Wilson Asset Management held their shareholder presentation in Sydney today. Chris Stott, Catriona Burns, and Matt Haupt all took the stage this morning to share their view on the markets, their top themes, and a few stock ideas. Here are the highlights. Show More
One of the biggest problems facing retail investors is accessing quality information. Sure, you can look through the last five annual reports and manually extract the data, but this is tedious and time consuming. Free services like Yahoo Finance offer some help, but the data quality is often low, and... Show More
Berkshire Hathaway held its AGM in Omaha, Nebraska in the early hours of Sunday morning local time. The annual ‘Woodstock for capitalists’ continues to draw huge crowds hoping to hear the wisdom and wit of two of the world’s great investors. Show More
There are a range of brokers and researchers who produce regularly monthly or quarterly updates on the LIC sector. While the quality and depth of the research available is excellent, providing complete coverage of over 100 companies and trusts takes can take several weeks. Show More
The latest Buffett letter was released over the weekend. At 17 pages, it was shorter than we’ve become used to, but there was no lack of wisdom flowing from the 87-year-old from Omaha. Notably absent from this year’s letter was any discussion of the Wells Fargo debacle. Buffett has a... Show More
Following Marks’ last memo, many media sources (though not this author) reported that Marks was ‘ultra-bearish’. Some even went as far as to report that he’d said, “it’s time to get out”, when he’d said quite the opposite. In an effort to set the record straight, Marks’ latest memo looks... Show More
Reading the latest stock tips and macro calls is fun and useful for generating new ideas, but educational articles offer real long-term value. As the proverb goes: “give a man a fish and you feed him for a day; teach a man to fish and you feed him for a... Show More
Berkshire Hathaway Vice Chairman, Charlie Munger, is not known for his subtlety. In a recent conversation at the University of Michigan, Munger was true to style and has some fairly strong messages for cryptocurrency enthusiasts and novices alike. A transcription of his comments on Bitcoin is available below, or you... Show More
For the last three years, I’ve sat down with the results of the Livewire Reader Survey in January to analyse the data. With over 2700 responses, this year’s generated four times as many responses as last year, and now marks it as the largest survey of active investors in Australia. Show More
At today’s WAM Funds presentation, Chief Investment Officer, Chris Stott, shared some of the key themes and holdings from their current portfolio. He covers their views on the Australian economy, mining services, and retail. He also discusses a company that hadn’t received a visit from an analyst in two years. Show More
In a recent presentation, Kerr Neilson, founder and CEO of Platinum Asset Management, told the audience that the current economic environment is in a “situation that is actually quite rare.” Almost all economic indicators are “extremely positive”; everything from global PMIs, to metal prices, oil prices, and even company earnings,... Show More
As the housing construction boom comes to an end, the obvious question for investors is ‘where next?’ One potential opportunity lies in transport infrastructure construction, which is poised to double over the next few years. Between roads and rail, annual spend is expected to increase to $16B by 2020. Show More
Billionaire value investor and hedge fund manager, David Einhorn, said in an investor letter this week: “The market remains very challenging for value investing strategies, as growth stocks have continued to outperform value stocks. The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy." Show More
It’s ‘World Investor Week’ this week, and ASIC have put out some practical tips that are worth keeping in mind, even for experienced investors. “Smart investors don't rely on good luck; they plan, research and understand their investments and how they fit with their financial goals”, was the message from... Show More
At their recent adviser briefing, Magellan CEO, Hamish Douglass, had cars on his mind. Specifically, driverless cars, and what they mean for investors. While many investors focus on the potential upside in companies like Uber and Tesla, Douglass’ focus on capital preservation means he was more interested in the flow-on... Show More
Howard Marks expressed concerns over a range of different assets and indicators in his last memo, which caused quite a media uproar. So he’s expanded and clarified some of his views. More interesting though, was his change of opinion on Bitcoin. His key quotes from this new memo are below. Show More
On the topic of valuation, Professor Aswath Damodaran is one of the greatest communicators of our time. Recently, he sat down with another famous NYU professor, Scott Galloway, to discuss the valuations of some of the world’s leading technology companies. Professor Galloway is known for his engaging TED-style talks where... Show More
A stock in your portfolio has fallen 30% since you bought it; is the market telling you something, or is it just better value than before? This is one of the most important questions an investor faces on a regular basis. Averaging down is when an investor buys more stock... Show More
It’s been about five months since the horrible tragedy at Dreamworld (owned by Ardent Leisure Group) claimed the lives of four Australians. I recently visited Dreamworld on holidays, but as a believer in the Peter Lynch philosophy, I couldn’t pass on the opportunity to have a look at how the... Show More
Short sellers are not the most popular participants in financial markets. Investors may recall that during the height of the financial crisis in ’08 and ’09, short sellers were blamed for some of the volatile price movements, particularly in major banks, and short selling was subsequently banned in many developed... Show More
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!
Half-way through listening to this now and it's good stuff. Though the DMP valuation might be divisive for investors, I think almost everyone would agree Don Meij is one of the best CEO/MD's around.
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?
Is this an additional or initial investment? I thought I recalled seeing Vinomofo on their investments list already. Either way, very interesting company. Definitely one I'll be keeping an eye on. A niche is a pretty good place to be in my view.
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?
The thing that concerns me is the user response to actually using the app. On the Google Play store it's only got an average rating of 3.4, and a number of the top comments are quite critical. You can have lots of registered users, but if none of them actually use the application due to frustration with the functionality, it's not going to be easy to monetize.
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.