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Wednesday, 19 January 2022
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Estimating the value of a company based on a multiple of earnings is a common investment analysis technique, but it is often useless. Multiples do a poor job of valuing the best growth businesses, like Microsoft.
There are pockets of bubble pricing in some assets that can pop at any time, but overall, valuations are frothy but prices of most companies can be sustained if not hit by rising bond rates.
FANMAG returns have been strong but not relative to their predecessors. Looking at a broader group of large tech companies, most have lagged the market. Fad-based investing is no substitute for broad diversification.
Warren Buffett's investment portfolio gains attention because of his legendary status, but parts of his empire in insurance, railways, metalworking and aircraft suppliers have been damaged by the pandemic.
Investors with heavy allocations to a broad US index should check how much is exposed to tech stocks, especially when valuations look a bit steep. It might be time to reallocate to other sectors or styles.
The connectivity enabled by the ‘super platforms’ of Facebook, Google, Amazon, Apple, Microsoft, Tencent and Alibaba is creating the best investment opportunities as business catches on.
Checking global stocks with higher prices than the FANGAM stocks but weaker margins and growth identified almost 100 companies. Astonishingly, the ‘Heady Hundred’ are valued at over US$3 trillion.
Eventually, prices become so extreme they bear no relationship to reality, and a bubble forms. I believe we are there today, not for all stocks but for many in the technology space.
The market has been looking for inflation for most of the last decade. Low interest rates should increase consumption, borrowing and demand and result in higher prices. What killed inflation?
At a time when value investing is under attack, a reminder that Benjamin Graham heavily influenced Warren Buffett and Charlie Munger, and they have built his ideas into broad investing strategies.
Investors underestimate the power of network effects, which increase the lifetime value of users and deliver high incremental margins with fixed operating costs. It's worth trawling the market for strong network effects.
It is better for management and regulatory bodies to work together to preserve the innovative engines of Facebook and Google, not impose painful government intervention.
Most people entering retirement do not see a financial adviser, mainly due to cost. It's a major problem because there are small mistakes a retiree can make which are expensive and avoidable if a few tips were known.
Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.
The focus is on Magellan for its investment performance and departure of the CEO, but Douglass says the pandemic, inflation, rising rates and Middle East tensions have not played out. Vindication is always long term.
This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.
The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.
Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.