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Opportunity Comes With Patience

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Oct 26 2016

This story features GR ENGINEERING SERVICES LIMITED, and other companies. For more info SHARE ANALYSIS: GNG

Opportunity Comes With Patience

In this week's Weekly Insights:

– IPO Monitor
– Opportunity Comes With Patience
– Rudi On Tour
– Nothing Ever Changes, Or Does It?
– Rudi On TV

By Rudi Filapek-Vandyck, Editor FNArena

IPO Monitor

FNArena has joined forces with OnMarket Bookbuilds to keep a close watch on fresh listings (IPOs) on the ASX.

From this month onwards, members and readers at FNArena can look forward to a quarterly update, the first of which was released last week. Here's the direct link to the news story that allows for downloading the quarterly report in PDF:

Investors who'd like to participate in IPOs can sign up via the following link:

Opportunity Comes With Patience

"Beauty is in the eye of the beholder"
[first quoted by author Margaret Wolfe Hungerford]

The share market is a hotbed of seemingly sage declarations that have withstood multiple decades of wild upswings and savage downturns, only to be proven wrong by those who remain wide-eyed, or simply because circumstances change.

People always need to eat, is one such example. It worked well during the GFC when stocks like Woolworths and Metcash proved relatively resilient, but investors who remained loyal to the statement, and to shares for both companies, have been left mourning heavy losses since 2014, even taking into account this year's recoveries.

What about: in the long run, share prices always rise. One has to feel for shareholders in Slater & Gordon who still haven't given up hope. But just as easily our mind tends to forget it wasn't that long ago BHP Billiton shares peaked at $49, while Woodside Petroleum shares almost touched $67. Rio Tinto shares, would you believe, were once trading well above $120. Shares in Blackmores, too, are currently a long way off from the $217.98 registered in December last year.

A more sneaky one is the oft mentioned: for every buyer there is a seller on the other side of the transaction. While obvious, the underlying implication is one of "Buyer Beware". You might think you are purchasing at good value, but whoever is selling to you is of the opposite opinion.

Of course, it never is bad advice to think twice before you start buying, I do think there's too much commonly accepted market "wisdom" embedded in that statement. Not all selling in the share market is an expression of the seller's perceived (lack of) value in a stock. I even dare to say there are times when selling is less a reflection of "no more value" than it is being dominated by other factors.

This might be one such time.

Selling Does Not Equal Rejection

Let's pause for a brief moment and reflect on what factors might lay behind the selling of shares in the stock market. In no particular order:

– you inherit a portfolio and note there's too much overlap with your own investments;
– you need to raise cash for a large purchase, such as a car, property, etc;
– a change in strategy requires a restructure of the portfolio;
– you retire and want less exposure to volatile equities;
– you made good profits. Now you want to secure at least some of the gains made;
– you got sick and tired of waiting. No more patience left. Got to be better opportunities elsewhere;
– you were just looking for a short term punt;
– your marriage ends in divorce. She demands half;
(I am sure we can all come up with many more reasons).

In more recent times, much of the selling would have occurred because investors are preparing for tougher times ahead, possibly a pullback in the share market or even a correction. According to some stats, professional funds managers globally are sitting on more cash than during the GFC.

One reason they have all been selling is to get more money out of the share market, irrespective of "value" or future upside. It's human nature to sell out of investments that have generated good returns. It leaves a positive story for whoever might be asking questions later.

One of my observations post the reporting season in August is that selling in Australia is hitting medium and smaller sized stocks, in particular the ones having generated big returns earlier. Bond proxies, high PE multiple stocks and healthcare are all temporarily out of favour as investors seek out yesterdays underperformers -the banks and resources stocks- partially as a hedge against inflation and higher bond yields, partially because of relative valuation and a return to growth for the more cyclical parts of the share market, partially because they are looking for safety against potential mayhem and further downside; it is safer to hide in cheaply priced large caps.

They are not selling because of a negative view on future prospects and/or overvaluation. Well, not necessarily. There's always a bit of that involved as well.

ASX200 Not Representative

Over the past four weeks, major indices in Australia have largely been moving sideways. This gives commentators and financial media plenty of ammunition to declare investors are "in limbo", "hesitant to make decisions","waiting for things to come", et cetera while factually the Australian share market has been correcting to the downside. Many stocks are now down -10%, -15%, -20%, or more from this year's peak while banks and resources have held up the indices, artificially feeding the impression all is quiet, serene and largely frozen and indecisive in Australia, while it is not.

Money has been flowing to the sidelines, if it wasn't flowing into banks or resources stocks. Prominent among the casualties are smaller cap stocks, many former champions and market darlings.

The weekly updated SharesRace contest in the Sun Herald last Sunday only had one contestant showing a gain. Well done, Richard Hemming! On closer inspection, the outperformance is due to two stocks only; GR Engineering ((GNG)) and SomnoMed ((SOM)). Two other contestants managed to eke out negligible gains, again largely thanks to two stocks in each portfolio of ten stocks in total. Five out of eight contestants sit deeply in the red.

