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11 August 2022
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The lessons from 22 years in the market include the lower volatility of industrial shares, how a short book differs from a long, the best leading indicators of change, plus stocks to withstand tougher times.
Some conglomerates include hidden assets that the market is not valuing properly. It may take a demerger to show their worth and there are good reasons why these work. How do investors identify the best demergers?
Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.
This week, Treasurer Josh Frydenberg told Australia companies to invest in growth rather than return capital or buy back their own shares. There are other reasons to check the merit of buy backs.
Exogenous factors like macro changes and weather can affect a company’s short-term profits. Management often blames uncontrollable factors for earnings downgrades but rarely owns up to a fortuitous tailwind.
Now we're captivated by inflation and higher rates but only a year ago, investors were certain of the supremacy of US companies, the benign nature of inflation and the remoteness of tighter monetary policy.
Companies have been slow to update guidance and we have yet to see the impact of inflation expectations in earnings and outlooks. Companies need to insulate costs from inflation while enjoying an uptick in revenue.
Weaker share prices may have already discounted some bad news, but cost inflation is creating wide divergences inside and across sectors. Early results show some companies are strong enough to resist sector falls.
In 2002, the share price of the company that became Sydney Airport (SYD) hit 80 cents from the $2 IPO price. After 20 years of astute investment driving revenue increases, it sold to private hands for $8.75 in 2022.
There are significant differences in the sector weightings of an ethical fund versus an index, and while this has caused some short-term headwinds recently, the tailwinds are expected to blow over the long term.
Many new investors make common mistakes while learning about markets. Losses are inevitable. Newbies should read more and develop a long-term focus while avoiding big mistakes and not aiming to be brilliant.
Lenders use Residential Mortgage-Backed Securities to finance mortgages and RMBS are available to retail investors through fund structures. They come with many layers of protection beyond movements in house prices.