Matthew Kidman: A 'stage 2' bull market move coming

There is one big advantage to working in the finance sector.

What is it?

Grey hairs are good!

Yep – the older you are, the more market cycles you’ve seen. Only time can accumulate this kind of wisdom.

Now, I’m not saying the enthusiasm and hungry nature of the next generation has no place.

Their instinctive grasp of the latest tech is a big advantage. They keep everyone on their toes too.

But experience counts.

That’s why earlier this week I jumped on a Zoom call with Matthew Kidman to a record a chat for Fat Tail Investment Research subscribers.

Matthew is a fund manager with over 25 years of experience.

Today, he is the co-founder of Centennial Asset Management. They have about $220 million under management.

Matthew and I were on the call to talk markets, small caps – and more!

I have the biggest takeaway for you today.

Let me set the scene…

Around late last year I did my best to encourage you and everyone else to buy up shares while they were depressed.

I did that as part of a multiyear gameplan.

It’s one I adopted from an old stock market book Building Wealth in the Stock Market.

I doubt you’ve heard of it. It came out 16 years ago (See? True investing wisdom is timeless). 

The author of that book, Colin Nicholson, defined the first stage of a new bull market as ‘increasing confidence’. He got it from Dow Theory.

This is where the issues that led to the preceding bear market fade and the market sees the recovery.

The best bit? We get an explosive move to the upside.

That’s bang on this time around, too.

That’s exactly what we’ve seen since November.

Look at the chart here to see that in action…

This type of ripping move can’t last forever, of course.

Indeed, as Matthew Kidman told me on Monday, it usually lasts for about 6 months – and is likely over now.

What happens next?

This is where we enter what we might call ‘Stage 2’ of a bull market.

There’s good news here, especially if you missed that first move.

Stage 2 is usually the longest and least volatile part of a bull market.

What happens?

Stage 2 is defined by ‘increasing earnings’

The explosive move moderates and further share price growth must come from improving fundamentals. 

Matthew Kidman agreed with me that this looks exactly like where we're at in the Aussie market cycle.

He ought to know too…Matthew’s seen more than most!

Neither he nor I are saying it’s without risk. We can’t promise you that. There’s always risk!

Indeed, Matthew told me that his job at Centennial is primarily to ‘manage risk’.

I couldn’t agree more.

But you can see how a basic framework of how a bull market unfolds can give you confidence to allocate your wealth.

Matthew and I aren’t alone here on expecting earnings to drive select stocks higher.

The team at Ausbil just put out their latest update.

What did they say?

‘In this environment, we believe earnings growth will recover more than the market expects, broadening across sectors, and moving down the market cap spectrum.

‘We think that with a downward bias in rates, cyclicality will return to the market, with more relief for the consumer, supporting housing, consumer, select real estate and other cyclical businesses…'

The market will now be prepared to pay up for – and chase – companies that can grow faster than the general economy.

Big revenues, big cashflows, big earnings – that’s what you want to find. This is where you can look to ride a company’s growth for the long stretch.

Don’t ask about today.

Ask where they might in 2026 or 2027…and even beyond.

Where to look for these potential stock stars?

Here’s another very interesting fact I picked up from Matthew Kidman and Centennial Funds Management.

80% of his funds under management are allocated to the small cap sector.

Why does this stand out?

Most funds allocate to one sector only. They are either a ‘large cap fund’, a ‘mid cap’ fund, a ‘small cap’ fund or a ‘resource' fund. 

You get the point.

Centennial is different. They give themselves room to roam the whole market. They can go to large caps, resources, small caps, to cash – whatever Matthew and the team think is best.

I like that.

Clearly, by their positioning, Centennial see the best opportunity in the small cap sector for Stage 2 of the bull run.

So do I.

Perhaps you missed that Stage 1 move. That’s ok. It’s not too late.

We’re into Stage 2 now. It could easily run for a year or more.

And there should be, if history repeats, another final bull stage after that too.

You’ve got plenty of time to work with.

There’s potentially a very profitable few years ahead for investors.

This is experienced insight at work.

Make sure to sign up to Fat Tail Daily for ideas on how to take advantage of it.

Best wishes, 

Callum Newman