Veteran stock picker Peter Morgan says US markets are running on news rather than fundamentals. In Australia, it’s the unwinding of stimulus that most worries him.

Legendary value investor Peter Morgan says the unwinding of pandemic stimulus measures in Australia and across the world is yet to play itself out, and has warned that the US sharemarket has entered a danger period of trading more on bits of news than fundamentals.

Morgan, who helped transform Perpetual from a $70 million minnow to a $7 billion giant during the 1990s before going on to establish the $9 billion fund manager 452 Capital, told a podcast hosted by Louise Walsh, CEO of listed investment company manager Future Generation, that big jumps in individual stocks on US markets underscored the volatility

Watching stocks such as Apple, Tesla and even Walmart leap by tens of billions of dollars in single sessions in the last few months has only heightened Morgan’s caution on US shares.

“A lot of the market seems to be trading on news and not fundamentals. Which is a dangerous sign,” he says.

“No one rings a bell at the top but I think we are getting closer to midnight in terms of where the US market is.”

Morgan says the pandemic was very different to the four big market events of his career – the crash in 1987, the tech wreck in 2001 and the GFC in 2007 and 2008.

The volatility seen in March, when markets gyrated wildly as economies around the world were shut down to fight the pandemic, was unlike anything Morgan has seen.

But there are other important differences with this crisis. For example, interest rates are still so low following the GFC that central banks have relatively limited firepower to tackle COVID-19 and so governments must step in with fiscal support to a greater extent.

No one rings a bell at the top but I think we are getting closer to midnight in terms of where the US market is.

— Veteran stock picker Peter Morgan

But that stimulus cannot last forever, and it’s that fact that has Morgan cautious.

“The biggest concerns that I’ve got with regard to markets is you’ve still got lot of stimulus to unwind, not only in Australia,” he says. “I am still of the view that it’s still early days.”

The podcast contains some great anecdotes on Morgan’s career, including why his investment team at 452 Capital was more than 60 per cent female. Rather than an intentional push to improve diversity, Morgan says the firms’ gender balance stemmed from him recognising that men tended to talk to female investors in different ways, including being more open with them.

“It really worked well, he says. “It was different and it’s like a lot of things, if you’re different you do get an advantage from it.”

Another great nugget is Morgan’s philosophy now he’s semi-retired and running his own money. His number one priority now is not to lose money.

“When you’re a fund manager you’re investing against a benchmark or an index. You can still lose other people’s money but you can outperform an index and over time maybe be rewarded for that outperformance.”

Morgan is an investor in Future Generation and holds a number of listed investment companies in his portfolio, arguing many are trading at attractive discounts and actively trying to close that discount.

“If you’ve got a 20 per cent discount there you’re buying a $1 of asset value for 80¢.”

He’s also closely following Cairns-based casino operator Reef Casino Trust and is taking a look at some sold-off fossil fuel companies in coal miner New Hope and oil and gas giant Woodside.

But Morgan, who had one of his first jobs working for a bookmaker, says investors need to keep in mind that you can’t win ‘em all.

“I think it’s important to say if I’m doing a good job, or any investor’s doing a good job, they’re only going to get seven out of 10 – if they’re doing a very good job.”

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