Rudi’s View: Investing In Quality & Growth; A Journey

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 | May 27 2021

This story contained a mathematical error when mailed out to subscribers late on Monday. That error has been corrected in the version below.

In this week's Weekly Insights:

-Investing In Quality & Growth; A Journey
-Conviction Calls
-All-Weathers, EML Payments, Macquarie, And Risk

Investing In Quality & Growth; A Journey

By Rudi Filapek-Vandyck, Editor FNArena

Investing in Growth companies is something entirely different from trying to find true value among bombed out cyclicals, disrupted business models and misjudged disappointments.

Which is why my investment rule number one says: never ask your typical value investor for an opinion on a Growth stock.

You know the answers already. It's either too expensive. Or it won't last. Or the world has gone super-duper crazy.

But Growth stocks offer a lot more than the next investment fad or mini-market bubble. As one astute fund manager stated recently: find the right one, and you can keep them in your portfolio for the next decade, possibly longer. Along the way, fortunes are being made and lives are changing - literally.

New Zealand-based a2 Milk ((A2M)) achieved a secondary listing on the ASX in March 2015 at a price of 56c. Mid-last year the shares peaked near $20 for a return ex-dividends of no less than circa 3470%. What this means is that $10,000 spent on the first day of trading would have appreciated to $347,000 in a little over five years.

What this also means is that investors could have bought those shares in any meaningful pull back and still have made a huge return on investment. One that literally could prove life-changing.

But those earlier mentioned value investors are correct too. It couldn't last and it didn't. a2 Milk shares are today languishing around $5.50 which translates into a depreciation of approximately -72%. In less than one year. That's one big ouch!

And a2 Milk is far from the only one. Shares in artificial intelligence company Appen ((APX)) peaked below $45 in August last year. They are now changing hands at around $13.50, having recently rallied off a bottom not far above $10.

Credit-but-no-credit provider Afterpay ((APT)) still had the wind firmly in the sails in February with the shares surging well above $150. They are now struggling to hold above $90.

Not All Tech

Observation number one is that the concept of achieving a prolonged period of strong growth is by no means reserved for technology companies only.

Apart from a2 Milk, which is a marketer of dairy products by anyone's definition, the past decades have shown extended periods of uninterrupted Growth can be achieved by a wide variety of sectors and business models; from medical devices to poker machines and online gaming, to online classifieds and paper and packaging products and services, to car accessories, small electrical appliances and cheap pizzas.

And that's simply limiting my selection of successful Growth stories to the ASX where, arguably, the likes of NextDC ((NXT)), Pro Medicus ((PME)) and Xero ((XRO)) are still in a relatively early stage of what could prove to be another decade of strong growth ahead.

But how do we separate the wheat from the chaff -distinguish between truly sustainable Growth companies and temporary pretenders- and, equally important, how can we know when the tide is shifting as has happened in the case of a2 Milk, and Appen, and Kogan ((KGN)), and Blackmores ((BKL)), and Redbubble ((RBL)), and so many others?

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