FNArena’s Weekly Insights – October 19 2020

In this week’s Weekly Analysis:

-Quality & Growth: Confidence & Execution
-Value Versus Growth – The Chart That Confirms
-That Dreadful ASX Website (Continued)
-Rudi Talks
-Conviction Calls

Quality & Growth: Confidence & Execution

By Rudi Filapek-Vandyck, Editor

On Wednesday last week, one local newsletter published a list of thirteen stocks that had all closed at a new all-time high on that day.

It didn’t take long for me to realise five of the companies mentioned are included in the FNArena/Vested Equities All-Weather Model Portfolio.

One scroll through the full list of companies owned in the Portfolio instantaneously revealed the large majority of stocks in the Portfolio are either in the vicinity of their all-time high, or they peaked earlier in 2020 and have retreated somewhat since.

Most importantly, only a minority has been added during the course of 2020, indicating most stocks in the Portfolio have been trending upwards for a long while pre-covid, plus, of course, the pandemic hasn’t destroyed their business model or corporate greatness.


The philosophy behind the All-Weather Model Portfolio was born out of the GFC in 2008 when the likes of CSL ((CSL)) showed not every stock is equal when it comes to bunkering down for the bad times.

My research and experience since have proved stocks are almost never equal. Add to this the macro-observation that cycles are much shorter these days, and inflation subdued (at best), while disruption is all-around, targeting low-quality, low-growth laggards and the ideal starting point has been created to look for structural growth and high quality with a moat.

Despite the general view such companies represent higher risk, because of trading on higher valuations, the past five years in Australia have proved otherwise.

A share price that temporarily rises too high is easily fixed with ongoing strong growth, while a cheap looking valuation burdened by profit warnings, dividend cuts and other forms of disappointment literally translates into “lower for longer”.

However, the (many) critics of this year’s swift share market recovery do have a point when they argue not every fast-grower in 2020 is automatically a long-term shareholder champion.

As a matter of fact, if we stay true to statistics and observations from the past, we have to conclude most winners today are likely not of exceptional quality or destined for eternal greatness; they just happen to be in the right sector under the right circumstances at the right time.

And so it is much easier to look back and conclude if only I’d participated in the CSL float back in 1994, and held onto my shares since, instead of trying to figure out which of today’s freshly emerging rapid-growers will remain successful beyond the coming weeks/months/years/decades.

I regard a successful track record an important piece of the puzzle. So does the market. CSL shares would never have consistently enjoyed today’s valuation premium in the nineties or the noughties. Back then, it still had to prove itself and ultimate success was far from guaranteed.

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