The Rules of Investing

While Warren Buffett's favourite holding time may be forever, the average holding period for a typical investor is now just 5.5 months. In a world where news, analysis and investment ideas are readily available at our fingertips, investors have quickly forgotten the benefits of long-term compounding and instead are focused on the next great stock, driven likely by their fear of missing out.   We've all succumbed to it, there's no point denying it. How many of us jumped on the buy-now-pay-later trend, the lithium trend, the uranium trend, and now, the AI trend, as stocks soared to stratospheric heights? How many of us have attempted to hold on for dear life (HODL) as some of these companies crashed back to Earth?   So, how can you identify the companies that continue to win over the long term? And by long term, I don't mean five-plus years, but 20.   In this episode of The Rules of Investing, Janus Henderson's Josh Cummings outlines what makes a winning long-term stock - a process that has helped the team top the league tables for their consistent outperformance over the last five and 10 years - and provides a few examples.We also take a deep dive into artificial intelligence - and why Cummings believes AI will become even larger, more pervasive, and more impactful on our lives than we could ever conceive of today.   https://www.livewiremarkets.com/wires/the-secret-to-finding-stocks-you-can-hold-for-20-years   Timecodes 0:00 - Intro 2:16 - The secret to consistent long-term outperformance 3:30 - What the team got right and wrong over the last 12 months 4:38 - The impact of AI on mega-cap tech companies 7:19 - Is there too much "faith" in the AI theme? 9:48 - Is this the death of value investing? 11:58 - What it's like on the ground in the US right now 15:14 - Impact of cumulative inflation on businesses 18:13 - Nvidia's antitrust charges 20:42 - Factors that can help investors identify consistent winners 22:58 - Celebrity CEOs and red flags 25:20 - Should you really HODL? 26:58 - Smaller companies employing disruptive innovation 31:13 - Lessons from the team's meeting with OpenAI CEO Sam Altman 33:49 - Innovation is a scale game - why the big are only going to get bigger 35:01 - What could go wrong with AI (i.e. are we in for an iRobot scenario) 40:22 - Two things investors are getting wrong today 42:36 - Why you should invest in what you know (and trust your gut) 46:45 - One stock Josh Cummings would own if the market closed for 5 years

Nowadays, it’s quite easy to get swept up in the negativity around our economic plight. Living costs are a very real concern, as are increasingly unaffordable house prices. But, as Australians, we’re also quite fortunate. Our economy has enjoyed an unprecedented run of growth, we’re highly educated, we’re resource-rich, and we have opportunities – one of which lies in energy creation. As Darren Brown, Co-Managing Director, Renewables Australia at Octopus Investments tells it, there is “a really unique opportunity for Australia to become a superpower in renewable energy”. The conversation highlights the transformative changes in the energy sector, the strategic initiatives underway, and the opportunities for investors in the renewable energy market in Australia. Brown's unique perspective, gained from his experience in both fossil fuels and renewables, provides valuable insights into the industry's evolution and the potential for long-term growth in the renewable energy space. Note: This episode was recorded on 29 August 2024. 

In 1990, then-Treasurer Paul Keating famously said that the country's economic downturn was the “recession that Australia had to have.” Although Keating was responding to a poor GDP print and doing his best to control the narrative, at the start of the rate hiking cycle in mid-2022 most in the market spoke of an impending recession with almost as much certainty. As it stands today, said recession is yet to materialise. So, what happened? And perhaps more importantly, what does it mean for investors? In explaining why a recession hasn’t occurred, Sebastian Mullins, Head of Multi-Asset, Australia at Schroders points out that both the Australian and US governments pumped money into their respective economies—something we hadn't seen in a long time. “During the GFC, you had targeted programs to bail out banks and stimulate the economy, but on average, you had a very, very loose monetary policy and very tight fiscal policy to preserve balance sheets – i.e. improve the fundamentals of both corporate and government balance sheets”, says Mullins. “This time around, it's the reverse. We're hiking rates but the government's stimulating aggressively. So that has offset quite a bit of it”, says Mullins. Regarding America, where most of the recession indicators have been flashing red, Mullins adds that the US went into the current downturn un-levered – at least compared to previous episodes. “If you think about what the pillars of the economy are, you have the consumer, you have corporates, and you have the government”, notes Mullins. The US consumer de-levered after the GFC, reducing their amount of debt to GDP, as did corporations. “You'd expect higher interest rates to crack corporates”, says Mullins, but that hasn’t happened. And while the government has been hurt by higher rates due to the bigger interest payments on its debt pile, “If the two pillars of the private economy are fine and the corporates are all fine, then there's no recession”, says Mullins. Great, no recession. What about inflation? For Mullins, the inflation conversation depends on how far into the future you look. “So in the short term, inflation's definitely coming down,” says Mullins. As for the next five years and beyond, Mullins believes there are structural forces that will mean inflation could stay above the long-term targets of central banks – although that doesn’t have to be a bad thing. “There are more inflationary forces in the system now than they were over the past decade” notes Mullins, adding that “things like fiscal stimulus that's here to stay”. “You're seeing more populous governments come in around the world. You're talking about the election in the US, they're both going to spend.  "It doesn't matter who wins, it just depends on who they spend on. But there's no tea party candidate or fiscal conservative”, says Mullins. Mullins points to other inflationary factors, including de-globalisation, on-shoring, and increased security spending—whether that means military, food, mineral, or cybersecurity. “So all that is to say, we're not saying we're going to 1970-style inflation, but if in the US 2% was the ceiling of inflation for the past decade, we think it's going to become a floor. So, it might be between two to three, maybe two to four [percent]”, says Mullins. So, how are you investing? A potentially higher floor for longer-term inflation seems like a small price to pay following the most aggressive rate-hiking cycle in living memory. If someone offered the current economic and investing scenario back in late 2022 and early 2023 – with equity markets near all-time highs, bonds providing a decent yield, and an absence of recession – we’d all likely take it in a heartbeat. So, as a multi-asset strategist, how is Mullins shaping portfolios in light of macro developments and a seemingly benign backdrop? Find out in this edition of The Rules of Investing, presented by James Marlay. Mullins provides a view on Australian, US, Chinese and Japanese equities, bonds, and Australian vs. US credit. Finally, he outlines the bull case moving forward as well as the biggest risk to the outlook.  Note: This episode was recorded on 27 August 2024.  https://www.livewiremarkets.com/wires/what-happened-to-that-recession-we-were-promised

