No such thing as a must own company: Analyst

An analyst and portfolio manager of the Pan-Tribal Global Equity Fund believes there is no such thing as a 'must own' company.

Sharing the view at a recent Pan-Tribal lunch for advisers, Danton Goei of Davis Advisors said investors can get caught up in the hype perpetuated by companies and markets.

Goei said it is important to look beyond a company's headline numbers - and while the price-earnings ratio (P/E ratio) is fine - the two things wrong with it are the P and E separately.

His price example is car manufacturer General Motors in 2008, when it had US$58.4 million in underfunded pension and healthcare entitlements; however, this liability was not reflected in its price or earnings numbers.

"The share price generally does not include debt, underfunded pensions or healthcare entitlements," Goei said.

"It's important to make these key adjustments to a company's financials to get a true picture of a business. In 2008, GM was really owned by retirees and its employees rather than shareholders."

He added that analysts at Davis Advisors adjust earnings for a range of factors. Goei explained, for example, that there are two types of accounting practices used. The standard practice generally expenses items as costs are incurred, and books profits as they are made. The alternative is program accounting, where expected sales over a specific time are estimated, together with expected costs and, from there, the average profit the company will book each year is calculated - even for year one.

"Program accounting represents a long-term view - but how can an organisation really know how many sales they will make and at what cost?" Goei said.

"There can be quite a difference in reported profitability, depending on the accounting methodology adopted."

Valuation is not the only important consideration for Davis; their investment approach also looks for quality businesses with a durable competitive advantage, as well as quality management with a track record of sound capital allocation.

The Pan-Tribal Global Equity Fund, managed by Davis Advisors, currently invests in 51 companies across 13 countries. While regional factors are an important input into stock selection, the strategy that underpins the fund is a fundamentals-based, unconstrained approach, with bottom-up research conducted in-house. The portfolio holdings represent high conviction ideas from a universe of global investment opportunities.

The fund recently passed $30 million in funds under management and both Lonsec and Zenith have upgraded its rating in the past few months. It is available through most of the major platforms.

Read more: Pan-Tribal Global Equity FundDanton Goei of Davis AdvisorsGeneral MotorsGMLonsecP/EZenith
Editor's Choice
Industry super thought leaders have urged the sector to harness the power of the collective and collaborate more closely on problem solving to ensure longevity and continued member engagement.
Citi is expanding its wealth management business with four new hires.
ASIC's investigation into CommInsure found no evidence of claims managers applying pressure on medical staff to change assessments, although the regulator said claims handling fell short of community expectations.
AZ Sestante, a subsidiary of Italian wealth management firm Azimut Holdings, recently entered the Australian market by launching three new funds on the Colonial First State platform.
Brought to you by
1 MAR 2017
A highly agile and active asset allocation approach requires skill, experience and discipline. Led by Michael O'Dea, Perpetual's Multi Asset team has just that; with an average 17 years' judgement and ...
Get it Daily
Keep up to date, don't be the last to know! Get the Financial Standard Daily Newsletter.
Pocket investment guides featuring adviser case studies and a glossary.
Investing trends and strategies from the industry’s thought leaders.
Putting the spotlight on investment products that matter.
Expert Feed
Christopher Page
A new era
After years of back and forth, the legislation to increase the professional standards of financial advisers has been passed. The new ...
Stephen Fay
Starting at the insurance base camp with focus on value
Insurance can be a complex beast, but in a period where its reputation may be strained it is all the more important to talk of some ...
Christopher Page
Redefining the family office
While the family office model has traditionally been the preserve of the ultra-rich, this may be changing very soon. Last week, Findex ...
Michelle Baltazar
Like rocket fuel to a Spaceship
When a superannuation fund calls itself a Spaceship and nobody bats an eyelid, you know you're entering a new era in retirement investing. Spaceship's ...
Featured Profile
Professional Subscription for $295
(inc GST) for 1 year.
FS Advice
The Australian Journal of Financial Planning.
Get the free iPad app
Download the Financial Standard iPad app for FREE.
Link to something pzJb9ux8