“I think it was Johnny Depp who said ‘the fastest car in the world is a rental car.’ Obviously, he didn’t own that car,” he says. “Because if you have something, you really care about how it’s taken care of, managed, and it’s getting value. has been or not.”
While a traditional value investor’s fundamental analysis will focus on financial metrics, Richardson suggests that issues that are extra-financial today may have material implications in the long run as they become recognized by market participants. This means that for the modern value-oriented investor, extra-financial factors that are negative should cause pause, while those that are positive – which Richardson refers to as contingent assets – act as drivers of future alpha. Might be worth counting in.
By definition, extra-financial factors are difficult to capture and find in the balance sheet, profit and loss statement, and cash flow statement. But a company’s culture, attitude to risk and opportunity, organizational health, and quality of innovation can, among other factors, make up the difference between a high-growth business that isn’t sustainable, and one that delivers reliable returns over the years. provides. To uncover these characteristics, Richardson and his team connect with companies they consider adding to their portfolios.
“In our experience, the nature of engagement was different depending on the industry. Different industries are sensitive to different issues,” he says. “But we haven’t come across any company yet that has more or less people or the planet. Doesn’t depend on the extent. And a lot of the conversation we’ve touched on is how business thinks about human capital and the natural world. ,
The focus on human capital, says Richardson, has only increased during the pandemic as issues of diversity, inclusion, workers compensation and health come to the fore. With the growing clamor for climate change action, discussions on environmental issues have also intensified; There may be less discussion about plastic use, recycling and water consumption, but they may also grow in importance and urgency as their impact on humanity becomes more intense.