Secular versus Cyclical Trends

One of the biggest challenges facing value managers today is identifying industries that are in cyclical not secular decline.

The retail and coal sectors act as cautionary tales that mean reversion is not assured. Low multiples in a vacuum can dangerously mislead investors. We incorporate many secular trends into our investment thinking, including themes related to AI, automated vehicles, cybersecurity, e-commerce and aging in developed countries.

We believe the single most disruptive secular trend to the global capital markets over the next 20 years is our transition to a low carbon economy. We are loathe to use Silicon Valley’s most overused word, disruption, but in this case it is appropriate.

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