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Battle of the investment experts - Boubouras vs. Kidman

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by Peter Switzer

What if this current rally on the stock market was nothing but a bull rally inside a secular bear market? What if that is crap and we are in a sweet spot with our links to China, Japan and India ensuring that this rally is for real?

These were the hot issues I put to two of the smartest guys in the Aussie investment world. They didn’t agree on everything but what they did see eye to eye on is worth jotting down in your little black investments book.

And yes, they did reveal their favourite stocks for long-term investors.

The players

Last night on my program SWITZER on Sky News Business Channel, I pitted George Boubouras, head of investment strategy at UBS Wealth Strategy against Matthew Kidman, director at WAM Capital.

For those who are money fanatics, UBS is a Swiss-owned financial juggernaut and WAM Capital is a listed investment company with a big reputation for understanding how to make money out of buying stocks.

Look to history

Kidman says the Yanks are in a secular bear market and this rally is a bull rally, which could easily correct. However, he did argue that he doesn’t think we will go back to the March lows, but he is inferring that a buying opportunity should emerge across 2010.

That said, he thinks US shares are primed for a big comeback in 2011 and that will coincide with a return to form or at least attractiveness for the greenback.

Kidman says there were secular bear markets in the 1930s right into World War II. There was another in the 1970s and then one that started in the US with the tech wreck. The big boom from 2003 was a bull market inside a secular bear rally, he believes.

No comparison

Boubouras thinks comparing today to other bear markets to draw conclusions ignores the progress with economic policies and special circumstances that exist for the Aussie economy generally.

He says good equities in a well-constructed portfolio returns, on average, 10 per cent, but it’s never a one-year affair. He also argues that you have to have a diversified portfolio, pointing to the fact that people in government bonds funds have made 20 per cent in recent times.

Boubouras says you need to be fully invested across the cycle and you have a diversified collection of assets. He thinks the rally has legs but doesn’t rule out corrections along the way.

Future watch

In truth, the biggest difference between these two guys is that Kidman alluded to a bigger correction next year and can see 2010 being a negative year but he still insisted “you can make money in this market.”

Boubouras was more in line with the guys at Macquarie who think the market rises to 5,420 next year, but there will be ups and downs along the way to that high point. In fact, Martin Lakos from Macquarie told me they have peeled it back because they expect the rising Aussie dollar next year will reduce some of the expected returns.

Stock picks

So what shares do our experts like? Kidman likes Reckon, a company which competes with MYOB. MYOB has recently had price increases, which should help Reckon. It’s also a company favoured by lots of experts on my program.

Another is McMillan Shakespeare, which is a salary packaging company on a good P/E and no debt. However, it could be negatively affected by the Henry Review into our tax system if fringe benefit rules are changed to hit salary packaging.

Boubouras is a portfolio kind of guy but said he likes to buy cyclicals, which do well as a global recovery kicks in. They were Asciano and Aristocrat.

Asciano is in the transport sector, and being one player in a duopoly, is geared up to cash in on any global economic recovery. Meanwhile, Aristocrat is a gaming company, which always does well if the US is growing strongly. You know Americans look at Vegas and their slot machines as heaven on a stick, for God knows what reasons, and so when the Yanks are out of the economic woods they will head to Caesar’s Palace and that will be good for Aristocrat’s shareholders.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, November 17, 2009