Last time we heard from Wilson Asset Management's Lead Portfolio Managers, the mood was decidedly bearish. We were in the midst of a correction, and they, like many others, were questioning whether it was ‘the big one’. Fast forward six months, and the mood has picked up. What’s changed? According... Show More
Finding cheap stocks this late in the cycle is getting harder and harder. Index funds have bid up the prices of large-cap stocks to levels not seen since the tech bubble, while mid-cap growth stocks like Afterpay and Wisetech have been bid to dizzying heights. But attractive opportunities are still... Show More
Investing in “blue chips” – large, highly profitable, and mature companies – has long been a popular strategy for investors. But contrary to its popularity, research has shown (i) that the largest stocks consistently underperform over the long-term. Perhaps investors have fallen victim to survivorship bias? Rather than looking at... Show More
Value investors, I suspect, are born that way. It takes a particular type of person to be willing to stand out from the crowd, focus on the long term, and constantly be hunting for bargains. This week's guest on the podcast is precisely one of those people; Garry Laurence, Portfolio... Show More
What will the world look like in five years’ time? A difficult question to answer, but one that long-term equity investors must ask themselves every day. In 2014, Amazon remained outside the world’s top 10 companies, Telstra’s share price peaked at over $6.60 per share, and Afterpay was nothing more... Show More
It’s a rare opportunity to get to sit down with an economist of the calibre of Tim Toohey from Ellerston Capital. He was formerly the Managing Director, Chief Economist, and Head of Macro Strategy for Australia and New Zealand at Goldman Sachs, where he earned a reputation as one of... Show More
In the last 117 years, Australia has seen two World Wars, the Great Depression, the introduction of the motor car, 30 Prime Ministers, and every year, Washington H Soul Pattinson (SOL) has paid a dividend. In this week's episode of The Rules of Investing, I sit down with Robert Millner,... Show More
The last few years has been a golden age for LICs. Starting in 2013, the removal of commissions on unit trusts as part of the “Future of Financial Advice” (FOFA) reforms levelled the playing field. More recently, buoyant capital markets and fund managers looking for stable pools of capital have... Show More
Australian economy grows just 0.2% in Q4 and enters ‘GDP-per-person recession’ as auto sales crash; new study by S&P shows that investors are still being ‘fooled by randomness’, nearly 20 years after Nassim Nicholas Taleb first warned against it; and $US1.3 trillion asset manager, Legal & General, says quarterly earnings... Show More
RBA Governor, Phillip Lowe, opened his speech at the AFR Business Summit this morning by saying “Australians watch housing markets intensely, perhaps more so than citizens of any other country.” Never has a truer statement been made. Whether you’re a stock market investor, a housing investor, or nothing of the... Show More
Shernavaz - the code is EOS, and it is ASX listed. Please ensure you do your own research and/or get professional advice before making any investment decisions - this video is not a recommendation to buy or sell any securities.
"community adjusted EBITDA" - I haven't heard that one before Jonathan! I will forever associate WeWork with CEO Adam Nuemann's quote: "No one is investing in a co-working company worth $20 billion. That doesn't exist. Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue."
Des - I think it's worth remembering that it's also possible that the stock price has gone up when they return the stock. The short seller is betting against the market, and while it works sometimes, they're working against the headwinds of inflation, economic growth, productivity growth, and the tendency of equity markets to go up over time. If the super fund wasn't going to sell the share anyway (which would almost always be the case), then they've just collected a fee for essentially doing nothing.
Hi Selwyn, thanks for your comment. Firstly, I just wanted to address that I'm not a journalist. The aim of the podcast is not to be journalistic in nature, I think there are plenty of excellent journalists out there already doing that. The podcast aims to tell stories and to educate. I recently published a podcast called "The hottest investment theme on Earth" that discussed the issue of climate change extensively, and we discussed the cost of renewable energy vs other forms in that podcast. All that being said, I do think the issue of the cost of different forms of energy is an incredibly complex one, and frankly, one I haven't been able to get to the bottom of. The nuclear experts claim that nuclear is cheapest, wind and solar proponents claim that renewables are cheapest, and the fossil fuel industry generally disagrees with both of them. They've all got plenty of charts and data to back up their claims. Personally, I tend to agree that renewable is the way of the future and wind is probably the cheapest form of energy on an un-subsidised basis with all negative externalities included. But the podcast isn't about me telling my stories and sharing my own points of view, it's about giving the guests the chance to tell and share theirs.
Hi Charles. I can't really quantify the impact when we don't really know if their policy will become law, and if it does, what it might look like. After the election we might have a better idea, but at this stage including any impact of the proposal would just be speculation.
On 10 golden LIC ideas -
Well done James, what an incredible and unique interview.
