“We are not ready for the next epidemic,” Bill Gates told the world in 2015. In his now legendary TED talk, the founder of Microsoft, turned global philanthropist, argued: “If anything kills over 10 million people in the next few decades, it is most likely to be a highly infectious virus, not a war.”
Gates went on to stress we ought to prepare by stepping-up research and development into areas such as vaccine and diagnostics. He added we needed to get going “now” – in 2015 – because “time is not on our side”.
As professional investors, our primary role is to protect our clients’ savings. Unlike Gates, who does seem to be able to predict the future, we cannot tell you what risks will present themselves in the years ahead. We can, however, be rigorous in making sure the companies we invest in today are in excellent financial shape and have core businesses strong enough to survive the tough times.
Aim to be ‘boring’
This means investors should avoid companies with large debt, pension and lease liabilities – aiming to be ‘boring’ in saying ‘no’ to the next big ideas that have yet to be proven and favour companies that have been established for many years already.
Gates’s baby, Microsoft, is an excellent example of just such a business. We have been shareholders in Microsoft for many years and have been adding to our investment during the recent market weakness. Microsoft does not just have a strong balance sheet – it has a very strong balance sheet.
At the time of writing, Microsoft has a cash position of $134bn, compared with $70bn of debt – in other words, Microsoft could pay off all of its debt and still have $64bn to keep it going if earnings went to zero this year (which we do not believe will happen).
Working from home
Furthermore, Microsoft’s products, such as Office, Windows and cloud service Azure, seem to be even more in need than ever now we are all working from home. Even in recent weeks, Microsoft has announced a number of enhancements to its Microsoft Teams service – something that is seeing a spike in demand, given the need for a step-up in remote connections.
We do not know when the outlook for Covid-19 will begin to brighten but we can tell you we are confident the companies we have invested in should be prepared for difficult times and that they are well placed to survive and hopefully come out the other side all the stronger for it.
We will also be listening carefully the next time Gates takes to the TED stage…
Rory Campbell-Lamerton is co-manager of the Church House UK Equity Growth Fund
