Why it’s time to focus on quality businesses
In 1976, US economist, Herbert Stein, famously stated that “If something cannot go on forever, it will stop.” His observation could well be applied to the ballooning value of many technology companies, some of which have never made a profit, and possibly never will. Which is why this might be a good time to look at high quality businesses that have been left behind by the rally.
Notwithstanding the lockdowns, infections and tragically unnecessary deaths in Victoria, the global investing news flow in recent weeks has been relatively positive. The Europeans agreed on a stimulus package and the news on the progress of a vaccine has been encouraging. It should have been very, very good news for the stock market, especially for cyclical and value stocks (those that have not participated in the technology bubble).
Much of the strength in the stock market since the March lows has been driven or led by technology companies. Don’t get me wrong – some are amazing businesses, they enjoy monopoly pricing power, tailwinds and long runways for growth. In an environment where returns are very low, investors are right to seek high quality growth, and that is what these companies represent.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Blair
:
Hi Guys
It would be great to have a link that would take you direct to your current holdings with Montgomery investments, just a thought, it’s one less thing to login too.
Cheers
Blair
Roger Montgomery
:
thanks Blair for the suggestion.
elijah
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Really appreciate the stock market and company results content that your team always provides that’s easy to follow!
Pascal
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Hi Roger,
I agree with the content and observations made in your article. But I fail to understand why you keep using this quote from Herbert Stein as some basis for giving your opinions more weight or importance. Frankly, it is a dumb quote and I cannot believe that he is famous for stating this.
It is premised on the basis that there are only 2 outcomes – going on forever, or stopping. They are 2 sides of the same coin, but where only one outcome is possible. It would be like me saying – ‘if it cannot keep coming up heads, then it must come up tails’, or my personal favorite – ‘if something cannot live forever, then it must die’. Well, no s#it Sherlock!
I am not against using a quote to support your argument, opinions or observations. However, using this quote as often as you do does nothing to showcase your intelligence or increase the potency of your argument. You’re better than this Roger.
Roger Montgomery
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Thanks for sharing Pascal. I use it because it is more nuanced than you suggest.