Success and More Interesting Stuff

Chris Judd’s lonely pursuit of market-beating returns

Matthew Kidman

Centennial Asset Management

In this episode of Success and More Interesting Stuff, we speak to AFL legend Chris Judd, a former star of the midfield for West Coast Eagles and Carlton Football Club.

His career on the field netted him a premiership, two Brownlow Medals and acclaim as one of the best players of the modern era.

Since retiring from the game in 2015, Chris has turned his attention to trading financial markets. He thinks hard about the macro-economic picture and how to make money from his findings.

He describes his competitive edge as a non-institutional investor, and how determined he is to make the most of it.

The harsh realities of elite sport have taught Chris things other people might not grasp until much later in life, when it is too late to benefit from the lesson.

Along the way he expounds the ingredients of success, the prospects for gold and crypto currencies.


Edited transcript

Matthew Kidman

Chris Judd is doing it the hard way. After almost 30 years of playing a team sport, he has struck out on his own to take on the financial markets.

After a stint on the Carlton Football Club board, the premiership-winning captain, two-time Brownlow medalist, Hall of Famer has turned his hand to full-time investing.

Sitting in a room, reading and thinking about where to allocate his capital is about as distant from a full house at the MCG on a Saturday afternoon in September as you are going to get.

With four young kids to kill the downtime, Chris also finds time to run his own online media group, Chris Judd Invest. It is headlined by the excellent podcasts Masters of the Market and Talk Your Book, where he comfortably chats with some of Australia's leading financial minds.

Despite being a late starter to the financial game, he is far from out of his depth. Meanwhile, Chris invests his own capital with a keen eye on macro events.

He is particularly interested in the current craze of money printing being carried out by central banks around the globe. No doubt our discussion will cover topics associated with money printing, such as inflation, gold, and maybe cryptocurrencies.

Trying to wrap your arms around macroeconomic trends is slightly different to shaking off a Brett Kirk tag. It will be interesting to know which one is the more difficult.

Welcome, Chris, to Success and More Interesting Stuff.

Chris Judd

Thank you, Matthew. That's a lovely introduction. Great to be here.

Matthew Kidman

It's interesting in the sense that maybe this is a nice peaceful break from the Carlton board.

Chris Judd

That's right. I had four years on the Carlton board. I enjoyed that, but as you touched on, with four kids and trying to run a business and earn some money, you can't kiss all the girls, as they say. So it was a good time to exit and focus on the investing and other endeavours.

Matthew Kidman

Well, I tip my hat because you go for three kids and you end up with four. It can be quite stressful and quite demanding. Hopefully having twins is going okay at the moment.

Chris Judd

It's going well. We are lucky to have four healthy kids that have made it through a couple of years of homeschooling with their physical and mental health intact.

It has been a huge couple of years for everyone all across the world, but the kids are back at school and there's plenty to look forward to over summer.

Matthew Kidman

Yeah, kids are pretty resilient. Let's go back in time and work out your DNA, because you spent a long time playing football and sport before you eventually found the financial markets.

Sitting around the dinner table at home in Melbourne, what was the discussion like? Was anyone interested in business? Was there anyone talking about the share market or was it football, athletics, round the clock, wall to wall?

Chris Judd

There was very little interest in business in the house, or money for that matter. My mum was a nurse who became a clinical psychologist at the age of about 40. So she had a decade of study then started a new career later in life. And my dad was an IT consultant, with limited interest in shares or investing or property.

My grandfather liked his investing. I think he bought News Corp at 30 cents. I don't know how many he bought, but he favourite pastime was to sit on a rock at Noosa and get the newspaper out and check what his News Corp shares were doing.

Matthew Kidman

And would he ever speak to you about that?

Chris Judd

No, he passed away when I was about 16. I reckon I bought my first shares not long after that. After walking down to the news agents with the old man and buying a Shares magazine and reading one of the recommendations.

He just wouldn't dream of investing like that. That was my introduction to it. And I reckon that was just after my grandfather passed. That might have been inspired by him, but certainly business wasn't the forefront of any family discussions in the house I grew up in.

Matthew Kidman

So maybe the market interest skipped a generation.

Chris Judd

Maybe. I don't know what it was, but it's certainly something I've taken to, particularly the macro side of investing.

I know we'll get onto it later, but that idea of stories, and macro investing really, is the story of what's going on in the world. To be able to discover that post footy just felt magical really.

It just felt like so many things opened up and all of a sudden made a lot more sense, even things that were seemingly unrelated to finance. That ability to be able to explain what's happening in the world, often through a financial lens, has been a terrific thing for me to be able to discover.

Matthew Kidman

Well, it's a great effort to do it because I know you're investing your own money, and to do it yourself, I did that for a while, and it's a lonely venture. It can be rewarding, but anything by yourself is hard.

Let's just go back. And obviously you played football from a very young age. You are also a good athlete and got to state level, I think, and might have done well at that as well. As a young guy, obviously a good athlete, but competitive?

Chris Judd

Yes, super competitive, but not competitive at everything. I know some people who are, if you play a game of marbles, they're wildly competitive on it. I'm really able to switch on and off.

So if it's something that's important to me, I'm wildly competitive, but if something's not particularly close to my heart, I'm not too fussed about losing. But certainly for things that I value and I feel are important, I'm deeply competitive.

Matthew Kidman

And most competition has evolved into beating someone else or sometimes beating yourself. So when we transpose your competitiveness as a kid in sport and we take it to markets, does that competition come out? And is it about beating the market or beating yourself, doing better?

Chris Judd

It's about beating the market; beating the index-measured performance from 2014 to now. There's a really clear scoreboard and I'm very much of the belief that the scoreboard doesn't lie.

