Courtesy of The Constant Investor. Alan Kohler interviews Rob Shand, CEO of Blue Sky Funds. This content has been shared with Livewire with the permission of The Constant Investor.

The Constant Investor

Alan Kohler interviews Rob Shand, Blue Sky Funds

This week's guest is Callum Burns, Portfolio Manager of the highly successful SGH ICE fund.

Higher returns require higher risk and volatility… Or at least, that’s what finance theory would tell us. Is it possible to ‘have your cake and eat it too’? Callum Burns, Portfolio Manager of the SG Hiscock ICE Fund clearly thinks so, and he’s got the track record to back it up. His fund has produced 11.88% p.a. over the last 10 years, and he’s achieved this with significantly lower volatility than the benchmark. How’s he done it? In short, by finding franchise businesses, with stable, growing earnings, at a reasonable price. In today’s podcast, we break this down into its parts to understand what really makes him tick. We discuss how he validates his view on a company, how to know when it’s time to sell, and he shares a couple of stock ideas from the local small cap market.

The Rules of Investing: Low risk, high return investing

Geoff Wilson, Founder and Chairman of Wilson Asset Management, discusses how he identifies outstanding fund managers, buying a dollar for eighty cents, and how he and Matthew Kidman worked together to identify when it was time to sell ABC Learning... before it all blew up.

The Rules of Investing: Geoff Wilson and his love affair with LICs

Guest: Tim Slattery, CEO, APN Property Group

With all the focus on residential property, investors could be forgiven for forgetting that other property classes exist. But between office, industrial, retail, and healthcare, there's a whole world of property out there that remains unexplored for many investors. With this in mind, this week's guest on The Rules of Investing is Tim Slattery, CEO of APN Property Group, who's led over $8 billion worth of property deals in Australia and Europe. Tim's experience covers everything from retail and office, through to healthcare and industrial. This in-depth interview covers some of the risks and opportunities in Australian property today, how the GFC changed the face (and balance sheet) of the AREIT industry, and how ecommerce is transforming industrial property today.

Location & Timing: The rules of property investing

Guest: Marcus Padley, Director, Marcus Today.
Popular wisdom from the likes of Warren Buffett, Jack Bogle, and Burton Malkiel (author of A Random Walk Down Wall Street) states that it's near-impossible to consistently time the market, so why even try? Just buy and hold for the long term, and collect your dividend cheque every six months. Marcus Padley, Director of MarcusToday, disagrees. 
"You can't just sit in the market long-term, which is what everybody wants you to do. You have to time it." 
Marcus points out, that the average annual capital return over the last 75 years, after inflation, taxes, and costs is close to zero. In this week’s episode of The Rules of Investing, he explains his process for getting the timing right, why he thinks the housing market is close to the bottom, and his top candidates to surprise to the upside this reporting season.

Padley: The problem with buy and hold

Guest: Robert Millner, Chairman, Washington H Soul Pattinson. 

In the last 117 years, Australia has seen two World Wars, the great depression, introduction of the motor car, 30 Prime Ministers, and every year, Washington H Soul Pattinson (SOL) has paid a dividend. In this week's episode of The Rules of Investing, I sit down with Robert Millner, the longstanding Chairman of SOL. While SOL started life as a pharmaceuticals business, today it's a cornerstone shareholder in TPG Telecom, Brickworks, New Hope Corporation, and dozens of smaller companies.

Over the last 40 years, total shareholder returns have compounded at a rate of 17.3%. This is a record that rivals that of some of the most well-known investors globally.

Tune in below to hear his view on the future of coal and agriculture in Australia, why he's not interested in buying banks at current levels, and what he thinks has been the key to Soul Patts' success.

