Ouch! 9 painful calls from 2022
Getting things wrong is intrinsically human. We all do it (some of us, even daily). From messing up the lyrics to a famous song, telling your significant other to take a left ("No, the other left!"), or investing in a company that ultimately goes sideways, these mistakes can haunt us, hurt us, or help us improve as humans (and of course, as investors).
But admitting when we got it wrong, well, that's a particularly humble skill. And not one that many of us enjoy doing either.
Considering it's been a particularly tumultuous (read: terrible) 2022, with the S&P/ASX 200 falling around 6% and the S&P 500 more than 20% in the red, both punters and professionals alike have probably made a few mistakes this year.
So in the first of our Outlook Series for 2023, nine of Sydney's top fund managers candidly reveal the painful positions that have kept them up at night over the last 12 months.
Plus, they share what they have learnt from these calls so that you can become a better investor over the year ahead.
Our featured experts include:
- Anthony Aboud, Perpetual Asset Management
- Andrew Clifford, Platinum Asset Management
- Ben Clark, TMS Capital
- Catherine Allfrey, WaveStone Capital
- Jun Bei Liu, Tribeca Investment Partners
- Matthew Kidman, Centennial Asset Management
- Mary Manning, Alphinity Investment Management
- Oscar Oberg, Wilson Asset Management
- Romano Sala Tenna, Katana Asset Management
Note: You can watch the video by clicking the player, listen to an audio version, or read an edited transcript below. These interviews were filmed on the 6th of December 2022.
Ally Selby: Hello, I'm Ally Selby.
Matthew Kidman: And I'm Matthew Kidman. And it's confession season. What were our worst stock picks for 2022?
Ally Selby: I'm sure there are quite a few shockers in there.
1. Alibaba (HKG: 9988)
Andrew Clifford: Alibaba was a company we owned for a long time. We understood it well. We sold out of it in our global strategies, our International Fund, towards the end of 2020. Of course, it then had a good selloff and it was down 35-40% and we jumped on that as an opportunity to buy back into the story. And, of course, it ultimately went a lot lower.
And there's a really simple lesson from this that can be applied to everyone. And that is that when a story like that, which everyone has so loved and bought - when you start to see the first things going wrong, we tend to remember why it was such a good story and don't give it time for really the bad news to flow out. But you've got to give the market time to catch up with how that story has changed and just see how deeply they mark it down.
2. Liberty Financial Group (ASX: LFG)
Anthony Aboud: One of the worst ones was Liberty Financial. It's down just over 20% over the last 12 months. It's a non-bank financial institution. Like a few other companies, it didn't miss a beat as far as earnings were concerned, but its net interest margin is starting to come under pressure because, unlike banks, it doesn't have a deposit base. And so, the cost of financing is going up a lot - pressuring its margins.
And so, what we are seeing is that the market has its earnings going backwards this year and next year and, as a result, the stock's fallen a fair bit. We're still long. I don't mind it. It has a 10% yield and a PE of 6.5 times. It's going to be a tough six to 12 months, but we think it's okay.
3. Xero (ASX: XRO)
Ben Clark: This year's been a year of learning. Xero has been our worst investment. Ironically, it was our best investment the year before. If you look back at the start of the year, I would say that the company didn't really deliver that differently from what you would've hoped to see in 2022, as we get to the end of it. But what's it a reminder of? It's not all about how the company is fairing. This has been a year where we've been reminded that valuations were important. And probably for me, it's been a reminder that you can buy a great business but it can still be a bad investment.
Matthew Kidman: Growth at any price is out the window.
Ben Clark: Absolutely. And growth at a reasonable price is back in.
4. Xero (ASX: XRO)
Catherine Allfrey: We have held Xero since COVID-19 and clearly it's been a terrible performer this year. The main reason has been the cost base. The cost base has been really mismanaged. They've overspent through that time. Revenue growth hasn't been a problem. They grew at 30% and they'll probably grow at about 20% in the next year in terms of the top line. But they really need to address their costs and we need to see some profit.
Ally Selby: Have you sold out of that position or have you been adding to it?
Catherine Allfrey: We did sell down and now we're looking to add to it. Sukhinder Singh Cassidy is coming on. We've met her, the new CEO, and we like what we are hearing from her, but we want to see what her plan is before we push the lever in terms of buying more.
5. Maggie Beer Holdings (ASX: MBH)
Matthew Kidman: We had a few really poor investments and they were mainly at the micro-cap end, so liquidity was a real issue, even though the companies themselves might not have performed operationally that badly. So, of all of them, I would pick a little company called Maggie Beer Holdings. Everyone knows the brand name, it's a food company. They had some assets they were trying to get rid of, and it hasn't quite worked out. It's been a bit of a mess. The earnings haven't had the momentum you would've thought, but let's see how it goes in the end. It's probably halved and it's hard to get out of those small caps. So, you end up saying they're your worst investments.
6. Megaport (ASX: MP1)
Jun Bei Liu: Not many stocks have gone down a lot, but the biggest one would be Megaport. We are a big believer in Megaport. It's a small position for us, but we always believe you need to future-proof your portfolio and a little company like that, with such fast growth and adoption across the cloud, is well leveraged to the growing demand for the cloud and data.
Clearly, the last 12 months have been very rocky for this company. To start with, it was a very expensive business. It's not a cashflow profitable business. It's getting very close to it, but it is a very rapid growth business and that has really, really hurt its share price because it was too expensive.
What have we learnt from it? We still hold Megaport. We still think it's a great company on the long-term view. Just for the time being, it probably will stay where it is, simply because it is on an expensive valuation.
7. Netflix (NASDAQ: NFLX)
Mary Manning: Definitely Netflix. So, I was quite late getting invested in Netflix. If you remember, there was that really exciting Korean show Squid Games that came out and the stock ran really hard. I had the view that there was a very strong content slate at Netflix. And that content was going to drive users and users were going to drive earnings. That was my thesis. And we got in after the Squid Games run-off and that whole model, that whole thesis, broke down. They did have a very strong content slate, but they weren't getting any users and that was impacting earnings.
So, the stock fell 20% in one day. And the only silver lining in this story is that I sold it the day after it first corrected and it went down another 40-50% after that. So, you can turn a very bad idea into a better one or not quite as bad if you're very disciplined in getting out of these bad ideas once you recognise that they've been bad.
8. Maas Group (ASX: MGH)
Oscar Oberg: It was Maas Group. The ticker there is MGH. I think the learning was the company did a lot of acquisitions over the last 12 months and actually went through a very bad period of cashflow conversion, which was intended.
But when you're looking at a company like that and you're looking at the property value, you think that the share price fall will at least go to what you consider to be fundamentals (which would be that property value). In the case of Maas Group, it fell well below, and I think that was largely due to the fact that they had done so many acquisitions. We are still positive on the company and it is still one of the largest holdings in WAM Capital.
9. Sonic Healthcare (ASX: SHL)
Romano Sala Tenna: Surprisingly, it was actually Sonic Healthcare. And it's probably a stock we're not upset to lose money on, to be honest, because it's been a great long-term compounder and we think in the coming years we'll do well on it. I think we were caught out a little bit in terms of seeing the way that the revenues from COVID testing were rebased. That really impacted the short-term outlook for the business and that's what drove it lower.
Matthew Kidman: Sounds like you still own it.
Romano Sala Tenna: We do.
What was your worst call from 2022?
Did you make any investing blunders during 2022? This anonymous writer sure did. Let us know in the comments section below.
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