At Avestix, our investment methodology is to invest into high-quality businesses and companies that have a distinct advantage over its competitors which allows it to protect its market share and profitability as we believe these types of companies will prosper through tough times and offer competitive advantages in the long term. Avestix always cross-compare companies, we read quarterly’s and annual reports over the last 10 years, and proxy statements to understand executive compensation and how shrouded option grants are rewarded. Avestix identifies those companies that have significant advantages and listed on Global Exchanges.
Avestix strives to make long term investments that have truly compelling risk-reward characteristics. We pride ourselves by always seeking a Margin of Safety when investing comparing to people who chase growth, who chase highflyers, inevitably lose because they paid a premium price. They lose to those who have more patience and discipline. It’s easy to talk, but in real life, we see situations that are just plain mispriced like our current market. Fiduciaries are legally required to act in what they believe to be in the best interest of their clients. You’d be hard-pressed to find one who would set up a highly concentrated portfolio since it runs counter to conventional thinking and most business models. Avestix will run a highly concentrated portfolio, we will devote time and care to the selection of these securities that are both sound and more attractive than the average.
The collapse of the stock market at the end of 2018 might be a precursor of what might lie ahead. We believe the trade war with the USA and China will deteriorate after the elections. Avestix is seeing extremely high valuations as well and P/E multiples similar to the year 2000 just before the tech bubble crash, all of this against a backdrop of economic and corporate earnings contraction, triggered by COVID-19. The Tourism and Reit industry worldwide has faced a complete utter collapse, with Qantas estimating international flight to occur only in March 2021. Avestix believes corporate solvency will become a particularly important factor in the coming months ahead.
Hotels have raised billions in debt to combat expenses and employee layoffs, along with Airlines and cruise lines doing the same. The oil industry had cratered in April seeing oil trade in negative territory for the first time ever causing an unprecedented amount of bankruptcies. The retail industry in every US city in the country will be confronted with dying malls and vacancy-pocked shopping districts. As this recession grinds on over the next year, forcing closures and more bankruptcies. Avestix believes the return on investment with corporates that have raised billions in debt, will dilute shareholder earnings as many companies have stopped paying dividends as well.
Avestix has noticed that Collateralized loan obligations, worth more than $1 trillion worldwide, have become a concern for banks and other companies. Insurers, hedge funds, pension funds and structured credit funds face the potential for significant losses in these CLOs. These CLO’s are hidden in the footnotes of Bank and Insurers annual reports along with “variable interest entities” These VIE’s were created with Special purpose entities that are held off-balance sheet and have started to become delinquent. These VIE’s were created to help junk type companies that could not get finance or raise debt through bonds themselves, this could become problematic. Currently, the financial system seems relatively stable. Banks can still pay their debts and pass their regulatory capital tests. None of this means, of course, that stocks won’t correct or that they might not descend into a new bear market as it will depend on what happens in the future and how this forbearance and extension scheme plays out for banks worldwide. Avestix is confident that this is the next bubble, and, bubbles can extend for a long time and create turbulence and detrimental impacts for the share market. Therefore, value investing and careful consideration of all aspects of companies before investing are now more important than ever before.