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Top Stocks: a message from Derek Stuart in these stormy markets
Derek Stuart of Artemis, one of the five fund managers in Citywire Top Stocks, gives his thoughts on the current alarming stock market conditions.
Derek Stuart of Artemis, one of the five fund managers in Citywire Top Stocks, gives his thoughts on this week's alarming stock market falls.
We often say that our portfolio companies can thrive independently of economic conditions – because they have a high degree of 'self-help' to pull themselves out of any hole.
But there’s an important caveat: ‘within reason’. Big market dislocations raise the prospect of something more sinister occurring that forces a fundamental reappraisal of company prospects.
So the question is: are we at the point of something more sinister?
Comparisons are being made with the turmoil of 2008/09. What is worse now? Western economies are running out of ammunition for further stimulus. This time more will fail. What is better now? Sound, well-managed companies which took radical action last time around have the balance sheets and cost structures to cope. In the run-up to the latest crisis, we fully expected a period of slow growth at best and the portfolio was positioned accordingly. In this respect, nothing has changed.
This makes for an interesting climate. The market falls have taken down the good with the bad, and there is an opportunity to top up on some of our favourites.
At the other end of things, there are opportunities to buy distressed companies. Last time, a rag-bag of indifferent prospects managed to stagger on. This time the banks are taking a more realistic view of debt and are prepared to accept write-downs in the interests of survival – often imposing new management teams. These are the circumstances in which serious money can be made.
Finally, mergers and acquisitions (M&A). Things were busy for a while, but activity has slowed abruptly. This won’t last: there is no shortage of well-financed bidders looking for a quick fix for slow growth.
So, while not at all complacent about the risks, we would summarise this as a time of opportunity for Special Situations – even if it is an unnerving and volatile time for investors.
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