Ben - wholeheartedly agree with you. I think Twitch is one of Amazon's most underappreciated assets, and will probably be worth more than ESPN before long (if it's not already). US$970 million was an incredibly good price for that asset. Even thought I don't have much time to play games anymore, I still like to watch the big tournaments and some popular streamers!
Adrian & Ben - Thanks for your comments, it's always good to get different points of view on a topic (that's what makes a market). We don't expect everyone to agree with everything that our contributors say, our goal is to present interesting and diverse views, and a lot of our audience do like to hear Marcus' perspective.
Hi Adrian, my write up only contained a condensed version of what Marcus said. In the full interview he explains that he's talking about over the last 75 years. Also it's important to note that we're talking about capital returns here, not total returns. He's also talking about post-trading costs and taxes.
Thanks for the comments everyone. James - it's interesting to see the varying reactions to the recommendations. Personally I thought they were quite thorough and sensible. I'm not sure destroying vertical integration would've been the silver bullets that some people were hoping for. Grant - it's worth noting that some of the recommendations specifically address the issues around enforcement and the regulatory, and Hayne did recommend that offenders in the Fees For No Service scandal face a jury trial.
Thanks for the comments everyone. It sure is confusing with all the Patricks in this conversation!
Peter - good pick up, we've clarified this now. It was actually written by Buffett in '93, but the quote was attributed to Graham. Hope this is clear now, and thanks for pointing it out.
Graeme & Stan - completely fair criticism, and I tend to share your sentiments. The chart was published as provided by WAM, but hopefully in future we can get log charts. David - good pick up, thanks for identifying that. I've fixed that up now.
Thanks for the kind words Eric, I've shared it with the rest of the team.
great analysis Hamish! This should be read by anyone with a position, or intending to open a position in AMP.
Patrick F - interesting point. Personally I wonder whether it's to do with high payout ratios on Australian shares (in part, due to franking credits) reducing the amount that's reinvested in companies earnings good returns on capital. Either that, or more simply due to the heavy concentration in the index and the poor performance of those industries that we're over-weight as a nation.
sorry Rob, we weren't able to get the full research from Citi. Here's the section that Alex was referring to though: https://imgur.com/a/0eVkiIX
Peter - this is a perfectly valid criticism, however I think what we're seeing here is similar to when the oil majors cut production at the bottom of the oil market. Cameco and the Kazakhs realise that the current situation is unsustainable and they're big enough that their actions impact the market. Mr T - it would certainly seem that way, there's little doubt that in-production and C&M assets present a lower risk exposure. But some people do want the risk exposure due to the potential upside that it offers. Simon - I don't follow Silex closely, so my views on how it affects the company would probably not be of any value. Thanks to all who've commented. Any views expressed here are my own opinion, and not financial advice. They do not represent the views of Livewire Markets.
Are you concerned about Ramsay's loss of Chris Rex? What's your assessment of the new CEO?
great article Paul, thanks for sharing.
Hi Troy - the article states "Franking credit refunds" and "refundable franking credits", it does not state that franking credits will be removed in their entirety.
Hi Phi, if you look at the Terms and Conditions, the first point is "One entry per person". So even if the system lets you submit multiple entries, they would not be valid.
Hi David & Robyn, the All Ords Index doesn't include dividends. You'll find if you include dividends (which are a major component of total return, especially for Australian equities) the ASX has long since recovered from its GFC losses.
On Timing is everything -
Thanks for the feedback Ronen. Charlie is a government bond specialist, hence the limited discussion of credit. I'm sure we can have a chat to a credit manager in a future episode.
Great question John. Livewire is working on a new podcast that aims to achieve exactly that. Keep an eye out for it.
Thanks James, I really enjoyed researching and writing it too!
Hi Derek, thanks for your comment. I think the key is to assess each investment on its own merit. You can't control what happens to the price levels of stocks in a big index, but if the underlying business is strong, it should survive any major selloffs. Please note that this is not financial advice, and I've not considered any of your personal circumstances.
Hi John, the charts in the wire are just a small selection of the detailed charts available in the full attached report. If you're looking for more detail I suggest checking out their full quarterly update, which is linked at the bottom of the article.
Hi Mark and Justin, I've contacted the author to confirm whether 2006 is correct or whether this was an error.
Hi Mahala, he does actually mention it, though it might not have been obvious that it was a company name he was stating. The company in question is called St James' Place, it's one of the UK's largest wealth management firms.
Spot on Peter, it's a common problem for backdoor listings and recapitalised companies. When using third party data, it's important to always check facts and figures for yourself before making decisions.
Hi Carlos. It's strange that Commsec lists a 10 year period, given the Thorney hasn't existed in its current form for 10 years. Until December '13 the company was known as Wentworth Holdings, had completely different assets, and a different management team. Thorney has existed as a private company for well over 20 years though, and my estimates (unaudited obviously) were based on the long-term returns in his private investment company, Thorney Investments Group.
