Ouch! 10 awful calls from 2020

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Livewire Markets

There are some trades that so fill us with joy we become like a proud parent championing their children's sporting achievements, talking the ear off family and friends, neighbours and colleagues, lovers, enemies - anyone who will listen.

Then there are those that make us sweat, keep us up at night, and force us to reflect on how it went all so very wrong. 

As part of our annual Outlook Series, we asked 10 of Australia's most talented fund managers to share their worst trade from 2020. From aircraft stocks plummeting to capital-raising opportunities foregone, from selling too soon to missing out on a sector rally, the fundies candidly reveal the trades that caused them both headache and heartache during the year just passed - and whether they believe the stock will be able to turn around over the coming 12 months. 

Our featured experts include:

  • Ben Clark, TMS Capital
  • David Allingham, Eley Griffiths Group
  • Vihari Ross, Magellan
  • Kelli Meagher, Sage Capital
  • Chris Demasi, Montaka Global Investments
  • Julia Weng, Paradice Investment Management
  • Matthew Booker, Spheria Asset Management
  • Olivia Salmon, Lennox Capital
  • Dr Bianca Ogden, Platinum Asset Management
  • Matthew Kidman, Centennial Asset Management

Watch the video by clicking the player, listen to an audio version or read an edited transcript below.

Coming soon in Livewire's Outlook Series videos:

Edited transcript

Isentia (ASX:ISD)

Matthew Booker, Spheria Asset Management

Look, we've owned Isentia for a long time. It's been a difficult position for us. The industry has been challenging, with a couple of irrational competitors that continue to burn money. That industry construct has made it a difficult space for a company that's profitable. And it's that disruption, all those companies that are willing to lose market share that make it difficult for an incumbent. We think at some point, those competitors will run out of money and therefore Isentia we'll be in a better position. But for the last few years, it's been tough. 

Temple & Webster Group (ASX:TPW)

Kelli Meagher, Sage Capital

My biggest mistake was actually missing out on the incredible run that e-commerce stocks had, which I can't believe I did because I am a shopper and I shop online all the time. I was too finicky on my valuations and thought I was going to be too late to the party once they started running, and I missed out on a huge amount of upside, which was very frustrating.

Temple & Webster I would have bought. I just didn't foresee the huge spending on homewares and furniture and the operating leverage there. They really got it right. 

Alibaba Group Holding (NYSE:BABA)

Vihari Ross, Magellan

So the only thing that's happened in recent times even on Alibaba, which was my pick for 2020, this is ultimately a short-term issue, but of course we've had increased financial regulatory risk coming through in the form of the ANT Financial IPO being pulled. That was pulled not just for Ant, but the implication here is that the Chinese government is actually going to put a lot more regulatory oversight into place. That's very relevant for Alibaba and Tencent and a number of the other Chinese names that we look at. Does this limit the potential return that these companies can achieve? Do they need to hold more capital? Will they need to put more money into the oversight of Alipay and other businesses?

I think it was a bit of a shock and a reaction that markets had, because of course there was the most widely anticipated and the most oversubscribed IPO just about ever in Ant. Ultimately, I think they will work through those issues. There was clearly some CCP backroom conversations that were taking place around all of that. I think over the course of time, it doesn't diminish the fact that this business has a significant long runway of growth. If they ultimately need to add more capital around the regulatory frameworks that the Chinese government puts into place, I don't consider that all too different to, for example, Facebook investing more in its oversight over its platform, or for example, removing specific content per legislation in Germany or something like that.

It's an incremental cost to the business, but it ultimately sets them up to be more successful in the future. And of course, being the scale player within those industries becomes really important because you can afford to shoulder that cost and burden, but still succeed at the same time. So yes, a short-term blip there in November for those Chinese tech companies. 

Airbus SE (EPA:AIR)

Chris Demasi, Montaka Global Investments

Well, we thought we'd found a real compounder for the decades and it was Airbus. And this was a business that we'd invested in because it was the leader over Boeing in a global duopoly for commercial jet planes. And the world needed, at that time, about 37,000 more jet planes over the next two decades with a lot of demand coming out of the emerging markets in Asia as they grew up over time. And that was a wonderful outlook for an excellent business, and then the world changed early this year. And it changed dramatically for Airbus, unfortunately.

They had to stall production. They had to take on some borrowings to get through. The demand outlook is just weaker than what it was at the time that we invested. And so you'd say maybe the flight trajectory or the flight path for their earnings is not as rosy as what it once was. It's still an excellent business, it was just caught in the wrong place at the wrong time. 

