The Rules of Investing

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 - START 1:30 - Have we avoided a hard landing? 3:30 - Australian base case 4:30 - Reporting season 10:00 - Stock prices follow earnings 12:30 - A checklist for finding value 14:20 - Consumer discretionary in 2023 17:55 - Two COVID beneficiaries primed for growth 20:50 - Avoiding tech and energy 23:00 - Lithium is crowded, but does that matter? 29:20 - Look past the market's time horizon 44:00 - Bottom drawer retail stock

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. Timestamps 0:00 - START 1:50 - When will small caps bottom? 4:30 - No small cap rally without consumer discretionary 6:30 - Profit taking 7:30 - Why large cap tech matters to small caps 10:14 - 30-40% rally is not out of the question 14:30 - Harvey Norman's (ASX: HVN) property backstop 16:00 - Wearing the volatility 17:00 - Industrials 20:20 - Going tactical 24:15 - Mermaid Marine 26:30 - Body language matters 27:30 - City Chic (ASX: CCX) was a mistake 29:20 - Managing liquidity in small caps 32:45 - Takeover target 34:50 - Balance sheets look good 36:55 - Going public too early 40:25 - The classifieds company for the bottom drawer

Last month, Fidelity marked the 20 year anniversary of its Australian Equities Fund. The fund has consistently outperformed its benchmark, the ASX 200 Accumulation Index, netting over 11% per annum. Paul Taylor, Head of Investments at Fidelity International, has captained that ship from inception to now. The fund's generated 11% per annum over the two decades, through some of the worst crises markets have dealt with. The Global Financial Crisis, the European sovereign debt crisis, COVID-19, and the Russo-Ukrainian war. The list goes on. How's he done it? Well, he turns down the noise. When I speak to fund managers, I often get a general response about how to do that. Usually something about focusing on fundamentals.  In today’s episode of The Rules of Investing, Paul gives an actionable step by step process that all investors can follow to turn down that noise. He also goes deep explaining his process for finding what he terms the “holy grail” of investing – long-term compounders, identifies the market’s next buying window, the need to view stocks and their upside potential within the context of portfolio construction, and the next thing to break if rates keep rising.  And as a little kicker at the end, he provides a [hypothetical] 3-stock portfolio for the bottom drawer.  Note: This interview was recorded on July 11, 2023.  Timestamps 0:00 - START 2:00 - 20 years of volatile markets 4:00 - 4-step process for blocking out noise 8:00 - Making moves during the GFC 16:00 - Second order affects 18:50 - The next buying window 20:30 - Banks in the firing line 22:50 - Preserving capital 25:40 - Don't pick stocks in isolation 28:50 - Finding long-term compounders 32:50 - The secular tech rally 36:30 - Glass half full 39:40 - Buying WiseTech Global (ASX: WTC) early  42:50 - A 3-stock portfolio for the bottom drawer

In sports, players deemed to be "all rounders" don't usually dominate headlines and highlight reels. Yet, over the course of their careers, their flexibility and consistent performance can prove invaluable.  The same can be said of investing. You have growth managers, value managers and everything in between. When market conditions are favourable, they're on. But when markets favour another style, they take a back seat. Sometimes for a decade or longer.  Today’s guest is Blake Henricks, portfolio manager at Firetrail Investments, a high conviction manager of Aussie and global equities. Firetrail live by the motto “every company has a price”. But don’t let that fool you into thinking they're are a value-only only manager. Theirs is a style agnostic approach, which gives them the flexibility to play at every point in the cycle. In today’s episode, Blake discusses Firetrail's approach to investing, the health of Aussie balance sheets, what we can expect from earnings season, what leads the market to misprice a stock (and some examples), and the implications for the resources sector of being in a buy versus build phase.   Note: This interview was recorded on June 27, 2023. Timestamps 0:00 - START 1:20 - Today's market 2:12 - Conflicting data points 3:20 - Earnings season will be tough, but not for every company 5:10 - Beachside mansions vs outback shacks 10:30 - Finding market misreads 12:15 - The benefits of being style-agnostic 16:30 - Jack of all trades, master of none? 18:30 - Firetrail's portfolio 22:30 - Is energy still the play? 23:40 - Buy vs build 30:00 - Don't board the AI hype train 33:00 - Clipped wings and big gains 36:00 - A franchise built for success

