The Rules of Investing

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.

Steve Johnson: The search for extreme dislocations

When Walter Schloss founded the funds management firm that bore his name in 1955, markets were a very different place. Schloss harnessed the power of Ben Graham's "net-nets" strategy and managed to outperform the market by more than 5% p.a. over the next 45 years. But could such a simple strategy work in today's deeply researched markets? Steve Johnson, Chief Investment Officer of Forager Funds thinks so. But why isn’t every fund manager pursuing this strategy?
“I still know people who are making exceptional returns doing that… Does it still work? Yes, it absolutely still works if you’ve got $500,000 or $1 million dollars.”
In this week’s episode of The Rules of Investing podcast, we discuss the biases that fund managers and private investors are most susceptible to, how to separate luck from skill, and his approach to properly valuing a business.

Aitken: Trade wars present ‘tremendous opportunity’

Charlie Aitken has a simple investment philosophy: Build a concentrated portfolio of the world's best companies in structural growth sectors. And for this week’s Rules of Investing podcast, I had the rare opportunity to sit down with Charlie for 46 minutes to hear how this translates into practice.
While the market grows anxious about the rapidly metastasising trade war, Charlie explained in our discussion how he sees it as a ‘tremendous opportunity’ to grow exposure to world-leading companies, and went on to nominate four such stocks right in the firing line right now.
I really enjoyed recording this podcast in which we covered a great deal of other ground, including his transition into funds management, advice to his younger self, and why it’s ‘Australia for income - and global for growth’.

Ben Griffiths: Markets are at an inflection point

Guest: Ben Griffiths, Principal and Portfolio Manager of Eley Griffiths Group.
When Isaac Newton first posited that an object in motion would stay in motion unless acted upon, he probably wasn't thinking of stock markets. But hundreds of years later, the same principle has been adapted for investors; or "the trend is your friend" as it's more commonly stated. While this rule of thumb can be pretty handy, there are rare moments in financial markets where everything can turn on a dime, and suddenly that trend doesn't look so friendly. George Soros called these times 'inflection points', and according to Ben Griffiths, Principal and Portfolio Manager at Eley Griffiths Group, we stand at one of these crossroads today.
“It is classic exhaustion price action. Bulls aren’t sure if they’re convinced anymore, and bears are in the process of giving up after that strong run-up from December. It’s what markets do best at turning point; they confound the bulls, they trip up the bears, and they generally exhaust investors.”
In this week’s episode of The Rules of Investing podcast, Ben explains why the Australian economy could be doing better than it seems, how he knew it was time to start buying shares near the bottom of the GFC, and three simple investing rules that’ve served him well.

Finding the next Macquarie Bank

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.

Dr Philipp Hofflin: Beware of the widest moats

Guest: Dr Philipp Hofflin, Lazard Asset Management.