In 2015 Bill Gates told the world that “we are not ready for the next epidemic” - the coronavirus pandemic has shown he was spot on.
In his now legendary TED talk, the founder of Microsoft now turned global philanthropist argued that “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 that we needed to prepare by stepping-up research and development into areas such as vaccine and diagnostics. He said that we needed to get going now (2015) because “time [was] not on our side”.
As investors, our primary role is to protect our clients’ savings. Unlike Bill Gates (who seems 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 that the companies that we invest in today are in excellent financial shape and have core businesses strong enough to survive the tough times. This means that we avoid companies with large debt, pension and lease liabilities; we are “boring” in saying no to the next big ideas that have yet to be proven and we 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.
Microsoft has a cash position of $134 billion compared to $70 billion of debt, i.e. Microsoft could pay off all of its debt and still have $64 billion to keep them going if earnings went to zero this year (we don’t think that this will happen). Furthermore, Microsoft’s products, such as Office, Windows and Azure (cloud), seem to be even more in need than ever now that we are all working from home. Only today, Microsoft announced a number of enhancements to their 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 that we are confident that the companies that 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 more the stronger for it. We will also be listening carefully the next time that Bill Gates takes to the TED stage…