The Rules of Investing

Catherine Allfrey: Look over the horizon

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.

The developed world is on the brink of crisis

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 importance of saying "no"

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.

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.