nestle they have had several factors pushing/pulling their business such as a) Nespresso growth slowing b) pet ownership booming c) ESG concerns around their water business and d) push for healthier snack food. Although it is not a Microsoft growth story – it is impressive

Appreciating that the majority of these examples were overseas, I nonetheless, wanted to remind you of the importance of having a good pipeline of replacement opportunities when growth slows