William - slang for a $50 note
Thanks Parth. Kurt was an excellent guest.
Hi Melville, FMCG is short for Fast Moving Consumer Goods
great suggestion Ron. We'll look into it.
This is absolutely my favourite investing book of all time. There is so much value in this book that it should be compulsory reading for all new investors. Open a brokerage account? Read this first.
Hi Mahala. I can certainly understand the frustration of not being able to access the Brunswick Fund. We look to provide interesting and valuable content for investors and try not to limit it just to funds that are currently open for investment. I hope you found value in the interview.
Justin - Zip and Afterpay both charge fees to the merchant as a percentage of the transaction value.
Hi Chris. 5G will heavily rely on physical infrastructure, and fibre in particular. Some more information here if you're curious: http://www.ciena.com/insights/articles/5G-wireless-needs-fiber-and-lots-of-it_prx.html
Hi Bryan, I'm not overly familiar with ALF. The discount is quite large, and significantly larger than its long-term average discount so I'd want to know what's caused the blow-out before making any decisions. I suspect the poor NTA performance over the past year could be the problem. I note that the fees are at the higher end compared to competitors.
Hi Melville, I can't speak for the contributors, but it's worth noting that APL is a Listed Investment Company. An LIC exposes you to the strategy of the manager, while PNI owns a stake in the management company itself.
Hi Ian, thanks for the suggestion, we'll definitely look into that. We want to make the content accessible for everyone if we can.
Great point Carlos. When the market runs out of skepticism it's time to be worried. Not sure if we're there yet or not though.
Adam, the company issued a detailed statement (many thousands of words) at the time, but their summary of the issue was: "The key reason for the withdrawal of the offer is due to the requirement of the ASX, that Bitcoin Group procure a working capital report from an independent accounting firm, a report not specifically required for a listing on the ASX. In preparing the working capital report, Grant Thornton, the independent accountant was required to factor in the reduction of newly minted bitcoins released on the occurrence of block halving in July 2016, without regard to the expected increase in bitcoin price."
Great article Pete. It's nice to get a balanced view on housing, rather than the usual perma-bulls and perma-bears.
Not sure if you saw the news this morning Alex, but Kodak released a cryptocurrency yesterday and saw an intraday price rise of up to 105%...
Keep an eye on the website and Trending on Livewire over the next few days Gordon, I think we've got something you will want to read.
Great article Tim, a genuinely balanced view! I'm not sure I agree that Bitcoin could ever become a gold/usd alternative in its current form. Personally, I would ascribe a very low probability to this i.e. less than 1%. The main reason for this is the amount of power that mining would end up consuming. Current estimates stand at around 37TWh of power consumption per annum. At the current rate of increase, Bitcoin mining would consume the entire world's in a few years time. The amount of carbon dioxide this is producing is scary - the estimates I've seen suggest over 100kg of CO2 per transaction is produced. These are only estimates based on asssumptions, so should be taken with a grain of salt, but I think it's a serious issue that's worth considering.
Good find Eddie, I hadn't come across that one before.
That quote from the American Airlines CEO reminds me of my favourite quote of the year , from the WeWork CEO: "Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue."
Great article, thanks for sharing Martin. Love the example you give of needing 2 Australias.
Thanks for listening and for the feedback K A. We'll definitely look to add more accompanying content with the podcast over time.
great analysis Hamish. Those mobile margins should be interesting to watch!
On Telstra Revisited -
A long read, but worthwhile. Some valuable lessons here for all investors.
Great read, thanks for sharing Geoff.
Hi Jeffrey, the CPI basket breakdown is updated every six years by the ABS to more accurately reflect the spending habits of consumers. The breakdown was last updated in 2011, and is due to be updated again shortly. Here's the full, detailed list of all the weightings: http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/6470.0Appendix22011 and here is the higher level breakdown if you don't want all that detail: http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/6470.0Main+Features142011
Hi Simon, Petrol is included under the Transport section of the basket, whereas electricity and gas fall under the housing section. As far as I know, the ABS has never treated energy separately. The data series are taken directly from the ABS so we can't speak for the accuracy or inaccuracy of the data. House prices make up less than half of the Housing section, with utilities, rents, rates, and maintenance also accounting for significant portions.
James Dyson is a very savvy businessman and an amazing engineer/designer. I would not want to take Dyson on as a competitor. I reckon Elon Musk should be very wary.
Great read Martin. I think it's particularly interesting that the share prices appear to begin moving in the correct direction a few days before the announcement.
A great read Jonathan, thanks for sharing. I'm always fascinated to read the unusual topics you write about.
Some out-of-the-box ideas here, thanks for commenting P E and Ross.
Thanks for sharing your thoughts, Graham and Harry. It should be interesting to see how it plays out from here.
Interesting point Patrick, though I would suggest that for those of us currently catching trains and buses, a dirty taxi might be an improvement.
