Everyone wants to make a quick buck, but the idiosyncrasies of economic cycles and market conditions often make that a difficult task. There’s a lot of noise, but one thing in particular is weighing on investors’ minds right now: interest rates. They’re nervous about stubbornly high inflation data and undecided if the U.S. Federal Reserve will opt for a smaller interest rate hike or pause at next week’s Federal Open Market Committee meeting in the wake of Silicon Valley Bank’s collapse. But veteran investor Bob Desmond said he’s not “really thinking about that at all.” “We never have a short-term view on markets. We prefer to look at the estimated value of our current portfolio. At current prices, we believe there is a reasonable probability of earning our targeted 8% to 12% per annum return over the next five years,” he wrote in notes to CNBC on Tuesday. Desmond is head of Claremont Global and a portfolio manager at the firm, which has funds under management in excess of $1 billion. “I know it sounds boring, but we do try and look at where we think things will be in three to five years’ time. And so, we don’t move our discount rates everyday depending on how the 10-year bond is doing,” he added. A discount rate is the rate of return used to discount future cash flows back to their present value. It’s a metric commonly used in discounted cash flow analysis to inform investment decisions. Desmond said the firm applies a discount rate of 8% across its portfolio, which remains constant across the entirety of a financial cycle. “We try to get a minimum return above inflation for our clients. I think if you keep moving your discount rate around every day, your valuations get very, very sensitive and it can really just whipsaw you. So, we try and look through the cycle as it were,” he said. Stick to the ‘Steady Eddies’ Desmond characterizes the firm’s investment approach as “a bit boring.” “We have always stuck to the Steady Eddies and the durability of the big technology companies. We only have a 10-to-15 stock portfolio so we have to make sure that what we buy is very durable and we have got a very good idea what it will look like in five years,” he said. Key to Desmond’s investment decisions are the valuations of his target companies. “What’s on our shopping list is anything that is attractive in value,” he said. One of his top tech picks is Alphabet , which he said is a “margin story” for the next five years. The company is dominant in search engine and YouTube, and has a growing cloud business, according to Desmond. He believes the stock is “very attractive,” given its current valuation. The firm also owns shares in Microsoft and Adobe . “Adobe is something we have followed for five years. It used to trade at 50- or 60-times earnings. It was never even remotely in our strike zone. We got an opportunity last year. So that’s kind of how we roll. We will look at stuff and just wait till the valuation gets into the right areas. “So, we own Alphabet, Microsoft and Adobe. From our viewpoint, we feel pretty comfortable. They have got great margins and great earnings profiles and strong balance sheets. And I think the opportunity set for them has improved enormously in the last 18 months,” Desmond said. He also likes Nike , calling it a “good margin uplift story,” as well as medical equipment manufacturer Steris for its easing supply chain issues and record backlog.
