Growth or Value

 31 July 2020

Dear Fellow Investor,

Growth or Value ?

       Mr Tong, the owner and investment columnist of the Edge has performed reasonably well in the last few years.   He maintains 2 portfolios, the  Malaysian portfolio and his international portfolio. Last week he sold Starbucks and Apple in his international portfolio and bought Telecom for his Malaysian portfolio.

       Apple and Starbucks are favorites of most fund managers. They are on the buy list of most analysts. They have both reached valuation extremes. Starbucks has a PE of 69 while Apple is at 34. Dividend yields are 0.85  % for Apple and 2.2 % for Starbucks. The story is also positive. Who could argue with the uniqueness of the Starbucks coffee business or the Apple I phone ?  In my opinion Mr Tong and myself feel they are great companies but in a crowded space.

        On the other hand Telecom is just another telco. Nothing unique. The price has been beaten down. Some prominent analysts are recommending to sell. I can not find any buy calls by the local research houses. On the other hand I can not find any sell calls on Apple or Starbucks.  

        I can not find any fundamental reason to buy Telecom but as the price has come down valuations are not extreme. so risks are relatively low.  With Apple valuations are extreme so risks are much higher.

 Weekly chart of Apple

I highly recommend you read Mr Tong’s investment column this week as he shares his analysis of growth versus value. He has shifting out of some of  his growth shares such as Amazon and replaced with value shares. He feels that going into the 2020 US election it would be wise to focus on value as a risk management strategy. If Biden wins in November expect at least a 20 % drop in the Dow and even worse for the high growth Nasdaq shares.  I do not believe Biden will win but it is prudent to be careful if he does. If Biden wins at least with value shares you will have a margin of safety.

Have a safe holiday

Bill