The Rules of Investing

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

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.

How to pick growth stocks that will keep on winning

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".

Montgomery: The economics of enough

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.

The five pillars of a quality stock

Guest: Michelle Lopez, Head of Australian Equities, Aberdeen Standard Investments.
As soon as she was able to open a trading account, Michelle Lopez bought shares in ASX, seeing it as a monopoly business crucial to the function of financial markets. She still owns those shares today.
After 15 years with the firm, Michelle was recently made Head of Australian Equities at Aberdeen Standard Investments, a global manager with $914 billion of assets to invest. The small cap fund that she has been managing for the past decade has returned 11.5% per annum after fees, beating the index by 4.9%.

The hunt for predictable cash flows

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.

Abnormal returns

Guest: Dr Don Hamson, Plato Investment Management. Host: James Marlay, co-founder, Livewire Markets.
In year 427BC, the Greek philosopher Plato founded ‘The Academy’, which is considered the world’s first university. It is somewhat fitting then that half of Sydney-based fund manager, Plato Investment Management’s team have PhD’s.
With so much grey matter focused solely on generating equity income for their clients, it’s no surprise the results are impressive. Managing Director, Dr Don Hamson, shared in this interview that their investors will have received 16% gross yield after fees this financial year. That's about 10% above the gross yield of the index, though Don cautions that these were ‘abnormal returns’ supported by some political and corporate one-offs.
So what is the outlook for dividends post-election? In our latest fund manager interview Don addresses this question, highlights one part of the market that remains under-appreciated for income and explains what he believes is the single most expensive asset in the market today.

Skamvougeras: Forgotten opportunities

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.

Watling: Australian recession is still my base case

Back in February, Chris Watling, CEO and Chief Market Strategist at Longview Economics, wrote that a recession in Australia was likely, and that rates would be cut to zero if this happened. While he acknowledges that a lot has changed in Australia since then - not the least of which being the surprise re-election of the coalition government - his base case remains that a recession is on the way.
"The basic thesis on recession is that housing was in a bust phase, and the bust phase will probably be bigger than 10-15% peak to trough. Obviously we're having a bounce in house prices now that questions that, I personally think it's probably a head-fake."
In the latest episode of The Rules of Investing podcast, Chris discusses his views on Australia in-depth. He also shares why the outlook for the US is more positive, shares his favourite chart in the world today, and discusses eight key asset bubbles globally.