The country of origin of a company is important because it provides the stability needed for safe and profitable investments. We only invest in companies based in the three countries with the most reliable economies and societies: Switzerland, United States and the Netherlands, we call them the SUN countries (Switzerland, United States, Netherlands). These are the only three economies in the world that combine a high level of trust with a high level of knowledge. By trust we mean that there is a strong moral code that allows strong companies to thrive. It also means low levels of corruption and a high degree of political stability. It is no coincidence that these three countries are among the few major economies in the world that have never failed to pay interest and repay government debt (the Netherlands once delayed interest payments when it was under French rule in 1812). These countries also have the highest pension reserves and generally score the highest in research into human development, happiness, gender equality and quality of education and degree of freedom.
There is only one exception in the portfolio and that is the French L'Oréal. However, Nestlé, a Swiss company, has an important stake in the company. It is therefore not surprising that L'Oréal has all the characteristics of a solid Swiss company: stable management, an excellent financial track record and a big lead on the competition.
Hoofbosch's goal is not to spread risks, but to avoid risks. This is central to our philosophy. To do that, we do our homework. We cannot predict the future. Instead, we can analyze possible future outcomes based on scenario planning, a subject on which Martien van Winden has published and about which he teaches. In the first place we look at the country where a company is located. Then we focus on the macroeconomic and political factors that can influence long-term performance. We study the company and its strategy and then map out possible scenarios that could occur as a result of the business strategy, performance and management. This is an intensive and continuous process that allows us to eliminate the risk of investing.
Beyond the long term
When we make an investment, our intention is not only to invest for the long term, but literally forever. Although we sometimes return and sell on a purchase, we never do so due to volatility. We share the conviction of master investor Warren Buffett who says: "The prices are of secondary importance, if you invest for eternity."
Typical reasons why we could sell a stock are changing our minds about the direction of a sector. For example, we abandoned financials in 2007 because we felt that the business model of financials was threatened by increasing pressure for transparency, strict regulation, low interest rates and companies such as Google and Apple entering the financial services market.
At Hoofbosch, we believe that investing is a mental phenomenon: investors must be mentally able to cope with stress. If the stock market crashes, don't panic: start buying solid stocks. We see no relationship between risk and volatility. On the contrary: when the prices of solid companies we have selected go down, we see this as a buying moment, because we have every confidence in our methodology.