If you are feeling confused right now, you can rest easy knowing you are not alone.  Since the beginning of the year, investors have been bombarded with a cacophony of conflicting market commentary on where best to invest. The indicators themselves, such as the VIX Index, the Coppock Indicator, and various sentiment surveys, also seem to be pointing in opposing directions. For equities-focused fund managers, there’s plenty of opportunity hidden within the world’s major indices. For fixed income investors, there’s more opportunity than ever before in bonds. In the end, everyone is talking their own book. And who can blame them? How else are they meant to attract investors’ hard-earned cash? This week's guest is different. She’s completely independent and unrestricted by any investment management firm's mandate, compliance team, or asset class. She's nothing if not completely honest.  And let's face it. That's really what we all need right now.  Giselle Roux has 35 years of market experience. She’s worked for the likes of Merrill Lynch, Citigroup, JBWere and Escala Partners. However, since 2019, she’s been providing independent advice to a handful of advisory groups. In this podcast, Roux will be providing her unfettered opinion on markets, where there actually is true opportunity, as well as why she believes global growth looks challenged from here. Note: This podcast was recorded on Thursday 22 June 2023. Timestamps: 3:10 - Choose your information wisely 4:30 - Credit and liquidity is key 6:21 - Corporate finance is changing 9:30 - Explaining the charge in US tech 11:00 - The heavy burden of sovereign debt 13:30 - Stock market vs economy 15:30 - Future drivers of growth 19:30 - Finding 10% return 21:16 - Opportunities in smallcaps and midcaps 25:00 - Hold cash, but not for too long 27:50 - Is gold overrated? 30:00 - Don't put too much weight in history 32:50 - Cyber is here to stay

Dividend-paying equities have long formed the backbone of retirees’ portfolios. And the historic stalwarts of these portfolios are well known. BHP, Telstra, and Commonwealth Bank, to name a few. You might be mistaken for thinking that equity income portfolios are therefore set and forget propositions, made up of a limited number of dividend darlings that will pay out into perpetuity. But you’d be wrong on both accounts, according to today’s guest. Dr Don Hamson  is the founder and managing director of Plato Investment Management. Plato manages $11 billion in assets across three funds – an Aussie equities income fund, a global equities income fund, and a global alpha fund. Managing $11 billion in total. Before that, he was responsible for over $10B in active and enhanced equity investments at State Street Global Advisors. In today’s interview [in the upcoming interview], Don explains why dividend-paying equities are still the best place to generate income, what makes a dividend sustainable, how to identify dividend traps, and which sectors and stocks have the brightest dividend outlook. He also names the dividend darlings that no longer deserve the title! Timestamps 0:00 - START 1:45 - Dividends hold up amid inflation and rate hikes 4:15 - Dividends remain the income backbone 6:00 - The importance of franking credits 9:17 - Dividends vs the bond market 10:47 - Capital vs income 11:45 - Drawdown and sequencing risks 14:13 - Finding dividend growers 16:30 - Dividend traps 24:03 - Buying cheap stocks in hope of a dividend 26:00 - Red flags 31:40 - What makes a dividend "sustainable"? 38:00 - The best (and worst) looking sectors 41:23 - Invest with a short time horizon 43:00 - No free lunch for less than 20 stocks 50:30 - It's not all doom and gloom 58:00 - Don's bottom drawer investment

Few of us would’ve predicted that by June the S&P would not only be positive, but up over 11%. On face value, a healthy market. But dig a little deeper, and it quickly becomes apparent that this performance has been carried by the big mega-cap tech stocks. Such is their performance, and the lack of performance by the rest of the index, that Apple, Microsoft, Alphabet and Nvidia now account for a third of the S&P500. This all begs the question: what next? Do these mega cap stocks sell off, does the rest of the market trade up, or will it be a bit of both? If it’s the former, which companies will take the reigns? These questions, and more, are answered by today’s guest – Jacob Mitchell, founder, CIO and lead Portfolio Manager at Antipodes Partners. Antipodes houses two global funds, an emerging markets fund, and an actively traded global shares ETF (ASX: AGX1).  Before starting Antipodes, Jacob spent 14 years at Platinum Asset Management, where, as the co-CIO and lead portfolio manager of the Platinum International Fund, he oversaw $3.5 billion in assets under management. Jacob goes to town on a lot of subjects, including: his bear case for consumer-facing mega cap tech; whether the AI boom is in fact a bubble; where he’s seeing low multiples despite strong earnings growth; and the stocks that will lead the the next cycle. Note: This episode was recorded on Wednesday, June 5 2023 Timestamps 2:30 - Megacaps have dominated. What's next? 5:30 - Is AI a bubble? 9:10 - Slowing in the West, reopening in the East 12:00 - Market valuations and fundamentals don't line up 15:30 - Eyes on smaller companies bridging the gap 20:10 - Primed sectors 22:50 - Holding the line 27:20 - Liquidity is draining 30:20 - The secular winners of tomorrow 34:45 - Retail investors are sceptical of the energy transition 41:00 - Investment case for fossil fuels 44:00 - Hedging risk in today's market 48:00 - High conviction stocks

