This has led to widespread head-scratching. How can Tesla be worth so much more than those selling many more vehicles? How could the clever hedge funds betting against it have been so wrong? We’ll be trying to answer these questions in future issues in a series of articles looking at some of the most important companies on the US market – important not just because of the attention they attract, or because their technology is reshaping the world, but also because you don’t have to invest directly in overseas shares to have significant exposure to them.
Indeed, many of the most popular and best performing funds have an international flavour – even if you invest passively, the trajectory of companies like Amazon or Apple matters given their dominance of major indices. Yet it seems there is a tendency to take a leap of faith and not look under the bonnet at the companies driving fund and index performance, especially overseas ones. Fundsmith’s excellent annual letter, which landed on our doormat last month, tells us which companies helped it to a 25.6 per cent total return last year – Microsoft, Estee Lauder, Facebook, PayPal and Philip Morris – but beyond the headlines how well do UK investors really understand them? It’s a knowledge gap we plan to fill in future – you may have already noticed more international companies in our tips and results sections, including Orsted and Disney this week.
Meanwhile, it seems unlikely that Tesla’s shares will grace Fundsmith anytime soon, given its strategy of buying good companies at fair prices. After this week’s price action, they trade on 111 times forecast earnings and it seems unlikely that we – or anyone else for that matter – will be able to piece together any fundamental analysis to justify the acceleration of the upward move. Perhaps that’s why at times like these, when certain markets have all the hallmarks of a mania – a phenomenon as infectious as the coronavirus – many choose to give up on fundamental analysis altogether. Yet the performance of Simon Thompson’s value-driven Bargain Shares portfolios – updated with his 2020 selections this week – or quality approaches like Fundsmith’s or Phil Oakley’s Fantasy Sipp suggests that would be rash. And even in the absence of fundamental hooks we can still interrogate the bull case behind hot stocks like Tesla – important, because manias often fade as quickly as they spread.
