Maintain discipline and stick to fundamentals when selecting stocks

Glenn Freeman  |   14/11/2016 Text size  Decrease  Increase   |  
email_fwd

Freeman: I'm Glenn Freeman from Morningstar Australia on the sidelines of Individual Investor Conference 2016. I'm here with Anton Tagliaferro, Investment Director for Investors Mutual.

Anton, thanks for joining us today.

Anton Tagliaferro: Pleasure.

Freeman: Anton, how informative are investment cycles of the past to the investment market we're seeing of today with massive volatility, with low and even negative interest rates?

Tagliaferro: Look, I think, market cycles are an indication of the market is a volatile unpredictable asset class. But I think the one thing I've learnt over many, many years is you stick to good-quality stocks and what we define as quality companies with good competitive advantage, recurring earnings and not mining stocks, recurring earnings, run by capable management that can grow and if you can buy them at a reasonable price on a solid yield, you'll do reasonably well. So, there's never a time – as the whole stock market, markets go up and down, but I think we focus very much on those sort of companies and at times of weakness in the stock we're very happy to buy good quality companies at the right price.

Freeman: And you've also spoken about the tech boom and the tech wreck that coincided with that or followed that. How likely is something of that magnitude again? Is that something that's one-off or can we see these sorts of things take place again?

Tagliaferro: No, no. I mean, the market is full of excesses. People always chase some new fad, whether it's tech stocks or pharmaceutical penny dreadful stocks or gold stocks or lithium stocks and I guess, lithium today is very much chased by many investors. So, you will get those sort of fads happening all the time. People always seem to make the same mistakes. But as I said, you have to stay disciplined, buy the right sort of companies with a good recurring income stream that pay dividends and you don't have to worry too much about the market if you're in good quality stocks.

Freeman: And just lastly, you were talking about how retail investors can pick good companies. What sorts of things they can look for just on a general basis and there are some things there? Can you just expand on that a little for me?

Tagliaferro: Yeah. So, look, I think, we've always focused on particular types of companies for the long term, companies with strong competitive advantage. So, a number one or two or three in their industry. It helps. It gives that company scale and things like research and development, information technology expenses, procuring – I mean, they buy stuff in, they can often get a discount because they are big. So, size helps often. And again, when you're talking about a big company, it can be a small company, but number one in its industry, like Pact Group, which for example, is the largest flexible packaging company in Australia. So, competitive advantage is very important.

Number two, is recurring predictable earnings. So, it's nice to see the underlying business of the company, what it's achieved in the last two to three years and then hopefully you can more or less predict where those earnings are going to go in the next two to three years. Management is very important. Capable management. We like good solid companies with good people there, people who under-promise and hopefully over-deliver, honest people, people with a genuine logical plan on how to grow shareholder value.

Thirdly, companies that can grow and obviously, you want to buy them at a reasonable price. And often the time to buy at a reasonable price is when people are selling all their shares whether they are lithium, gold, technology, all the good companies out – throwing the baby out with the bathwater. Yeah, so, it's about buying companies with competitive advantage, recurring earnings, capable management that can grow at a reasonable price. That's what we stick to.

Video Archive...

Investors to benefit from CBA demerger
29/06/2018  The Commonwealth Bank's demerger of its wealth management and mortgage-broking businesses should be a positive for the embattled lender and allow it to focus on its core business, says Morningstar senior analyst David Ellis.
Trump, trade, tariffs: investment risks ahead
18/06/2018  On Friday US President Donald Trump announced tariffs on Chinese imports, triggering a potential trade war between the world's two biggest economies. As expected, China struck back, announcing tariffs on a host of key US products. Morningstar senior international editor Emma Wall sat down with Fidelity International investment director Catherine Yeung to discuss the risks investors face.
What is a stock?
18/06/2018  BACK TO BASICS: New to investing? We're here to help. Watch this animated short to find out exactly what a stock is and the risks and benefits to investing in them.
What is a fund?
18/06/2018  Funds are suitable for investors who do not have the time or expertise to construct and monitor a portfolio themselves. We go back to basics and explain all.
Royal commission doesn't diminish role of financial advice
05/06/2018  Good financial decisions are more important than ever for investors as volatility returns to global markets, says Kunal Kapoor, Morningstar's global chief executive officer.
Welcome to Morningstar
29/05/2018  Mark Lamonica,  Individual Investor Product Manager, welcomes you to Morningstar.com.au.
Morningstar Portfolio Construction Guide
23/05/2018  Build a portfolio that meets your goals.
How much will you spend in retirement?
23/05/2018  Getting a handle on your spending is the linchpin in crafting a viable retirement plan, says Christine Benz from Morningstar in Chicago.
5 to-dos for retirees as volatility returns
12/04/2018  Christine Benz shares her top tips for investors in retirement or about to retire wondering what to do amid the sell-off.
Introducing star ratings to Morningstar Australasia equity research
22/03/2018  What investors can expect from Morningstar's roll-out of its star rating methodology across Australian and New Zealand stocks, as explained by the regional director of equity research, Adam Fleck.
Accessing world's second-largest stock market
13/02/2018  Given China's ongoing economic growth and increasing representation in global indices, we ask Nikko AM's Eng-Teck Tan what this means for Australian investors.
End of bull run, 1H18 earnings expectations
08/02/2018  What bond investors can expect as bull market ends amid US monetary tightening; and what 1H18 company earnings hold for equity investors, from Shane Oliver, chief economist, AMP Capital.
Learning from the investment masters
11/10/2017  Premiering on free-to-air television this weekend, The Investment Series features several leading figures from Australia's investment industry, including former Morningstar CEO Heather Brilliant.
3 pockets of opportunity in fixed income
07/06/2017  The head of PIMCO Australia gives his views on active management in fixed income and tells us where he sees most value in this space.