If Australia were a company I wouldn't own it, says Tagliaferro
If you've got good stocks, hold them and don't panic. And if you want to invest in good companies, make sure they have a competitive advantage and consistent earnings.
If Australia were a stock you'd avoid it. If you've got good stocks, hold them and don't panic. And if you want to invest in good companies, make sure they have a competitive advantage and consistent earnings.
These are just some of the musings and rules Anton Tagliaferro, founder of Mutual Investors Limited, shared during a rousing presentation at the Morningstar Individual Investor Conference in Sydney on Thursday.
At the end of an entertaining talk in which he shared some of his "20 investment lessons", Tagliaferro voiced his exasperation at the state of the National Broadband Network and the policy missteps from government in the past 10 years.
"The policies coming out of Canberra, I'm sorry to say, in the last 10 years have been ... Australia's been a bit of a shemozzle, really," Tagliaferro said, to much laughter.
"Honestly, if Australia was a company you probably wouldn't own it on the stock market. Why would you? It's not the best management team.
"I'm an immigrant and it's very sad what's happened to Australia in the last 10 years. It's almost like, we don't have any problems, so we create them."
But Tagliaferro and his colleague, IML portfolio manager Daniel Moore, had several lessons for investors, chief among them: the ASX may be plumbing levels not seen since the GFC but it's no reason to panic.
"Clearly the market is going through a correction now," Tagliaferro said. "You can never predict the market. No one knows where it's going to be next week, next month or next year."
He urged investors to consider individual names, rather than the market as a whole.
"Good quality companies over time as their earnings and dividends go up, their share price goes up and that's what the share market shows. So, don't panic. If you've got good stuff don't panic. Everyone's portfolio goes down, that's a fact of life ... but you hold onto good quality stuff and it comes back."
Tagliaferro and Moore also urged investors to always invest in companies with a strong competitive advantage.
Crown Resorts (ASX: CWN) was good example, Tagliaferro said, citing its exclusive licences, concessions and strong pricing power in its casinos in Melbourne, Perth and Sydney.
Crown has a Morningstar fair value estimate of $15 and is trading at $12.36, at the open on Monday.
Similarly, toll road giant Transurban Group (ASX: TCL) fit this bill, Tagliaferro said, as it was a "No 1" player whose earnings remained robust regardless of dips in the economy.
According to Morningstar, Transurban has a "wide moat" - or sustainable competitive advantage - and a fair value estimate of $11. It is trading at $11.35.
'Everyone's portfolio goes down, that's a fact of life,' says Anton Tagliaferro
Another lesson to keep in mind: look for companies with recurring earnings as they will provide consistent returns over time.
Pallet maker Brambles (ASX: BXB) - another wide moat company - was a prime example, Tagliaferro said, citing its annual growth in pallets from 60 million in 1996 to almost 310 million last year. Brambles has an FVE of $11.20 and is trading at $10.40.
On the other hand, companies with cyclical earnings were to be treated with caution, Tagliaferro said, citing building materials companies CSR (ASX: CSR) and Boral (ASX: BLD), whose fortunes are largely tied to swings in the property cycle.
Strong management is also high on IML's list of lessons. Tagliaferro said good managers should be honest, have a realistic plan, relevant industry experience and a long-term focus.
Moore cited as a prime example the "incredible work ethic" of Robert Kelly, co-founder and chief executive of insurance broker Steadfast Group (ASX: SDF).
Steadfast has a Morningstar fair value estimate of $3 and is trading at $2.92.
"We love to see management that has skin in the game and feel the pain when the share price moves up and down," Moore said.
Finally, Moore said demergers were "always worth a closer look" for their value opportunities.
"The performance of demerged companies from large conglomerates has been outstanding," Moore said. "It's not a sure thing but the success rate is about over 80 per cent."
Orora (ASX: ORA), Dulux (ASX: DLX), Recall (ASX: REC) and Coles Group (ASX: CGJ) were good examples, Moore said.
Â
More from Morningstar
• Make better investment decisions with Morningstar Premium | Free 4-week trial
Â
Lex Hall is a Morningstar content editor, based in Sydney.
© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.