Rizzo, an investment expert, dives deep into the transformative power of AI, predicting it will surpass the impact of electricity on our world. He discusses the healthy corrections within tech stocks and offers strategies on capitalizing during sell-offs. Rizzo highlights the importance of distinguishing genuine AI winners amid market hype and shares insights on the current state of the US economy. He also reveals which stocks are worth investing in now and how to navigate the evolving landscape of technology.

Greg Dean, founder of Langdon Equity Partners, challenges the common belief that timing small caps is essential. Dean argues that waiting for the 'perfect moment' can lead to missed opportunities. He shares insights about his hands-on investment approach, valuing deep research and accountability in management interactions. With over 300 company meetings annually, Dean emphasizes the importance of cash flow as a long-term indicator of success, while also critiquing short-term market trends and aligning management incentives with investor interests.

In tennis, just as in investing, it's the points that you win that matter. After all, Roger Federer played 1,526 singles matches throughout his career, and while he only won 54% of the individual points within those matches, he walked away with the win 80% of the time. Ausbil Investment Management's fresh-faced co-head of emerging companies, and portfolio manager for its small and micro-cap strategies, Arden Jennings, is focusing on just that. "Stocks are just points. But it's the points that matter that win you the game. So for us, our largest detractor was still smaller than our 17th biggest winner. Even though we had an even spread of winners and losers, it was the ones that were successful that made it a good year," he says. And a good year it was. The Ausbil MicroCap Fund returned 33.53% in FY24, while its Australian Small Cap Fund delivered investors a nice 25.73%. Since inception, these funds have returned 20.08% (since February 2010) and 24.17% (since April 2020), respectively. So, where is the Roger Federer of Australian small caps seeing the most opportunity today? You'll find out in this episode of The Rules of Investing. Note: This episode was recorded on 30 July 2024. You can watch the video or listen to the podcast below.  https://www.livewiremarkets.com/wires/where-the-roger-federer-of-australian-small-caps-sees-the-most-opportunity-today Timecodes: 0:00 - Intro 2:36 - Decisions that lead to outperformance in FY24 5:04 - Roger Federer's streak and lessons for investing 6:13 - Interest rate expectations 7:00 - Why the small-cap rebound can continue and the Great Rotation in Australia 8:03 - The stocks that will benefit - HUB24 (ASX: HUB), Zip Co (ASX: Z1P), Credit Corp (ASX: CCP) 9:24 - Wildcards that could impact investors' portfolios 11:41 - What to expect this reporting season 12:29 - Why investors should be wary of crowded trades 13:24 - A stock to watch this reporting season: Aussie Broadband (ASX: ABB) 14:15 - One thing the market is getting wrong right now 16:24 - A story of a big win or loss from Arden's investing journey 17:27 - Stories from childhood - investing at 10 years old 18:01 - One stock to hold if the market were to close for the next 5 years... you'll have to listen to the interview for that one!

