The Rules of Investing

Matthew Kidman: Get ready to run with the bulls

Matthew Kidman is a well-known entity to readers of Livewire, as host of Success and More Interesting Stuff, Buy Hold Sell, and most recently, Livewire Live.
Finally, we got him in the hot seat to run us through his own journey into funds management, his approach to investing, and the way he’s thinking about markets today.
From hard truths on a squash court to starting his own shop, Centennial Asset Management, Matt’s story is one of happenstance.
It’s also a story about the importance of mentors and networks. To steal a line from Top Gun, the list is long but distinguished. Geoff Wilson, John Sevior, Anton Tagliaferro and Peter Morgan, to name but a few.
Their influence can be seen in the way Matt runs Centennial Asset Management and its Level 18 Fund. While it focuses on value and small caps, it’s got a highly flexible mandate that lets it ride momentum when the market is on, go short when it’s not, and preserve capital when crises hit. 
We cover all these topics, and more, in this bumper episode.
Note: this episode was recorded on September 20, 2023.
Timestamps
0:00 - START2:16 - Hard truths on a squash court5:50 - Getting a start in journalism6:30 - Landing book deals with Geoff Wilson16:30 - 13 years at Wilson Asset Management20:30 - Taking time off to do a PhD22:30 - Mentors in finance26:20 - Bottoms don't have to be V-shaped29:50 - Key lead indicators33:40 - From hard landing, to soft landing, to no landing36:30 - China's in the hurt locker41:00 - Buying growth43:50 - Financials45:30 - A flexible mandate47:40 - Hiding in large caps51:30 - Riding a market bounce with smalls54:20 - Moving into quality58:30 - Is lithium crowded?01:01:27 - Watch rates01:06:16 - Bottom drawer stock
WANT ACCESS TO STOCK IDEAS?
You told us you’re looking for an edge in investing. As the principal sponsor of Livewire Live 2023, Bell Direct is giving you exclusive access to 3 Bell Potter stock reports each week PLUS the chance win a share of 3 million Velocity Frequent Flyer Points. Get your reports and enter the Velocity competition now. Competition ends 31 October 2023. Entry conditions and eligibility criteria apply. NSW Authority No. TP/02866, SA Permit No. T23/123, ACT Permit No. TP 23/01592
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Hedge fund managers never name their shorts. This one does...

Short sellers have had a tough time of it over the past decade. The era of free money lifted all boats, including companies that would perhaps otherwise be candidates for short selling. 
Today's market is radically different. Central banks have lifted rates in a desperate attempt to control inflation. Global equity markets have performed well, but much of that performance can be attributed to the tech titans of the Nasdaq. 
Consumers have less money to spend, while costs are up and top line revenue is down. 
This is fertile hunting ground for short sellers. 
Short selling is risky, and beyond the capacity of most normal investors. But that doesn't mean that normal investors can't take on board short seller's methods and positions, and steer clear of certain companies accordingly. 
I speak to a lot of hedge fund managers about their methods, however most aren't willing or able to expose their actual short positions. 
Dr David Allen, who manages Plato's Global Alpha Fund, has no such qualms. 
In this episode of The Rules of Investing, hosted by David Thornton, Allen explains his red flag system for identifying shorts and some of the companies it's identified. He also discusses his his long process, which draws on elements of growth, value and quality. And it wouldn't be an episode of ROI without Allen naming some of the companies he has conviction in right now. 
Note: This episode was recorded on Tuesday September 19, 2023.
Timestamps
0:00 - START2:00 - Life as a professional athlete3:20 - JP Morgan (and surviving the GFC)8:00 - Combining growth, value and quality16:00 - A red flag system for finding shorts20:40 - The most common red flag in today's market21:55 - Two high conviction shorts on the ASX26:00 - Access to the C-suite isn't what it used to be27:00 - Is Qantas (ASX: QAN) a bargain or value trap?34:55 - Does nVidia deserve its valuation?37:57 - You don't need to be concentrated to generate returns39:17 - A humbling experience43:30 - This drug will change the face of healthcare
 
WANT ACCESS TO STOCK IDEAS?
You told us you’re looking for an edge in investing. As the principal sponsor of Livewire Live 2023, Bell Direct is giving you exclusive access to 3 Bell Potter stock reports each week PLUS the chance win a share of 3 million Velocity Frequent Flyer Points. Get your reports and enter the Velocity competition now. Competition ends 31 October 2023. Entry conditions and eligibility criteria apply. NSW Authority No. TP/02866, SA Permit No. T23/123, ACT Permit No. TP 23/01592
Get my 3 Bell Potter stock reports now.

