As growth slows and interest rates climb, management teams will command a greater weighting in investors’ due diligence processes as compared to the 2009-2022 period of ultra-low interest rates and Quantitative Easing (“QE”).
While it is too early to call peak inflation and far too early to talk about a Fed pivot, it is never too early to invest the time in identifying quality management teams, especially in the Technology sector where ultra-low interest rates and loose monetary policy have enabled valuations to soar over the past decade-plus regardless of performance for many Technology companies.
- Look for CEOs that have led through difficult periods whether those periods be the recent COVID shutdowns (abysmal policy), the 2008 financial crisis or some other company-specific or industry-specific challenge.
- The present inflationary period marked by higher prices and a strong dollar are likely here to stay for months if not years (we do not believe the CPI will see 2% again this decade and that the USD will remain strong for the foreseeable future given the broad weakness across western Europe and parts of Asia).
- Smart Technology CEOs are focusing efforts on customer retention in periods like this when visibility is relatively low.
- Smart Technology CEOs never stop investing in their companies’ core competency. Key Technology products and services are constantly being iterated upon, leveraging the customer feedback loop at every opportunity.
- Smart Technology CEOs are not afraid of investing in that which provides a competitive advantage – even during an economic downturn. Reduce expenditures in non-mission-critical areas to protect earnings, but don’t throw the baby out with the bath water.