I don't care about these people that say, "I was right, but the market was wrong, or whatever." The scoreboard is a scoreboard. I've got clear goals around that, and I'm clear about the type of investor I am.

I know that over an extended period, say three years or longer, I can outperform the index, but I know that I can't outperform the index each month and fund managers need to do that or need to not underperform by a lot because they get redemptions.

But as a private investor, I don't have that concern. I'm clear about where my different edges lie; an individual investor versus an institutional investor. And the competitiveness, I mean, that's what investor is.

You are taking a position and basically saying that the market's wrong and that they'll agree with you later on. And when that works, it's satisfying — A, because you made some money, but B, because you are right. That's why we do what we do.

Matthew Kidman

Do you think it's a key ingredient? For anyone out there listening, if you're going to do well in the market, do you have to have that competitive instinct, just like you do in sport?

Chris Judd

Not necessarily. I think it depends what type of investor you are. You can invest in index funds and perform well, and it's a safe thing that will steadily accumulate. But if you want to be an individual stock picker, each time you are buying a stock, someone's selling it to you.

You need to have confidence you've done more work on it, or understand the business better, than the person selling it to you. There's that element of competitiveness that comes from that. Certainly I think competitiveness to aggressive or individual stock pickers is an important facet.

Matthew Kidman

Another important factor is judgement and making decisions. If we go back to when you were young, you obviously were a good athlete, a good middle-distance runner, and you were a footballer, and that was shown out over time. So why did you decide to go into football?

Chris Judd

I almost feel like I didn't choose — I just loved it so much. And it sounds a bit softer to say football chose me, but there was never a choice. It was just an obsession from an early age.

Every now and then I'll have a parent talk to me about their kid who is thinking about taking up a professional sport. They're just not sure if they want to do it.

And I'm not usually as crude as this when I speak to them, but if you're having those thoughts, it's probably not for you.

Professional sport is a career the statistics will say is ridiculous to follow. Much like the statistics will say you can't outperform the market as an individual investor. If you're analysing that through your head, instead of your heart, I don't think there'd be many athletes that make it.

Matthew Kidman

Juggling time as you're doing now with kids and family and podcasts and investing, it was a bit the same when you were at school.

For a guy who was obviously a very good young footballer — and there are a lot of demands to achieve at that level — you still performed well at school itself. Were you competitive in that sense? And what subjects were you good at? And has that helped you as you've moved into financial markets later in your life?

Chris Judd

I was a lazy student until year 12, when I just matured enough to realise that I'm going to be here anyway for the next 12 months, I might as well do some work.

And I also did a subject less than everyone else, which I think was really useful. I did four subjects in year 12 instead of five.

In Victoria, your four best subjects go towards your score and then you get 10% of your next two subjects. So most people do five or six. I did four. Well, I did one in year 11. Then I did four in year 12.

I did English, physical education, easy maths, history, literature. English-based again; probably unsurprising. I like macro investing in the stories, as opposed to a bottom-up approach. I liked English, liked words, liked reading as a kid.

Matthew Kidman

Because I think a lot of younger people get overwhelmed about how much math you need in financial markets. I heard you quoted recently saying it was a little bit about maths, being successful.

Chris Judd

I think it's much more about psychology.

Matthew Kidman

And your mum must come in handy there?

Chris Judd

Not with investing. I will talk to my parents about they manage their own super now. Any time an investment goes up, my mum wants to sell it straight away. She's learning the difference between mean reversion and exponential growth. That's been a slow process.

Matthew Kidman

She's not the in-house counsellor. She's the nervous one in the house.

Chris Judd

Well, in terms of investing. Yeah. I think that's the thing, isn't it? You can borrow someone's tip, but you can't borrow their conviction. It's always hard if you haven't done the work yourself.

Matthew Kidman

And before we clock off on your family in those young days, any siblings?

Chris Judd

Yeah, I've got a sister who's three years older.

Matthew Kidman

And was she also a good sports person, competitive, or just a different creature altogether?

Chris Judd

She was a magnificent athlete, but not competitive at all, and stopped doing any sport when she was 13 or 14. She was a brilliant track runner, a really good netballer.

For whatever reason, the competitiveness didn't gel with her. So she stopped playing pretty young, but she's great. She's got two kids, she's married, working hard. We're very lucky to have a really close family where everyone's fit and healthy.

Matthew Kidman

So let's track forward. You leave Melbourne, you go over to Perth, you hit the football scene very early and very hard. You're in grand finals quickly. Obviously, it was a terrific time in your career. I'm trying to think what you were thinking about in those days and how you managed yourself.

When you stood up on the podium with the premiership cup, I think it was with Ben Cousins in 2006, were you looking out into the crowd thinking, "Do these people know there's a housing bubble forming in the US?"

Or was your mind somewhere else then, and you were totally focused on football, and you can only really focus on the one thing to succeed at it?

Chris Judd

I was obsessively focused on football and was a ridiculously stupid investor at that phase. I got a margin call during the GFC when I was overseas. I just got smashed and they've never loaned money for a share since.

Maybe I should have been thinking about the housing bubble a little bit more, instead of the premiership success. But there were some great lessons in that period of my life that translate really well to investing that I probably didn't realise at the time.

I look at that West Coast team that was able to have some success because they did things differently to the dominant teams at that time. Brisbane Lions were a really muscle-bound, heavy team that were one of the great teams of the last 100 years. And they did that by being physically bigger and stronger than opposing teams.

What the other teams coming up usually tried to do was to put on a heap of muscle so they could compete against the huge beasts that the Brisbane Lions team had.

