The Rules of Investing

Matthew Kidman is a well-known entity to readers of Livewire, as host of Success and More Interesting Stuff, Buy Hold Sell, and most recently, Livewire Live. Finally, we got him in the hot seat to run us through his own journey into funds management, his approach to investing, and the way he’s thinking about markets today. From hard truths on a squash court to starting his own shop, Centennial Asset Management, Matt’s story is one of happenstance. It’s also a story about the importance of mentors and networks. To steal a line from Top Gun, the list is long but distinguished. Geoff Wilson, John Sevior, Anton Tagliaferro and Peter Morgan, to name but a few. Their influence can be seen in the way Matt runs Centennial Asset Management and its Level 18 Fund. While it focuses on value and small caps, it’s got a highly flexible mandate that lets it ride momentum when the market is on, go short when it’s not, and preserve capital when crises hit.  We cover all these topics, and more, in this bumper episode. Note: this episode was recorded on September 20, 2023. Timestamps 0:00 - START 2:16 - Hard truths on a squash court 5:50 - Getting a start in journalism 6:30 - Landing book deals with Geoff Wilson 16:30 - 13 years at Wilson Asset Management 20:30 - Taking time off to do a PhD 22:30 - Mentors in finance 26:20 - Bottoms don't have to be V-shaped 29:50 - Key lead indicators 33:40 - From hard landing, to soft landing, to no landing 36:30 - China's in the hurt locker 41:00 - Buying growth 43:50 - Financials 45:30 - A flexible mandate 47:40 - Hiding in large caps 51:30 - Riding a market bounce with smalls 54:20 - Moving into quality 58:30 - Is lithium crowded? 01:01:27 - Watch rates 01:06:16 - Bottom drawer stock WANT ACCESS TO STOCK IDEAS? You told us you’re looking for an edge in investing. As the principal sponsor of Livewire Live 2023, Bell Direct is giving you exclusive access to 3 Bell Potter stock reports each week PLUS the chance win a share of 3 million Velocity Frequent Flyer Points. Get your reports and enter the Velocity competition now. Competition ends 31 October 2023. Entry conditions and eligibility criteria apply. NSW Authority No. TP/02866, SA Permit No. T23/123, ACT Permit No. TP 23/01592 Get my 3 Bell Potter stock reports now.

Short sellers have had a tough time of it over the past decade. The era of free money lifted all boats, including companies that would perhaps otherwise be candidates for short selling.  Today's market is radically different. Central banks have lifted rates in a desperate attempt to control inflation. Global equity markets have performed well, but much of that performance can be attributed to the tech titans of the Nasdaq.  Consumers have less money to spend, while costs are up and top line revenue is down.  This is fertile hunting ground for short sellers.  Short selling is risky, and beyond the capacity of most normal investors. But that doesn't mean that normal investors can't take on board short seller's methods and positions, and steer clear of certain companies accordingly.  I speak to a lot of hedge fund managers about their methods, however most aren't willing or able to expose their actual short positions.  Dr David Allen, who manages Plato's Global Alpha Fund, has no such qualms.  In this episode of The Rules of Investing, hosted by David Thornton, Allen explains his red flag system for identifying shorts and some of the companies it's identified. He also discusses his his long process, which draws on elements of growth, value and quality. And it wouldn't be an episode of ROI without Allen naming some of the companies he has conviction in right now.  Note: This episode was recorded on Tuesday September 19, 2023. Timestamps 0:00 - START 2:00 - Life as a professional athlete 3:20 - JP Morgan (and surviving the GFC) 8:00 - Combining growth, value and quality 16:00 - A red flag system for finding shorts 20:40 - The most common red flag in today's market 21:55 - Two high conviction shorts on the ASX 26:00 - Access to the C-suite isn't what it used to be 27:00 - Is Qantas (ASX: QAN) a bargain or value trap? 34:55 - Does nVidia deserve its valuation? 37:57 - You don't need to be concentrated to generate returns 39:17 - A humbling experience 43:30 - This drug will change the face of healthcare   WANT ACCESS TO STOCK IDEAS? You told us you’re looking for an edge in investing. As the principal sponsor of Livewire Live 2023, Bell Direct is giving you exclusive access to 3 Bell Potter stock reports each week PLUS the chance win a share of 3 million Velocity Frequent Flyer Points. Get your reports and enter the Velocity competition now. Competition ends 31 October 2023. Entry conditions and eligibility criteria apply. NSW Authority No. TP/02866, SA Permit No. T23/123, ACT Permit No. TP 23/01592 Get my 3 Bell Potter stock reports now.

