“The stock market remains an exceptionally efficient mechanism for the transfer of wealth from the impatient to the patient.”
~ Warren Buffett
What We Do
We manage investments for high net-worth investors. Our advice is restricted to listed securities, managed funds and income securities. It excludes other investments classes such as real estate (apart from REITs and mortgages) and alternative investments. The onus is on you to decide what percentage of your total portfolio to allocate to equities. We do not offer financial planning or tax-related services.
Top-Down Investment Strategy
Our investment strategy has four stages.
We start by identifying macro-trends in global markets which are expected to last a generation or more.
Decarbonization is an example of a macro-trend, with the Paris Accord setting a target of net zero emissions by 2050.
We then identify which sectors and industries stand to benefit from those trends.
Decarbonization is expected to spur massive growth in electric vehicles (EVs). Lithium-ion batteries are a key component, with the IEA projecting strong growth in Lithium demand.
In the next step, we use technical analysis to examine trend patterns and time entries in targeted industries.
Lithium prices started to level out in 2020 after a steep down-trend.
Source: Fastmarkets – Lithium carbonate, 99.5% Li2CO3 min, battery grade,
spot price CIF China, Japan & Korea, $/kg (midpoint).
Finally, we identify specific stocks from the targeted industries for investment.
Albemarle Corporation (ALB.NY) was trading below our estimate of fair value. We accumulated a 5% portfolio weighting by the time it broke through key resistance at 100 in late 2020.
The first three steps are covered by our Market Analysis newsletter, while the fourth is exclusive to Model Portfolio subscribers.
Fundamental and technical analysis
We only buy stocks that offer both a bullish fundamental and technical outlook and, as a general rule, only sell stocks when both are bearish. The exception to the sell rule is if we decide to increase our exposure to cash and fixed interest investments when global market risk is elevated.
Our strategy requires a long investment horizon and investors need to bear this in mind when constructing their portfolios. The recommended minimum time frame for the strategy is ten years.
Invest in the Future, Not in the Past
Many investment strategies are based on the implicit assumption that the future will mirror the past. Quantitative traders, for example, evaluate their strategies by back-testing against historical data. This often means that new opportunities are missed and old favorites are held long after their time has passed.
Technology stocks were shunned by many conservative investors, including Warren Buffett, for decades as there was little history to evaluate them by. Past market dominance is often disrupted by new technologies:
- traditional news media have lost advertising revenue to online competitors;
- high street retailers are losing ground to online competitors; and
- the oil and gas industry faces a long-term threat from decarbonization to combat climate change.
Investment strategy should be based on the future as well as the past. Past history may provide a base for projecting future performance but it is no guarantee. While we cannot foresee the future, evaluation of existing macro-trends helps us to avoid industries under threat of disruption and take advantage of new opportunities as they unfold.
“I skate to where the puck is going to be, not where it has been.”
~ Wayne Gretzky
Our services consist of general advice, through model portfolio services, or personal investment advice contained in a Statement of Advice. Please read our Financial Services Guide for further details.
We manage personal advice client portfolios on the Netwealth IDPS platform in Australia. Please contact us for more information.
An alternative is to subscribe to our Model Portfolio service. Subscribers receive regular updates to International or Australian Growth portfolios, including research on individual stocks.