I remember talking through this with Ben Cousins and Ben just saying, "No, there's no point putting on muscle to try and out-muscle them — we just need to outrun them."

And there's a real focus in that team being lean and being elite runners, which West Coast were at the time. And in the end, that's how teams disrupt or overcome the dominant team. It isn't by doing the same thing better. It's usually by creating a different operating system, like Apple did with Microsoft, and it's what you see in the business world all the time.

And that happens with sport. The outliers are outliers because they do something different and they're the teams that perform the best. But also, the teams at the other end of the spectrum are doing something different and it's not working.

And in between, you have those teams that are following best practice, but invariably the ones that really become the best teams or the great teams are outliers because they're doing something different. They're non-consensus, as you'd say if you're an investor.

Matthew Kidman

It sounds like that conversation that you had, and I'm sure it was going through the football club in general, was about playing to your strengths.

Chris Judd

That's right. And really understanding that when the culture of a group marries up to the competitive advantage, then that's where you get special companies or special teams. And you see that in business and you see that in sport as well.

West Coast's competitive advantage was being an elite running team, but the culture was built around players who would come back on day one of pre-season and be expected to run personal bests at the beep test, which was the running test du jour of the time.

That everyday culture was really aligned to the competitive advantage. And I see that when I interview businesses now, and you can see where a CEO has created that. You can see there's a clear competitive advantage they've got and the culture underneath feeds into that. And it's often those businesses that can create something special.

Matthew Kidman

Just before we leave the West Coast, you had those two magnificent grand finals that were decided by very narrow margins. I think you guys won by a point in '06 and lost by less than a kick, and the famous Leo Barry mark. And Leo, as we know, is a fund manager these days.

Chris Judd

He's doing well too, isn't he?

Matthew Kidman

He's having a very good career. But a totally different environment, but a lot of pressure. I remember watching those games and wondering who would fumble the ball, who would do something wrong, but most of the time people were doing things right, including yourself.

I'm wondering, under that immense pressure, with all those eyes on your performance, has that helped you along the way to perform in hothouse environments?

Chris Judd

I think it probably has. I think I perform well in really high-stress environments. I don't perform all that well in low-grade, constant stress.

Matthew Kidman

That sounds like a family!

Chris Judd

Yeah, that's right! I had a small period of time working. I worked for a venture capital fund. I haven't had an extensive career in the real world in an office building, but being chased down by email with a million different tasks to do, and being bossed around by someone, I'd be really unsuited to that.

But the market crash in March last year was a really stressful environment. I remember lying up in bed one day and my wife said, "Oh, how's the US going to open?" I said, "Oh, it looks like it'll be down 5%." She goes, "Oh, that's not too bad." (Laughs) I was thinking, "What planet are you on?!"

And I remember being up at three in the morning and crunching sums, and I actually quite enjoyed it. It was wildly stressful. We had an operating business that we weren't sure was going to make it through. There was stuff going on Carlton, concerns around health and everything else, but high-stress environments I think I can tolerate and I think I can be quite suited to.

I guess that's a little bit the way I invest. I'm looking for almost venture-capital type returns — big, lumpy returns. I'm not looking to get consistent X percent per month, each month.

I'm looking for maybe putting up with pain for six months, 12 months, then a big, lumpy return. Those higher stress undulations are probably more suited to my personality than the constant grind some people excel at.

Matthew Kidman

From there you went to Carlton; you came back to Melbourne. It was a different environment, a team getting off the lower end of the table, you becoming a leader. And by that stage, it seemed to me that you had a slightly different game. You had to adjust your game.

That explosive pace was still there, but not the same level. That was successful also. You won a Brownlow Medal there, as we know, and I'd like to relate that back to investing. I'm a few years on you, and I know as I get older, you've got to change how you approach things, because your capabilities change. Do you think there's any truth in that?

Chris Judd

Yeah, that's true. You've just got to play with what you've got. And there's also a heaviness that comes with success. You see older investors or older athletes carrying the weight of expectation that's built up over an extended period. They often lack the freedom to express their views as aggressively as they would have in their younger days.

Investors looking to protect their wealth have a different mindset than those who feel they have less to lose. And I just think that's the way life is. That's a natural progression.

People generally become more risk averse as they age, for good reason. You don't want to be doing stupid stuff once you've got kids, because the cost of making an error is greater. Those sorts of things happen in your social life, and your family life, and as an investor, and certainly as an athlete as well.

Matthew Kidman

You're not the free spirit you probably were when you were back in Perth. You've got family commitments, financial commitments — you can't just cop a loss and move away from it. Have you already entered that de-risking phase of your investing, or have you pushed on regardless because that's the nature of the creature?

Chris Judd

I've pushed on, because I guess I really want to have a different mindset to an institutional investor. You guys, you have a mandate, and mandates are needed because people giving you money need to know what they're getting themselves into, but those rules can turn into a jail after a while. I don't have those rules locked in; I've got more flexibility.

I don't have a proper balance sheet, so I can get in and out of opportunities much quicker than any institution. I'm just really conscious of what my potential edge is and utilising that, because there are other areas that I've got where I can't compete with the institutions. I don't have a research team, I don't have as much experience, I don't have a balance sheet.

I want to be clear about my potential edge and my tolerance to risk, and able to get out of a position once it looks like it's going south. They're some advantages I have over people and businesses looking to allocate much larger amounts of capital. So the tolerance to risk and really charging towards risk is still there.

I don't hold once things look really ugly — I'm a seller. I don't hold huge losses unless I've got a huge amount of confidence in the business, but I've also probably got a greater understanding of which companies are going to mean revert, particularly cyclicals and resource stocks, and which companies are a chance to be those truly great exponential stocks that don't necessarily have to mean revert.

