Rudi: The biggest mistake investors could make in 2024

The biggest mistake investors could make this reporting season, or this year for that matter, is underestimating stocks that have already run hard over the past 12 months. 

That's according to FNArena's Rudi Filapek-Vandyck, who believes we are now in a period of innovation and revolution similar to the Roaring '20s. 

"The 1920s was this great era of technological innovation, which also meant it was a great era to be a shareholder. And a lot of companies, of course, had tremendous growth on the back of new developments that were re-shaping society, the share market and economies," he says. 

"We are going through a similar phase now and as a consequence, high growth driven by megatrends and technological innovation is not going to go away... Those companies will continue to perform, and they will never be priced at nine times next year's profits." 

With this in mind, Rudi has been cycling some of his cash - which once sat at 18% of his portfolio - into stocks like WiseTech Global (ASX: WTC), REA Group (ASX: REA), HUB24 (ASX: HUB), ResMed (ASX: RMD) and Goodman Group (ASX: GMG).

In this interview, Rudi shares what he believes investors can expect over the February reporting season, the companies that should be on your radar where expectations continue to soar higher, as well as why he believes investors should get their heads out of the charts and focus on fundamentals instead. 

Plus, he also names one stock that he argues could be in for a ResMed-like recovery in the coming months. 

Note: This interview was recorded on Wednesday 7 February 2024. 

Timecodes

• 0:00 - Intro 
• 0:41 - The big picture (and Rudi's market outlook) 
• 2:21 - Why the Value versus Growth debate is "warped" 
• 4:36 - Testing universal market forecasts - why it's important to remain selective 
• 6:19 - The companies Rudi is backing this reporting season 
• 9:22 - Beats versus misses: How will share prices perform post-results?
• 10:38 - Why investors need to stick to their strategies this reporting season 
• 12:16 - Putting some of Rudi's 18% cash allocation to work 
• 14:33 - Rudi's view from the top: Focus on fundamentals 

Edited Transcript 

Rudi Filapek-Vandyck: It's a pleasure.

Ally Selby: You told me I would be surprised by what you have to say today - so I am both excited and nervous, but let's get straight into it. The big picture - the market is looking through all the headwinds that we're seeing right now and betting big on rate cuts in 2024. Is there anything wrong with sticking to consensus?

Now we have rallied on macro considerations from the bottom up. There's not an upgrade cycle happening in economies or profits, but there are two things I think that are different now. One is that the carrot of interest rate cuts, whether that is short-term or medium-term, the carrot is there and I think that will, to a certain extent, support share prices. The other thing is that - while it's very early days - we've actually made a good entrance into the reporting season. The reporting season starts really slowly and gradually in Australia. So we have a very small sample, but the early signs are there that companies are tending to do better than forecast or at least meet expectations. So far so good. But again, it's a small sample, but at least we've had a good start.

The 1920s was a great era of technological innovation. It also meant that it was a great era to be a shareholder in the share market. And a lot of companies, of course, had tremendous growth on the back of new developments that were essentially reshaping society, and the share market and economies. 

We are going through a similar phase now. I think as a consequence, that high growth driven by megatrends and technological innovation is not going to go away. So this whole discussion about whether we should go into value, which basically is either cyclicals or old economy companies or high growth companies that promise the future, I think this whole discussion is a bit warped. And on occasion, we will see the pendulum swing between those two extremes in the share market. But I think on average, longer-term, sustainably, I think you can't ignore the fact that we are going through this tremendously exciting time and technology should be on everyone's radar. Those companies will continue to perform and they will never be priced at nine times next year's profits.

I think the mistake investors will make is thinking that by default there are only gains to be made in small caps. Or that there are only gains to be made in REITs. Or that there are only gains to be made in healthcare stocks. That will not prove to be the case. 

So I think investors should be selective. The most important thing to add is that there's still a lot of growth and upside to be had out of large gaps, out of growth stocks, out of technology, and that will not disappear. So I think the best strategy for this year is diversification across all those themes, not just picking one of them because again, it won't be universal and it won't be all at the same time every single time throughout the year.

Rudi Filapek-Vandyck: That's a little bit of how long is a piece of string because we will have to find out, and as I said, we don't know how the market is going to respond to disappointments and surprises, but I think as an investor you have to know your strategy. I mean is your strategy to sit in undervalued assets and then wait for that to get to fair value? Or in my case, are you comfortable holding companies that have many years of growth ahead of them and even if they dip or fall in price after the results, that doesn't bother you? 

For example, two of my favourite stocks would be TechnologyOne (ASX: TNE), which is not reporting this month. And the other one is REA Group (ASX: REA), which does report in February. Often what happens is the share prices fall after they report results. For me, that's never a problem. If I don't have enough shares, I buy more. And if you look back subsequently 12 months later, the share price is higher. So how you respond to that is basically the type of investor you are and what exactly your strategy is. But my strategy definitely is that I will keep my eyes open for those structural growth companies and if they do dip in share price, then I might consider even buying more shares or if I don't own them, I might actually buy them.

Ally Selby: You talked about having a little bit of powder on the side just in case any companies sell off on the day. Last August, and I think also last February, you told us you were holding 18% cash, which is quite a lot of cash. How much cash are you holding today and have you put any of that money to work?