A century of dividends

It’s a rare opportunity to get to sit down with an economist of the calibre of Tim Toohey from Ellerston Capital. He was formerly the Managing Director, Chief Economist, and Head of Macro Strategy for Australia and New Zealand at Goldman Sachs, where he earned a reputation as one of Australia’s best macro forecasters. In 2017, he joined Tudor Investments’ star portfolio manager, Brett Gillespie, in setting up the Global Macro Fund at Ellerston Capital. So, when offered the opportunity to talk to Tim for the best part of an hour,  I made sure to cover off all the big topics concerning investors today; Australian rates and consumers, Fed policy, the turnaround in China, and of course, the possibility of a housing-driven recession in Australia. Tune in to the latest episode of The Rules of Investing podcast below to hear his take on the world today.

Tim Toohey's macro masterclass

Guest: Campbell Neal, co-founder, Managing Director, and Senior Portfolio Manager at K2 Asset Management.

Finding cheap stocks this late in the cycle is getting harder and harder. Index funds have bid up the prices of large cap stocks to levels not seen since the tech bubble, while mid-cap growth stocks like Afterpay and Wisetech have been bid to dizzying heights. But attractive opportunities are still out there, if you look hard enough. 

This week's guest on The Rules of Investing is Campbell Neal, co-founder, Managing Director, and Senior Portfolio Manager at K2 Asset Management. In this episode, Campbell identifies one ASX small cap that's on a PE ratio of 10, yields 8%, and has all the hallmarks of a mini-Macquarie. 

"I believe it's like a small Macquarie Bank. It's listed here in Australia.... The stock's done extremely well over the few years it's been listed. I think it's going to continue to grow."

Tune in to hear which stocks he plans to short (when the time is right), and why he believes large cap stocks are the most overvalued they've been for many years.

Finding the next Macquarie Bank

Guest: Paul Skamvougeras, Head of Equities, Perpetual.

In the lead up to the tech wreck of the early 2000s Paul Skamvougeras was working on the dealing desk at Perpetual. The ‘value’ focused manager was struggling to keep pace with a market full of exuberance and momentum. Nearly two decades later Skamvougeras, now Head of Equities at Perpetual, says the same patterns and behaviours are becoming prevalent again.

Skamvougeras doesn’t shy away from the immediate challenges facing Perpetual and other value investors; however, he remains uncompromising on the quality of the companies he is willing to own and the price he will pay to own them. 

In this interview, Paul explains why there are certain ‘non-negotiables’ when it comes to buying stocks, shares a forgotten opportunity on the ASX and makes his case for why ‘value’ is not dead.

Skamvougeras: Forgotten opportunities

Guest: Warryn Robertson, Lazard Asset Management. 

An investor's job can be boiled down to two primary tasks, explains Warryn Robertson, Portfolio Manager at Lazard. First, to predict what a company's cash flows or earnings will be in the future, and secondly, to work out how much to pay for those earnings. Estimating two unknowns like this is a big challenge for equity investors, so why not make it easier? By investing in businesses with cash flows that can be easily predicted, this reduces uncertainty, and allows them to focus on the other half of the equation. 

“If you can find a group of companies that has more predictable earnings, more consistent cash flows, you’re making your job as an investor much easier in terms of arriving at that valuation. That is, in essence, the overriding philosophy that I’ve had throughout my investing career.”

In this week’s episode of The Rules of Investing podcast, we discuss some unique benefits that come from investing in infrastructure equities, how he avoids the dreaded "value trap", and one area of investment he thinks could see significant negative returns in the coming years.

The hunt for predictable cash flows

Guest: Roger Montgomery, Chief Investment Officer, Montgomery Investment Management.

Australian house prices and the economy stand at an important crossroads. On the one hand, we have the return of the Liberal-National coalition, the softening of APRA regulations, and rate cuts from the RBA, which all stand to stimulate. On the other hand, we have housing starts down by over 25% over the last year and showing no signs of turning, combined with anaemic retail sales, with the potential to push the economy into a dark place. One rarely discussed dynamic, however, is what Roger Montgomery, Chief Investment Officer at Montgomery Investment Management, calls 'the economics of enough'.

“People have borrowed enough, they’ve bought enough stuff, and eventually growth slows, and that’s where you get deleveraging occurring in the economy, where credit growth is slower than economic growth. I think there’s a risk that we’re now in that deleveraging phase.”

