Cyclical Compounders and Market Opportunities

During their recent episode, Taylor, Carlisle, and Gwen Hofmeyr discussed Cyclical Compounders and Market Opportunities. Here’s an excerpt from the episode:

Gwen: So, I really love cyclical compounders, just because in the course of business, you’re just going to have these periods where there’s some broad uncertainty related that’s impacting their industry in a cyclical way and not a terminal way.

And so, there’s an opportunity for that company to get thrown out with the bathwater, because Wall Street sells what sells. And if something stops selling, they’ll stop selling it. So, whether that’s China or the UK, whether it’s an entire country or its entire industry, if it’s a reason why they could potentially lose client money, they’re going to sell the asset and they’re going to buy what their clients want.

And so, during the pandemic, the CEO comes out and he says, “Something that I think every investor in cyclicals wants a manager to say, which is the reason why we maintain the strong balance sheet that we do is, because in times of uncertainty, it represents a market share opportunity.” And right there, it’s like, “Okay. Well, that makes sense. You own 12 times or more your total annual compensation.”

It makes sense that you’re thinking long-term. But that kind of language is what I like to see. And at that point, he had been at the company for, I think, about 30 years, but in the executive role for about, I think, eight years by that point. So, a guy named Kevin Lyons-Tarr.

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