Great point Jordan, a question that isn't being asked enough (if at all).
especially from such a renowned gold-snob as Buffett! He's been buying airlines recently, maybe gold is next?
Good question James. Given the data discussed above, as well as weak vehicle sales, and weak wages growth, I believe the chances currently stand around 1 in 3 of a second successive negative GDP reading.
Great analysis Sam, a balanced view.
Thanks for sharing Steve. I've been reading Maubossin's 'Expectations Investing' on my train trips recently, looking forward to checking out the podcast.
Great article Jonathan, worth the read. Many financial planners in Australia are now using forward return assumptions many percentage points below even the new Calpers rate.
That like-for-like data seems to be key, will be very interesting to see how it comes out next quarter.
Hi Paul, yes it's a little different to the usual content we share - we try to mix it up from time to time. Hope you enjoyed.
Thanks for sharing John, it's an interesting idea - and one I haven't heard elsewhere!
9 and 10 were very interesting indeed!
Great insights - this goes a long way to explaining some of the confusing listings on the ASX in recent years.
Thanks for sharing Kym. I just sent this to some of my friends in the financial planning industry.
Agreed Jordan, really enjoyed this one.
Thanks for sharing Alex. I remember wondering the same thing after reading Aswath Damodaran's valuation of Uber a while back. How do you think Google fits into all this? They seem to have been working on self-driving the longest and presumably, have the most well-trained AI.
Very interesting article, thanks for sharing. I have a family member who's Deaf, and another who works for VicDeaf. Anecdotally, it seems many of the adults who've grown up Deaf are not interested in the Cochlear implant - the surgery is not without risks, and many are quite happy without it. My own family member was told he risked losing the residual hearing he has so he didn't proceed.
Really interesting stuff Jonathan. As an Australian investor, I haven't really been on top of the situation at DB and this explains it very clearly.
Thanks for taking the time to share this Patrick, it was a pleasure to read.
Great stuff Joe, thanks for sharing. My nominations would be: 1) Focus on the long term; 2) Don't follow the crowd; and 3) Invest in what you know.
Thanks for posting, well worth reading for anyone interested in LICs.
Very interesting comment Patrick, an aspect I doubt many gave consideration.
Hi Steven, I thought you might find a piece I wrote interesting. It discusses this subject and two other factors that can influence company performance: https://www.livewiremarkets.com/wires/32756
Thanks for contributing Kym, this is a great resource.
Great read, thanks for sharing.
If anyone who's commented here is interested, Marcus just posted an update on this story looking at some of the suggestions mentioned here: https://www.livewiremarkets.com/wires/32411
Very true James, and the last 5 years have been a very different market than the years leading up to the GFC. It's worth remembering Chad's comment (was it a quote?) that bull markets are born in pessimism, grow in skepticism, mature in optimism, and die in elation... There's definitely two very different stories being told about markets, I wouldn't claim to have the foreknowledge to see which is correct.
Huge moves in Nickel recently. WSA is up about 50% in the last two weeks. Worth keeping an eye on.
Thanks for the comment Jordan. And good point about waiting for inflation. Macquarie Equities seem to be agreeing with us too, they issued a note with similar sentiments at lunchtime, going as far as to say economies in future would be "completely dominated by the state."
Great point Patrick, though if you go back further and look at 1687-1900, it was usually in the mid-teens. Given there's around 17.5 times as much silver as gold in the earth's crust (according to USGS), one could make the argument that it deserves to be lower. I wouldn't rely on it, but it's worth considering. Add in the expected increase in demand as the PV industry grows and it seems silver is a space worth watching.
Interesting perspective Graeme, I hadn't thought of that before. Thanks for commenting. Great point Jordan.
On Buy high, sell low? -
Thanks Steve. I've not seen anything similar in Australia, but it would be fascinating to find out. It goes to show the importance of educating your investors.
On Buy high, sell low? -
I have to admit to a healthy amount of skepticism on the claims they're making. If they really have developed a commercial process for making high-quality graphene, as they claim, it could be equally as big as their battery technology (claims). The claims they're making about the improvements over Li-ion batteries are quite astounding, if proven correct and they can make it commercial and scalable, it would be very exciting. One to watch maybe.
Interesting stuff Sam. Out of curiosity, what is the thinking behind using the dividend discount model over CAPM?
Great to have you on board Dean. Some interesting ideas here outside the usual small-cap growth stories that everyone talks about. Well worth a look.
Interesting insight Jonathan, this doesn't seem to have made big news, but it seems significant. I can't help but be reminded of collateralised debt obligations (especially with the agencies rating them AAA), but I guess the big difference is that these loans were written down before they were collateralised...
Thanks for sharing your thoughts Alex. Any view on how/if this matters for Seek shareholders?
