The Rules of Investing

An inflection point for Aussie shares

In recent months, much has been said on growth versus value, and tech stocks versus cyclical stocks. But focusing on these labels misses the true underlying driver of these trends: duration. 
But what exactly is duration? A ‘long duration’ asset simply means one where a large portion of the returns are expected to happen in the distant future. These stocks are highly sensitive to changes in long-term interest rates, and they've taken a pounding so far in 2021.
“Very small moves in interest rates can have outsized impacts on valuations. Our concern is that a steepening yield curve could cause these businesses to be repriced quite quickly,” explains David Moberley from Paradice Investment Management.
Long-term interest rates are on the rise, and according to some experts, this tend is likely to stick around. With many of the ASX's winners in recent years firmly from the 'long duration' category, and many of the underperformers in the 'short duration' category, this could be an inflection point for Australian equities.
In this episode of The Rules of Investing podcast, we discuss how his experience at a start-up helped him as an analyst, why Australian gas stocks are well placed for further appreciation, and we hear why CSL's collection problems are likely to just be transitory.

The biggest question facing investors today

All investors are at the mercy of interest rates. As interest rates go down, asset values go up, which has been a huge supporter of returns in recent years. But it works in reverse too. As we’ve seen recently, when rates go up, it can trigger volatility and asset price falls. Or to put it another way, as Charlie Jamieson from Jamieson Coote Bonds says; “interest rates are the virus that affects all assets.” So, with the economy firing back up, and with inflation and long-term interest rates beginning to rise, investors are understandably nervous.
In this week’s episode of The Rules of Investing podcast, I speak to Charlie about what’s happened in recent weeks, where rates could be headed, and why it matters so much. We also discuss how to make money from bonds - beyond just collecting a coupon, and the biggest risk facing markets today.

The 15 stock portfolio

Most equity investors would advocate holding a highly diversified portfolio of 20 to 50 stocks, looking to reduce risk and bring returns closer to that of the index. But this attitude misses a key fact, according to Bob Desmond from Evans and Partners - volatility is not the same thing as risk. Instead, Bob prefers to own a concentrated portfolio of just 10-15 stocks, which allows him to focus on the best ideas.
"Good ideas are so rare that if you find a good idea, you should really concentrate your capital in it."
In this episode, we discuss investing during high inflation and some of the unexpected challenges this throws up, where he sees pockets of excess and where he's finding opportunities in equities, and why he thinks tech stocks still offer attractive returns.

Finding value in dark corners of the market

Steve Johnson has built a reputation for himself and the team at Forager Funds for uncovering value in dark corners of the market. But in recent years, he’s learned the need for patience in this area, as extreme opportunities are not always apparent. That’s why, when markets are functioning normally, he keeps a core portfolio of high-quality businesses that he’s happy to hold. But when markets start to get dysfunctional, like in 2020, and prices depart far from values, this capital can be recycled into some of these opportunities for outsized returns.
In this episode of The Rules of Investing podcast, we discuss how he’s balancing the portfolio to ensure performance in the good times and the bad, why Uber is misunderstood, and he discusses some Australian turnaround stories that the market hasn’t yet woken up to.

Buy Australian for the next recovery phase

Guest: Jun Bei Liu, Lead Portfolio Manager, Tribeca Alpha Plus Fund
After a tumultuous 2020, the world is (slowly) beginning to recover. With two successful vaccines announced, and the virus largely quashed in Asia and the Pacific, the time for ‘lockdown stocks’ is behind us, and the ‘recovery play’ has begun. But not everywhere is recovering at the same pace. While early progress from Europe’s lockdowns appear positive, the region has a long way to go. And the US has barely begun. Australia, however, is perfectly placed with the virus under control both locally, and in our biggest trading partner, China.
Jun Bei Liu, Lead Portfolio Manager of the Tribeca Alpha Plus Fund, reckons that Australian equities “are in a pretty sweet spot, compared to global.” With consumer and business confidence rising, the de-leveraging of household and corporate balance sheets, and historically low rates, all the ingredients are there for a strong performance from Australian equities.
In this episode of The Rules of Investing podcast, we discuss the re-opening trade and how to get exposure to it, how the ‘barbell’ approach helps to maximise returns while managing risk, and Jun Bei shares a high quality company she's recently added to the portfolio at a very attractive price.

The biggest trends to watch in the next 5 years

Guest: Amit Lodha, Fidelity.
Identifying key global trends in business and investing requires an overview of the world that few investors can achieve. But with an army of Fidelity analysts at his back, and a truly global focus, Amit Lodha is uniquely positioned to spot and act on these trends. When searching for these trends, Amit wants to find keywords - what he calls his "anomaly watch". Six years ago, the keywords popping up on his anomaly watch were "personalisation" and "simplification". Those trends led him to investments in companies like Facebook, Apple, and Google.
More recently, the words that keep popping up on the anomaly watch are “collaboration” and “decentralisation”. In this episode of The Rules of Investing podcast, he explains the significance of these trends for the years ahead. We also hear about the time he met legendary investor Peter Lynch, and the lesson Peter shared with him.

3 early warning signs it’s time to change your view

When a stock has been in your portfolio for a while, it’s easy to get attached to the position and ‘anchor’ yourself to old information. In recent years, Simon Shields, Principal at Monash Investors, has shown repeatedly his willingness to change his view. He’s made money on both the long side and the short side on stocks like Kogan, Qantas, and Corporate Travel Management. So when I recently sat down with him for the latest Rules of Investing podcast, naturally, I wanted to know how he went about it. He pointed to three key “early warning signs” that he looks for that indicate it could be time to reduce a position:
A spike in short interest
An unexpected downgrade by the company (not by analysts)
When a company fails to meet their ‘signposts’ that are expected along the way.
He expands on all these points in this episode. He also shares an under-the-radar small cap that’s perfectly positioned for an outstanding 2021, and he nominates a controversial stock as one he’d hold if the market were closed.

Sell-offs are a buying opportunity. Don’t get off the train

Investors remain nervous after the massive sell off in February and March, but Matthew Kidman from Centennial Asset Management says that any sell off (such as we've seen in the week since this was recorded) should be treated as a buying opportunity.
"If the market does come away in September, use it as a buying opportunity. Now is not the time to get off the train. Now is the time to buckle in, ride a few bumps out, and we're gonna go again."
In this episode of The Rules of Investing podcast, we discuss the curious origins of Buy Hold Sell, why investors should treat any sell off as a buying opportunity, and we get his view on a range of Aussie small caps, including OohMedia, Adairs, and iCar Asia.