Forum Archive Index - August 2003

["Morgy" <ica.sports@xtra.co.nz>]

To develop the discussion further on stock candidates for the future, I
believe there are a couple of tools that may be used going forward as a
basis for selection. My timeframe is very much shorter than yours Harry but
I believe that the current market conditions do not warrant longterm
analysis, the cycle is currently too volatile, if you look back through to
2000 the market was a bull and the look back method you use was ok
(stability and forward momentum ruled) , in todays market the players for
the future are still emerging, if you read the article on Vodaphone in the
paper over the weekend you will see how difficult it is for companies to
establish a global footprint within 20 years of there consolidation.
I think it said if my memory serves me correctly that only 3 companies had
joined the world top 100 companies since 1985. Given the globalisation of
the world economies in the last decade I find this amazing and relevant to
the following strategy

I therefore suggest the following  methods for short term investors (up to
12 months) that may allow them exposure to better performing stocks than
second guessing the commentators. Firstly cyclical analysis and later sector
relative strength.

Cyclical analysis dictates that certain industries do well at certain times
of the economic cycle. This is fairly well known but is also simple to
follow and prove.
The GISC standard which has been developed, now allows investors and traders
to compare world markets on an apples and apples basis, the info is easy to
get and a little reading will give you the basis of this investment method.

However rather than just invest in a sector that traditionally performs well
at certain times I believe that this must prove itself at every point in the
cycle, i.e a co such as BPC: asx that produces yeast products for bakery
goods normally does well when the times are tough because people go back to
basics, no big deal there.
Your point on different companies doing well in the next market push is
highly relevant and if one was to just invest on a cyclical basis you could
be in the right game but at the wrong park, i.e a bit like being a Man City
fan for the last 20 years when all the action is down the road at Man
United.

If we suspect that an industry group or sub group is doing well then we must
investigate exactly what groups are doing well and by what measure. This
introduces the second part of the startegy, which is Relative Strength
measurement (NOT RS Indicator). This is performed by using a graph of the
GISC indexes along with the Cap indexes of a market to see which ones are
going up. On the asx recently, Mid Caps have been performing extremely well
, on a cyclical basis we know that they lead the market in recovery because
they are leaner and meaner than the blue chips, they are also where the next
line of blue chips come from. Therefore realtive strength proves the cycle
theory on this occasion.
Next step, what industry group within Mid Caps is doing well, as it happens
financial services have been doing well particulary small and mid cap
companies.
An example is  RCD:ASX  ( a small to mid cap financial services company) see
the run that this stock has made in the last year or so. All of this
information is available to both the professional advisor and the private
trader.

This startegy is a look forward tactic obviously different to yours Harry,
however I believe that we do not have the information that Buffett does to
examine companies in his manner and I also believe that his level of
investment allows greater due dilligence than generally available to the
average investor, one would imagine he gets many invitations to sit with
companies that want his money, one can afford to be selective if the cake is
always on the table. The NZSE is so small that perhaps you also have an
advantage in that the market is fairly incestuous but also limits a broader
strategy.


Regards


Morgy







----- Original Message ----- 
From: <tennyson@caverock.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Sunday, August 03, 2003 11:56 AM
Subject: [sharechat] TWR, AMP fundamentals and Wealth Management


> Earlier in the week someone asked if Tower was a good buy.
>
> Here is what my broker said about TWR last week:
>
> "The risk with this stock is that we are looking for a recovery
> situation *and only time will tell*.  BUY for anticipated recovery and
> possible takeover."
>
> (Note the emphasis between the asterisks is mine)
>
> Then yesterday Morgy made the following comment on AMP.
>
> "The problem with fundamental analysis is you can be right but it still
> doesn't help if the share slides, ask anyone who was still buying into
> AMP when the analysts were recommending it as an undervalued
> stock and fundamentally a buy, by the time you get the numbers they
> are so old and manipulated that they are almost worthless"
>
> It's not too often that I am 'on side' with Morgy but in this case I would
> go even further than him.     From an investment perspective IMO the
> previous results of AMP are completely worthless.    The AMP
> business has changed so much (they are in full retreat from the UK
> market) and public perceptions of fund managers have changed so
> much (many conservative traditional 'do nothing' investors are
> questioning their fund management commitment, after past 5-7 year
> performance has shown sticking money in the bank would have been a
> far better option than using managed funds) that forecasting future
> results from any past 'fundamentals' is virtually impossible.
>
> Switching back to Tower, I think that professional analysts and spotters
> of situation shares, GPG, must be ruing the day they bought 5% of
> Tower at some $4 per share.    The best my broker can come up with
> as a longer term recommendation for Tower is:
>
> "and only time will tell"
>
> In my view, Tower, AMP and all the other big player wealth
> management companies listed on the stock exchanges absolutely stink
> - as *investments*.  This is not to say you cannot make money if you
> buy into this industry.  Indeed I am sure some will do very well.     My
> argument is that you cannot make a sensible *investment* decision
> without having some reliable model of business cashflow forecasts.
> The future of AMP and TWR will depend on the net proceeds that
> people put into them and people's perception of where the listed
> investment markets will go relative to other investment classes.
>
> Can you look at how much people will invest in the sharemarkets by
> considering what happened over the last ten or so years?   I think not.
> Will future investment performance of the markets relate in any way to
> the boom and bust NASDAQ bubble behaviour of the last ten years?   I
> think not.   From an investment point of view investors in this industry
> are flying blind IMO.     Buying shares in AMP or TWR cannot even be
> classified as investing, by my definition of investing.
>
> Personally I think the outlook for the sharemarkets is quite good.
> Perversely because the bulk of investors 'get it wrong' my view is that
> we will see the whole wealth management industry underperform, while
> unsophisticated investors chase yesterday's winners like residential
> housing and high risk term deposits from finance companies.    In my
> view people will not put their money into the sharemarkets when they
> are cheap which means that both TWR and AMP will continue to
> struggle.    Investors will continue to pull money out of these
> companies forcing them to sell fundamentally sound underlying
> investments at poor prices, leading to further poor returns and another
> wave of fund management withdrawals.
>
> In my view, the winners in this market will be the boutique fund
> managers who are not weighed down by the millstone of bad
> investment history, and those dealing with the least sophisticated
> investors of all and are least likely to change ships in mid stream- the
> banks (who deal with those who invest their funds only with the bank
> they know).
>
> IMO, AMP and TWR are strictly for the punters. Yuk yuk!
>
> SNOOPY
>
> discl: no AMP or TWR shares held
>
>
>
> --
> Message sent by Snoopy
> on Pegasus Mail version 4.02
> ----------------------------------
> "Q: If you call a dog tail a leg, how many legs does a dog have?"
> "A: Four.  Calling a tail a leg doesn't make it a leg."
>
>
>
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