Yesterday’s record full year loss will mark a turning point for BHP Billiton (BHP). The Big Fella, as BHP is affectionately known, got far too big for his boots.
We won’t be seeing senseless acquisitions for a long time. The management team is going to get back to focusing on operating the most efficient mining assets in the world – South32 (S32) has halved its cost of producing some commodities since separating from BHP, which must leave shareholders of the latter wondering what their management team was doing. And the directors have finally sent shareholders the message they had already worked out for themselves – a constantly increasing dividend is an idiotic policy for any business, let alone one as cyclical as a miner.
I discussed BHP this afternoon with Ticky Fullerton on ABC’s The Business (see video below).
It is a perfect example of what I was talking about in Monday’s post (Don’t Lose Sight of Blue Chip Benefits). Some took my comments as a ringing endorsement of the value on the offer at the top end of the market. That’s not the case – we still don’t own one of the top 30 stocks. I just don’t think that now is the time for the average investor to give up on resilient large businesses and chase last year’s returns in small and mid caps. A stock like BHP, owner of some of the world’s best mining assets, is certain to be alive and profitable in twenty years’ time. And today’s price is reasonable. I can’t say the same for some of the rubbish being flogged at the smaller end of the market.
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.