Here’s why Britain’s Warren Buffett is sticking with Facebook parent and other downed techs

Exasperated observers – probably the ones who made the wrong bet – often claim that the markets are incapable of absorbing more than one important thing at a time.

Well inflation was then last Wednesday. Now it’s all about winnings. The macro guys pass the baton to the mic. Top to bottom to bottom, allowing stock pickers to take center stage.

For Terry Smith, one of the City of London’s most prominent fund managers, equity investing is simple: “Buy good companies, don’t pay too much, do nothing”.

It’s a mantra that has encouraged some to describe the star fund manager as Britain’s Warren Buffett – a moniker that has made his flagship fund Fundsmith Equity, worth around $27 billion and with exposure of 74% in the United States, a particular attraction for retail investors.

And it’s that stoic approach that Smith says is all the more important in these troubled times, when investors may be encouraged to bail out good companies simply because their stock prices are struggling.

“In times of inflation, an acronym that is sometimes used to describe investment options is TINA – There Is No Alternative,” Smith wrote in his latest letter to investors.

“It refers to the concept that equities will be the worst performing sector under such conditions due to the ability of at least some companies to continue to grow their earnings in real terms and generate real returns on capital above the inflation rate.”

Fixed-income bonds aren’t the place to be anymore, he says. Real estate may offer some security, but offers low liquidity and high trading costs.

Commodities have done well lately, but he is wary that they offer no inherent return, with no interest coupons, dividends or reinvested earnings.

“Investing in them is pure big booby theory – you can only make money by selling them to someone willing to pay more than you did. I have no confidence in my ability to accomplish this. All of this may indicate that there is no alternative to equities, even though they have performed poorly so far this year,” Smith writes.

He acknowledges that it may be tempting for some to sell stocks and move into cash to avoid further market declines. The Fundsmith Equity fund is down almost 17% year-to-date, although it has outperformed the S&P 500 and is up around 65% over the past 5 years.

But he adds: “Timing is key to doing this and if you haven’t already, I think we can safely say you missed the summit. Getting roughly the other side of the trade will almost certainly mean buying back stocks when economic conditions are at their darkest. It’s a skill that few, if any, have. Meanwhile, the time spent in cash while waiting is not a good inflation bolthole.

Returning to his fund’s performance, Smith notes that the five biggest detractors in the first half were PayPal PYPL,
+5.74%,
Meta META,
+4.15%,
IDXX IDXX,
+0.95%,
Intuit INTU,
+3.46%
and MicrosoftMSFT,
+0.50%.
From Meta, he says it is now the lowest-rated stock in the fund, trading on a free cash flow yield of over 8%. “At this level it’s either cheap or a so-called value trap. We’ll let you know which when we find out, but we’re inclined to believe it’s the former.

“Sooner or later stock prices reflect fundamentals, not the other way around.”

The buzz

After poorly received results Thursday from JPMorgan JPM,
+4.86%
and Morgan Stanley MS,
+4.89%,
Friday saw Citigroup C,
+13.91%
and Wells Fargo WFC,
+6.61%
pass to the plate. Traders initially liked the numbers from Citi, Wells, not so much.

US retail sales data for June was slightly better than expected, up 1% month-on-month versus a forecast of 0.8%. The University of Michigan consumer sentiment report is due shortly after the opening.

More worries about the outlook for global growth after data from China showed the world’s second-largest economy grew just 0.4% in the second quarter.

Big tech companies may seem cautious about hiring, but Amazon AMZN,
+4.36%
adds 4,000 workers in the UK Separately, the Wall Street Journal reported that Amazon was reducing its private label business.

Pinterest shares PINs,
+16.71%
are up 14% in premarket trading after a report that activist investor Elliott Management Corp. has built a more than 9% stake in the social media company.

Burberry BRBY,
-3.76%
the results are disappointing after the restrictions imposed by the COVID-19 in China.

Aston Martin AML,
+23.70%
The action is accelerating on the announcement of an injection of 653 million pounds sterling (772 million dollars) while Saudi Arabia takes a 17% stake.

The steps

S&P 500 ES00,
+1.56%
futures climbed 0.4% and Nasdaq 100 NQ00 futures,
+1.36%
also increased.

Copper HG00,
+0.81%,
the industrial metal baron, fell to its lowest level in 21 months on concerns over demand from China.

Table

“It’s all about recession risk in the market right now,” said Deutsche Bank strategist George Saravelos. The graph below shows how expectations have evolved this year. “Following Wednesday’s US inflation report, the market now expects a full US recession by the end of 2022,” he said.

German Bank


Best Tickers

Here are the most active stock tickers on MarketWatch as of 6 a.m. Eastern Time.

Teleprinter

Security Name

EMG,
+1.24%

stoppage of play

TSLA,
+0.54%

You’re here

CMA,
+0.30%

CMA

NIO,
-1.94%

NIO

AAPL,
+0.36%

Apple

TWTR,
+3.25%

Twitter

AMZN,
+4.36%

Amazon

NVAX,
+5.31%

Novavax

GOV,
-4.98%

Canou

TLRY,
-10.70%

Tilray

Random plays

What does the Twitter Sentiment Index say about the wisdom of the crowd market?

A seemingly friendly mammal.

A seemingly hostile human who wants a dog.

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