We're constantly told that diversification is the only free lunch in finance. Yet most of the world's top investors choose not to eat it.  Warren Buffett, Charlie Munger, John Maynard Keynes, Lou Simpson, George Soros. All run concentrated portfolios. Today's guest on the Rules of Investing is similarly esteemed, with a similarly concentrated portfolio.  Claremont's Bob Desmond runs a portfolio of just 10-15 "quality growth" stocks. And many of the stocks he owned during the 'free money' period of high liquidity and high growth are the same stocks he owns today.  In today's episode, Bob explains why quality growth is the best strategy in all markets, why investors shouldn't react to "bear porn" headlines, why nVidia might not be overpriced despite its recent run, and the one stock he would love to own "forever".    Note: This episode was recorded on Monday September 11, 2023.     Timestamps 0:00 - START 1:46 - Surprises and uncertainty 2:46 - Is nVidia overvalued? 8:14 - Predicting the future is a mug's game 9:40 - Trouble at Apple 12:09 - Markets change, so pick companies that [mostly] stay the same 15:40 - Forever stocks 17:41 - High conviction bias 21:50 - When's the right time to sell? 26:50 - Don't get sucked in to "bear porn" headlines 28:30 - Do investors sell out of growth too soon? 34:10 - Sidestepping the GFC 35:30 - Quality is armageddon armour 41:01 - A bullet proof business model Want access to stock ideas? You told us you’re looking for an edge in investing. As the principal sponsor of Livewire Live 2023, Bell Direct is giving you exclusive access to 3 Bell Potter stock reports each week PLUS the chance win a share of 3 million Velocity Frequent Flyer Points. Get your reports and enter the Velocity competition now. Competition ends 31 October 2023. Entry conditions and eligibility criteria apply. NSW Authority No. TP/02866, SA Permit No. T23/123, ACT Permit No. TP 23/01592 Get my 3 Bell Potter stock reports now.

Ten years ago, investing was an easy game. Thanks to rates near zero and reckless fiscal spending, markets were drunk on liquidity. There was multiple expansion across the board, and winning was relatively easy. Pick an index, sit back and let multiple expansion take care of the rest. Today’s reality is far different. Volatility is high, correlations are weak, and the once reliable 60/40 portfolio is, well, not so reliable. In today’s episode of The Rules of Investing, I sit down with Frances Lim, Managing Director and Head of Asia Pacific Macro at KKR. Francis strikes a refreshingly positive tone on the market today, pointing out that wages, nominal GDP and earnings are all above trend. Frances gives us a full macro appraisal of US and Asian markets, the state of China, how she views investing in 2023, and where she’s finding value in the market.   Thanks again to Bell Direct for their support of this podcast. And remember, for a limited time, you can get 3 current Bell Potter stock reports each week. It’s the kind of exclusive research that can give investors an edge. So go to Bell Direct and look for the Livewire logo to get your Bell Potter stock reports now. Note: This interview was recorded on August 22, 2023. Timestamps 0:00 - START 1:50 - Soft landing? 4:20 - A great setup for companies 7:17 - The health of corporate America 10:17 - What's happening in China? 14:00 - China's trickle-down economics 19:00 - Correlations in trouble 23:10 - Time for a 40/30/30 portfolio 24:27 - The best risk-adjusted return 27:40 - Is passive investing enough? 29:40 - The role of thematic investing 31:30 - How active should active investors be? 32:40 - The best opportunities in Asia right now  