In this week's episode of The Rules of Investing, Roger shares what "quality" really means to him, some lessons on late cycle investing from Buffett himself, and we discuss two outwardly-similar companies with very different long term prospects.

Montgomery: The economics of enough

Nick Griffin, the founding partner and Chief Investment Officer at Munro Partners, is a self-described "growth" investor. In a world where labels are often confusing and unnecessary, he explains how equities differ from other asset classes in the sense that most other asset classes "mean revert" to a certain degree.

In the equities game, stocks can rise by thousands of per cent, yet only fall 100 per cent. And while plenty more fall by 100 than rise by 1000, the stocks in the latter camp are invariably "growth" stocks.

As Nick sees it, the beauty of growth equities, and stocks in general, is that the information dissymmetry between the market participants is so much bigger than it is in other asset classes, given there are so many different variables at play.

These are what enable growth investors to discover great investments.

In this engaging discussion, Nick explains why it is "asymmetrically" in investors' interest to own equities, and that if they can identify those stocks that are benefitting from the structural changes that are happening all around us every day, they will "win".

How to pick growth stocks that will keep on winning

Guest: Matt Haupt, Lead Portfolio Manager, Wilson Asset Management.  
Large cap Australian stocks are often purchased for their income, franking credit, and defensiveness, but can undervalued growth stocks be found at the big end of town? Matt Haupt, Lead Portfolio Manager of the WAM Leaders LIC thinks so, however, it requires a different approach to small caps. At the smaller end of the market, growth is driven by stock specific factors, but among large caps, macro plays a much more important role. 

“You don’t have the growth in the larger companies, because they’re linked to the fundamental economic backdrop. There’s more of a macro factor built into the larger companies.”

In this week’s episode of The Rules of Investing, we discuss his take on the sustainability of the current rally in iron ore, whether or not the recent RBA rate cuts came in time to stop a recession, and his current views on one of the hottest sectors in the market right now.

Value, growth. Why don't we have both?

Guest: Joe Magyer, Chief Investment Officer, Lakehouse Capital. 

Moving to a new country is no easy task, but doing it while managing a portfolio, completing the exams for the Chartered Financial Analyst designation, and dealing with the challenges of parenthood is truly Herculean. That, however, is exactly what Joe Magyer, Chief Investment Officer of Lakehouse Capital, was doing in his first years in Australia. How did he manage all this? As it turns out, saying “no” can be a critical skill. And not just in time management either, Joe says “no” to a lot of new investment ideas too.

    "I've had analysts start before and I've told them, 'look, there's a really good shot that I'm gonna say no to every idea you pitch for the first year. Don't take it personally, you're probably doing really good work, it's just that I'm really choosy.'" 

In this week’s episode of The Rules of Investing podcast, he tells us about the similarities and differences between Aussie small caps and global growth stocks, which global tech stocks will continue to grow and whose stars will fade, and why Visa’s new payment splitting function doesn’t pose a significant threat to Afterpay.

The importance of saying "no"

Guest: Donald Amstad, Aberdeen Standard Investments.

Developed economies are at a crisis point, the powers of unconventional monetary policy are exhausted, and markets are just beginning to wake up to this. That’s the sobering assessment on the current state of the global economy delivered by Donald Amstad from Aberdeen Standard Investments  

His view is that when developed markets finally crack, there will be serious implications for every asset class and economy. However, those economies where monetary policy remains relatively ‘normal’ will be those best placed to respond. In his view, the emerging markets have more levers to pull when compared to developed markets, where the money printing taps have been turned on and interest rate settings are near zero.

The irony is that during the Asian crisis it was the IMF and central bankers from developed markets that convinced the emerging market governments not to print money and ‘take their medicine.’ Amstad says that this was a cathartic process for these economies, and they are now looking on in bewilderment as the West has resorts to money printing of an unprecedented scale.

The developed world is on the brink of crisis

In Australia we’re fortunate to have some very talented women in funds management. Catherine Allfrey is one of them. After a chance encounter at a Wesfarmers event in the late 90s, Catherine was recruited to Colonial First State by Greg Perry – a true ‘Master of the Market’.

