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Ask A Fund Manager
The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Forager Funds Management senior analyst Gaston Amoros discusses his biggest regret in investing and the 2 ASX shares to lock way for the next 4 years.
ASX shares for a comfortable night's sleep
The Motley Fool: If the market closed tomorrow for 4 years, which stock would you want to hold?
Gaston Amoros: I'm going to go safe on this one. So if the market shuts down for 4, 5 years, I would buy CSL Limited (ASX: CSL) or Cochlear Limited (ASX: COH) at the prices that you can get today.
Why? It's because these are very reliable but fancy businesses that generate high single digits — call it around 8% — revenue growth, every single year. And they're very, very hard to disrupt because they're very entrenched in their ecosystems.
They have a very wide moat and you get, on top of the high single digit revenue growth, you get a bit of operating leverage that gets your [earnings per share] EPS growth to the double digits or low double digits.
On top of that, you get a dividend.
Again, these are businesses that are very well run, the management teams have a pristine reputation. They're great capital allocators. And you're going to be very, very safe and compound safely for the next 4 or 5 years.
Looking back
MF: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price.
GA: I wish I could go back in time, as far back as possible, and just buy all the winner-takes-all businesses that I could find.
Let's say if I could buy Amazon.com Inc (NASDAQ: AMZN) and Microsoft Corporation (NASDAQ: MSFT)… I wish I could just buy them, never sell, constantly adding through the cycle.
These are businesses that once they build their ecosystem and they keep winning and they keep solidifying that moat that we discussed, [like] CSL and Cochlear.
I think that when we start out in the profession, very often we are very risk-averse. And we tend to play for small moves, when you can be playing for something way bigger, but you need to be willing to embrace and take the volatility. And just willing to invest long term.
Most people, when they start out, they don't have that. And I didn't have that. And I wouldn't be sitting here, I would be sitting in a yacht somewhere nice and warm, if I had done that. So that's something that I clearly regret.
MF: But the funny thing with stocks like Amazon and Microsoft is that, sure, their growth has been phenomenal over 20 years, but there'd be very few people who would've held their holding for the entire duration? Because once a stock goes up 10 times, you're so tempted to sell it, rather than wait for a 100-fold return?
GA: That's absolutely right. That's a natural temptation.
But the important thing to realise, and this is something we do at Forager, we say "We should sell a stock when the investment thesis exhausts itself".
So if the business is executing well and they're growing into a large market, or they're dominating a market and this is a growth sector, then just keep growing with the sector, let them dominate, let them do what they do.
And the thing that people always forget is that these companies don't just dominate one sector. They create the next sector, they move into the next adjacency and they keep leading. They create markets.
So before Apple Inc (NASDAQ: AAPL) came along, there wasn't an iPhone. And now there is an iPhone. And Microsoft transformed the whole office productivity space. It didn't exist, right? So that's why you back the company as much as you back the management team behind the company. But it only works in companies that can improve and sustain their competitive advantage.
