The Rules of Investing

Why Allan Gray is still bullish energy and cautious on darlings like CSL

Imagine for a moment that you had a clean sheet of paper from which to build your investment portfolio from the ground up. Would that rebuilt portfolio look the same as what you own today? One could guess that for many people the answer is no, and that if given the chance to start from scratch their portfolios would look quite different. 
Livewire's James Marlay puts this question to Simon Mawhinney, the Managing Director and Chief Investment Officer of Allan Gray, a contrarian investor responsible for oversight of the firm's Australian equity strategies. They also touch on what it means to be a contrarian investor and where contrarian opportunities exist right now.

Simon Shields: These stocks are turning market headwinds into competitive advantage

We're all well aware of the headwinds battering markets today - inflation, supply chain pressures, and rate hikes. Yet it's easy, and misguided, to broad brush the market and expect all stocks to respond in the same way. As you'll learn in this edition of The Rules of Investing, what is a headwind for one stock can be relative value for another. 
Today’s guest is Simon Shields. Simon co-founded Monash Investors in 2012 following stints as head of equities at UBS and Colonial First State. 
Monash Investors are a long/short Australian equity manager with an absolute return focus, which it adopts in its two funds – one listed and one unlisted. Today won’t focus on Simon’s investment style – for that, I urge you to listen to the episode published back on Oct 09, 2020. 
Simon discusses:
The outlook for oil prices, and what this means for Aussie producers
Back to the future for supply chains
What earnings downgrades will mean for stock pricing 
Timestamps:
1:30 - What gave birth to today's headwinds
3:30 - Oil supply in trouble, and the stocks that will benefit
9:00 - Inventories and cost pressures
17:00 - Cost pressures on consumer discretionary
20:30 - Growth discount rates
24:00 - Companies with moats
26:00 - Time for shorts
30:00 - The problem with benchmarks
37:00 - 3 favourite questions

Ben Griffiths: A bull waiting for these three signs to charge at small caps

Global markets are in a world of hurt. This week the Dow Jones Industrial Average nose-dived 1,100 points - its biggest loss since 2020. For all but those with the greatest of risk appetites, it's time to hunker down and weather the volatility storm. 
But the rout won't last forever. As the saying goes, the night is darkest just before the dawn. So being ready for the turn will be key to capturing the growth to come.   
For today's episode of Rules of Investing, we're joined by small cap notary Ben Griffiths, Managing Director and Senior Portfolio Manager at Eley Griffiths Group. Ben is a notary of sorts in the Australian small cap space, having co-founded Eley Griffiths Group back in 2002 with Brian Eley following a successful career as joint head of small companies at both BT Financial Group and ING Investment Management.
Ben discusses the mess markets are in today, and the three signs he's waiting for to know when it's time to start buying. We also take a deep dive into small cap resources - a sector that can't, and shouldn't, be ignored when investing in small caps. 

Charlie Jamieson: Bond market pricing in ”extraordinary” rate hikes

The RBA lifted the cash rate yesterday by 25 basis points, to 0.35%. And just like that, its war on inflation - which it will wage against aggregate demand - is underway. 
The threat of inflation has been written on the wall for some time, though, prompting some to wonder if the central bank has dropped the ball. Today's guest, Charlie Jamieson, co-founder of Jamieson Coote Bonds, questions whether the RBA ever had the ball in the first place, having stated as early as last year that it didn't expect to lift rates for three years.
"It was absurd to think we'd be in 0.10% settings until 2024," says Jamieson. 
The hikes will now come thick and fast, if bond market prognostications are anything to go by. 
"The bond market is pricing the RBA to hike rates higher than the US Federal Reserve... that's extraordinary."
In today's episode, Charlie rates the RBA’s handling of the inflation (and he doesn’t mince his words), how bonds will perform in light of it, and pulls back the curtain on bond portfolio construction - namely, which bonds to include and when. 
1:26 - Did you expect inflation to be that high?
5:05 - Has the RBA dropped the ball?
12:35 - How culpable are central banks for inflation?
20:40 - The yield curve inversion - trajectory for rates?
28:30 - How possible is it for credit markets to freeze up?
31:50 - Bond return expectations
37:15 - How do you balance the duration as rates and expectation change?
41:45 - Active vs passive bond funds?
45:00 - Absolute return vs index bond funds
48:00 - How bad will it get?
50:55 - 3 questions

Like the traditional resources sector? Here’s why you’re gonna love renewables

Conventional wisdom holds that 'traditional' natural resource investments are a sure, safe bet. And justifiably so: Land, from which natural resources have been extracted, is one of the classic four factors of production. 
They offer diversification and inflation protection courtesy of increased pricing power when costs go up. 
It doesn't take much to realise the relevance of these attributes in the current environment. 
But here's the thing. Renewables offer all those benefits and more, according to today's podcast guest Lucas White - portfolio manager for GMO's Resources and Climate Change strategies.
"The broad economy could be struggling, or GDP growth could be flattish or barely growing, but if the world is rapidly transitioning to clean energy, there's no reason why a clean energy strategy couldn't do very well." 
In this episode of The Rules of Investing podcast, you'll also hear why renewable energy will be taking the commodities sector along for the ride, and how GMO filter their clean energy stocks to capture outsized returns. 

The Greatest Hits (Volume 1)

After 4 and a half years at the helm, Patrick Poke is parting ways with The Rules of Investing. Please enjoy some highlights from the most popular episodes of the podcast to date. We also introduce the new host of the show. 

3 ingredients for small cap success

The multi-bagger is the “holy grail” for most small cap investors. Whether you like tech, resources, industrials, or all the above, there’s nothing quite like the satisfaction of watching your stock go up three, five, or even 10 times.
Dean Fergie from Cyan Investment Management has had a few of these stocks in his nearly-25-year career in Aussie small caps. He has noted a few similarities among them – though he freely admits its “obvious stuff”.
The company’s product or service must be scalable.
People love what the company is selling. These types of companies tend to generate ‘buzz’ – think Afterpay in the early days, or for those that remember, Sanity stores when they were being rolled out in the 90s.
People are forced to use it, regardless of whether they like it. He points to Transurban (it was a small cap once!) as a good example.
In this episode of The Rules of Investing podcast, Dean explains how to handle it when markets aren’t going your way, we discuss a handful of Aussie small caps – some well-known, some not so – and he tells us why he thinks it’s time to start putting cash to work after the recent sell off. 

The companies that Wall Street legend Jim Chanos is shorting in 2022

It's not easy being one of the world's most-famous short-sellers. 
As Jim Chanos knows, it takes thick skin to deal with daily negative backlash, and, of course, markets storming "parabolically" higher over the past few years. 
But now the tides are turning, and rather dramatically, according to the 64-year-old Wall Street veteran. In fact, since September 2021, investors have been slowly waking up to misleading accounting practices among the world's most highly valued firms, and their share prices have plunged accordingly. 
And while Chanos is adamant his market predictions should be taken with a grain of salt, he notes that there continue to be several well-loved companies, Tesla included, that still could have a long way further to fall. 
"We have a number of US$100 stocks that we think are probably worthless, because the business model is broken, and yet they are reporting numbers that are not real," he says. 
So which companies could be misleading investors today? In this exclusive Livewire interview, you'll get an inside look at the legendary short seller's view on markets, as well as some of the global companies that Chanos considers to be posting fraudulent financial figures and could be in for a rude awakening over the months to come.