There are a select few stocks on the ASX that boast true market darling status. Whereas other stocks sell off at the hint of bad news, market darlings seem to emit an aura effect on markets that itself attracts investment. Biotech company CSL is arguably the Aussie market’s preeminent market darling, having returned 5,741% since inception. For a while, it seemed like CSL could do no wrong. But even royalty can be dethroned... Today’s guest is Ray David, Portfolio Manager and Partner at Blackwattle Investment Partners. Alongside Joseph Koh, Ray runs Blackwattle’s brand new Long-Short Quality Fund. Ray has a red flag system for identifying his short and underweight positions. He put CSL through the ringer, and as you’ll learn today, it spat out a sea of red flags. He also discusses the Ponzi scheme that sparked his interest in investment finance, why he’s bullish BHP irrespective of the commodity cycle, his overweight positions in industrials, and the media company with the best suite of assets on the ASX.      Thanks again to Bell Direct for their support of this podcast. And remember, for a limited time, you can get 3 current Bell Potter stock reports each week. It’s the kind of exclusive research that can give investors an edge. So go to Bell Direct and look for the Livewire logo to get your Bell Potter stock reports now. Note: this interview was recorded on August 15, 2023 Timstamps 0:00 - START 1:56 - A ponzi introduction to finance 5:30 - Lessons from the the Buy and Sell sides of the industry 10:00 - Have risk assets beaten central banks? 11:46 - The bear case for banks 14:00 - Defining 'quality' 18:00 - A new era for short selling 22:54 - Red flags for CSL 27:00 - Overweight industrials 29:10 - The best asset book on the ASX 30:26 - Reporting season buys 34:40 - Mining needs explosives 37:37 - Franchising done right    

Livewire Live is an investor event like no other where Australia’s most experienced investors will debate the critical topics in markets right now. It is set to be an unmissable event with an exceptional lineup of speakers and innovative formats. Tickets will sell out, secure your spot here.  Speakers We will be announcing additional speakers in the coming weeks. Robert Millner, Chairman, Washington H Soul Pattinson Bobby Yazdani, Founder & Partner, Cota Capital Andrew Clifford, Co-founder, Co-Chief Investment Officer & CEO, Platinum Asset Management Martin Conlon, Head of Australian Equities, Schroders Nick Griffin, Chief Investment Officer, Munro Partners Mark Landau, Joint Managing Director & Chief Investment Officer, L1 Capital Christopher Joye, Portfolio Manager & Chief Investment Officer, Coolabah Capital Matt Williams, Head of Australian Equities, Airlie Funds Management Mary Manning, Portfolio Manager, Alphinity Investment Management Phil King, Chief Investment Officer, Regal Funds Management Tim Carleton, Principal & Portfolio Manager, Auscap Asset Management Jacob Mitchell, Chief Investment Officer, Antipodes Partners David Allen, Head of Long Short Strategies, Plato Investment Management Casey McLean, Portfolio Manager, Fidelity International Andrew McKie, Portfolio Manager Elston Investment Management Alexandre Ventelon, Head of Research and Investment Strategy, Morgan Stanley Wealth Management Dania Zinurova - Portfolio Manager, Wilson Asset Management Marcus Burns - Portfolio Manager, Spheria Asset Management Diana Mousina - Senior Economist, AMP

There is a good reason why Australia’s sovereign wealth fund, the Future Fund, maintains a 16% allocation to private equity. Returns, returns, returns. Private equity, and the lucrative returns it offers, has traditionally been the restricted domain of institutional investors and off limits to retail investors. Ellerston Capital's JAADE Private Assets Fund bucks that trend by offering retail investors exposure to unlisted Australian growth companies. Like private equity, JAADE’s managers act as a partner with the companies it invests in by holding a space on their respective boards. It’s a model that clearly works. As of June this year, the retail fund has returned 14.48% pa over three years and almost 18% per annum since inception. In today’s episode, Livewire's David Thornton sits down with Jayne Shaw, Investment Director at Ellerston Capital and analyst for the JAADE fund. Jayne didn’t take the typical road into funds management. Initially trained as a nurse, she went on to take a number of roles in leadership positions in healthcare organisations. This appropriately explains why Jayne looks after the healthcare allocation within the JAADE fund. She also explains why the “carpark indicator” is a great way to know when the deals are on in private equity.  Topics include: the evolution of private equity over the last few years, today’s deal flow, the first order principles that guide Jayne’s process; and the investment case for Mable and Prospection – two companies that are shaking things up in the healthcare space.  Timestamps 0:00 - START 2:30 - An uncommon journey 5:03 - Private equity has changed 10:17 - Dry powder 12:16 - Counting cars 14:00 - JAADE  16:00 - It all comes down to the people 19:58 - Hard conversations 21:30 - Earnings runway 22:25 - Mable 25:40 - Prospection 32:39 - Why healthcare companies are good investments 37:07 - Don't put too much weight in the past 42:00 - A company for the bottom drawer

