Dear clients and readers,
I am very happy to announce that we are very excited about the current market movements. We at Valor have been preparing for a slowdown in the Chinese economy for a number of years. If you look at our blogs over the last few years you can see our very bearish views. The performance of our portfolios over the last few months has proven our positioning is correct. In the last few months, we have made money for our clients in a period where markets have fallen significantly.
How are we positioned?
1. We have huge cash balances of around 50% to 70% (depending on risk profile) with a large proportion of that cash in US dollars.
2. We own “capital independent” businesses. Around 80% of the stocks we own have no debt and more than 10% spare cash. A fall in stock prices provides a wonderful opportunity to buy back shares adding meaningful value to our clients holdings.
3. We have avoided as much as possible the fallout from China’s over spending on capital investment. We have avoided mining stocks. We only own 1% in oil exposure (this will likely increase very shortly). We have avoided companies that have a great majority of their sales to China.
This positioning has meant that our most aggressive clients have lost only a few percent in the last few weeks turmoil, however have made significant gains since June 30. Some of our conservative clients are actually making money in this market due to the fall in the Aussie dollar.
Where do we see this market going? That is the question that no one knows, however the problems in China are structural and it will be a very long time before they fix their issues. China has grown its debt at a much faster rate than their economy for a number of years. Until this reverses, they will increase the eventual slowdown and have much harder times in the future.
Our team is preparing to start investing our very large cash reserves over the coming weeks to take advantage of “capital independent” companies that have been oversold.
Exciting times ahead for those that are prepared as we are.
As always, we love to hear from your family and friends who wish to invest with us. Our investment performance in the difficult times shows our conviction to grow our clients money in a conservative manner. It is times like these that our outperformance makes it very difficult for our competitors to catch up. Please invite your family and friends to call us on 02 8013 5205 if they would like to lean more of our investment philosophy.