Fixed income has always served a defensive role within investor portfolios. Normally, when growth is down and risk assets underperform, fixed income outperforms. That’s under normal circumstances, though. In 2022, the Bloomberg aggregate bond index lost 13%. Why? Introduce inflation, and the higher rates employed to combat it. When this happens, risk assets and fixed income fall in lockstep. But those dark days seem to be behind us. We’re now at or near the peak in interest rates. So with bond yields set to stabilise and fall, the value of fixed income assets look poised to rebound. Today’s guest on The Rules of Investing is Jay Sivapalan - Head of Australian Fixed Interest at Janus Henderson Investors. Jay manages Janus Henderson’s Aussie fixed income portfolios, and holds ultimate responsibility for formulating interest rate and sector strategies. We discuss: The macro backdrop that’s shaping fixed income The best times to buy fixed income, and how; and where Jay sees the best risk-reward right now.  Transcript 2:10 - Where are we in the cycle? 5:50 - How will fixed income respond during a recession? 19:10 - The best risk adjusted return right now 12:40 - Chasing yield has a time and place 14:00 - Why fixed income over term deposits? 15:10 - The dangers of passive management 17:25 - Qantas (ASX: QAN) still has wings 18:40 - A contrarian call on commercial real estate 21:00 - Semis vs treasuries 22:15 - Don't fall for the consensus view  28:06 - A fixed-income security for the bottom drawer

Earlier this month, the Reserve Bank of Australia was forced to cough up internal documents under Freedom of Information laws. This included an internal modelling exercise from September 2022, which revealed the risk of an Australian recession could be as high as 80% by September 2024. Meanwhile, a recent Bloomberg survey of 14 economists saw the probability of a recession in Australia climb from 35% to 38% in April.  Investors themselves, through their positioning, seem to be suggesting the same. Shares in classic defensive names such as Transurban (up 14%), Woolworths (up 15%), Wesfarmers (up 9%), Coles (up 15%), Telstra (up 10%), Origin Energy (up 9%) and AGL (up 11%) have continued to tick higher since the beginning of the year.  And yet, Tribeca Investment Partners' Jun Bei Liu is unflinchingly bullish. She doesn't believe the Australian economy will nosedive into a hard landing in the next few months or years. Instead, she argues the noise in markets has created extraordinary investment opportunities today.  In this episode, Liu shares:  Three rules for investors to live by.  Her macro outlook for the years ahead.  Why there is still fuel left in the tank when it comes to the China reopening.  Her top long and short positions right now.  Note: This episode was recorded on Wednesday, May 24, 2023 Timestamps  0:00 - Intro  1:25 - Three rules investors should live by 4:58 - Jun Bei's North Star for volatile markets  7:34 - Jun Bei's base case: Why she doesn't believe Australia will experience a recession  12:38 - The China re-opening theme isn't over yet (and the stocks' Jun Bei is backing) 19:53 - Jun Bei's earnings outlook for the ASX  21:55 - Companies facing margin pressure over the months ahead  23:11 - Why Jun Bei is shorting Super Retail Group (ASX: SUL) 26:20 - And why she's backing A2 Milk (ASX: A2M), NEXTDC (ASX: NXT), Macquarie Group (ASX: MQG), REA Group (ASX: REA), Xero (ASX: XRO), TechnologyOne (ASX: TNE), Pilbara Minerals (ASX: PLS) and Treasury Wine Estates (ASX: TWE).  28:55 - The unloved stocks Jun Bei is loving right now 32:26 - The importance of emotional intelligence when it comes to investing  36:49 - The best CEO and management teams in Australia  39:30 - The Rules of Investing's three favourite questions (what investors are getting wrong, a big win and loss, and a stock Jun Bei would back for the next 5 years)

Investing hasn’t been easy these past few years amid a pandemic, soaring inflation and monetary tightening. The ASX200 did 1.4% in 2020, 17% in 2021 and then -1% last year. Hugely volatile.  But it's in times like this when the cream rises to the top. As most fund managers struggle to match the benchmark, Datt Capital’s Absolute Return fund has returned an enormous 25% per annum over the last three years. It's a staggering performance that most fund managers would give their left arm to get. In this week's episode of The Rules of Investing, Livewire's David Thornton speaks to Emanuel Datt, founder of Datt Capital. Datt’s modest demeanour belies the rockstar performance he’s generated. Not one to rest on his laurels, though, he’s about to launch a new small-cap fund that seeks to outperform the Small Ordinaries Index by 5% per annum. While the fund may be new, Datt's experience with small cap stocks certainly isn't - he bought market darling Afterpay at $6, long before it became Australia's largest ever takeover at a cool $39 billion.  Datt discusses: the processes and investments that netted the absolute fund such stellar numbers; how he found Afterpay; why he believes now is the time to get into small caps; and the investment opportunity he sees in rare earths.  Note: this episode was recorded on Tuesday May 16, 2023 Timestamps 1:50 - The man behind Datt Capital 3:20 - Opening up shop 4:30 - Achieving 25% p.a. 7:30 - Rare earths 12:00 - The opportunity in small caps 19:00 - The sectors leading small caps 21:00 - Spotting Afterpay 24:00 - Red flags 27:00 - Finding sustainable companies 30:10 - Inflation can't be understated 31:20 - Winning big with Adriatic Metals (ASX: ADT)