Great interview on Bloomberg Gavin, I caught it earlier today. It's interesting to see how 'commodities' still seem to get grouped in together by many. The outlook for commodities such as lithium, graphite, zinc, gold, silver, cobalt, and depending who you ask, uranium, seem fairly positive. On the other side though, bulk commodities look like they've got a long way to go before any kind of recovery.
Hi Bill, I can't speak for Pie Funds at all here, but my own personal view (not that of Livewire Markets) is that the appeal here comes from the reduced amount of administration & work for the doctors office. It's definitely something that can be done in house, from what I gathered that seems to have been the traditional way, but ICS seem to offer a better way of managing it. I don't own shares in ICS but it has been on my watchlist for a while... Judging by my earlier comment, it might have been after reading this.
Great read Alex. Agree on your last point - I don't care how 'disruptive' a business is if it can't make a profit!
Great read. I love that Klarman piece about cash - always wanted to read Margin of Safety but I don't want to re-mortgage the house to get a copy.
On Why cash isn't trash -
Great article Jonathan. It's amazing that mainstream economics still doesn't consider debt... Personally, I'm of the view that a universal basic income could offer answers to some of these issues - I would argue that it could be funded by asset and estate taxes, but others might prefer the 'helicopter money' approach...
Agreed James; 'unbelievable' is the word that comes to mind for me.
Great first rant.
I hadn't noticed Surfstich, but I certainly saw what was going on with BLX. Very questionable indeed. ASIC really should be paying closer attention to issues like this in my view.
Bill, I in no way meant to question your personal experience. I understand that these figures can vary greatly depending on whether the cows are grain fed or grass fed, and whether irrigation is used. Thanks for engaging with us here, your input definitely adds another dimension to the conversation.
Hi Bill and Patrick. I thought you might be interested in another source I came across as well that seems to support the other Patrick's claim. "Producing 1 kg rice, for example, requires about 3,500 L water, 1 kg beef some 15,000 L, and a cup of coffee about 140 L" Source: World Water Development Report 2012. http://www.unwater.org/topics/water-and-food/en/
Very true John, it seems everyone wants a piece of the lithium story at the moment. I comment a little about Silver City Minerals in my weekly which will go out tomorrow. If you missed it, they jumped from 3c to 12.5c in one morning by using the word 'lithium' in an announcement.
On Lithium! -
This is definitely one of the areas of investing I find most challenging. Thanks for sharing your thoughts Steve.
Some great comments in here Jonathan, thanks for sharing. There doesn't seem to be much to be excited about at the moment.
Great read, thanks for sharing.
We got there. XJO closed at 5188.8 today
Insightful comment Ben, thanks for sharing.
Great read, worth taking the time. Welcome to the platform.
Good to have you back on the platform Mark, thanks for sharing.
Interesting analysis, thanks for sharing.
Thanks for sharing Tim, you make a very compelling case. Am I understanding correctly that they're generating less than 1/3 of their capacity - so they could triple volumes with next to no CapEx? Or is there some operational reason why they're running at a fraction of capacity?
I've not seen yields like that on Aussie banks for a long time! One of our contributors said a while ago that if the yield is over 10%, it's probably an illusion (paraphrased). I wonder if that's true here?...
On Hope is Not a Plan -
I can't help but feel the market could react poorly either way. If hawkish, worry about rising rates. If dovish, worry that the Fed has no faith in the recovery.
Do you think this could be due to the quality of the Australian listed U3O8 miners compared with their global counterparts?
media is a good one to be watching right now. Some very cheap stocks there if you're comfortable with a nice big dose of risk and a bit of declining earnings.
Hi Tony, Mark Burgess is the former head of Australia's Future Fund, he founded and ran his own asset management firm for many years, and currently consults on the board of a number of Australian funds. We thought he was great too, we're glad you enjoyed his comments. Regards, Patrick (Livewire Market Analyst)
12% pay cut, 51% decline in underlying earnings, reported loss... something definitely doesn't add up there.
On Rio Tinto 2016 AGM -
That chart is compelling. With all the positive commentary in the media, it's easy to miss that the annual result was worse than 2009...
What a lineup! Some of the best economic minds in Australia here in my opinion.
Great resource, thanks for sharing Rudi. Much better results than I think many expected going in.
Great news there for Forager investors Steve!
A terrible business is a terrible business, regardless of whether it goes through an up-cycle. A missed opportunity is not a mistake if no capital has been committed - in my opinion.
No surprises on the cut, but the size of the cut might surprise a few!
Blockchain is definitely some interesting technology, I doubt the size issue will stop it, but it could certainly slow down development.
Great stuff, very sobering.
Challenging Howard Marks, that's gutsy! Enjoyed reading this as always Jonathan, I appreciate your detailed analyses.
Personally, I think this technology at the right scale could be far more effective for home power storage than the Tesla Powerwall.