Matthew Kidman

And what about disappointment? There are famous pictures of you at the end of your career at Carlton — you did your knee. You didn't come back from that, that was premature in some ways.

Obviously it was a massive disappointment — one, an injury and two, career ending. Does that help you deal with disappointment when an investment doesn't work out? Because to get down on an investment is very easy. You can ride yourself pretty hard.

Chris Judd

Yeah. And I've done that before. That part of my football doesn't help with that. What does help is when you're playing football, no one's ever played the perfect game. Your team can play the most brilliant game, but they've still played plenty of mistakes.

Richmond star Dustin Martin could have had the best game at all time, but if you went through the tape, he's made heaps of mistakes throughout that game. It's the good things he's done have completely outweighed the bad things.

Having that mindset has really helped my investing because no one else never sells the top consistently. No one ever buys the bottom every time. Every investor, from me to Stanley Druckenmiller, is making mistakes every day.

The real mistake is dwelling on something that's already happened, instead of just looking towards the next opportunity. That's really the mindset I take. I'm not trying to be perfect, because I certainly know I'm not.

Matthew Kidman

Don't tell Stan that, he might believe you.

Chris Judd

Well maybe he's the exception! I don't know.

Matthew Kidman

Do you ever track your win rate? It sounds like you're accepting that not everything's going to turn out.

Chris Judd

I don't care about percentage win rate, I care about total returns. I haven't done it for a while. Last time I did it, my win rate was less than 50%. It was 46%. But I'm just not really concerned about that.

Cutting the losers quickly and letting the winners run is the main focus. I have a lot of positions. I'll often move into a position while I'm still working on it at a small amount, before I either buy it properly or just sell it. I really don't fall in love with positions, and percentage win rate is not a huge concern.

Matthew Kidman

You've talked about being at Carlton around the age of 28 and you had a mentor or someone from Perth, I think it was, I haven't heard you mention their name, who you formed a relationship with and you said that changed the way you invest.

You mentioned earlier that you were an investor, but it wasn't anything too meaningful. But at the age of 28, there was a change. I'm just trying to work out whether you'd mentioned who that person is?

Chris Judd

He just likes to be referred to as the chairman. We'll just say he's the chairman from WA.

Matthew Kidman

When you say he taught you how to invest, especially at the small end of the market, what are some of the insights he gave you that gave you the confidence that this is how to go about things?

Chris Judd

He taught me how to sell, really. That's probably the most important thing. I think property is all about the buying. If you buy a really good property, you don't really need to sell it until they bring in new laws where they tax capitalise gains or something crazy in the future. You can really just buy a property and hold it.

But shares — in my view, it's really all about the selling. And that was probably the most important thing I learned from him.

I was 28. I had probably read a couple of Warren Buffett books and read about return on equity and thought, because I'd read two Warren Buffett books, I knew everything there was about investing. I guess the investing style I learned from the chairman was really venture capital investing in liquid markets.

In VC investing, they'll do a series A. They'll say, "Right, I think these are the five important milestones you guys can hit before you raise your series B at a higher valuation, and then we'll come in again."

I guess how I learned to invest with this guy was, his money and a listed equity, they'll probably need to raise again. Before that happens, here are five milestones they might hit which would cause them to rerate.

And because it's a liquid market as opposed to VC investing, if it's not meeting enough of those milestones, we can sell and move onto the next adventure, or decide there are five new milestones that are potentially coming up that could get it to rerate again, and we might double our bet, a la how a VC investor would.

I came to understanding that just because Warren Buffett is a brilliant investor, he doesn't have ownership over the only way to invest. There are heaps of different ways to invest. Becoming more open to that and understanding how little I knew was a big part of the influence I gained from the chairman from the west.

Matthew Kidman

That kicked off your enthusiasm for the markets and global events. Post football, you spent just under a couple of years working in venture capital. You ended up leaving there. Is true venture capital with unlisted startups difficult?

Chris Judd

Hard. Really hard. I was lucky to get the opportunity and there were some really good people I was working with and I was grossly unqualified. I was an analyst. I was the first point of call who would sift through the various opportunities that came up.

It's great to get exposure to so many different businesses — hundreds and hundreds of opportunities — but hard for a number of reasons. Hard in Australia, with such a small population.

The binary nature of VC investing is really hard. And the valuations, I don't think, compensate you for that. I was investing my own capital in listed equities at this time quite heavily and doing fairly good work there. And in a couple of years, I barely saw anything I wanted to invest my own money in.

There were some great ideas and some really good founders there, but probably from the valuation side, I almost felt like you were getting punished for the lack of liquidity, when to me liquidity is such a valuable asset. So it wasn't for me, VC investing.

And I really steer clear of illiquid investments now, unless they're spinning out a lot of cashflow, but that's the overarching rule. If there's something that's illiquid, but it's paying a huge dividend, I think it can make sense for someone like me. Otherwise, I really value liquidity.

Matthew Kidman

Then you moved on and you started to sit by yourself, managing your own money. As I mentioned in the introduction, that's a lonely pursuit.

Chris Judd

Really lonely. It really is.

Matthew Kidman

And it's quite the opposite to what you experienced in a team sport with people watching your every move, especially in the AFL. How do you handle that isolation? Do you look around when you have a winner and think, "Well, where's the crowd cheering?"

Chris Judd

Well, I don't have it now. I had that for a couple of years. And you're right, it can be very lonely. I don't need a lot of time with other people either, but I'm not a monk.

Matthew Kidman

But it's also good for ideas as well, isn't it?

