Last year, around this time of year and at the end of our Listed Investment Conference in Sydney, an elderly gentleman stood up and said he’d like to thank my company for opening up his eyes, after about five decades of investing, to the alternatives he should have exposed himself to. He also complimented us for presenting rival businesses and listed investment companies (LICs).
Your best interests
This, I believe, underlined, that as a group, we do respect your interests — as valued clients — over the specific success goals we have for our operation.
That’s not to say we don’t want to be a success, but we have always believed it is win-win when we encourage our subscribers/followers to be diversified into quality assets, be they stocks, LICs, exchange traded funds (ETFs), property or other kinds of funds.
Funnily these thoughts came to me as I re-watched a video of a co-founder and portfolio manager at WCM, Kurt Winrich, as he explained the investment strategy his international funds management operation has for picking companies to invest in. And as I listened and learned, I wondered how many investors out there need to hear, and understand, this state of the art investing know-how.
And if they, as individuals, can’t get themselves to a level of understanding to grasp those issues, should they think about doing their investing with others?
All this analysis and video watching was inspired by the listing process of my son Marty’s company, Contango Asset Management, where he now is CEO. They’re currently in the process of listing an exchange-traded product on the ASX called WCM Quality Global Fund, which will have the ticker code WCMQ.
The good guys
I’ve interviewed the WCM guys on my TV show over the years and they’re an impressive team.
They actually did better than most during the GFC and following that market shake up, grew their money under management from $US5 billion to $US35 billion. The money flowed into their fund primarily because it outperformed the MSCI World Index by an annualised 5.2% per annum.
Now I know you can’t 100% rely on past performance but consistently strong performance can’t be ignored when trying to work out who you should trust your money to. I’m especially interested in WCMQ because my Switzer Asset Management, which is a JV company between my company and Contango, formed when we created the Switzer Dividend Growth Fund, is the responsible entity.
And I take this kind of thing very seriously.
In an interview on CommSec’s website, Kurt Winrich was interviewed by Tom Piotrowski about its investment methodology. What was revealed made me ponder my own capability to assess good from bad companies. And that’s despite a pretty good track record of doing so in this newsletter, on TV and on my Switzer Daily website since the GFC.
Find the moat
Kurt brought up the strange story of Nokia, which once was one of the greatest, quality companies in the world but which has virtually disappeared, along with its market cap and value.
In March 2000, it was a $55 stock and today is a $5 stock. Over the same time period, Apple went from being a $2 stock to where it is today at $207!
The WCM team learnt from Warren Buffett that companies need to have a ‘moat’ around them, which protects them from the ‘barbarians at the gate’ that can bring companies down, such as competitors, governments, Presidents with tariffs, dumb CEOs, etc.
But the point Kurt makes to Tom is that they look for companies that grow their moats, or their competitiveness, and it’s why they cut back their exposures to the likes of Netflix and Facebook a few months ago. And another important driver for company selection is something our own CBA had trouble with and that’s the culture of the company.
Have a look at this chart of Apple to see what happens when a culture changes:
Apple’s share price
Source: finance.Yahoo.com
Steve Jobs and the culture he created in his early days explains the flat line low price. After his exile from his own company and his re-joining in late 1997, he started to change his attitude and the company’s culture changed with it and the share price told the story.
Kurt says Amazon’s growing moat strategy is that its boss, Jeff Bezos, thinks seven years out, rather than short-term like all his rivals and that explains its share price.
And note the similarity of both Apple’s and Amazon’s share price – wouldn’t it be great if all our shares had performed this way?
Amazon’s share price
Source: finance.Yahoo.com
Minimise the risks
In explaining why he’s reduced his exposure to some of the FAANG stocks, he says they work on minimising the downside risk, which is something that all investors need to get good at.
Here’s something worth thinking about. If you lost 50% in the GFC you need to rebound 100% to get even, but if your losses were 20% you only need a 25% rebound to get back to where you were. This underlines the importance of protecting the downside risk.
The question we all have to ask is: “How good am I at picking stocks/companies that can outperform their rivals?”
From my personal point of view, I feel more confident getting that right for local companies but when it comes to overseas operations, I need help and that’s why I play ETFs, ETPs and professional fund managers like WCM. The big lesson for the past eight years has been that having exposure to overseas markets makes perfect sense.
Go global
We all know the likes of Charlie Aitken and Ellerston’s Mary Manning keep arguing that Asia is the future of population growth, economic growth and the growth of middle class consumers. And so even if Donald Trump’s trade war threats are hitting Chinese stocks right now, it probably is a buying opportunity for an investor who wants to learn from the likes of Jeff Bezos and be willing to invest for the long term!
That regional play aside, for my core overseas investments, I want to invest with professionals, like Kurt Winrich, who have an investment strategy that finds the kinds of companies I can’t easily uncover myself. That’s a huge investment lesson, which The Australian newspaper’s Robert Gottliebsen confessed to me on TV a few weeks ago was a key reason for his success as a wealth-builder.
(By the way, our Listed Investment Conference this year will be held in Brisbane on 11 September, Melbourne 12 September and 13 September in Sydney. More details will soon follow.)
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
