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Analysis & Learning

Brexit Stock Market Trends

December 18, 2020

We are apparently on the brink of a no-deal Brexit, which if the media, social and professional, is to be believed means the end of civilisation as we know it. Really! I suspect that most people will hardly notice, which I realise could be famous last words. But what most amazes me is the lack of confidence of those who regard continental Europeans and their ossified customs union, now known as the EU, as a role model.

I see mainland Europe as a text book case of how not to run a modern economy with Brussels as a retirement home for past their sell by date politicians.

It baffles me why everybody who works for the BBC or is under 40 thinks the EU is so great. We shall see how it all pans out. It may take a while but I think the day will come when we will be delighted to have thrown off the shackles.

Other EU nations may not join us but that will be because they are trapped in the euro nightmare and need the German handouts. The world I like consists of free currencies, free markets, free trade and free movement of people, all people, not just those who live in Europe.

 This ties in with an observation that so much of the media has an extraordinary bias to pessimism. I have noticed this in relation to financial matters which is why I have learned to discount and ideally not even read the doom and gloom that pours out of the press. 

Look at this heading from Saturday’s Daily Telegraph business section, which I would normally never read – “Are tech pioneers leading Wall Street to repeat errors of the dotcom bubble?” The whole article consisted of a litany of doomsday utterances from fund managers. It was only as a last paragraph footnote that we learned – :”Others are more sanguine.”

Taylor Tamaddon, who I salute for his wonderful name as well as his sound judgement, said this was too gloomy and that there was no comparison between what is happening now and the ‘more flash than substance’ shooting stars of the dotcom era. He added – ‘the technology driven changes taking place throughout the economy are widely acknowledged’.

I lived through the dot-com era and remember that so many companies were ideas with business models premised on a wired world that did not exist at that stage. As soon as investors lost confidence and the stream of fresh equity capital dried up a whole generation of companies were revealed as non-viable.

The current situation is very different. Many exciting businesses are still not profitable but that is by design. They are choosing growth and the vital task of grabbing territory over short-term profits and that is the right choice. Many loss making businesses are cash generative and self-funding. Look at Amazon, which grew rapidly for years while making losses but not needing to tap investors for fresh capital.

My guess is that many of the doomsters only look at macro numbers and don’t do what I do, which is to read what the companies are saying about the progress they are making and the very real opportunities they are exploiting. There is a whole generation of businesses floated in the new millennium, which have grown sales by 10 times or more in a decade. Why wouldn’t investors be excited by businesses delivering that level of progress? 

The doomsters are worried by the frenzied dealings in just floated businesses like Airbnb and DoorDash. The latter is a food delivery business,which plans to create a world where everything can be ordered online and delivered to your doorstep and it is growing very fast.

I have not yet studied the Airbnb prospectus but it is obvious that the business concept is great (Uber for homes) and the business has grown dramatically, while dealing with an incredibly challenging period. The advantage of the float is that the group is now well funded to exploit the huge opportunity it is addressing. I don’t know what is the right price for the shares, who ever does, and Uber has been a bumpy ride since its IPO but these are real businesses, not dot com bubbles.

Investors generally should realise that when it comes to predicting the future trend of stock markets there are no experts. The only thing we do have, which is useful, is common sense. Simple observation tells us that stock markets, especially Wall Street, spend most of the time going up and over prolonged periods make incredible progress.

In January 1932 the S&P 500 was five (that’s right – 5). The latest level is 3,663. I decided, when I was old enough to be aware of stock markets that I would spend my life as a bull because that way (a) I would be right most of the time and (b) I would be right in the end.

The technology revolution 

And then something happened, which gave me even more conviction in my bullishness. The industrial revolution gave way to the technology revolution and this revolution is changing the world at an accelerating rate and in a way which is enabling a growing number of companies to grow at rates never before sustained by so many companies for so long and to become bigger than any corporations in history.

Not only has this ushered in an extraordinary period of growth and progress for global shares led by Wall Street but it may also still be at an early stage – just beginning, to use the terminology of so many CEOs of fast growing US-quoted businesses.

 This is no time to be moaning about bubbles. This is a Carpe Diem moment as it says on my wrist bracelet. It’s time to seize the day.

Climbing in a series of steps

When I encounter a share for the first time, the first thing I do is look at the chart. Is it broadly going higher? If it isn’t I am unlikely to be interested. Then I check out the fundamentals. Is it what I call a 21st century business; doing something that is likely to prosper in an increasingly technology-driven world. I look at the performance, the growth, the story, the leadership and what management say about their plans.

I sometimes sum up what I am looking for as 3G (great story, great chart, great growth). I also look for that quality which is harder to sum up in words, some magic quality about what they are doing that suggests that this business is special.

I also look for a strong tail wind. For example, I am more interested in e-commerce than bricks and mortar commerce, fintech than traditional banking, software as a service than traditional packaged software, electric cars than fossil fuel cars and so on although I recognise than businesses can change and reinvent themselves. Witness the exciting things happening at Walt Disney (see below).

Once I have established that a share meets my criterion and remember that I am only interested in growth shares, I add it to one of my various tables some of which have grown very large over the years even though I periodically cull my master table to eliminate shares in companies, which I believe have lost the plot.

Let’s put this in a more extreme way. I call companies valued at over US$1 trillion super behemoths. There are presently four such super behemoths in the world – Apple, Amazon, Alphabet and Microsoft. Ten years from now I think there will be more, perhaps many more. As a wild guess I think that by 2030 there will be over 100 companies in the world valued at over $1 trillion and there will be some over $10 trillion.

Behemoths for me are companies valued at over $100bn. This is still a select club but more companies are joining, not every day but certainly ever month. By 2030 I think the number of behemoths will be over 1,000 with many Chinese businesses joining the Americans in reaching this elite level.

If I am right then the key to successful investing is to find exciting companies, buy their shares and build a portfolio of such shares. My master publication, an online alerting service called Quentinvest for Shares, is all about putting this strategy into action. 

Look on my web site and you will find details of Quentinvest for Shares to which you can subscribe for £249.99 a year or £24.99 a month. Better still if you subscribe to QV for Shares you will receive the old Quantum Leap and Chart Breakout (rebadged as part of the Quentinvest service) thrown in with your subscription at no extra cost.

Just for reassurance, Quentinvest for Shares has been going for three years and the gain on all recommendations is 60pc plus at a time when many European indices including the UK’s have been going nowhere.

QV for Shares has a sister publication, Quentinvest for ETFs (exchange traded funds), which has also been going since the summer of 2017 and the gain on all recommended ETFs is fast approaching 40pc.QV for ETFs is available as a standalone service for £99.99 a year/ £9.99 a month. Alternatively you can have everything I do including ETFs for £299 a year or £29.99 a month. 

This is an extract from a recent article available now only for subscribers.



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