It’s coming to the end of 2016 and it’s been a good year for Under the Radar Report because we’ve been taking profits off the table.
Knowing when to take profits is as important as buying in the first place!
First, to the markets. In Aussie equities the ASX All Ordinaries has climbed 13%, but most surprising for many has been its 9% plus rise since Donald Trump’s election victory. This compares to the average return of close to 30% of every tip we have made since we opened the doors over five years ago.
In both cases there has been a lot going on under the bonnet!
THE MAKE UP OF THE MOVES
The rise and rise of the expensive defensives has been a feature over the past few years because these stocks have been benefiting from artificially low interest rates. Stocks like Telstra, the banks, utilities like AGL.
Then there have been growth stocks that have been perceived to have been immune from economic conditions.
WHAT ABOUT SOME OF THESE BIG “GROWTH” STOCKS THAT HAVE CAPITULATED?
Some of the most spectacular of these – Bellamy’s (BAL) and the Telstra reseller Vita Group (VTG) – have now halved in the past few months. Lucky we said to sell Bellamy’s at close to $15 and didn’t touch Vita!
Bellamy’s has gone from $16.50 to below $7 and could fall further. Vita has gone from almost $5.50 and now trades at $2.80, meanwhile another we’ve been saying “Take Profits” on, Mayne Pharma (MYX) that has gone from over $2 to $1.44.
The exponential share price rises of these low risk “high growth” companies has been almost inevitable when you consider that there are very few available. They’ve had the double whammy benefit of fast growth in earnings and expanding PE multiples.
WHAT ARE INTEREST RATES DOING NOW?
These stocks have all come off as interest rates have started rising and now, after Trump’s new deal speech upon his win, people are more aggressively factoring in inflation into the equation. It must be said that much of this infrastructure will happen whatever he does or doesn’t do as President, but Trump did act as a catalyst.
IS THIS A SEINFELD REVERSAL WORLD?
Now we have a Seinfeldian reversal where the market doesn’t like these defensive stocks, but is more comfortable with higher risk stocks, which yes, includes Small Caps.
REINVESTING PROFITS AND NOT DIVIDENDS ARE THE KEY TO MAKING MONEY
Dividends come from some where and that’s profits. The key to making money is investing at cheap prices in companies that are growing earnings. You get earnings growth when you re-invest past profits and you get the compounding effect when a company achieves return on equity of over 10%. This compounding effect is especially big for Small Caps because they have a smaller capital base with which to grow.
WHAT WE’VE GOT FOR SUBSCRIBERS TO MAKE MONEY FROM THIS
In the next month we’ve got lots of ideas for you to be able to adjust your portfolio. We’re interviewing more fund managers at the micro cap level, we’re doing round tables, we’ve got our best ideas and we’ve got more ideas around the themes that will impact your portfolio in 2017.
It’s very much a case of watch this space. Happy New Year!