Bob Desmond names his ”forever” stock

We're constantly told that diversification is the only free lunch in finance. Yet most of the world's top investors choose not to eat it. 
Warren Buffett, Charlie Munger, John Maynard Keynes, Lou Simpson, George Soros. All run concentrated portfolios.
Today's guest on the Rules of Investing is similarly esteemed, with a similarly concentrated portfolio. 
Claremont's Bob Desmond runs a portfolio of just 10-15 "quality growth" stocks. And many of the stocks he owned during the 'free money' period of high liquidity and high growth are the same stocks he owns today. 
In today's episode, Bob explains why quality growth is the best strategy in all markets, why investors shouldn't react to "bear porn" headlines, why nVidia might not be overpriced despite its recent run, and the one stock he would love to own "forever".   
Note: This episode was recorded on Monday September 11, 2023.  
 
Timestamps0:00 - START1:46 - Surprises and uncertainty2:46 - Is nVidia overvalued?8:14 - Predicting the future is a mug's game9:40 - Trouble at Apple12:09 - Markets change, so pick companies that [mostly] stay the same15:40 - Forever stocks17:41 - High conviction bias21:50 - When's the right time to sell?26:50 - Don't get sucked in to "bear porn" headlines28:30 - Do investors sell out of growth too soon?34:10 - Sidestepping the GFC35:30 - Quality is armageddon armour41:01 - A bullet proof business modelWant access to stock ideas?You told us you’re looking for an edge in investing. As the principal sponsor of Livewire Live 2023, Bell Direct is giving you exclusive access to 3 Bell Potter stock reports each week PLUS the chance win a share of 3 million Velocity Frequent Flyer Points. Get your reports and enter the Velocity competition now. Competition ends 31 October 2023. Entry conditions and eligibility criteria apply. NSW Authority No. TP/02866, SA Permit No. T23/123, ACT Permit No. TP 23/01592Get my 3 Bell Potter stock reports now.

3 reasons why the US economy has achieved a miraculous ”soft landing”

Ten years ago, investing was an easy game. Thanks to rates near zero and reckless fiscal spending, markets were drunk on liquidity.
There was multiple expansion across the board, and winning was relatively easy. Pick an index, sit back and let multiple expansion take care of the rest.
Today’s reality is far different. Volatility is high, correlations are weak, and the once reliable 60/40 portfolio is, well, not so reliable.
In today’s episode of The Rules of Investing, I sit down with Frances Lim, Managing Director and Head of Asia Pacific Macro at KKR.
Francis strikes a refreshingly positive tone on the market today, pointing out that wages, nominal GDP and earnings are all above trend.
Frances gives us a full macro appraisal of US and Asian markets, the state of China, how she views investing in 2023, and where she’s finding value in the market.  
Thanks again to Bell Direct for their support of this podcast. And remember, for a limited time, you can get 3 current Bell Potter stock reports each week. It’s the kind of exclusive research that can give investors an edge. So go to Bell Direct and look for the Livewire logo to get your Bell Potter stock reports now.
Note: This interview was recorded on August 22, 2023.
Timestamps
0:00 - START1:50 - Soft landing?4:20 - A great setup for companies7:17 - The health of corporate America10:17 - What's happening in China?14:00 - China's trickle-down economics19:00 - Correlations in trouble23:10 - Time for a 40/30/30 portfolio24:27 - The best risk-adjusted return27:40 - Is passive investing enough?29:40 - The role of thematic investing31:30 - How active should active investors be?32:40 - The best opportunities in Asia right now
 

Blackwattle’s Ray David is raising red flags about market darling CSL

There are a select few stocks on the ASX that boast true market darling status. Whereas other stocks sell off at the hint of bad news, market darlings seem to emit an aura effect on markets that itself attracts investment.
Biotech company CSL is arguably the Aussie market’s preeminent market darling, having returned 5,741% since inception.
For a while, it seemed like CSL could do no wrong. But even royalty can be dethroned...
Today’s guest is Ray David, Portfolio Manager and Partner at Blackwattle Investment Partners. Alongside Joseph Koh, Ray runs Blackwattle’s brand new Long-Short Quality Fund.
Ray has a red flag system for identifying his short and underweight positions. He put CSL through the ringer, and as you’ll learn today, it spat out a sea of red flags.
He also discusses the Ponzi scheme that sparked his interest in investment finance, why he’s bullish BHP irrespective of the commodity cycle, his overweight positions in industrials, and the media company with the best suite of assets on the ASX.     
Thanks again to Bell Direct for their support of this podcast. And remember, for a limited time, you can get 3 current Bell Potter stock reports each week. It’s the kind of exclusive research that can give investors an edge. So go to Bell Direct and look for the Livewire logo to get your Bell Potter stock reports now.
Note: this interview was recorded on August 15, 2023
Timstamps
0:00 - START
1:56 - A ponzi introduction to finance
5:30 - Lessons from the the Buy and Sell sides of the industry
10:00 - Have risk assets beaten central banks?
11:46 - The bear case for banks
14:00 - Defining 'quality'
18:00 - A new era for short selling
22:54 - Red flags for CSL
27:00 - Overweight industrials
29:10 - The best asset book on the ASX
30:26 - Reporting season buys
34:40 - Mining needs explosives
37:37 - Franchising done right
 
 

Livewire Live is back in 2023!

