Counter Cyclical Policy is all the Rage

Let’s be honest with ourselves, and I’m a big proponent of being honest with myself (albeit a self-professed hypocrite too), everything can’t have counter cyclical policy. It defies logic; it’s just not possible. So, it’s curious that every company I talk to now says that their product or service is counter cyclical.

I wrote in an early post that truly counter cyclical industries typically make poor investments for private equity firms. They are often low growth, driven by commodity prices, or simply too risky. Sure, this isn’t a coverall, but I’ve found it’s a safe bet in most cases. So where are we left?

We simply have to stick to fundamentals. Times are a changin’, but there’s no need for traditional investment philosophies to change. Businesses that have relatively stable and resilient earnings are always revered and this shouldn’t be anything new. We can’t be sucked into making arguments to fit the available opportunities; we need to be vigilant, discerning and objective… like always.

Anyway, the point of this post is it’s up to you to work out which businesses are resilient and which aren’t, because business owners will happily tell you why their offering adheres to a counter cyclical policy regardless of reality. And the problem is that their arguments will often make a lot of sense, but the key is to be objective and remember you have a world of opportunities to choose from (ok, maybe that’s not quite the case). Let’s just remember to be objective (this is just as much a note to me as it is to others).

Counter Cyclical Policy is all the Rage