I’m fortunate to be sitting on some significant capital gains in spite of COVID, and all signs are pointing to a prolonged recession when stimulus runs out and with multiple waves of the virus spreading.
Given the capital gains tax is 10%/15% within super (depending on whether you’ve held for 12 months or not), I’ve evaluated whether to take profits and hold more cash waiting for new ideas. Currently I’m at 20% cash.
I’ve elected not to sell down any positions at this stage, and have reviewed each holding below:
KGN: Matt Blatt is the first of what I expect to be many acquisitions of distressed retailers which are then moved to the Kogan marketing machine. There’s a good chance they will continue to grow through this cycle and be a net beneficiary as they acquire other brands.
REH: Another well-run business which is owner-operated, Reece now have a significant footprint in the USA and again, I expect them to make smart acquisitions of distressed businesses.
DDR: Also owner-operated (do you sense a theme here?) Dicker will continue to add new vendors and out-execute their competitors who aren’t as focused. Expect more investment in technology, beyond the initial surge of work-from-home purchases.
DMP: Fast food always does well in a recession, and a delivery meal from Domino’s is 30-50% cheaper than an equivalent order from a local restaurant via UberEats
FMG: Fortescue is the stock I came closest to selling, in case falling demand were to lower the price of iron ore, but they are still incredibly cheap, and there are plenty of opportunities to continue investing capital to realise guaranteed returns, like the solar farm they are building.
VGE/VGS: These Vanguards are just indices to give me some exposure to international and emerging markets, I’ve set them to reinvest the dividends and will leave them on autopilot.
Doing nothing is perfectly valid choice to make, and one which I think people overlook more often than they should. I’m going to keep my cash on had for the time being to look for new ideas, or in case an additional rights offer comes up (for example to fund a large acquisition).