Two weeks into the six weeks "fantasy shares" contest, fifty out of the total of eighty stocks chosen by the eight contestants are in the red. Things aren't exactly looking bright for next Sunday's update with the ASX200 on Monday closing down more than one half of a percent to just above technical support at 5400, but with many smaller caps suffering a larger loss.

Note: I am by no means signalling we should all start taking the Sun Herald's fancy stock tip competition serious. We definitely should not. I am merely showing off the wide variety of market indicators on my radar, as well as the fact that even the most useless bellwether can provide us with a valuable insight under the right circumstances – even if only once.

(By the way: the dartboard sits second in the competition. The clairvoyant was dropped a while ago).

Adversity = Opportunity

Adversity often translates into opportunity and nowhere else is this principle as tangible as in the share market. This, of course, on the premise that one has access to cash available, while possessing the ability to stomach short term volatility and uncertainty, while keeping both eyes wide open for longer term opportunities.

Funds managers selling out of smaller cap stocks means high quality growth (and dividends) can become available at much lower share prices.

I am quite excited to report the FNArena/Vested All-Weather Model Portfolio has used recent weakness to add Link Administration Services ((LNK)) which, in my view, is a true future All-Weather Performer offering predictable growth from loyal and sticky customers on top of prospects for increased margins. I know WAM Capital very much likes the stock as well. In my view, share price weakness this month is offering investors (finally) a golden opportunity to jump on board. Make sure you do your own research, starting with the annual report that is available on the company's website. The stock is covered by four brokers on the FNArena website, see Stock Analysis.

Another opportunity, I suspect, now lies with the beaten down share price of Vocus Communications ((VOC)). Of course, nobody likes boardroom upheaval, and the NBN is going to shake up the industry but Vocus is much more about wholesale internet traffic than it is about retail broadband offerings, and putting four companies together means the near term future is all about reducing costs and extracting synergies.

Also, I have been a vocal supporter of Bapcor ((BAP)), formerly known as Burson Group, for the past two years or so. I am not going to change my mind now the shares are off one full dollar (-15%) since mid-August. Yes, there is short term uncertainty regarding its ambition to acquire Hellaby Holdings ((HBY.NZ)) across the Tasman. Bapcor updated its shareholders at Friday's AGM, stating all business segments are either achieving or outperforming on expectations at the end of Q1 for this financial year. Guidance for FY17 is growth in profit between 25-30%, excluding any further acquisitions. UBS was the sole broker who issued a research update on Monday. Its share price target remains $6.30, or some 17% above today's share price. Just saying.

Other stocks that are happily held in the All-Weather Portfolio, or on my radar, include Aconex ((ACX)), Altium ((ALU)), Hansen Technologies ((HSN)), iSentia ((ISD)), Mayne Pharma ((MYX)), NextDC ((NXT)), and many more.

Don't let these opportunities go to waste. At the same time, be prepared for the present environment to last longer than you currently expect.

Rudi On Tour

I will be presenting:

– Christmas Special for Chatswood members of Australian Investors' Association (AIA), December 14, 7pm

– To Sydney chapter of Australian Shareholders' Association (ASA), December 15, noon-1pm, Sydney Mechanics School of Arts, 280 Pitt Street

– To Perth chapters of Australian Investors' Association (AIA) and Australian Shareholders' Association (ASA) on 7 February 2017

Nothing Ever Changes, Or Does It?

Yes, of course, investing in the share market is never really different and best working strategies today are the same that worked pre-GFC. Seriously. I tell you, seriously.

Now that we had a good laugh about it, let's get straight to business. This is a low growth environment. Has been since 2010 (it was masked at the time because of the V-shaped recovery from the global recession) and it is not likely to change fundamentally in the near term. I wrote a book about this (see below). This means investment strategies must adapt. You'll be turning your portfolio into a wish list for dinosaurs otherwise (and your returns will be a reflection of it).

Those not afraid to contemplate "this time is different" can subscribe to FNArena and read all about it in our bonus eBooklets 'Make Risk Your Friend' (free with a paid 6 or 12 months subscription) plus the freshly published eBook 'Change. Investing in a low growth world' (equally free with subscription, or available through Amazon and other online distributors).

Here's the link to Amazon:

See also further below.

Rudi On TV

– On Tuesday, around 11.15am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes
– On Wednesday, I shall host Your Money, Your Call Equities on Sky Business, 8-9.30pm
– On Thursday, I will appear as guest on Sky Business, 12.30-2.30pm
– On Friday, around 11.05am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes

(This story was written on Monday 24th October 2016. It was published on the day in the form of an email to paying subscribers at FNArena).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's – see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: or via Editor Direct on the website).



Paid subscribers to FNArena receive several bonus publications, at no extra cost, including:

– The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
– Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
– Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
 Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow. This book should transform your views and your investment strategies. Can you afford not to read it?

Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): 

FNArena has reformatted its monthly price tracker file for All-Weather Performers. Last updated until September 30th. Paying subscribers can request a copy at

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