HAPPY NEW YEAR!

Investment Perspective – January 2019

“Neither the investing method nor the fundamentals of the business are right or wrong because the mood of the market is favourable or unfavourable toward the “stock”. That is because when you really think about it, “stocks” (shares) are all about the financials and the trading price, the share price… the cash up value. What matters more is the economics of the business” 

Peter Flannery

Are you looking at a picture of a terrace or a courtyard?

Are you looking at a picture of a spiral (try using your finger to trace the lines)?

Some things in life are straight forward, logical – others, not so much. 

For example, raising children is less than straight forward (I’m certainly no expert) but what we know works is to provide them with a variety of life experiences along with appropriate measures of challenge, discipline, determination, mixed with love and support, especially when they are learning, growing or straight out rebelling for reasons that they, themselves don’t even understand. 

Investing … is another example of something that should be straight forward but obviously isn’t, because so few people ever succeed at it.

Let’s try another teaser but this time in word form rather than pictorial form …

Price and value are not the same thing. 

Okay that was an easy one.  You know that the intrinsic value of a property, a business or other type of investment of a capital nature (capital assets have cashflows) is based on how well that investment transforms the capital into cashflow – not the trading price moving up and down.

Okay, let’s try another …

At WISEplanning we invest in the business not the stock. 

So how are you getting on with this one?  You kind of know what it means but if someone asks you to stand up in front of a bunch of people at a barbecue, could you confidently articulate the difference? 

I know what some of you are thinking already … that’s your job Peter Flannery, that’s what we pay you for!

Yes, that is true. 

At the same time though, as I pointed out in the December 2018 Investment Perspective, my role, indeed, the role of WISEplanning is one of management.  Your role though is governance.  Simply, you need to know just enough so that you can fulfil your governance role, so that in turn, I can maximise the return on your investment portfolio.

Oh, back to our little quiz about the business versus the stock.

The “stock” is the shares that are traded and usually analysed by share brokers and other analysts by using what we at WISEplanning call “the financials”. 

The difference is that at WISEplanning we may use some of the financials that sharebrokers and other analysts use (not that many actually), however we will also consider the economics of the actual underlying business which of course takes us beyond financial ratios and simple financials such as turnover, profit and earnings reports.

Indeed, no matter what the profit was last year or last quarter, the competitive advantage of the business tells us a lot more about our investment.

Just like 2018, the market will no doubt become anxious about a variety of events over 2019 (some of which might actually occur!).  Share prices will rise and fall … that is normal, standard, business as usual. 

For us though, it is simpler and easier to “keep our powder dry” so to speak, focus on what you are looking to achieve with you in the governance role and Peter Flannery / WISEplanning in the management role, working together to achieve your investment goals.

“You don’t have to be brilliant, only a little bit wiser than the other guy, on average, for a long time.”

                                                              Charlie Munger