Rudi's View | Sep 19 2018
In this week's Weekly Insights (published in two parts):
-It's Different This Time, Not A Bubble
-August Reporting Season: The Final Act
-Shame, Shame On You, IOOF
-Rudi & The Switzer Seminar
-Rudi On TV
-Rudi On Tour
[Non-highlighted parts will appear in Part Two on Thursday]
It's Different This Time, Not A Bubble
By Rudi Filapek-Vandyck, Editor FNArena
One of my all-time favourite movie scenes is when Woody Allen stands in the queue in Annie Hall (1977) and he ends up having a discussion with the loudmouth academic behind him who professes to know everything there is to know about Marshall McLuhan.
To prove his opponent is more talk than substance, Allen steps out of the camera frame and returns with Marshall McLuhan who tells the academic you're wrong and Woody is right; you should not be allowed to teach any students about me.
Replaying the scene today via Google over the Internet makes the whole act seem a bit out-of-date, but it's the surprise act that has stolen my imagination.
In my naughtiest dreams I see yet another assembly of value-investors appearing on Sky News Business, talking bubbles and investor exuberance, and how all the money flowing into stocks like CSL ((CSL)) and Bapcor ((BAP)) is like playing Russian Roulette; inevitably this story is going to end in tears and it will be ugly, they assure.
But then James Daggar-Nickson, or one of his female host colleagues, calls out my name and I step from nowhere inside the TV frame, telling the experts: you have been wrong for the past five years, what makes you think you are right this time around? Personally, I think you will be proven wrong a lot longer.
If the past five years have taught me anything about the Australian share market it is that most expert investors are, essentially, bottom-up stock pickers. They might join the general debate about what governments should do, or what the outlook looks like in terms of central bank policies and global economic growth, but that's not really their forte.
Bottom-up stock pickers are usually synonymous with value-investing. They find opportunity among stocks that have fallen out of favour and in price. The analysis is concentrated mostly around what the company can and should do to turn its fortune around. At its centre sits the age-old piece of market wisdom that a young Warren Buffett once upon a time received from his mentor, Benjamin Graham: no matter the timing or catalyst, any asset that is undervalued will be priced at true value, at some point.
Enter that other, equally enigmatic ingredient determining success and failure for investing in the share market: investor sentiment. We all prefer to be riding the upward trending slope, but it's not always clear why we are or aren't.
But if most of our attention is spent on identifying individual opportunities, we are bound to miss a broad change in the general investment climate and this is exactly what has occurred in the past five or six years. Look no further if you want to know why most strategies and most managed funds have failed to even keep up with local share market indices over that period.
On my observation, many are seeking solace behind that old John Maynard Keynes statement in that the market can stay irrational longer than you can stay solvent. The underlying implication here is that increasingly popular passive investment products such as ETFs, combined with robots and investors herding behind shorter term momentum, have created a temporary market distortion, but time should do its healing, as it always does.
Many a market update published by value investors today starts off with the old warning from Sir John Templeton: "The four most dangerous words in investing are, 'it’s different this time'".
But is this really all there is to it?