Rob Vinall is the founder and managing director of RV Capital, which he started in 2006. For his Business Owner Fund, Vinall looks to invest in companies that are building a long-term competitive advantage, have honest and competent managers and trade at an attractive price. Since 2008, the fund has capitalized at a 14% annual rate, although it was penalized this year with a drop of 40.2%. Vinall lives in Kilchberg, Switzerland.
He runs a very concentrated fund, somewhat tilted to technologic companies, where the five biggest positions account for 73% of the fund’s assets.
In his most recent letter to co-investors, one of the things he discussed was the impact of inflation on his portfolio:
"The dramatic increase in inflation, how high it will go and whether it is here to stay are concerns for many of you. Like most value investors, I am reluctant to forecast where inflation shakes out at, though it seems certain to remain elevated in the short term. My reluctance is not because I think the rate of inflation is unimportant. It is because I think neither I, nor anyone else, can predict it."
He confesses that he predicted back in 2010 that the huge amount of money created by central banks would lead to inflation, but that we would only see it after a decade of being closer to deflation and negative interest rates. Other value investors such as Buffett and Munger have also recognized this risk before that never came to be - until today.
And the punchline is that after the unprecedented money creation that we saw, the inflation we have today, according to Vinall, is almost entirely related to “the shortages of all kinds of goods and services resulting from the Covid-19 lockdowns." He adds that:
"Once supply chains normalize, this gives me some optimism that the balance between supply and demand will be restored, and inflation will subside. On the other hand, by then we could be stuck in an endless cycle of one supplier raising prices in response to another’s price increases. Like I say, I do not know."
Facing this blunt but very truthful reality that we simply do not know what can happen, Vinall does not waste time thinking about it. The approach that he follows to investing in an inflationary environment is derived from Buffett:
"Buffett argues that the best companies to own in an inflationary environment are ones that have plenty of pricing power and are capital-light."
Pricing power allows for companies to sustain margins in the face of cost pressure, and being capital-light allows them to avoid the price pressure of replacing fixed assets. Vinall provides the example of one of his holdings, Wix.com (WIX, Financial), to illustrate the point:
"On both of Buffett’s criteria, I see our portfolio as well-positioned. Take Wix. It is difficult to imagine a company that is better positioned to navigate an inflationary environment. A website costs as little as $10 per month to run but is essential for nearly any business. No entrepreneur will shut down their website or go through the hassle of switching providers just to save a few dollars per month. In fact, Wix recently announced that it raised prices by 20% (after foregoing price increases during Covid) and has seen little impact on churn."
The tech sector is very much out of favor today, but it could be one of the “best places to park your cash if inflation is your biggest concern," according to Vinall.