Great read. I had initially thought that the questions being raised about Deutsche's capital adequacy were overblown, but it looks like they could be in a more challenging position than I'd realised.
Thanks James, it was a cracker!
I really hope it does replace CHESS - would be a vastly better system.
Surprising result - big jumps right across the board. I would've expected a decline this month.
Great read. If beef follows the trends in baby formula, vitamins and skin care there could be some opportunities.
Good choice, that was a very interesting read.
A very interesting point Kym. Management can make poor capital allocation decisions in boom times and blow investors' cash, but then not share in the pain when asset writedowns comes. Seems rather one-sided doesn't it?
The only time I ever watch free-to-air is when the tennis majors are on, and it's awful. It just serves (pun not intended) to remind me why I can't stand commercial TV.
It's not even 10 am and there's already another one. South32 have just announced a $1.7b write down in their South African Manganese operations...
66.8% overnight rate!?! How is this not major news?
Great stuff, loved your bit on the currency war.
Some great points in this, well worth the watch. Just as a side note, Amalgamated Holdings is now known as Event Hospitality and Entertainment.
"estimate of 20% of all high yield debt defaulting in the next five years. This equates to US$527 billion of defaults" That is a scary scenario! That's almost as much as Lehman...
Unfortunately my comments are also based on what I've read, we can both look forward to that experience.
Great article Nathan, just a couple of points regarding the turbo engines. Firstly, I think as the F1s are now using turbos, they'll be more acceptable to high end buyers; a lot of the appeal of Ferrari comes from its racing heritage, particularly F1. Secondly, modern turbos have greatly reduced lag, as we've seen from Porsche over the past few years with their twin-scroll turbo. Ferrari is claiming that the engine in the 2016 488GTB has "zero turbo lag".
I don't consider myself a trader, but there were some interesting a valuable insights here.
Thanks for the response Oliver
Long commodities would certainly be a contrarian view! Definitely would require some guts in the current environment.
Negative operating cashflow for FY15 should've been a major 'red cross' for potential investors also.
What was it about SGH that made you stay away? For me it was the horrible cash flow situation, increase in receivables, and the the large asset revaluations which made up for the majority of earnings.
Thanks Kym, always appreciate your detailed responses!
Ah ok, I see where you're coming from - it's the way in which it's calculated rather than the absolute figure.
It does seem like a very generous remuneration package, but the amazing performance of MFG over that period seems to justify it in my opinion.
Why do you think there was such a strong showing against Hunter Hall for the proxy votes? Presumably these would be the most informed voters (I assume most proxy voters would be professionals like yourself?), and the 'against' vote was very strong. It seems hard to believe that after 64% of proxies could be voting against yet the resolution would still pass.
Bennelong already has the Bennelong ex-20 Australian Equities fund if that's what you're looking for, but some investors may still want to have exposure to the top end of the market. It might also be appealing to financial advisers as it can reduce their workload - rather than separately recommending 2 funds, they can just recommend 1 which achieves both.
What a great idea! Achieving outperformance in the top 20 is a very difficult task, so I've always said it's better to index the top end of the market; once you get outside the top 20 though active management becomes worthwhile. I'm just annoyed at myself for not thinking of it first!
The idea of social investing and investors copying others seems to just be asking for bubbles. Not saying it won't happen, but I'm not sure that it's a good thing for the markets... I am excited by the prospect of the traditional brokerages being disrupted though, it's about time.
Thanks Kym, there's certainly some things for SEK shareholders such as myself to consider there.
Thanks for the explanation. I can certainly see why you avoid investing in unprofitable companies, trying to put a value on them is nearly impossible.
On The Uber effect -
I'm curious how you define value and growth stocks, is it the same way as Fama/French with book to market, or some other metric?
Wow, those are some impressive results from Peel! If it weren't for Sandfire's Monty project, it'd be one of the best in Australia drillholes all year.
Interesting perspective Anthony. Do you think it's easier to invest in the disruptors, or short the disrupted?
On The Uber effect -
Challenger is one of the highest quality businesses on the ASX in my opinion, and the multiple tailwinds assisting its growth should continue for years to come. Already more than doubled my money, no signs of a sell in sight yet though.
Useful info regarding Seek's remuneration, that's certainly not a good way to encourage management to build value in the company.
For me, one of the reasons I was willing to pay what looked to be a high PE was OFX's wonderful ROE, and its ability to grow earnings with relatively small investment. This of course would largely be because of the qualitative factors you've discussed here. Even at this price it does appear to be a good buy for Western Union, a lot of buyouts and mergers talk about synergies, but here it looks to ring true.
It's interesting to see how different the returns are when you strip out mining and energy companies and just look at small industrials. Unfortunately I've been unable to find the data publicly, but I know I've seen it before.
