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.

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    The Rules of Investing
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    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...

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