Richard Stroud
COPIERS AND FOLLOWERS UPDATE – PART ONE Hi everyone, here is another update for you all. As promised, after my conference call on Thursday I thought I would share with you all the important points made during the call, which includes the portfolio’s positioning, performance and what to expect in 2022. Apologies if this is a little long (it’s in 2 parts), I’ll try to keep this as concise as possible. PORTFOLIO POSITIONING The portfolio this year has been invested with value in mind, this is because of a number of reasons which I will get to a little later on. It won’t have escaped many of you guys that the portfolio has not done well this year and one of the reasons for this is we are overweight on value stocks. Again, I will talk about this in more detail in the next section. Firstly, what is a value stock? Simply put, these are stocks that are priced lower than the broader market and the idea behind investing in value is that prices of these stocks will bounce back in time when their true value is recognised by other investors. Examples of these within the portfolio include Financials, Mining and Materials, with some of these exhibiting a price/book value of under 1. This essentially means that the value of all the assets a company owns is worth more on its own than the value of all its shares in circulation, not even taking into account the business potential and profits that the company makes. Value stocks carry less risk than the broader market, however as the sentiment (and with it the price) of these companies takes a while to turn around they are much more suited to long term investing. As I have mentioned in several posts before we are very underweight in growth stocks, which are stocks that have the potential to grow and expand very quickly (think tech stocks such as Tesla, Docusign etc) but are generally priced at very high multiples compared to its profits (if it is even profitable yet) These stocks can rise in price very quickly but are generally more risky and can be viewed as more speculative. Growth stocks perform well when interest rates are falling and are usually the first to be punished when the economy is cooling. This is why we don’t hold too much growth at present, along with the fact that the rise of the retail investor has increased the speculation on a lot of these popular stocks without giving much regard to its fundamentals. On the flip side, value stocks perform best during an economic recovery and because a lot more emphasis is given on looking into the fundamentals of a company, its price is far less likely to fluctuate wildly on the back of speculative trades. My eventual aim is to have a mixture of both value and growth in the portfolio and indeed there are a number of growth stocks I cannot wait to add back to the portfolio but for the reasons I have given above I don’t think now would be the best time. However if one of these stocks does appeal price wise I may well be adding some back in the new year.
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