Rudi’s View: How To Invest Allan’s $300k

Rudi's View | 10:00 AM

In this week's Weekly Insights:

-More Coverage In Stock Analysis
-How To Invest Allan's $300k
-FNArena Video
-Special Report on Ai

By Rudi Filapek-Vandyck, Editor

More Coverage In Stock Analysis

Some among you may have already discovered this, but FNArena's Stock Analysis has an additional tab EXTRA COVERAGE.

Click on it and you'll discover which additional brokers from BC Extra are covering the stock you are researching.

The Stockbroker Research history is still limited to the eight sources we monitor daily, but the next step will be to add history to the EXTRA COVERAGE too.

Enjoy, while we continue to make our service better and better.

How To Invest Allan's $300k

Last week, one of FNArena's many loyal subscribers, let's call him Allan, sent in the following question: (I am paraphrasing) Rudi, I've sold a commercial property. Now have $300k in the bank. I want to invest, but can you provide me with some inspiration?

We all know where Allan's reticence stems from. The ASX200 is weakening, but has been on a tear lately, setting a fresh all-time record high less than one week ago.

Lot's of talk around of 'bubbles' and inflated share prices, as well as about The Great Rotation into share market laggards that haven't had much momentum over the past 18 months or so.

First Things First

I can see a lot of similarity with late 2014-early 2015 when shares rallied hard, in particular those that offered yield at that time. There we were, starting up the FNArena-Vested Equities All-Weather Model Portfolio, having 100% cash ready to invest, and already battling with our very first Grand Dilemma.

It is from this experience I can share my first piece of advice: do not put any pressure on yourself. If you do, you will make mistakes and the one thing you should aim for is to not force yourself into anything you might come to regret later on. I know this is not easy, but try to dislocate from what happens in the share market right now.

Irrespective of that money sitting idle in the bank, you should be in no hurry, no hurry at all. Give yourself six months (I am not kidding), longer if circumstances require so, and be the patient decision-maker with a longer term horizon. You'll thank yourself for it whenever you are able to reflect back.

Back in 2015, that strong rally came unstuck after less than six months. By July banks and cyclicals were in a fierce draw-down that would last until February the following year, and then still required another seven months to grab market leadership from what by then had become known as the Expensive Defensives.

I am not suggesting the playbook for 2024 looks similar, but things can change in a matter of weeks, or even days. Share markets, at least at face value, have performed above expectations for the first seven months of 2024. The Great Rotation is, at this point, not more than a fictional scenario for which the necessary building blocks are not in place.

Advice number one: take a cold shower if necessary. Block those eternal bulls on X (formerly Twitter). Convince yourself you are about to take the first steps in a journey that will involve thousands more steps. Do not hurry!

I am genuinely looking forward to sharing this exercise with Allan and all readers of Weekly Insights, but first I must share the basics that underpin my own research and investment approach, to make sure everybody understands the How and Why of my considerations and choices.

Quality Above Value

There will always be room for disagreement and different personal preferences, of course, but sharing my observations and conclusions first might lead to a better understanding when we arrive at my various ideas and choices.

First up; while just about everyone is constantly focused on figuring out where the next 'cheaply priced' opportunity is hiding, my personal observation is, over a longer-term horizon, corporate quality is much more important.

In simple terms: your typical value investor will always tell us to find an asset that is worth $1 and buy it when it is on sale for 30c (or something similar).

The problem I find with that type of investing, is most of the time the value won't grow beyond $1, not even if we let time do its work. Thus while the upside seems pretty straightforward, once achieved it is time to move on, and that's assuming the market will ever push that share price to its full value.

This becomes even more questionable in case of low quality business models, in particular when heavily reliant on the economic cycle. Low quality businesses tend to generate more disappointing newsflow, which might well push out the recovery further, or lead to a much lower share price first.