Chris Judd

Good for ideas. You need to sell in order to win. That's right. I did that for a couple of years. Then I went and shared an office with a property fund manager who's a friend, which was good, but we still weren't sharing any ideas as of about 18 months ago or so.

I jumped in with another equity fund manager. I share an office with a guy who's got a small fund and I've hired an analyst. I've got a young guy working with me. So there's three of us, but then there's some other crew that share the office, that come in and out, who have really good insights into some tech stuff or some other market guys.

And that's just magic. You can share ideas, you can lean on each other's work a bit, and also celebrate the wins and just talk crap. Even just from the social side of things, even the stuff unrelated to markets, just to be able to go out to lunch with people you like is really important. That's a great arrangement I've got now.

Matthew Kidman

You have constructed your own network and social infrastructure around work, which is great. Let's go to the unmandated portfolio that you construct. I think you've said before that you might have 40 positions.

I'm not sure if they're all listed. And some of them will be small. How do you go about that? How do you allocate your capital and if a position is working out, what concentration will you have? Will you place up to 10% of your capital into one stock?

Chris Judd

I would go 30% and wouldn't sell just because. I know a lot of managers have a mandate— if they get to 20%, they're forced to sell. Or if they get 10%, they're forced to sell. I prefer it not to be that concentrated, but that's that's happened before. And if that happens and I like the company, great.

Forty position feels too many, but a lot of them, I lump the difference — say gold positions — as one position. I'm doing some bottom-up work on different gold businesses, but the main focus for me is on gold, the asset, at a macro level.

And rather than buying an index fund, almost setting up a quasi index fund in gold for that position or an ETF for that position.

So even though there are 40 stocks, a part of me would say, "Well, those four uranium stocks are almost one position. Those 10 gold stocks are almost one position, and so on." But it would be nice to have a smaller number, but I've tried to cull it before, just because there were too many names on the list.

Matthew Kidman

It's always easy to be a hoarder when it comes to the market. Easy.

Chris Judd

Well, I don't like being a collector, and I culled some last year. I had Rhythm Biosciences that I just wasn't doing work on. And it was a small position and I culled it. Within about six weeks, it hit 10 times.

The only motivation to sell it was because I didn't feel I had the time to do enough work on it. So I've stopped doing that, but I'm not taking. The market's a bit different now. Last year there were so many opportunities opening up. It was a buy now, ask questions later type scenario, but now the market's a bit different.

Matthew Kidman

You mentioned earlier that you got a margin call back in the GFC. That makes two of us. I got mine in the mail, which was three days after they'd actually tried to sell my stock. I'm not sure where the call came from. It was just a letter in the mail.

Chris Judd

Yeah, I got multiple margin calls. And you're right, I'm not sure if they called me or just sold the stock, but it was that feeling of being chased down by a wave. You'd sell some stuff, then two days later you'd be liquidated some more. It was just wild.

Matthew Kidman

If you're talking about lessons, do you take on leverage if you're investing in smaller companies that are volatile?

Chris Judd

No. Every now and then I'll buy instalment warrants, or I'd be comfortable buying options, but I don't margin my own stocks.

Matthew Kidman

Do you keep a portion of cash that is there for opportunities?

Chris Judd

Of course.

Matthew Kidman

And how would you structure that? Does it wind up and down? Is it sometimes 5% of the overall or sometimes 25%?

Chris Judd

It's more than five. I'd like it to be a bit higher than it is now. Would it be about eight to 10% now? I'd like it to be pushing towards 15, but there's nothing I want to sell. So that was a good learning. I had some cash leading into COVID. I did okay, because I would like to be fully invested. I had some cash, but I think we're all a bit aware of the importance of it post that March-April crash.

Matthew Kidman

You touched on your objective to outperform the index, and that will ride on the ones that win, obviously. But as an individual investor who has got their capital on the line — different to a fund manager, who's trying to achieve an objective, beat an index — how would you broadly outline what your objectives are? Is it to grow your capital, or is it to make your money to build enormous wealth? How do you think about it? What's the opportunity and how do you go about it?

Chris Judd

It's to grow my capital, but I guess it's to spend my time doing things that I find interesting. I'm not trying to take over the world.

I'm not going to be the next Buffett or Druckenmiller or Geoff Wilson — Matthew Kidman! — But I want to be able to spend time doing things where I'm learning and things that I find interesting.

You mentioned football. Just a great experience for me. And I fulfilled a childhood dream and won a premiership, and had a really lucky career. But you get to the end, and it wouldn't matter how many premierships you won now, you're still only as happy as your saddest kid.

And I don't lose sight of that as an investor. A lot of guys or women that have high-powered careers probably get those learnings when they get to 60 or 65 and they start slow down and retire and they stop working. They're like, "Oh, what was I so worried about?" It's not that important.

I had that as a 30-year-old, so I don't have this urge to take over the world, but I do want make some money and be able to have the freedom that money brings. But more importantly, have that freedom to allocate time to doing things that I want, because I know that when we get to 80 or 90, whenever our health fails, all of us would swap whatever capital we have for more time. And so I don't want to have that realisation when I'm 90, if I can do it now.

Matthew Kidman

One of the things about investing that's hard is that you're not in control, because effectively you're a passive investor. I imagine, as a sportsperson, you're largely in control of your performance whenever you're fit.

You can work as hard as you like and control that to a certain degree. In investing, that's not always the case. You can do a certain amount of work, but it's no guarantee. Things can go wrong. A lot of people find that difficult. How do you feel about that?

