Coronavirus correction could be an opportunity for the smart investor

By Dr Shane Miller

March 09 2020
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Savvy Australian investors looking to buy and hold some of the largest companies in the world would be wise to consider looking beyond the ASX, writes Chi-X Director and Chief Commercial Officer Dr Shane Miller.

Local and overseas sharemarkets entered correction territory in the final week of February as coronavirus fears saw a major sell-off across the board.

While the future remains uncertain, one thing you can count on is that it always will be uncertain, regardless of market cycles and new pandemics.

Yet a quick look at mega caps will reveal the names of some of the largest companies on the planet by market cap: and businesses that have survived numerous headwinds and market cycles, from the 1987 crash to the global financial crisis.

When the world begins to panic, it may be worth looking at companies that have stood the test of time.

Why mega caps?

Financial education website Investopedia describes a “mega cap” as a company with “a market capitalisation above $200 billion”.

The spelling gives away the American origin, indicating that the threshold is $US200 billion. But to be generous, this article considers all companies with a market capitalisation greater than $A200 billion as mega caps.

So, what companies are mega caps? The obvious examples are the technology giants Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL), Intel (NASDAQ: INTC) and Visa (NYSE: V).

Other mega caps that have been in business for many years and navigated many market cycles include:

Johnson & Johnson (NYSE: JNJ)
Merck (NYSE: MRK)
Disney (NYSE: DIS)
Pfizer (NYSE: PFE)
JPMorgan (NYSE: JPM)
Bank of America (NYSE: BAC)
Berkshire Hathaway (NYSE: BRK)
Exxon Mobile (NYSE: XOM)
McDonald’s (NYSE: MCD)

There is a clear trend here: almost every mega cap mentioned above is a household name in Australia.

By contrast, the Australian listed stock with the largest market capitalisation is CSL (ASX: CSL) at $AU140 billion. The company recently edged the top spot from Commonwealth Bank of Australia (ASX: CBA) with a current market cap of $137 billion.

If Aussie investors want mega caps, they won’t find any on the ASX. But they can now buy TraCRs (transferable custody receipts) over every single mega cap mentioned above without setting up a US brokerage account.

Playing the long game

If you consider yourself a long-term investor, rather than a short-term trader, then it’s worth turning your attention to alternative securities and exchanges. Innovation is driving new opportunities and a broader investment universe is never a bad idea when it comes to building an investment portfolio.

Mega caps have been delivering solid returns to millions of investors for generations. While the future will always remain uncertain, history shows that strong companies built on a solid foundation and a long track record are well placed to weather the storm of market volatility.

As mega cap investor Warren Buffett says, “better to buy a wonderful company at a fair price than a fair company at a wonderful price”.

Dr Shane Miller is a Director and Chief Commercial Officer at Chi-X Australia

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