This time working with Perry helped to shape her investment philosophy, which seeks to identify those companies that can grow their earnings at a rate higher than GDP. Catherine formed Wavestone Capital in 2006 with her business partners Ian Harding and Graeme Burke with Raaz Bhuyan joining 2014. Today Wavestone manages ~$4.8 billion for institutions and retail clients. 

In this video, Catherine discusses the attributes of companies with superior DNA, shares her view on sectors experiencing tailwinds and explains how she is working to bring more women to investing in Australia.

Catherine Allfrey: Look over the horizon

Guest: Anton Tagliaferro, founder and Investment Director at Investors Mutual. 

Just like in life, an investor’s early experiences can’t help but shape the way they see the world. For Anton Tagliaferro, founder and Investment Director of Investors Mutual, one of those early formative experiences was the infamous ’87 stock market crash. After witnessing the events in New York the night before, Anton and his team tried to guess how far the ASX would fall that day, but even the most bearish analyst in the group was not prepared for the 25% crash that came when the market opened. 

“It taught me a very important lesson; on the day of a crash such as that, everything falls. In a crash, everything falls. The good, the bad, and the ugly. But when sanity prevails and the panic subsides, which it does eventually, people do go back to the stock market, but it’s the good stocks that recover. A lot of the crap, all the froth and bubble, which in the boom was in the headlines all the time, a lot of that stuff goes to nothing.”

In the latest episode of The Rules of Investing, we discuss his current views on Australian banks and retailers, how he first developed IML's investment philosophy, and why he doesn't like the ‘value versus growth’ argument.

Tagliaferro: How the '87 crash shaped my philosophy

Getting started as an investor is a daunting task. Even for experienced investors, information overload can be a problem, but for the new investor, it’s hard to even know where to look for a starting point. That’s the goal of this special mini-series; to provide a starting point for novice investors to begin their journey. 

In this first part of the series, we’ll be discussing issues around personal finance, goal setting, risk and reward, and setting yourself up to get started as an investor. In two weeks’ time, we’ll do a special episode on equity analysis, that I hope will provide the tools required to begin analysing stocks. Finally, we’ll do an episode about portfolio construction and asset allocation – one of the most underappreciated aspects of investing. 

If you’ve got any family members or friends that have been asking you about investing, then this is for them. Please consider whether you know anyone who might benefit from this content, and send it their way. 

This week’s guest is Phil Richards, Director and Wealth Advisor at Endorphin Wealth, and Founder of Smart Home Deposit, an online tool to help first home buyers save for a deposit.

Investing: A how to guide (Part 1)

Equities form a core part of most long-term investment strategies; they offer strong long-term returns, but at the cost of higher volatility than many other assets. But how should investors think about their strategy in this important asset class? That’s the topic of this week’s podcast. 

In part two of this three-part mini-series, I sit down with Hamish Carlisle from Merlon Capital. Hamish is an excellent communicator, and has written some of my favourite pieces of stock analysis on Livewire this year. The goal is to provide the tools and the background needed to get started investing in equities. 

We discuss what makes a great equity investment, some important skills and concepts for new investors to learn, and he talks us through a current practical example of an investment that he thinks is materially undervalued.

How to pick stocks like a pro

Pointsbet, Nearmap and Appen were among the stocks that made it to the Livewire readers’ 10 most tipped small-cap list for 2020. If you missed it, this list singled out the small-caps that received the lion’s share of the 7,000 tips from our annual survey.

In our inaugural Buy Hold Sell episode for the year, we brought together Jun Bei Liu from Tribeca Investment Partners and Matt Williams of Airlie Funds Management to cast their expert eyes over these three picks from the readers.

Watch the video to see whether they passed the litmus test, and to hear about which payments company and consumer cyclical business Jun Bei and Matt are backing, respectively, as their own favourite small-caps for 2020.

(Ed Note: This episode of Buy Hold Sell was filmed on Wednesday 29th Jan)

Buy Hold Sell: 3 most tipped small-caps and 2 fundie favourites

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