MFG in the BUY zone, page-576

Chella has become a bit of a whipping boy on this thread so there’s one particular thing I want to support him on - and that’s the distorting effect of COVID.

Fund managers made all sorts of calls last year. Those that made the aggressive call of investing heavily in stocks that had been smashed and then strongly rebounded are now rewarded over and over and over. This is because they are able ‘celebrate’ these returns for many years via the 1, 2, 5 year etc past comparisons.

The key word of course is past.

At the time Hamish made a call.....and I think given his generally older more conservative investor demographic it was the right one....to safeguard against a complete wipeout by moving into cash and not doubling down on stocks that had been smashed. If COVID had got progressively worse with no vaccine breakthrough and the smashed stocks halved again Hamish would have been applauded and the Magellan funds would have outperformed. It’s easy in hindsight to be critical.

Same goes for Alibaba and Tencent. China’s big tech was showing all the signs of a once in a lifetime breakout - you had to be on board. No many saw the possibility of such savage interference by the Chinese government.

So I see all of that as history now and am evaluating the current Magellan sp against estimated future profitability. This is where I see a disconnect because the above ‘mistakes’ are baked into the past comparisons for many years now. The stockmarket is forward looking yet the funds management industry by its nature has that backward looking element in the form of benchmarks/comparisons based on past performance.

The comparisons are of course doubly distorted by a major black swan event such as COVID. Those that doubled down enjoy the positive distortion for years to come. Those that missed the rebound suffer the negative distortion. I think the marking down of MFG from $60 plus to mid $30’s represents this double whammy. I expect the next few years of more regular markets will see everything normalised and the sp gradually grind back to $50 plus.

Happy to be patient. Would be more than satisfied with a $50 MFG sp in, say, 3 years time having collected a 6% dividend along the way.