Inflation, not Recession, the Big Risk for Investors

Steve Johnson

Some US homebuilders’ share prices are down more than 50% this year. A large cohort of the global auto sector is trading at 6 to 8 times earnings. These sectors are highly sensitive to economic growth — cyclical rather than defensive in the industry lingo — so the share price... Show More

The Opportunity is in the Detail

Steve Johnson

Everyone wants to buy stocks for attractive prices. But why would anyone want to sell at that same price? Finding bargains is the key to successful investing, but it requires delving beyond the obvious. In this video, Forager's Alex Shevelev talks about some of the useful insights we glean from... Show More

Hi @Justin. Outsourcing the administration is straight forward. Link already performs that role for most of the industry funds.

On How to fix Financial Services -

@Alex, you are right there are many nuances but your analysis sums up the crux of it. It's not just resi property of course, any long duration asset has benefited from the same.

On Credit Availability IS Australia’s House Prices -

Hi Spiro, I wrote a piece on home ownership a while ago: https://foragerfunds.com/news/retire-happy-comfortable-property-free/ The short answer is that there is a large gap between the 2% net yield on a residential property and the return I think I can earn on equities.

On Credit Availability IS Australia’s House Prices -

Hi Jim. The capital raising is real - I've never seen that part made up. I just wouldn't put too much faith in it as a positive sign. If fact, with something like Getswift, it can be a very effective way to cash in on the hype you have created. You can't sell your shares - that would freak everyone out and the founders are often restricted in any case - but you can use the high share price to get some cash in the bank. Even if the product turns out to be near worthless, Getswift's founders now control a company with almost $100m cash in the bank (for now).

On Steve Johnson: Get wary of GetSwift -

I hope you are right and I am wrong. I have no financial interest and the more Aussie tech successes the better. But don't think for a second that because there is institutional money involved it has to all be legitimate. Check out the 1PG announcements and capital raise from 2015 if you need a good example.

On Steve Johnson: Get wary of GetSwift -

I think most investors would prefer a 40c loss to a 45c loss. They new investors don't pay the performance fee, it was already accrued in the price they paid. You are right that 10c cash gets paid out, but on the day they invested they already got a 20c discount because of the accrued performance fee.

On More secrets… not all dirty -

Mostly valid points but your point on the accrued performance fees is incorrect. The gross value of the portfolio has fallen 25% in your example ($2.00 down to $1.50), whereas the investor has only suffered a 22% loss (1.80 down to 1.40) thanks to unwind of accrued performance fees. Had the fee been paid out prior to investment the unit price would have fallen to 1.35 instead of 1.40. The less frequent the payment of performance fees the better (for investors).

On More secrets… not all dirty -

Hi Hayden. We haven't been able to do anything different from others. We were kicked out of a place a couple of years back and moved to a better place 200m down the road. A hassle but a weekend's worth of hassle. We don't have children and neither of us have any interest in spending our weekends renovating ... so uniquely placed to be long-term renters. Depends who you are leasing from but my guess is a financial owner would be open to something longer as long as you were happy to sign up to annual escalation.

On How to Retire Happy, Comfortable and Property Free -

Thanks Karyn. Good points. My question is still whether that $1bn worth of their own infrastructure justifies the $6bn worth of intangibles implied by the share price. It might, I'm just asking the question. Btw a comment over on the Forager blog suggested they have thus far have only 16k active connections to their own FTTB infrastructure.

On Further thoughts on TPG -

Thanks Charles. That all depends on what I think they are going to do with the money they keep. If a company cuts its dividend and I think they are likely to fritter away the additional retained earnings then yes, it would decrease my valuation. But if I am confident they can reinvest at higher than my required rate of return, then my future cashflow stream (and valuation would be higher). Berkshire is a good example of a company that has never paid a dividend but has compounded the money internally at a very high rate. As I said to a reader on the blog though, it's important not to get too scientific about these things. If the stock is cheap enough it should be obvious. If you are adjusting discount rates or reinvestment rates to get an answer that works, then it probably isn't cheap enough. The general point was to focus on the business, not the share price. Cash returns are a great example of proof points, because you have the money in your pocket, but a company that had dramatically increased its sustainable earnings power would be just a good an example of a investment playing out to plan.

On How to Assess a Successful Investment -

Thanks for the comment Alan. Spot on. We write down a road map at the time of investment and review it every results. Sometimes we look fascicle but it is a worthwhile exercise.

On How to Assess a Successful Investment -

Fascinating stuff. I heard Kerr Neilson say something similar about his fund investors once. Has anyone done a broad study on the Australian market? We're probably self-selecting but our clients have historically put more money in during downturns.

On Buy high, sell low? -

The big issue with these statistics is that they should be weighted by accessibility. Did you try and get some Baby Bunting? Sealink perhaps? These offerings - which were clearly attractive investments - were massively scaled back (I'm talking 99%). So if you apply for every float, you will get lots of stock in the duds and almost nothing in the good ones. The average investor's return is not going to be anything like the average float return.

On The compelling story of Aussie IPOs -

Well ... whether it is good news or not remains to be seen! Let's call it a lucky start for now.

On Buy Hold Sell: Fallen Angels -

Just a quick caveat here. The share price was less than 40c when we recorded this video, 57c today. Not the same option value it was.

On Buy Hold Sell: Fallen Angels -

I still think it's a an interesting space at the moment. We're on the record as recent purchasers of S32 and are taking a good look a Whitehaven. Even if they are good investments from here, though, it won't change the fact that billions of dollars worth of shareholder wealth have been invested in projects that are never going to earn an economic return.

On BHP Billiton: Hole in the ground -