Chris Judd

I find it challenging that because I'm in such high-risk positions, there's never a chance to fully switch off. I can't go away for two weeks and not look at markets. The young guy who works for me as an analyst, he doesn't have access to execute trades or things like that. And I don't really want other people to do that. So that's a bit challenging.

The idea that you're not in control, I'd almost push back on, because I'm in liquid markets. Some things will take me a while to sell, but I can sell tomorrow. I can start raising cash. If I chose to be in VC or things I couldn't sell, that was still my decision. I've still decided to back a guy who might be a crook, or a woman who lied to me, or whatever it is.

So I choose to believe that you are in control as an investor. I mean, I think as an athlete, so often you're not in control. You don't control who the coach is or who the fitness guy is, who the CEO is, or the football manager is, how many members your club has, how much your football club can spend on its football department. Probably as an athlete in a team sport, there's far more things outside your control than an individual investor.

Matthew Kidman

I suppose what you're saying is that you're in control of your decisions, and your decisions lead to an outcome. And that's on you, not someone else.

Chris Judd

That's right. And if someone's ripped you off and you gave them money, you're not going to learn anything by saying, "This person stitched me up." It needs to be, "You made the blue from trusting the wrong horse."

Matthew Kidman

I 100% agree with that. Let's go to the macro then, which you look at every day. And of course the macro's been dominated in recent years, first out of the GFC, and then obviously out of the COVID crisis — the money printing that we never thought was possible.

I know you think it's bound to be inflationary this time around and you're set in a lot of mining stocks, commodity-based stocks that could take advantage of that. If everyone's doing it, if all the major countries are doing it, why would it be inflationary?

Chris Judd

Well, I don't think quantitative easing or buying bonds is inflationary, and it has proven not to be, but I think the end outcome of this much debt needs to be inflation, because there are so many deflationary forces at play here.

We've got ageing demographics, so much debt, technological innovation, globalisation feels like it's coming to a bit of an end in some sense, that's been a real deflationary force as well, but technology is just hugely deflationary.

You've got this much debt, you've got the huge deflationary impact of technology. If the powers that be don't create inflation, and I choose to believe they can, not necessarily by buying bonds, but by whether it was helicopter money, which they did during COVID, which has created some short-term inflation, whether they guarantee bank loans that are made and we see velocity money pick up, who knows how creative they'll get?

But I think the end result needs to be inflation, because of how much debt is in the system. If we're talking about the US Federal Reserve, it looks like they're going to try and tighten into an environment where some of the leading indicators — housing, all those — look like they're slowing down already. So that's interesting.

Matthew Kidman

And the bond market hasn't really cracked. It's had a few goes at the getting the wobbles, but it still seems to be in that range.

Chris Judd

Yeah. But then you ask the question, how much information you get from the bond market now when the central banks are the ones buying the majority of the bonds.

I think they'll have a crack at it, but I think that'll create a deflationary shock, and we know what their reaction function is to that. I think, sooner or later, there needs to be non-transitory inflation to inflate away the debt because I just don't think you can normalise interest rates when they're 130% of GDP like they are in the US.

If they get it down to 70%, great, then maybe you can take interest rates to 4%, 5%. But that requires running inflation hot, running GDP hot, to get that differential up. Or you can just try and raise rates, but I think you'd get a huge deflationary shock.

Matthew Kidman

They tried that in 2008, even before we hit COVID.

Chris Judd

Yeah. I don't think they're going to get in front of inflation, but inflation is really the only way out unless people think governments around the world are going to default, or tell people they're not going to get their entitlements, or they're going to stop spending on defence and healthcare and seniors.

Matthew Kidman

It's a conundrum.

Chris Judd

Yeah. I guess that's a top-down view, but there are lots of other interesting things outside of that. I think moving away from the petrodollar system that we've had from the early 1970s to a world where everything's becoming electrified, from currency to cars, to everything in your home, is a really interesting thematic. The Web 3.0 phenomenon, the metaverse thematic that Facebook has spoken about extensively — it's really interesting. So there's heaps to look at.

Matthew Kidman

Let's look at some sectors then. Assuming there is inflation, gold has lost some lustre in recent times and been crowded out by the cryptocurrencies. But gold here seems still reasonably bullish as a hedge against that inflation.

Chris Judd

Oh yeah. But I think why like gold is, if you get the inverse and you have a huge inflationary bust, if the China stuff gets worse and worse, and spills over and you do have a proper crash, you get that optionality.

I think gold is going to do well if we have deflationary crash, or if you have really high inflation. I know a lot of people are saying it's just been disrupted by Bitcoin, and it's not needed any more. And maybe that's true.

But if you look at who owns all the gold around the world, it's the guys making the rules, isn't it? It's Russia, it's China, it's central banks. And yeah, I find it hard to believe. I think the way you get out of the debt, other than by boosting GDP and changing that debt to GDP ratio, I think if you have a reserve asset that appreciates enormously, your debt is not as big an issue all the sudden.

Matthew Kidman

Australian housing.

Chris Judd

That's right. If you got a million bucks in debt, but your house is worth 10 million bucks, that million bucks debt position is very different if your house is worth 500 grand.

If you look at the amount of gold the Federal Reserve has, if that got revalued to a level where gold was 1:1, the gold-Dow ratio, which has been twice before, that really changes their debt profile as a government. It's pretty astronomical to think what a Dow-gold ratio of 1:1 would be.

Matthew Kidman

It's like the old days.

Chris Judd

Well, early '80s, that's what it got to. And back in the Great Depression, that's what it got to, albeit gold was a fixed price back then. What's the Dow? 36,000 or 30 something-thousand? Or the Dow halves and you've got up gold 18,000.

