The Rules of Investing

Latest Episodes:

Why trying to time small caps is a "big waste of time" Aug 09, 2024

Show notes

Much has been made of the “Great Rotation” of late and the move away from highly concentrated large caps into small-cap equities, particularly in the US.

Greg Dean, founder of Langdon Equity Partners, is having none of it. When quizzed about whether the rotation was impacting how Dean and his team invest, the short answer was ‘no’.

Late last year, amid widespread commentary about 2024 being the ‘year for small caps’, Langdon wrote about the time and energy people spend talking about timing in small caps and called it a “big waste of time”. Dean feels a similar way about the rotation.

“The reality is if you wait for the perfect time, you've probably missed out on a lot of opportunity during that period when fewer people were interested”, says Dean.

Dean founded Langdon in 2021 on the concept of a “clean sheet of paper” – i.e. not being beholden to anyone but investors.

His philosophy is built on deep research and holding management to account, allowing him to ‘trust but verify’. He adds that speaking with management is a delicate balance that is often “executed poorly”.

“You think you have to be aggressive and definitive or you have to be a “yes” person and agree with everything that they're telling you, and neither of those is optimal”, says Dean.

In the following episode of The Rules of Investing, Dean delves deeper into small-cap investing, explains why he and his team take more than 300 individual company meetings each year, talks through the current portfolio tilt, and shares why the fund favours Europe over the US.

He also upacks two global small-cap stock ideas that highlight Langdon’s approach.

Note: This episode was recorded on 31 July 2024. You can watch the video or listen to the podcast below.

https://www.livewiremarkets.com/wires/why-trying-to-time-small-caps-is-a-big-waste-of-time-and-2-long-term-stock-ideas

Timecodes

0:00 - Intro
1:36 - Investment background and founding Langdon
5:05 - Biggest influences over the journey and why small caps?
8:39 - Investment philosophy origin story
11:01 - When is enough, enough?
12:45 - The Great Rotation and current market conditions
15:31 - Company meetings how the best stand out
20:09 - Honing the craft
23:42 - Current portfolio: underweight US, overweight Europe
26:58 - Why cashflow is Landon's North Star
28:07 - Other non-negotiables
29:12 - Testing beliefs
30:40 - Navigating patience as a small-cap investor
32:57 - Small-cap stock ideas
37:52 - What are investors getting wrong about today's markets?
49:27 - Courage of conviction
41:29 - The five-year stock

How to dominate small caps like Roger Federer dominates tennis Aug 02, 2024

Show notes

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!

30-year property veteran: Australia has its head in the sand on housing Jul 19, 2024

Show notes

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

3 compelling long-term ETF ideas for investors still on the sidelines Jul 06, 2024

Show notes

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

More please! Dr Don Hamson’s cure for the 'disappearing dividends' on the ASX Jun 28, 2024

Show notes

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

Recession a line ball as Australia groans under a massive debt load Jun 14, 2024

Show notes

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.

Rudi: AI is the end of investing as we know it May 31, 2024

Show notes

While "survival of the fittest" certainly applies to the Earth's abundance of flora and fauna, it may be time for investors to take a page out of Darwin's book. That's according to FNArena's Rudi Filapek-Vandyck, who believes the market has irreversibly changed since 2014 - as has the way investors should value stocks. In this episode, Rudi outlines why he believes technological innovation will transform the market as we know it. He also discusses some of his favourite ASX-listed stocks to play the AI theme, the importance of quality companies in today's markets, and what it takes for a company to be an all-weather stock.

Note: This episode was recorded on Wednesday 29 May 2024. Note #2: Ally was today years old when she learnt what R.E.M. is, she apologises for any harm her ignorance may have caused hardcore fans. If it's any excuse, the song was released seven years before she was born.

https://www.livewiremarkets.com/wires/rudi-ai-is-the-end-of-investing-as-we-know-it

The investment secrets of Australia's billionaires May 23, 2024

Show notes

There seems to be no stopping Australia's ultra-wealthy, with the number of billionaires down under growing by 14.4% over the past 12 months, to a record 159 people. For some context, in 2020, this number was 117, according to The Australian.

While it's wonderful to daydream about what you would buy or do with a few billion dollars, the true secret success of the ultra-wealthy is their ability to stay that way. After all, how many stories have you read of lottery winners squandering their newfound wealth just a few short years later?

So, how do the other half continue to grow their wealth?

To find out, Livewire sat down with MRB House's Peter Magee and Walsh Capital's Louise Walsh for their insights into how Australia's ultra-wealthy invest as part of Livewire's Undiscovered Funds Series.

They share their tips and tricks for identifying "exceptional" funds, outline the factors that are important to their processes, share what to do when a fund isn't performing as expected, and name one recently launched fund that has impressed in recent years.

