william meyer
Tried And Tested Investment Ethos
July 22, 2019
conrad hilton
Immunize Your Portfolio… Part 2
September 20, 2019
Show all

Immunize Your Portfolio


Every day I am asked by friends and associates for advice. What can we do? What’s happening?
Has the world gone mad? Interest rates are dropping to zero. We can’t even make money on a savings account!

The JSE is in a death spiral! Property prices are collapsing. What must an investor do now?

The answer lies in a very thoughtful allocation of capital that results in an ambivalent attitude towards political risks and currency moves. Idiosyncratic growth stocks can be an important building block in achieving this goal. The profitability of these companies is driven by their own fundamentals rather than macro-economic shocks like the US – China trade war.

Bank of America, in a recent report, says that these stocks provide shelter for investors and that the equities offer strong growth and are relatively untethered to the macro environment.
There are four key characteristics that set these stocks apart. They are less exposed to the effects of the U.S. – China trade war, including potential currency fluctuations; they are either uncorrelated with interest rates or perform better in a “lower for longer” interest rate environment; they have dominant market shares; and they have individual catalysts on the horizon that promise to boost their shares.

A good example of an idiosyncratic stock is CarMax. CarMax is America’s largest used car retailer. The company is doing really well and just recorded record net income and earnings per share in the first quarter, according to Barron’s.

CarMax’s sale of used cars domestically means the retailer is not exposed to tariffs or currency fluctuations, and lower interest rates will make it easier for consumers to obtain auto loans.
And there is some blue sky potential as CarMax recently introduced its “Omni-channel” sales model enabling consumers to buy cars from home, in store, online or a combination of all three. The service will be rolled out early next year.

“This, combined with continued focus on new store openings and elevated levels of off-lease and trade-in units returning to the used car market in 2019 will likely drive CarMax’s earnings higher through our forecast period and beyond”, says Bank of America.

Obviously even idiosyncratic stocks can eventually be worn down by severe or long lasting events but these stocks offer currency and political protection and are big beneficiaries of collapsing interest rates. Idiosyncratic stocks are also found in the hospitality and travel sectors.

It is also most profitable for investors to consider megatrends and the hospitality and travel sectors are another area where some trends are distinctly converging.

Some of these trends include the elimination of mis-pricing due to the free flow of information on the internet (think Airbnb), the ageing of the population, and an increase in leisure time, the decrease in the cost of travel and a massive increase in choice and availability.

Next month I will discuss a particular stock in this sector that I am very excited about. Happy investing!



If you are not happy with your portfolio performance or would like a second opinion,
please do not hesitate to contact Fenestra for a free review of your portfolio.