When a company begins to falter, Vince Pezzullo, Portfolio Manager at Perpetual Equity Investment Company (ASX:PIC), says there are two important questions to ask. Firstly, you need to work out where we are in the business cycle. Secondly, you need to identify if a company is being disrupted, and how far it has progressed. “It’s an art, rather than a science.” He gives the example of Woolworths; “everyone thought Aldi was going to take over the world. Actually, it was just that Woolworths dropped the ball.” Sell-side reports suggest Armageddon for Woolworths, but he thinks this mightn’t be the case. “The franchise is still intact, and you can see that management is trying to do the right thing by shareholders.” These are important things to consider when assessing whether the change is structural or cyclical. Watch the video to learn how investors can use overseas examples to inform their decisions.
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