“Low Interest rates do not need to change your investment parameters”
Friedrick Hayek, an Austrian-school economist, posited that when interest rates decline, businesses invest in projects with payouts far in the future. Investors and businessmen are willing to sacrifice the return of today for a payout tomorrow because the interest rate today is so low.
If interest rates are high, the opposite occurs. Investors demand returns today, which they can safely invest in the current high-interest rate environment.
We have been lucky enough to see this play out in real time over the last few years. Up until a couple of years ago, interest rates were near 0%, and fast-growing, unprofitable tech companies were all the rage. Everyone wanted the Amazon of tomorrow and did not care about the cash flows of today. Now we find ourselves in a higher interest rate environment and the focus is on profitability and cash flows.
We try to always look for the same investments no matter the environment. We want cash production. We want it to be regular. We want it to be at an attractive return versus our investment price. It does not matter to us if the FED has rates at 0% or 8% we are always looking for the same thing:
Companies we understand
Run by people we want to work with
Selling for a fair price