Livewire Live is an investor event like no other where Australia’s most experienced investors will debate the critical topics in markets right now.
It is set to be an unmissable event with an exceptional lineup of speakers and innovative formats. Tickets will sell out, secure your spot here. 
Speakers
We will be announcing additional speakers in the coming weeks.
Robert Millner, Chairman, Washington H Soul Pattinson
Bobby Yazdani, Founder & Partner, Cota Capital
Andrew Clifford, Co-founder, Co-Chief Investment Officer & CEO, Platinum Asset Management
Martin Conlon, Head of Australian Equities, Schroders
Nick Griffin, Chief Investment Officer, Munro Partners
Mark Landau, Joint Managing Director & Chief Investment Officer, L1 Capital
Christopher Joye, Portfolio Manager & Chief Investment Officer, Coolabah Capital
Matt Williams, Head of Australian Equities, Airlie Funds Management
Mary Manning, Portfolio Manager, Alphinity Investment Management
Phil King, Chief Investment Officer, Regal Funds Management
Tim Carleton, Principal & Portfolio Manager, Auscap Asset Management
Jacob Mitchell, Chief Investment Officer, Antipodes Partners
David Allen, Head of Long Short Strategies, Plato Investment Management
Casey McLean, Portfolio Manager, Fidelity International
Andrew McKie, Portfolio Manager Elston Investment Management
Alexandre Ventelon, Head of Research and Investment Strategy, Morgan Stanley Wealth Management
Dania Zinurova - Portfolio Manager, Wilson Asset Management
Marcus Burns - Portfolio Manager, Spheria Asset Management
Diana Mousina - Senior Economist, AMP
 

What do counting cars and delivering an 18% pa return for investors have in common?

There is a good reason why Australia’s sovereign wealth fund, the Future Fund, maintains a 16% allocation to private equity. Returns, returns, returns.
Private equity, and the lucrative returns it offers, has traditionally been the restricted domain of institutional investors and off limits to retail investors.
Ellerston Capital's JAADE Private Assets Fund bucks that trend by offering retail investors exposure to unlisted Australian growth companies. Like private equity, JAADE’s managers act as a partner with the companies it invests in by holding a space on their respective boards.
It’s a model that clearly works.
As of June this year, the retail fund has returned 14.48% pa over three years and almost 18% per annum since inception.
In today’s episode, Livewire's David Thornton sits down with Jayne Shaw, Investment Director at Ellerston Capital and analyst for the JAADE fund. Jayne didn’t take the typical road into funds management. Initially trained as a nurse, she went on to take a number of roles in leadership positions in healthcare organisations. This appropriately explains why Jayne looks after the healthcare allocation within the JAADE fund.
She also explains why the “carpark indicator” is a great way to know when the deals are on in private equity. 
Topics include:
the evolution of private equity over the last few years,
today’s deal flow,
the first order principles that guide Jayne’s process; and
the investment case for Mable and Prospection – two companies that are shaking things up in the healthcare space. 
Timestamps
0:00 - START2:30 - An uncommon journey5:03 - Private equity has changed10:17 - Dry powder12:16 - Counting cars14:00 - JAADE 16:00 - It all comes down to the people19:58 - Hard conversations21:30 - Earnings runway22:25 - Mable25:40 - Prospection32:39 - Why healthcare companies are good investments37:07 - Don't put too much weight in the past42:00 - A company for the bottom drawer

Regal’s ultimate guide to microcap investing in 2023

If there is one request that we repeatedly receive from our audience, it’s that you want more content on the wonderful, often under-covered world of microcaps. 
It makes cents (literally). These stocks usually fly under the radar of the masses, providing diligent investors with the opportunity to invest in mispriced stocks and generate capital growth over the long term. 
However, investing in this area of the market comes with its risks. In 2022, the S&P/ASX Emerging Companies Index suffered a brutal blow (it fell 24%), with one Livewire contributor describing it as a "killing field". This year, however, the Index has lifted around 3%, but it hasn't been a tide that has lifted all boats. 
So in today's episode, we're joined by microcap expert Jessica Farr-Jones, the portfolio manager of the Regal Emerging Companies Strategy*. She shares why she is feeling bullish about the opportunity in small and micro caps, some of the stocks that have her excited, as well as a deep dive into what small and microcap investors can expect this reporting season. 
And yes, if the last name sounds familiar, she’s the daughter of Wallabies great Nick Farr-Jones, who now also works in funds management as a mining specialist.
*Note: This strategy is only available to wholesale investors. However, around 25% of the Regal listed investment trust (ASX: RF1) is exposed to the Emerging Companies Strategy, which investors can access on the ASX.