Question 1: I read an article (see http://www.abc.net.au/news/2019-06-08/uber-netflix-run-at-a-loss-and-they-dont-care-/11185434?pfmredir=sm§ion=business) that I found extremely alarming. It turns everything that I understood about valuing companies on its head. It’s OK for companies like Netflix, Uber, Amazon to make no profit or little profits (Amazon) as long as venture capitalists continue to pour money in so they can take market share. How can we protect against an unavoidable day of reckoning? Presumably all the funds and investment banks will also be exposed. Where is the safe haven?
Answer: An interesting story. I guess the same argument could have been made about Facebook or Alphabet (Google) in their early days. You’re right to be concerned, although I’m not sure you need to be alarmed. I don’t buy the “day of reckoning” scenario. If you do however, then the best strategy is to stick to cash.
Question 2: I have received a buy recommendation from a broker on Steadfast (SDF) and I am interested in your thoughts as to whether it is a long-term buy ?
Answer: Certainly a stock that has done pretty well, and delivered on guidance. Trading near 52 week highs. According to FN Arena, consensus broker price target of $3.27 (range $2.90 to $3.90), about 2.5% lower than the last market price of $3.35. 1 buy, 2 neutral recommendations. SDF is trading on a multiple of 25.4x FY19 earnings and 23.1x FY20 earnings. Looks pretty fully priced for an insurance broker. Not for me.
Question 3. I’m interested in your perspective on investment bonds, such as those marketed by Generation Life (https://genlife.com.au/). Ten years seems a long investment horizon but sounds like the tax benefits are decent.
Answer: Here is a link I did to a story on investment bonds https://switzersuperreport.com.au/centurias-investment-bonds-hit-the-mark/. In the right circumstances, investment bonds can be an attractive investment option. Other issuers are Centuria, AMP, IOOF and CommInsure. The 10-year period is codified in the tax laws.
Question 4: Is the current interest rate weakness an anomaly in terms of the interest rate cycle?
Answer: Possibly, but Australia is following the rest of the world. We are now back in a down cycle for interest rates. As the saying goes, “don’t fight the Fed”.
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