So whether it's that, or whether it's central banks take positions in Bitcoin and at 10Xs. They've probably got 70,000 Bitcoin from Silk Road in America. I think the Chinese government have 194,000 Bitcoin — something like that.

But having bonds as your reserve asset when the yield is down to zero, it doesn't feel to me that you're going to get that capital appreciation unless people think bond yields can go to negative 30%. It feels like there needs to be a seismic shift in how the system is operating through either the price of gold or a new reserve asset to play its part in getting the world out of the debt conundrum it's in.

Matthew Kidman

I've heard you say you are not afraid of investing in cryptocurrencies. What's your view there? There's a lot of them. Bitcoin is obviously the flagship of that group, but it's proliferated in recent times. What do you think of crypto? And do you think it's a good investment? For us old guys is difficult because there's not an obvious return, except that it might go up.

Chris Judd

I'm really unqualified to speak about it. I mean, I'm an unemployed bald guy. I'm unqualified to speak about shares, but that's a much happier hunting ground for me. So I've very small positions, but I think it's really interesting.

I think it's important, but I think it's much bigger than just Bitcoin. I mean, I think NFTs, or non-fungible tokens, and the fact that the user now has digital ownership is as important a phenomenon as the internet. Honestly, I just think it's wildly important.

Matthew Kidman

Why is that?

Chris Judd

Well, people talk about the metaverse a lot. Every second pitch deck is going to be a new metaverse company for the next two years. And we've had Facebook say they're pivoting to become a metaverse company.

The metaverse already exists, but people have left the real world and some people are spending most of their lives on a metaverse called Instagram, or Facebook, or Twitter. And those people that are living in that metaverse, they own zero.

They don't own their followers. They can't take their followers and move to a different metaverse. They don't even own their name. Facebook lets them have that name for free, so that they attract more users to the network. And the only thing a user owns in the digital world is their domain name.

That's it. Nothing else. But with NFTs, now you've got the ability to create digital ownership for the user. So some of the Web 3.0 platforms that open up, if you don't like the way the platform is operating, you can take a user base to a new platform. It gives so much more power to the user.

And the most ridiculous thing that... I mean, you've got people like Elizabeth Warren in America looking to crack down on Facebook and the tech incumbents, but also wanting to crack down on cryptos and Web 3.0 developers.

And you've got this time where these tech dictators who've set up — not because they're evil, just because that's the way the system works, and they've got shareholders they've got to answer to, and they've got to create shareholder value each quarter — they've created these dictatorships where people give them their data for free, then they sell it back to them.

They're influencing elections and all sorts of stuff. And you've got a free market option that may be coming to disrupt them that they're looking to kneecap at the same time. It's just madness. But that idea around digital ownership through NFTs or the broader metaverse discussion, I think, is just wildly fascinating and incredibly important.

Matthew Kidman

And how do we get exposure to that?

Chris Judd

It's largely crypto. And again, I'm just not the best person to speak about it. And if any crypto bro is listening, he's going, "What is this bald idiot doing, talking about this stuff?" But what the metaverse means to me, I think there's been a move this week on a lot of the gaming tokens.

I think Meta Platforms co-founder Mark Zuckerberg said people get exposed to the metaverse through gaming. That's not what it looks like to me. I view the metaverse as you have different countries, much like people might have left Europe to move to America, where there was more opportunities.

People will leave "meetspace", the physical world, then move to a different metaverse. That maybe the Bitcoin metaverse, the Ethereum metaverse, the Solana metaverse, maybe Axie Infinity is a big enough token and community to have its own metaverse, or the Facebook metaverse, Twitter metaverse, X, Y, Z. So lots of different digital nations you can move to.

And then within those digital nations, there'll be an ecosystem. There'll be a culture; they'll have their own currency. They'll have their own video games where people can play and have fun. They might have concerts. You might be able to buy music and you'll be able to move from one metaverse to another.

So that feels like it's the race. You can get it through Facebook — you get exposure to the metaverse, you've just you got to work out if that's the one you think is going to win. But I think an open system in tech invariably wins.

Facebook used to have game developers building on Facebook — Farmville, I think it was — and they all got rug-pulled by Zuckerberg. The idea that the best developers are going to trust a company like Facebook with the way they've behaved in the past, I think it's unlikely.

Matthew Kidman

Okay. Let's get back to our meta universe, which is the share market.

Chris Judd

Yeah.

Matthew Kidman

And no one likes to make predictions, but let's give you three to five years. What's your view on world markets? Do you think that transition, you talked about valuation basis and what backs it and the asset base. If that transition happens, I can't see it being a pretty transition. Do I suspect that you are negative on overall markets in that longer timeframe?

Chris Judd

Not necessarily. No, because I've done a little bit of foreign exchange trading. If you've got a position in Australian dollars versus US dollars, you might make money, but it might be because the Aussie dollar has strengthened or it might be because the US dollar has weakened. And you can tell that by how it's behaved versus other currencies, if you like.

If you look at the denominator of assets being fiat currency and how much has been printed and what the reaction function is to a crisis, to be really, really anti-asset prices over a longer term, to me, it feels like we'd have to have a deflationary correction and lose that reaction function, which has become so inbuilt, and I'm not sure that's going to happen.

So in nominal terms, I guess I'm pretty positive. If you were to change the denominator to measure stocks in Bitcoin more, I think stocks are going to go down. If you were to change it to gold, I think maybe stocks will go down too.

But measured in a currency that's currently being debased — and if you look at central bank balance sheets increasing about 13% or 14% a year post GFC — in that sort of a world, I can't see the nominal prices of assets dropping significantly.

Matthew Kidman

Which is the environment we've been in.

