10 August 2020
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Two investing resolutions for the new financial year

Sophia Katsinas
9 July 2020

A new financial year is upon us and we start this quarter with the dreaded R-word (recession) clouding our consumer confidence.

Finance journalist and former managing editor of BRW, Shares, Personal Investor, Asset and CFO magazines, Tony Featherstone, joined Peter Switzer and Paul Rickard on the Switzer Report webinar on July 3 to discuss investing resolutions for the new financial year.

Tony explored two resolutions:

  1. Be patient
  2. Buy quality

Patience

“Make sure you've got some cash on the sidelines. Don't go all in, just buy on those big down days, those big down periods when volatility is high,” said Tony. “Don't try and buy stocks when they're hurtling lower. Just wait for them to form a base. It's better to miss out on a bit of that recovery on the way up, I think, than chasing things lower and catching a falling knife as they say.”

Tony encouraged investors to map out the next four to six months, which he believes will have a lot of volatility and a number of buying opportunities for stocks.

He highlighted a few possible buying opportunities over the next four to six months:

  • Right now, we’re embarking on confession season (period between now and August where companies who did not perform well “fess up”) where the companies will come out and start downgrading. Paul Rickard explains confession season in depth in Questions of the Week.
  • In August, we’ve got the full-year profit season, where a number of listed companies report their full or half-year earnings. This mostly happens in August because companies are required to report on their earnings within 2 months of the end of financial year (June 30).
  • In September, we’ve got JobKeeper, JobSeeker, mortgage deferrals, rental relief, possibly all coming off at once.
  • In October and November, we’ve got the Annual General Meeting (AGM) period starting, so we’ll get the first quarter trading updates. The AGM is where companies present their annual reports, strategies and performance to their shareholders.
  • We also have US presidential elections in November.

“I could keep going. But my point is, there's going to be a lot more volatility in the next four to six months and I think there's going to be some really good opportunities to buy stocks at lower prices,” said Tony.

Quality

“It's so important to invest in good quality stocks at all times, but particularly now,” said Tony.

Here are some things to look for when assessing quality stocks:

  • High return on equity
  • Strong balance sheet
  • Low debt
  • What’s unique about this business? What’s hard to replicate?

Two things that are difficult to replicate are “pricing power” or a “sticky business model”.

“Something like Xero, the accounting software company, which I liked and still like. That's really sticky, because once you start using this damn software, you can't get off it because it's so tricky,” said Tony.

Paul Rickard and Tony Featherstone both found the real estate and property sectors interesting at the moment, particularly shopping centre trusts, because they cannot be replicated.

Tony particularly looked at Vicinity and Charter Hall Retail REIT as stocks because of their investments into “fortress malls”.

“So the Chadstones, the Westfield Bondi's, I think they're fabulous assets. They've got challenges, but they've very, very hard assets to replicate,” said Tony.

Peter Switzer and Paul Rickard both agreed their resolutions for this financial year were getting ready for buying opportunities and buying quality.

“The theme I'm taking into this new financial year is ready, steady, buy. And that's what I'm going to be doing. Exactly what Tony said. When quality companies are at really good prices, I'm going to just keep adding. That's going to be my resolution to this year. Just get ready for those opportunities to buy and buy quality,” said Peter.

The Switzer Report monthly webinar is exclusive to Switzer Report subscribers. To take a free 21-day trial click here.

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