Rudi’s View: TechnologyOne Questions Answered

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Dec 08 2020

This story features TECHNOLOGYONE LIMITED. For more info SHARE ANALYSIS: TNE

My recent story on TechnologyOne ((TNE)) has generated a number of questions from investors, both about the shares in particular ("would you be buying now?") as well as more generalised questions about portfolio maintenance and management ("when do we sell?"). Below are a number of responses combined, to share with a broader audience.

Response:

The most important lesson I have learned from years of investing in the share market is to not pressure yourself into thinking you must act now.

Speaking from my own experience over the past six years, I have learned that often taking too much action is not the most efficient way to run one's portfolio. There are always ways to manage it better, but often they only become obvious in hindsight.

I also think there is a general context to take into account. It is but prudent to act differently in say, the second half of 2018, or earlier in 2020, and now.

Let it be said: we are in a bull market.

What I tried to explain is that if I am convinced that my companies continue doing well, and thus those share prices should be a lot higher in, say, 3-5 years, how much should I worry about share price volatility in the here and now? That's the balance we all should be looking for.

If you are sitting on cash right now and you want to allocate more of it in the share market, my suggestion is you set up a plan. It starts with how much money you have, which shares you already own, and where you are going to deploy your cash. More than focusing on one or two singular stocks, I highly recommend you take a closer look at the story I wrote a few weeks ago, "Rudi’s View: Equities Portfolio For 2021" (see: Rudi's View on the website).

Longer term, you will be best off with a structured portfolio approach. I'd say start with creating the baskets of stocks that are going to make up your portfolio. Teach yourself to view the share market through the lens of the various baskets. Next thing you do is you start drawing up lists of the stocks you like to own for each basket.

When you're ready, you start paying close attention. Follow the stocks that have your attention. Wait until you feel comfortable enough to start adding. Whether you accumulate in smaller batches, or you pounce is probably dependent on how much opportunity the market gives you.

With the obvious benefit of hindsight, TechnologyOne shares near $7.50 were an absolute steal. They touched $9.50 recently, and are sliding downwards since. The All-Weather Model Portfolio owns shares, but I'd like more given I reduced my stake above $10 earlier in the year and did not buy the same amount back on the way down.

But I can be patient. I'll just wait and see, and if at some point I feel "lucky" enough, I top it up. If the share price falls after that, I still remain confident the five year outlook looks great.

There are no universal rules in this game, not that I have discovered as yet. The general context has a say as well (portfolio rotation, etc). All in all, I would describe my view on All-Weather companies such as CSL, REA, TNE, etc as these stocks are inside a continuous uptrend. Thus I ask myself the question: how much action do I need to take in the short term and how confident do I remain about that uptrending trajectory?

Some subscribers have asked me about how to judge the TechnologyOne share price in light of a lower consensus price target. I always pay attention to the finer details when it comes to consensus price targets. TechnologyOne's consensus target is depressed because Ord Minnett and UBS have much lower valuations.

It's a bull market and bond yields will remain low, even though maybe not as low as earlier in the year. Under such circumstances, I decide to take guidance from the brokers with a higher valuation, and in this particular case this provides me with a range of $9.15 to $9.99. Bell Potter has a price target of $10.

I can sense a few more story ideas for the coming year about how one can be flexible and adaptive with entry points and broker price targets. But this is one way how I currently judge the TNE share price.

I do pay attention to broker targets and the consensus, but I have also come to appreciate that sometimes certain stocks simply trade at a premium, and they will continue to do so. Look at REA Group, for example, or Fisher & Paykel Healthcare. In a general sense, I have become more comfortable with holding stocks, and not selling any, when share prices rise above targets, and rise a lot further.

Obviously, I also try to figure out why it happens. Is the market being irrational or is it anticipating more positive news? It's not always clear what exactly is happening, but it is good to remind ourselves this is a bull market, and many companies are continuing to do well.

A lot relates back to the type of companies I follow, and get to know, as well as the fact that I only allow the best of the best (CSL comes to mind) to have a larger-than-average weighting in my portfolio.

As per always, none of the above is financial advice. I am simply sharing my personal experiences and insights.

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)  

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