Note: This interview was recorded on Wednesday 15 May 2024.

https://www.livewiremarkets.com/wires/the-investment-secrets-of-australia-s-billionaires

700+ meetings each year: How WAM Global uncovers under-the-radar stocks May 18, 2024

Show notes

In investing, just as in love, trust is everything - and without it, you really don't have anything at all.

It's for this reason that the Wilson Asset Management global equities team meets with more than 700 management teams across the world each year - including in the US, Japan, and Europe. In addition, they also meet with competitors and suppliers, as well as talk to current and past employees and industry experts.

According to WAM Global (ASX: WGB) lead portfolio manager Catriona Burns, the team does this because trust in a company's management team is paramount.

"Have they hit their targets? Have they done what they said? If we have any doubts on that trust factor, for us, that's completely a non-negotiable and we won't invest," she says.

Burns is reading between the lines, and looking beneath the surface for red flags. And while management teams selling stock, poor track records and value-destructive deals can certainly be warning signs, she argues that alignment - and the lack thereof - can often be far more telling for the future direction of a company's share price.

"Incentives drive outcomes... I can't tell you how many times I have seen incentives for management based on earnings per share growth," she says. "Companies just chase acquisitions to meet earnings growth without thinking about the returns that are being generated on the dollars spent. That happens time and time again and is a massive red flag."

In this episode of The Rules of Investing, Burns takes listeners through some of the companies that have managed to pass her filters, as well as why catalysts are so important for investors with a penchant for value.

She also outlines why the listed investment company's growing annual yields won't be slowing over the next five years, what it's actually like on the ground in the US right now, as well as what the US election at the end of the year could mean for markets.

Note: This interview was recorded on Tuesday 14 May 2024.

https://www.livewiremarkets.com/wires/700-meetings-each-year-how-wam-global-uncovers-under-the-radar-stocks

0:00 - Intro
1:21 - What it is actually like on the ground in the US
2:14 - Catriona Burns' outlook on rates and inflation
3:26 - The WAM Global (ASX: WGB) investment process (and the importance of trust)
8:09 - Alignment is everything + why CTS Eventim (ETR: EVD) is a good example
9:35 - Artificial intelligence and where Catriona is invested here
13:38 - On not owning NVIDIA (NASDAQ: NVDA)
14:41 - Why she's overweight financials and healthcare
16:47 - Picks + shovels approach versus drug developers in healthcare
18:18 - Stock with major catalysts on the horizon: CTS Eventim (ETR: EVD) and Quanta Services (NYSE: PWR)
20:01 - Why catalysts are so important
21:27 - The sustainability of WAM Global's yields + franking credits
22:46 - How to think about performance
24:33 - Why Catriona is bullish on the outlook for global small and mid caps
25:42 - One thing investors are getting wrong about today's markets
26:51 - US politics + what a Trump win would mean for markets
29:10 - A story of a loss from Catriona's career and what she has learnt from this
31:19 - One stock that Catriona would buy and hold if the market were to close for the next five years: Intercontinental Exchange (NYSE: ICE)

Chris Stott’s 5 high conviction stock ideas for the new bull market May 11, 2024

Show notes

Time flies when you’re having fun! While the last five years have had plenty of ups and downs, they haven’t dented the enthusiasm and passion of small-cap fund manager Chris Stott from 1851 Capital.

Stott launched 1851 Capital in 2020, just before COVID-19 hit, wreaking havoc on the market and his portfolio. Since then, Stott has comfortably beaten his small-cap benchmark, growing the fund’s initial capital of $80 million to almost $500 million through a combination of inflows and capital growth.

Whilst there was some exuberance after the initial shock of the pandemic, the past few years have been far more challenging for small-caps investors.

“Over the past four and half years, the small-cap index has returned 3% per annum. If you look at the 30 years before we launched the fund, it was 10% per annum. So quite a significant underperformance, quite dismal in fact,” Stott says.

However, late October 2023 marked a turning point and the small-cap index has recently entered a technical bull market, having rallied more than 20%.

So where to from here and which companies does Stott believe can sustain the early track record that 1851 Capital has established?

In this episode of The Rules of Investing, Stott shares his lessons from starting a new fund, why he believes the bull run in small caps can continue and five of the stocks he is backing to deliver market-beating returns.

For those of you with a good memory, Stott was last on the podcast in June 2020, when he tipped NextDC (ASX: NXT) as the one stock he would hold if markets were to close for the next five years. Shares in NextDC have gained more than 75% over that time, and the company is now in the ASX100, forcing Stott to exit his position. Naturally, we’ve asked him for a fresh idea.

Note: This episode was recorded on Wednesday 8 May 2024.

https://www.livewiremarkets.com/wires/chris-stott-s-5-high-conviction-stock-ideas-for-the-new-bull-market

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