It's interesting to see that with all the commodities discussed, whenever the price has dropped below the production cost of the 50th percentile it has rallied soon after. Not suggesting this is a sign we all should go start buying commodities, but it will be interesting to see if the relationship holds.
This would go some way to explaining why the long-expected Uranium recovery remains elusive.
Looks like a quality business with a bright future, definitely putting this on the watch list for further investigation.
Interesting strategy, could make a good satellite holding for exposure to PE. The discount to NAV is nice, though I do worry about the ability to close that gap with such a niche investment mandate.
“I never read annual reports from front to back, as that’s the order that the company wants you to. I always read them from back to front, as that’s the order in which things are hidden." - Brilliant! I love it.
It's interesting that while Japan's economy has been one of the worst performing (if not THE worst performing) developed economy in the world for many years now, yet it is able to maintain full employment across the cycle.
Great article again Steve, probably the easiest to understand and clearest criticism of index funds that I've seen to date. To me the idea of encouraging herd behaviour even further seems counter-productive to returns, and the efficient operation of the market. I guess it does create opportunities for value investors though!
I wonder if the cause of this crowd-following behaviour might be related to the rise of index funds..?
While you are technically correct Patrick, in practice what Steve said would be right. With a sample size that large, the returns of active managers would likely be almost identical to market returns.
Thanks Karl, I've generally found that for retail investors, assessing management can be one of the most difficult tasks. It's easy enough to read a balance sheet and a cash flow statement, but reading people is much harder - especially if you don't have any personal access to them. One method I've been using the past year or so is to go back and read 5-10 years worth of letters from the CEO and Chairman, taking note of the promises they've made and whether they've kept them. Of course this only works where management has been with the company for a long time, but so far I've found it very helpful.
congratulation on your new role, I look forward to hearing from you again - I'd been missing your posts from Intelligent Investor.
Very interesting company, definitely going to take a closer look at it.
Long, but worthwhile.
This reminds me of something I often tell my colleagues - missing out on potential gains is not a mistake in investing, but losing money is. There's thousands of missed opportunities around the world every day - you can't catch every winner. By avoiding the losers though, you preserve your capital and live to fight another battle.
Wow, I had no idea there were ASX companies showing such blatant disregard for JORC standards. I'll certainly be taking a closer look for these issues in future.
Thanks for the responses Damien.
I've got many years of first hand experience with Link's technology platform, it is reasonably good and functions well, but that's about as much as I could say for it. However, I do acknowledge that building a platform like that is quite capital intensive (it sent SuperPartners broke), and none of Link's (well, AAS' actually) competitors in the superannuation space seem to be able to keep up with them here. This is from the perspective of a (former) employee however; I did get the impression from a number of client's that it was more impressive from their point of view.
I'm not sure I'd want someone with a history like that as MD/CEO if I were an AQC shareholder...
That sounds like quite a unique funding arrangement, I have never come across an ongoing (presumably underwritten?) equity finance facility before.
Great read. Do you think that there are any unforeseen (by regulators) risks created by the high percentage of domestic deposits compared to other funding sources? A bank run seems unlikely, but intuitively it feels like this should create additional risks.
Is the graph on page 2 correct? It shows no allocation to mutual funds at all.
You're right that the increased capital requirements don't affect the income statement, but that's not what's driving the decrease in value. If you value on an earnings per share basis, then increased capital requirements mean more shares have been issued without a corresponding increase in earnings, lowering earnings per share. Alternatively, if you're looking at ROE, it increases the equity, without a corresponding increase in returns, lowering ROE. I enjoyed the read nonetheless, it's always good to hear a different view on popular issues.
Amazingly, the DSH short position is not as strong as I expected. 0.72% of issued capital is short at COB yesterday. 1.7m shares short compared to avg daily volumes of 2.85m. I guess the question is whether the money has already been made on the short side or if it's going to zero.
Wow. I generally avoid IPOs where the current owners are cashing out, especially if it's private equity selling. This however, has blown me away. This should be a case study for finance students.
I'm having trouble commenting on your site (not sure if it's worked or not), so I've copied my comment here also: Interesting article David, and I agree on most points, though not all. You said: "Even if active managers were able to consistently outperform the market, moreover, their degree of outperformance would need to exceed their management fees to beat some of the very low cost ETFs and index funds available. As but one example, a fund that charged a 1% p.a. management fee plus a 10% outperformance fee would need to generate a return of 10.95% p.a. to offer the same return to an investor in an index product that rose by 10% in the year and charged a management fee of 0.15% p.a." Unless you're quoting before-fee returns (which would be very strange) in your table, this would not be true. Most managers in Australia quote their returns after fees - in fact it is the fees that usually drag the 'average' managers to below-market returns. You've also looked at the 3 year returns, I don't think that 3 years is anywhere near long enough a time period to be looking at. 5 years is an absolute minimum to get any indication, and Fama and French have suggested that to get a reliable indication you need longer than this. I think we can both agree however, that there are active managers who can consistently outperform the index (as Warren Buffet taught us with his Superinvestors of Graham and Doddsville speech in '84), the difficult part is identifying in advance who they might be! Past returns are not a good indicator, but other factors could be. Some of the factors which I think show potential (though their reliability is questionable, and I think they need further investigation) include 'active share', portfolio concentration, value bias, small-cap bias, and portfolio turnover. I've seen research on each one of these factors which suggests that in isolation they are indicative of the potential to outperform (of course a 'closet index' fund is never going to outperform, especially after fees), however they cannot be relied upon to predict fund performance. Many of the fund managers with highly concentrated portfolios and high active share are just as likely to underperform.My own expectation is that, when multiple boxes are ticked, one may be able to produce a more reliable indicator of fund performance. Of course this is just my hypothesis at this stage, I hope to do some proper research on the subject in the final year of my Master's degree.
