Finding value in dark corners of the market

The Rules of Investing

Livewire Markets

Steve Johnson has built a reputation for himself and the team at Forager Funds for uncovering value in dark corners of the market. But in recent years, he’s learned the need for patience in this area, as extreme opportunities are not always apparent. That’s why, when markets are functioning normally, he keeps a core portfolio of high-quality businesses that he’s happy to hold. But when markets start to get dysfunctional, like in 2020, and prices depart far from values, this capital can be recycled into some of these opportunities for outsized returns.

In this episode of The Rules of Investing podcast, we discuss how he’s balancing the portfolio to ensure performance in the good times and the bad, why Uber is misunderstood, and he discusses some Australian turnaround stories that the market hasn’t yet woken up to.

Time stamps:

  • 1:47 – Covid compared to the GFC
  • 2:55 – Transitioning from banking and investment journalism into funds management 
  • 5:57 – Important goals for the Forager LIC
  • 9:32 -  Dealing with underperformance and maintaining conviction 
  • 14:20 – Forager's investment edge
  • 18:50 - Key indicators in the screening stage
  • 21:28 - Ending up on the right side of takeovers
  • 25:29 - The natural skew towards smaller-cap investments and the importance of compounders
  • 32:03 - The Greater Fool Theory: a market paradox
  • 36:20 - The controversial Uber investment and what this means for a value investor
  • 41:52 - Exciting prospects at home  
  • 44:42 – Steve answers our (new!) 3 favourite questions

Reading recommendation

  • Memos from Howard Marks - Something of Value Accessible. You can find his January edition here or alternatively, view his whole collection.
  • Daniel Kahneman - Thinking Fast and Slow. Available on Amazon, Booktopia, or your local bookshop.

    Never miss an update

    Enjoy this wire? Hit the 'like' button to let us know. Stay up to date with my content by hitting the 'follow' button below and you'll be notified every time I post a wire. Not already a Livewire member? Sign up today to get free access to investment ideas and strategies from Australia’s leading investors.

    ........
    Livewire gives readers access to information and educational content provided by financial services professionals and companies ("Livewire Contributors"). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

    2 contributors mentioned

    The Rules of Investing is one of Australia's top investing podcasts. We interview the leading investment minds from Australia and overseas to better understand their processes and philosophy. After launching in October 2017, there have been over...

    I would like to

    Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

    Personal Information Collection Statement
    Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.