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Morningstar runs the numbers

Lewis Jackson  |  10 May 2021Text size  Decrease  Increase  |  
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2000 companies

The latest trends are no secret, you overhear them at the pub every Friday: crypto, lithium, tech. The hard part is picking the companies that will last, writes Emma Rapaport, reporting on the Berkshire Hathaway AGM: “Buffett said in 1903 the 'place to be' was the auto industry. The thesis was that someday 290 million cars would be buzzing around the US. However, there were at least 2000 companies that entered the auto business. In 2009, there were three left, two of which went bankrupt. ‘There's a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future,’ Buffett said. ‘The Maytag company put out a car. Allstate put out a car. DuPont put out a car. I mean, Nebraska, there was Nebraska Motor company. Everybody started car companies just like everybody’s starting something now that can be where you can get money from people. But there were very, very, very few people that picked the winner.’

307 per cent

I ran the numbers on how property and shares stack up against each other over the long run: “In 2002, the median Sydney detached house was $365,000, and a 20 per cent deposit was $73,000. Had our hypothetical investor parked that deposit in the housing market it would now be worth $200,708. Had the first-home buyer instead put the money in the STW exchange-traded fund, it would be worth $297,146—a difference of $96,438. That’s the difference between a return of 175 per zn cent and 307 per cent. These figures exclude property fees and taxes at this stage.”

$13.8 billion

Commonwealth Bank's share price fell 36.63 per cent between Valentines Day and 27 March 2020. The other majors were no different, but you wouldn't know it now, writes Lex Hall: "Australia’s major banks may be fairly valued and carry high uncertainty ratings, according to Morningstar, but they’re in pretty good shape, considering the year they’ve had. As one wag put it this week, it’s like covid never happened. The 2021 half-year results of the major lenders showed a 62 per cent increase in combined cash earnings from the same time last year, totalling $13.8 billion, according to a review by advisory Ernst & Young. Investors are cheering too as the dividend tap has been resolutely turned back on."

100,000 per cent

US Treasury Secretary Janet Yellen stirred markets this week when she hinted at rising rates. In this week’s Firstlinks newsletter, Graham Hand writes why that won’t matter for some tech investors: “It's far from a set back for FAANG believers. For example, Apple shares have risen so much since the 1980 float at US$22 that the company has undergone five stock splits to keep the price manageable for new investors. When we see today's price of about US$130, it's easy to think it has not done much over 40 years. But we need care making comparisons over time, and allowing for the splits puts today's price at about US$22,000. Anyone for a 100,000 per cent return? What, it fell 2 per cent, oh dear!”

27 per cent

Against all expectations, growth is roaring back in many countries only a year after a global pandemic. There is a tendency in the West to attribute this rebound to conditions in the US, that would be a mistake, writes Peter Warnes: “The fact is, China is leading the global recovery and many countries, including Australia, would not be enjoying the rebound in economic activity if China’s participation was absent. We might not like it, but we must be realistic. For the record’s sake, at the close of 1Q21, China’s GDP was 27 per cent greater than it was at 31 December 2019, leaving every country in its wake.”

Chart of the week - 'The times they have a-changed'

The Emperor of Japan's main residence is the Imperial Palace in Tokyo. The palace sits on 3.4sq km of land in the centre of Tokyo. At the height of Japan's real estate bubble in the 1980s, the land under the Imperial Palace was notionally worth more than all the real estate in California. When the bubble burst in the early 90s it ushered in a "lost decade" of economic stagnation. Japanese banks were badly hit, and left saddled with billions in non-performing loans. The chart below compares the top 20 companies in the world by market capitalisation in 1989, at the height of Japan's boom, and today. Japan went from having 13 on the list, to none.

Largest 20 companies in 1989 and 2021 

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Source: Berkshire Hathaway AGM, Bloomberg, EQS Function

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is a reporter/data journalist for Morningstar. You can follow Lewis on Twitter @lewjackk

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