There's no supply in residential housing nor the majority of segments of the commercial real estate market. Sky-high construction costs are now too prohibitive. Bandaid solutions, like rent control, only backfire. And inconsistent state, federal and local policies are not helping either. That's according to this week's guest on The Rules of Investing, Andrew Parsons, a founder and the chief investment officer of global listed real estate manager Resolution Capital. While these factors continue to perpetuate Australia's housing problem, they are actually positive for long-term investors in real estate.  In this episode of The Rules of Investing, Parsons dives into Australia's property problem, outlines what he believes to be the solution, and shares why listed property is in for a strong three to five years ahead of us.  Note: This episode of the Rules of Investing was recorded on Wednesday 17 July 2024.  https://www.livewiremarkets.com/wires/30-year-property-veteran-australia-has-its-head-in-the-sand-on-housing    Timecodes 0:00 – Introduction 2:06 – A fascinating, under-appreciated part of the market 3:45 – What is a REIT? 5:30 – The key distinctions between REITs and physical property assets 8:45 – Which do you prefer: an investment property or listed property assets? 9:50 – Where REITs sit alongside equities and fixed income 10:55 – What you’re really paying for when you buy real estate 12:50 – Why property development is so difficult currently 13:40 – Australia’s troubling property supply shortfall 15:04 – “We don’t want urban sprawl” 16:30 – How do you solve Australia’s big property problem? 20:50 – The effect of interest rates on listed property, versus equities and bonds 23:40 – How Resolution Capital is currently positioned 33:50 – What is your best investment of all time? 38:08 – Resolution Capital’s five-year pick    

Investors are too focused on interest rates and are subsequently underweight risk assets. That’s the, albeit US-centric, view from Global X ETFs’ Head of Investment Strategy, Scott Helfstein. He elaborates by saying that the US economy is looking a lot more like mid-cycle expansion than late cycle and that “you don’t want to be sitting on the sidelines”. A fan of thematic investing, Helfstein goes on to highlight three big investment themes that he likes right now, including one offering the opportunity for true transformation, that’s available for the same price as the S&P 500. Don’t miss the latest Rules of Investing Podcast. https://www.livewiremarkets.com/wires/3-compelling-long-term-etf-ideas-for-investors-still-on-the-sidelines    Timecodes 0:00 - Intro 1:12 - A unique background for an investment professional 7:17 - The current state of geopolitics 12:00 - Australia's position in the global landscape 14:10 - The appeal of thematic investing 16:42 - Where is the puck going? 22:53 - Sectors versus themes 26:48 - The role of thematic investing in a portfolio 28:46 - Nothing but ETFs? 30:27 - Ranking the big themes 34:22 - A theme that is flying under the radar 36:40 - Risks in thematic investing 38:32 - Mama's favourite son 39:49 - What are investors getting wrong? 41:07 - One theme for the next five years

Fully franked dividends are a prized asset of the Australian market. While the lack of growth is often lamented, plenty of self-funded retirees are content to dine on the distributions of Australia's big miners and banks.  And who can blame them - high commodity prices, particularly in iron ore and lithium, resulted in record dividends from the top end of town. However, after peaking in 2021 and 2022, dividends from mining companies are steadily declining. Research from Commsec published late in 2023 showed that the 12-month forward dividend yield for the ASX200 has been below the long-run average of 4.7%, and dividend per share estimates have been cut by 14 per cent.  The good news is that Australian banks have been increasing their dividends whilst also enjoying surging share prices. There is also a long list of consistent dividend paying stocks that often fly under the radar. In this episode of the Rules of Investing, Livewire's James Marlay speaks with Plato Investment Management's Dr Don Hamson to get his diagnosis on the case of the 'disappearing dividends'. Hamson insists that diversification remains a free lunch for investors, especially for those seeking stable and consistent returns. He also emphasizes that fully franked dividends continue to stack up as the backbone of an income-generating portfolio. Timecodes: 0:00 - Introduction 1:43 - The outlook for dividends 8:27 - Dividends versus Fixed Income 10:25 - Dwindling dividends 13:08 - The dividend outlook for mining shares 17:00 - Tactics to combat declining dividends 20:07 - Australian banks - stable but expensive 22:10 - The case for diversification 25:15 - Winning by avoiding the losers 28:09 - What returns are realistic for Plato? 31:26 - A lesson from Medibank Private 34:10 - Don’t focus on the US election 36:23 - The stock most likely to be a 5-year resident in the Plato Australian Shares Income Fund

This time last year, PIMCO Portfolio Manager Adam Bowe told Livewire that there was a 50/50 chance that Australia would slip into recession. March GDP figures show that the economy grew at just 0.1 per cent, the slowest rate since December 2020. Today, Bowe says interest rates are sufficiently restrictive, and the chance of recession remains a ‘line ball’.  In this episode of The Rules of Investing, Bowe explains why interest rates in Australia don't need to go higher, why house prices have been immune to interest rate increases and where he is finding the best income opportunities right now.