Chris Judd

And I don't know that that stops. if it stops, we get a deflationary bust, and who's going to be the central bank of it?

Matthew Kidman

Not on my watch.

Chris Judd

Well, what did US Federal Reserve chairman Paul Volcker have? Volcker had 25% debt to GDP when he raised interest rates to 20% in the early '80s. Just a very different environment. Good luck if you had a Volcker today.

Matthew Kidman

Yeah. We've got a Powell. I know you've been hesitant on giving stock names, but maybe one way we can do that is by asking about your best win and your best loss in history.

Chris Judd

I probably had two or three really big wins, in terms of the percentage of returns. And they're really through resource companies that got lucky or were part of a macro thematic change. Uranium in 2008 or 2010; cobalt running in 2017.

I probably wouldn't hold either of them as long now as I did then. I wasn't too stupid an investor by 2017. I certainly was in 2010, or whenever.

Matthew Kidman

Stupidity helps sometimes — don't worry.

Chris Judd

It does. For those big ones, I reckon it does. And I try not talk about wins too much, because as soon as you start...

Matthew Kidman

Okay, we'll get back into your comfort zone. What about a loss? What's your worst loss?

Chris Judd

Well, I was shown Afterpay, pre-IPO, at $1.50, by a guy I really like. He wanted me to have a look at it for him. I did some work on it and cleverly said, "This is stupid." It was a new concept; it didn't really make sense to me.

I had a view then that, which is a bit of a resource WA view, that the definition of a pioneer is someone laying face down with three arrows in his back. The idea that when you try something new, you fail, and it's the second generation of people that make a go of it.

And that happens with resources a bit. You see a company has a good deposit, they put some money into it, they start to develop it, run out of money, and then the next people that buy it do really well with it.

But I would hope I'm a lot more open to new ideas now because, as I've said, I want to be non-consensus and utilise the edge of being able to take more risks than institutional investors.

So I hope I've learned from that, but I think I used to be really hesitant at any time there was a business doing something new. I hope I've grown from that one, but Afterpay at $1.50, that was a doozy.

Matthew Kidman

And something I forgot to ask earlier — as an individual investing your own money, you talk about visiting or talking to management of companies. Is that difficult, because the average investor at home rarely does that.

How do you go about that? Do you just ring the company and say, "I'd like to spend half an hour talking about your business," How do you go about that as an individual rather than an institution, which has that capability, and the response is always pretty positive from the company.

Chris Judd

Yes. It helps if you're investing with a group of people, if you like, even if the money's not pooled. If I invest with the chairman from WA, I've got a pretty good audience with that company because he'll invariably take a good position and it'll be viewed.

I can either go meet the company with him, or I'm viewed as part of that delegation, if you like. So that helps, but that's only a couple of positions. Sometimes it will be through brokers — obviously, any time a company is raising.

Or usually they'll do a road show through brokers — invariably, a non-deal road show that follows up with a deal the next week. Have you ever had a non-deal road show that didn't end up in a deal?

Matthew Kidman

No. As far as I can remember, non-deal roadshows didn't exist till about seven or eight years ago. And now, all it really means is code for, "We'll see you in a week's time."

Chris Judd

That's right. It'd have to be one more stupid things in markets. But there's other good PR firms that will organise events or open up opportunities through them.

If you invest for long enough, you build out a network and whether that's through the investor relations firms, whether that's through other investors who you can piggyback on, or through the brokers, I think that's the best strategy.

I'd rarely cold-call a company. I have done it and say, "I want an audience." And usually it's through the brokers. Even though my balance sheet is immaterial to the company, the house broker usually is in a different ballgame, because they might have 30 investors all invested in that company. Usually going through the brokers as a retail investor is not a bad strategy.

Matthew Kidman

That's the one thing I've underestimated. You've worked pretty hard to get that network to allow you to do what you want to do, whether it be brokers, the other guys sitting with you, public relations people, or investor relations people.

They can all lead to good ideas, I think. You've just got to keep fishing and using that network. And before you know it, there's four or five good ideas in front of you.

Chris Judd

That's right. And just slowly piecing together who's who in the zoo. There's some brokers who I know are best mates with this fund manager, and they did a raise, and this fund manager's substantial.

And you think, "Gee, they're pretty close. He wouldn't have punted a bucket load of cash with his best mate if the broker didn't really believe in it," because obviously every story the broker ever tells you is the best story and you need to invest in it.

Matthew Kidman

Sure.

Chris Judd

But when you can start to piece together more bits of the puzzle and things like that, which aren't necessarily taught in investment books, you start to get a feel for what's happening.

Matthew Kidman

All right, Chris, the hour has flown. I want to say thank you very much, and I want to remind everyone to have a look at Chris Judd Invest. He's got some excellent podcasts — Masters of the Market, where he talks to some very interesting people, and Talk Your Book, which is a bit shorter and a bit more punchy about stocks, which we couldn't get too much out of Chris. But anyway, he does a better job than me.

Chris Judd

I'm unlicensed, Matthew! I've got to leave my opinions to the experts!

Matthew Kidman

No, I understand. I'm going to wish you all the best. I hope you run on with your financial career. And we appreciate your time today. Thanks, Chris.

Chris Judd

Thanks, Matt. I'd love to get you on the podcast.

Matthew Kidman

Look forward to it.

Chris Judd

Thanks, Matt.

Access more Success and More Interesting Stuff podcasts

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Principal and Portfolio Manager
Centennial Asset Management

Matthew is the Principal and Portfolio Manager at Centennial Asset Management. Prior to this, Matthew was the CIO at Wilson Asset Management between 1998 and 2011, achieving 18% p.a. over the period.

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