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Saturday, 18 September 2021
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How do you separate skill from luck in the performance of a fund manager? Investing is a mix of art and science in a highly-competitive industry full of smart people. Here are tips on what to look for.
Small cap investors face less mature companies with zero profit that need significant capital for growth. Without years of financial data to rely on, investors must employ creative ways to value companies.
There are only three sources of returns when investing in companies. Whether an investment delivers on dividends, earnings or valuation expansion determines performance, and the contribution of each varies over time.
The unrealistic value creation through lowering discount rates while assuming high growth shows a sensible link is critical. Interest rate assumptions need as much valuation focus as the cash flows of the business.
Large super funds hold unlisted assets such as infrastructure, property and private equity. It's likely many of these assets have not been revalued recently, inflating the price paid to members who exit.
When bond rates are low, the search for yield by investors and lower discount rates inflates other asset prices. However, there are far more factors affecting share prices than just bond yields.
Who knew? With some surprise results, the Government is on unexpected firm ground in asking people to draw on all their assets in retirement, although the comments show what feisty and informed readers we have.
It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.
Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.
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.
The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?
Some high-quality companies have emerged even stronger since the onset of COVID and are well placed for outperformance. We call these the ‘COVID Opportunists’ as they are now dominating their specific sectors.