🎙️ The New World Economy
Interview Philippe Gijsels
Our world is changing rapidly.
That’s why Philippe Gijsels, Chief Strategist at BNP Paribas Fortis, wrote the book The New World Economy in 5 Trends with Koen De Leus.
We can learn a lot from this as a Quality Investor.
Why?
We LOVE investing in companies operating in end markets with strong, attractive growth.
You can order a copy of The New World Economy in 5 Trends, here.
Compounding Quality: Why did you write The New World Economy in 5 Trends?
Philippe Gijsels: Today, we are at a tipping point in financial history. COVID-19 has been a game changer as a lot of secular trends are accelerating:
Productivity gains (thanks to Artificial Intelligence)
Climate change
Globalization
Increased debt
Our aging population
I always like to use the 10-year rule: will there be more or less of something in 10 years from now?
Invest in companies where demand for their products is increasing structurally.
Compounding Quality: How do you look at value versus quality and growth investing?
Philippe Gijsels: A lot of people make a distinction between value and growth investing. But in the end, all intelligent investing is value investing. You try to buy stocks for less than what they’re worth.
Like Buffett, I think investing in wonderful companies at a fair price is a good idea.
Warren Buffett is still seen by many investors as an old-school value investor. We both know this isn’t correct.
Warren Buffett is a quality investor. Otherwise, he would never have invested in companies like Coca-Cola, Moody’s and Apple.
Compounding Quality: The first clear secular trend you talk about in your book is Innovation & Productivity. How can we play this idea as an investor?
Philippe Gijsels: The two most important drivers for economic growth are productivity growth and the growth of the working population.
As the growth of the working population is decreasing in most countries, economic growth should come from productivity growth in the years to come.
I see 4 clear trends that will drive productivity growth:
The digital revolution
COVID-19 further accelerating current trends
The energy transition
New technologies that will arise
Innovation and product innovation are a wild card for our economy.
Artificial Intelligence (AI) could play an important role in this. I don’t think AI will be a clear driver within the next 3 years, but there could be years that productivity growth could go up 10-15% thanks to AI in the future.
We all know that Nvidia is a clear market leader in AI. I try to invest in companies that benefit indirectly from this trend. Think about companies that can integrate AI into their day-to-day business.
Just take Domino’s Pizza for example. While many people think of Domino’s Pizza as a food company, it’s a technology company. DPZ smartly uses AI to predict the demand for pizzas. This allows them to be more efficient than their peers.
Comment Compounding Quality: The trend towards more and more productivity growth could be played via companies like:
Intuitive Surgical: Robotic-assisted surgery
Honeywell International Technology and Manufacturing company
ASML: Producing machines for chip manufacturing
Compounding Quality: Why is investing in companies that offer climate solutions interesting?
Philippe Gijsels: I think the next Microsoft will be a battery company. The market for climate solutions will grow at attractive rates and investors could benefit from this.
What is important, is that you watch out for greenwashing and look at the valuation of those companies critically. When you overpay for a company that can grow very attractively, you can still end up with disappointing investment results.
Comment Compounding Quality: This secular trend could be played via companies like:
BYD: Leading Chinese Electric Vehicle (EV) and battery company
Waste Management: Collecting, recycling, and disposing of waste in the US
Autodesk: Providing software to create energy-efficient buildings
Compounding Quality: Which role will globalization play in our economy?
Philippe Gijsels: More and more people are moving to big cities. This trend is called globalization and I don’t expect it to change anytime soon.
Investors could play this idea by investing in companies that facilitate large and efficient cities.
Comment Compounding Quality: Interesting companies that benefit from globalization:
Kone/OTIS: Large Scandinavian elevator builders
Booking.com: The world is our playground. People are traveling more and more
Arista Networks: Software solutions for data centers and cloud computing
Compounding Quality: Another secular trend is the increasing debt level of governments. How should we look at this?
Philippe Gijsels: Today, the United States is $35 trillion in debt. This debt level is not sustainable in the long term. If you ask me, this will result in structurally higher interest rates and inflation.
The easiest way for governments to reduce debt is to have inflation. When inflation is higher than the interest rate governments have to pay on their outstanding debt, outstanding debt decreases.
That’s exactly why you want to have some debt as an individual too. I would advise everyone to borrow a significant amount when they buy real estate and to use a fixed interest rate. When the government succeeds in having a higher inflation rate than the interest rate it pays on its debt, its debt level decreases.
Another conclusion you can draw from this is that you want to have real assets. Think about it as the board game Monopoly. It’s not important how much money you have. All that matters is how many hotels you possess.
Compounding Quality: The world population is aging. How can we approach this idea as investors?
Philippe Gijsels: You can look at companies active in hearing ads as well as biotechnology companies.
Another clear trend? Loneliness is increasing and this is true for old as well as young people. That’s exactly why the pet industry will boom in the years ahead. Many people treat their pet as a full family member.
Comment Compounding Quality: This secular trend could be played via companies like:
Sonova/Demant: Leading companies in the market for hearing aids
Zoetis/IDEXX: Two companies active in veterinary products
Novo Nordisk/Eli Lilly: Developing and manufacturing pharmaceutical products (focus on diabetes)
Compounding Quality: Thank you very much. To conclude, what’s the best investment advice you ever received?
Philippe Gijsels: To cut your losses and let your profits run. This is true in investing, but probably also in life.
It’s very easy to say that you need to let your winners run. Doing it in practice is way more difficult.
Investors should understand that you only need a few very big winners during your entire lifetime to be very successful in the stock market.
Want more information? Order the book ‘The New World Economy in 5 Trends’ here.
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Used sources
Interactive Brokers: Portfolio data and executing all transactions
Finchat: Financial data
Pieter, thank you for sharing this fascinating post. I thoroughly enjoyed reading it, particularly the section on the size of government debt.
While I generally lean toward being debt-averse, in my early twenties, I saw firsthand how beneficial it can be to have a fixed-interest loan during periods of high inflation. In such times, inflation worked in favor of those who leveraged up and invested in cash-flow-producing assets, foreign currencies, and precious metals. It’s an observation I always keep in mind.
That said, we should always remember the three "L's" that can lead even a well-off individual to financial ruin: Liquor, ladies and leverage! 😁
I appreciate the book recommendation and will definitely check it out. I Wish you a pleasant afternoon, and look forward to your next post later this week!🙏🙌
Great article!