Immunise your portfolio… continued
Your Share of the Pie by William Meyer
Last month I explained how idiosyncratic stocks would immunise your portfolio against very volatile market conditions.
These stocks continue to play an important part in the thoughtful allocation of capital that will result in an investor being ambivalent as to political and currency risks.
Idiosyncratic growth stocks are an important building block in achieving a balanced portfolio. The profitability of these companies is driven by their own fundamentals rather than shocks like the drone attack on Saudi Arabia. These stocks provide a shelter for investors and their strong growth trends are untethered to the macro environment.
And these companies are less exposed to the affects of the US-China trade war, including potential currency fluctuations; they are either uncorrelated with interest rates or perform better in a “lower-for-longer” interest rate environment; they have dominant market shares; and they have individual catalysts on the horizon that promise to boost their shares.
By the same author: In the sweet spot
Hilton Hotels is an excellent example of an idiosyncratic stock.
The story of Conrad Hilton, pictured top, the hotel group’s founder, is one of the most inspirational you will ever read. It provides encouragement for anyone who is hungry and ambitious.
Let me quote the great Hilton: “I was 23 years old. I had been working for 11 years. So far I had earned partnership in a store in the town in which I was born. But it was my father’s store. A.H. Hilton & Son. A.H. Hilton & Shadow? a small voice within me was questioning. Wasn’t it time I formulated a dream of my own? I had an idea… To accomplish big things I am convinced you must first dream big dreams. True, it must be in line with progress, human and divine, or you are wasting your prayer. It has to be backed by work and faith, or it has no hands and feet. Maybe there’s even an element of luck mixed in. But I am sure now that, without this master plan, you have nothing.”
Hilton always wanted to own a chain of banks, but frustrated at every turn, he eventually bought a hotel in Texas and changed direction. Soon he owned a chain of shabby hotels, but his dreams were much much bigger. He wanted his own “Hilton” hotel.
The Hilton Hotel, Dallas, was a big project. In a race against time, he raised a million dollars and, in 1924, construction started. After running short of cash twice, the hotel opened in August 1925.
The El Paso Hilton opened in autumn of 1929. Built at great expense, it was a crown jewel. But 19 days later the stock market crashed.
In the depths of the great depression, deep in debt and with a court judgment against him, and his clothes at the pawnbroker, what did Hilton do?
He clipped out a picture of the newly completed Waldorf Astoria Hotel in New York, arguably the greatest hotel in the world, and put it under his desk’s glass top. Owning it was a ridiculous fantasy, yet it was a recognition that he had huge ambitions.
Hilton said: “Most people fail in life not because they aim too high and miss – but because they aim too low and hit.”
Many, many years later Hilton bought the Waldorf Astoria.
Today Hilton Hotels operates in 113 countries, has 14 brands, 5900 hotels, 31 Waldorfs, 163 000 employees and nearly half the world’s total population (more than three billion guests) have stayed in one of these hotels.
So through a good work ethic, prayer and big dreams, you can set yourself up for a huge success!
* If you are not happy with your portfolio performance or would like a second opinion, please do not hesitate to contact Fenestra for a free review of your portfolio. Cell: 079 624 4031; email firstname.lastname@example.org
William Meyer is a qualified Chartered Accountant (SA) and Chartered Financial Analyst (USA). He has been CEO of Fenestra Asset Management since 1990. He lives in Mooi River with his wife Claire and their four children.
He commutes to his head office in Cape Town. His company has outstripped the All Share Index with a compound growth rate of 18.87% per year since 2004.