I've really been enjoying these posts Kym, thank you for the interesting insights. I think executive remuneration is an area which gets ignored by far too many investors (myself included), largely because we don't know what we should be looking for. It's great to see what the professionals are looking at in this area so I can improve my own analysis.
Very interested in the Link IPO as I worked for Link for 6 years and have an intimate understanding of how it operates. I think they can exert incredible pricing power with their near-monopoly on the industry fund administration, and the share registry customers are very sticky, despite the competition from Computershare. Their size and assets are almost impossible to reproduce (as SuperPartners would attest to), and as mentioned in the video, their income is going to be very stable and predictable. As always with PEP though, the price will likely be too high.
On The outlook for IPOs -
Very interesting read, in particular: "The data is best summarised by the most recently reported GDP number, which saw growth of just 1.8% in the year to June. Measured on an annual basis, this is the lowest nominal growth since 1962, below even the recession years of the early 1980s and early 1990s, and below even Greece." Wow, I would not have expected that! Also: "These studies in fact reveal there is no correlation between GDP growth and a market’s return, and to the extent that there is a relationship, it is slightly negative." This surprised me even more!
I'm holding off at the moment in the hope of buying at lower levels, my small amount of capital is precious and I like to see big margins of safety on the value front before I deploy capital. There are some high quality names which are looking closer to the buy zone now than they have for a while though.
Only just found the time to watch this but glad I made the effort, thanks for the interesting insights!
Was a holder of HFA, sold it because I was uncomfortable with the poor quality of the Australian business. 2 weeks later they sold Certitude to Ironbark and the price jumped 18% over the next 2 weeks. Oh well, I guess luck can't always go my way.
I've held SFR and NST for a while now, and I've recently opened positions in S32 and WSA. Commodity producers are CHEAP - there is blood in the street and everyone is convinced that there's no hope in sight; sounds like a textbook buying opportunity for value investors. I'm looking to buy quality producers in safe jurisdictions, with low costs, long-life assets and strong balance sheets, and I'm finding them at massive discounts to their intrinsic value.
Looks very interesting Adam, I just had the briefest of looks at their most recent drilling results and they looks quite encouraging. It's too early in the development for me if they haven't finished their PFS yet, but their resource looks nice - 2.3MOz of gold at a reasonable grade is not something that comes along every day in WA. I couldn't immediately spot whether the resource was JORC compliant though?
Agree that resources is a scary place to be, but in my opinion, this is a 'blood in the streets' moment. Things could potentially get worse before they get better, but I'm looking at low cost producers with long asset lives and strong balance sheets - these kinds of companies will survive, and thrive when the upturn eventually comes.
I've been using both Livewire and Sharesight for some time, both are great. Every retail investor should have a look at what they have to offer.
On Welcome to Livewire -
Great read, although I'm sure this is stuff that most value investors should be aware of, the reminder is timely and important. Number 1 is so important, for this reason I'm sinking my spare cash into companies I already own.
This was a really useful and interesting report. I really enjoyed the profile on FGG (especially as a shareholder in FGX who intends to take up the offer), the section on the options outstanding was great too - I learned the hard way how much it can hurt the share price (not to mention the earnings dilution) when the shares on issue doubles in a short period of time.
On LIC Quarterly -
Good morning Niv. My understanding based on US VIX is that you can't buy/short VIX directly, is this different in Australia or were you referring to buying VIX futures?
I'm not sure if it's the intention of the author, but the first sentence seems to imply that overseas equities are riskier than Australian equities. This seems an odd view as it disagrees with the idea that diversification reduces non-systemic risk.
Have been looking for exposure to India for my personal portfolio, still reading the prospectus, but this looks like an interesting option.
Interesting article. Counter-intuitive at first maybe, but not very surprising when you really think about it. Quality is always more important than quantity though. I would think after reading this that return on incremental capital should be a better indicator for these companies as it would give a clearer idea of how much of the R&D they're turning into profit growth.