The best protection from a downmarket

With well-publicised crash warnings rattling the market, and Morgan Stanley saying Australia is overvalued and uncoupling from global markets, we ask Marc Whittaker of Investors Mutual, and Joe Magyer of Lakehouse Capital how they view current valuations, and how they approach these market conditions.

“If you’re holding enough quality companies in your portfolio, you’re likely to outperform in down conditions” 

• Ultimate protection against market pullback is holding quality stocks. With quality in this example as defined by recurring revenue, earnings growth that is within company’s control, and better execution than peers. Quality does tend to treat you well across the cycle.   
• Even in a fully priced Australian market, there are always stock-picking opportunities. 
• Also consider option to buy domestic stocks with global businesses.
• Cash levels are currently high across most funds. Many have been trimming positions when valuations full. Lets you re-enter if valuations pull back. Both funds would buy more of existing positions if market collapsed.