A portfolio manager shares bullish opportunities in small and microcaps, discusses challenges and opportunities for microcap investors in 2022, explores the consumer discretionary sector and Set-Ire as a tactical opportunity, emphasizes the importance of avoiding risky investments and attributes of successful microcaps, explains investing in unlisted companies and pre-IPO opportunities, and analyzes the upcoming reporting season and potential signals for investors.

Value investing is all about buying stocks that are trading below their intrinsic value.  In practical terms, that often involves investing in companies and sectors that have been shunned by the market due to particular macro headwinds.  "It should be no surprise as to where the pockets of opportunity are," says Tim Carleton, Auscap Asset Management CIO and today's guest on the Rules of Investing.  "They're in the more cyclical sectors that people are most concerned about from an earnings perspective." In today's interview with Livewire's David Thornton, Tim runs through two retail stocks in the Auscap Long Short Australian Equities Fund that fit this profile. I won't give them away, but one is the only stock on the ASX with a return on equity above 50%, while the other is a long-term compounder poised to take market share.  He also discusses why he's avoided the tech and energy sectors, what he expects from earnings season, why he doesn't put much weight in earnings beats and misses, and why lithium is a crowded trade (yet remains invested in it).  Note: This episode was recorded on July 26, 2023.  Timestamps 0:00 - START 1:30 - Have we avoided a hard landing? 3:30 - Australian base case 4:30 - Reporting season 10:00 - Stock prices follow earnings 12:30 - A checklist for finding value 14:20 - Consumer discretionary in 2023 17:55 - Two COVID beneficiaries primed for growth 20:50 - Avoiding tech and energy 23:00 - Lithium is crowded, but does that matter? 29:20 - Look past the market's time horizon 44:00 - Bottom drawer retail stock

A year ago I sat down with Oscar Oberg, lead portfolio manager at Wilson Asset Management. His thesis then was that small caps were beaten down and due some mean reversion. Alas, small caps haven’t done much since then, with the Small Ords returning 3.91%. Yet Oscar’s thesis also remains unchanged.  In fact, it’s gotten stronger! Not only is he positioning for a rebound in smalls and microcaps, he’s doing it with overweight exposure to consumer discretionary, a sector that has been tarred and feathered by today’s macroeconomic landscape of high inflation and high rates. As Oscar puts it, “there’s no mean reversion without consumer discretionary.” In today’s episode, Oscar lays out this thesis and the companies that make it up.  He also discusses: the relationship between the tech rally and small caps; generating return with short-term tactical trades; and how he deals with low liquidity,  and the primed aged care stock under takeover.      Note: This episode was recorded on Tuesday July 20, 2023. Timestamps 0:00 - START 1:50 - When will small caps bottom? 4:30 - No small cap rally without consumer discretionary 6:30 - Profit taking 7:30 - Why large cap tech matters to small caps 10:14 - 30-40% rally is not out of the question 14:30 - Harvey Norman's (ASX: HVN) property backstop 16:00 - Wearing the volatility 17:00 - Industrials 20:20 - Going tactical 24:15 - Mermaid Marine 26:30 - Body language matters 27:30 - City Chic (ASX: CCX) was a mistake 29:20 - Managing liquidity in small caps 32:45 - Takeover target 34:50 - Balance sheets look good 36:55 - Going public too early 40:25 - The classifieds company for the bottom drawer