The Rules of Investing

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. 

The only ASX stock with a return on equity of over 50%

Value investing is all about buying stocks that are trading below their intrinsic value. 
In practical terms, that often involves investing in companies and sectors that have been shunned by the market due to particular macro headwinds. 
"It should be no surprise as to where the pockets of opportunity are," says Tim Carleton, Auscap Asset Management CIO and today's guest on the Rules of Investing. 
"They're in the more cyclical sectors that people are most concerned about from an earnings perspective."
In today's interview with Livewire's David Thornton, Tim runs through two retail stocks in the Auscap Long Short Australian Equities Fund that fit this profile. I won't give them away, but one is the only stock on the ASX with a return on equity above 50%, while the other is a long-term compounder poised to take market share. 
He also discusses why he's avoided the tech and energy sectors, what he expects from earnings season, why he doesn't put much weight in earnings beats and misses, and why lithium is a crowded trade (yet remains invested in it). 
Note: This episode was recorded on July 26, 2023. 
Timestamps
0:00 - START1:30 - Have we avoided a hard landing?3:30 - Australian base case4:30 - Reporting season10:00 - Stock prices follow earnings12:30 - A checklist for finding value14:20 - Consumer discretionary in 202317:55 - Two COVID beneficiaries primed for growth20:50 - Avoiding tech and energy23:00 - Lithium is crowded, but does that matter?29:20 - Look past the market's time horizon44:00 - Bottom drawer retail stock
 

Oscar Oberg: Small caps are primed to rally, and it doesn’t happen without these stocks

A year ago I sat down with Oscar Oberg, lead portfolio manager at Wilson Asset Management. His thesis then was that small caps were beaten down and due some mean reversion.
Alas, small caps haven’t done much since then, with the Small Ords returning 3.91%. Yet Oscar’s thesis also remains unchanged. 
In fact, it’s gotten stronger!
Not only is he positioning for a rebound in smalls and microcaps, he’s doing it with overweight exposure to consumer discretionary, a sector that has been tarred and feathered by today’s macroeconomic landscape of high inflation and high rates. As Oscar puts it, “there’s no mean reversion without consumer discretionary.”
In today’s episode, Oscar lays out this thesis and the companies that make it up. 
He also discusses:
the relationship between the tech rally and small caps;
generating return with short-term tactical trades; and
how he deals with low liquidity, 
and the primed aged care stock under takeover.     
Note: This episode was recorded on Tuesday July 20, 2023.
Timestamps0:00 - START1:50 - When will small caps bottom?4:30 - No small cap rally without consumer discretionary6:30 - Profit taking7:30 - Why large cap tech matters to small caps10:14 - 30-40% rally is not out of the question14:30 - Harvey Norman's (ASX: HVN) property backstop16:00 - Wearing the volatility17:00 - Industrials20:20 - Going tactical24:15 - Mermaid Marine26:30 - Body language matters27:30 - City Chic (ASX: CCX) was a mistake29:20 - Managing liquidity in small caps32:45 - Takeover target34:50 - Balance sheets look good36:55 - Going public too early40:25 - The classifieds company for the bottom drawer