Sanofi (EPA:SAN)

Dr Bianca Ogden, Platinum Asset Management

Look, in healthcare or in biotech there's always one that explodes. I had a couple of those as well, but one that gives me a bit of headache is pharma companies. So Sanofi in France, that is at the moment not going the right way, so that's a bit of a headache for me at the moment.

oOh!Media (ASX:OML)

Olivia Salmon, Lennox Capital

The absolute number one mistake we made in 2020 was not participating in the Ooh!Media capital raise. So there was an emergency capital raise, blood was on the streets. As you know, that's the time to buy, and we were just too uncertain on the earnings and the visibility of the earnings. This was a make or break capital raise for the company, and this was at the height of the pandemic. We were just too nervous about those earnings coming through. 

Now, what you've obviously seen is the ad market improve out of sight, outdoor media is one of these assets that I think will be around for the longterm and is unlikely to really be cornered out by digital advertising any more than it already has been. So we're actually holders of the stock now, it just would have been great to get it at the absolute bottom.  

Auckland International Airport (ASX:AIA)

Ben Clark, TMS Capital

There are plenty of headaches particularly in the first half of 2020. One of the more unusual ones was Auckland Airport, mainly because it's not a company that will typically give you headaches. But of course, when COVID hit through February and March, it's rapidly dawning on you what the implications were for travel, how New Zealand was dealing with COVID, which was quite different to everywhere else in the world. And it threw up questions which really was hard to know the answer to.

In terms of what lessons I learned from it, one of the things I certainly came to appreciate again is that good quality assets and good quality companies can access capital very easily and quickly if they need to. And in hindsight, they went hard on a raising and that was really the start of the return of confidence in AIA. Sydney Airport left it a bit later and that price has lagged a bit more. And the other thing I think was when you get hit from left to field events, big draw-downs, prices get very irrational. Markets aren't always rational, and you want to be able to take advantage of those times. 

Treasury Wine Estates (ASX:TWE)

Julia Weng, Paradice Investment Management

The biggest learning for us is actually just underestimating the size and the duration of this stimulus. We were initially worried that when JobKeeper was removed in September, what happened to unemployment, what would happen to your corporate failure rates? But clearly, the government and the RBA have shown that they're prepared to do whatever it takes to keep the economy going, to create jobs. And so that supports our view from here on, that we will see an earnings recovery for the cyclical companies. But yeah, that's what we've got wrong. So, clearly, no two cycles are the same.

Treasury had the trifecta of COVID, of oversupply in US Commercial Wine, and then you have this 170% trade tariff. So, what else could go wrong really? 

Elders (ASX:ELD)

Matthew Kidman, Centennial Asset Management

I think the worst one we had was Elders. Because you go back to March and April and you're looking at the stocks, you want to be back in the market after the big fall, but you want to be in stocks that aren't too dangerous. And of course, the ag sector was lifting. Elders is the best of breed in that sector, best management. You buy that at $10. It goes along, the season gets better, the momentum's in the business, it puts out its result for September. Guess what it beats. It's been sold ever since I've sat on a stock when the market's up 30%, it's flat and it's beaten every forecast. 

So I misread it, it was a crowded trade. And did I learn anything? Not really because I've done it a few times this year. So I rarely learn from my mistakes, I keep doing them, but luckily it wasn't too dangerous in an upward moving market. 

Webjet (ASX:WEB) and Corporate Travel Management (ASX:CTD) 

David Allingham, Eley Griffiths Group

As a small cap fund manager, there's always a few of them, and I thought I'd choose rather than one stock, a couple of them. The travel sector for us, when you look at Webjet or Corporate Travel, these stocks were stocks we didn't own prior to the crisis. They're stocks we watched during the crisis, punched the skies, thought we nailed them. They were going down, they were collapsing, they were going to recapitalize. We didn't buy them. That was the mistake. I think we look back now six months post the crisis, and some of the market caps of these stocks are actually higher than they were pre the crisis, which I think is quite an extraordinary thing.

So what's the lesson? I think the lesson is when the time comes to buy, you won't want to. That old saying. And I think that applies in our case to Webjet and Corporate Travel, that sort of travel space. We didn't pull the trigger when they're on their lows during April and May. 

What was your worst trade of 2020? 

We've all had a few shocking trades in our time! So, which stock did you get wrong in 2020 and what did you learn from it? Let us know in the comments section below.

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