Investment insight can come from anywhere. Legendary American fund manager Peter Lynch, for instance, famously offered the advice to “buy what you know,” and got investment ideas from his everyday experiences and occasionally from his wife.
Just sitting in front a bit of television the other night led me to what I might (too grandly) call an investing epiphany. I was watching a documentary about the origins of the universe narrated by the British particle physicist Brian Cox. At one point he explained, “That nothing lasts forever… is the most profound property of time”.
As I was jotting down this bit of wisdom, two share-market trends immediately sprang to mind.
Woolies’ sustainable competitive advantage
Woolworths (ASX: WOW) has enjoyed an incredible runs over the last 12 months, packing on nearly 39%, versus a 17% rise in the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO).
Arguably, this giant of the Australian retailing landscape enjoys sustainable competitive advantages. Its entrenched store base in prime retail locations, incredible supply chain strength, and valuable, well loved brand make it a company built to last.
While its current valuation looks slightly rich — at 20 times earnings — Woolworths is rightly a staple of investment portfolios Down Under. That Woolies is likely to be bigger five and 10 years from today is a reasonable expectation.
The rise in bank shares — can it last forever?
There’s no question that shares of Australia’s largest banks have also had an incredible run — and been incredible investments — over the last several years.
Just in the last 12 months, Westpac (ASX: WBC) has risen over 50%, Commonwealth Bank (ASX: CBA) has risen 38% and Australia and New Zealand Bank (ASX: ANZ) has also risen 38%. That’s to say nothing of the dividends shareholders have collected over this period.
The risk is that even a mild recession could cause these banks to take a haircut and turn them into tomorrow’s under-performing investments. Yet there may be no immediate reason to panic.
In The Sydney Morning Herald this week, Matthew Kidman made the following prediction, saying that it is “unlikely” bank shares will dive in the next six months because of “low global interest rates and the insatiable appetite for yield”. Yet, he went on to say, “eventually this trade will become crowded and it will be messy”.
The takeaway for investors
Of course, a six-month timeframe hardly qualifies as forever, and for investors, the pressing question is which companies will perform well in the future.
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Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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