Time to forecast?
It’s that time of the year when many pundits provide an opinion on what they forecast for the year ahead. Some even go so far as to predict what the exchange rates or market indices will be as at the end of the year. A good way to check out how good these forecasters are is to look at their previous forecasts and check how well their predictions panned out. Inevitably, these forecasts are more wrong than right.
If 2016 has thought us anything, then it is that we are poor at forecasting and predicting outcomes. There are far too many variables, including behaviours and emotions that influence what happens in the social, political and economic environments and they all influence each other as well. Thus, to be able to predict outcomes with high levels of certainty is an impossible task.
At Lunar Capital, even though we make decisions about the future, we do not forecast or predict what the future will bring. We analyse the current landscape, try and understand the risks in the market (expecting also that there may be risks unbeknown to us) and make investment decisions based on this assessment. Typically it means that we do not invest on the basis of a single outcome. Similarly, we have a longer term horizon in our investment decisions.
In a previous blog, Growth at a Fair Price, we outlined how we make investment decisions. In this blog, we will use this methodology to re-assess our decisions.
Reviewing our Investment Themes
At the outset, it is important to note that we are primarily a South African based fund. Our mandate limits us to have a maximum of 25% in offshore assets. In the offshore portion of our fund, we have a bias towards technology and pharmaceutical/biotechnology businesses.
In the table below, we relook at the key investment themes we identified when we launched our fund last year. We assess whether the investment theme is still valid or not and what are the possible investments we could make to take advantage of that theme.