FYI | Sep 19 2018
By Peter Switzer, Switzer Super Report
The stocks and strategies from our SLIC conferences that will make me money
The whole point of the Switzer Report is to give you a crucial competitive edge in building your wealth, so when we put on something like our full day Switzer Listed Investment Conference (SLIC) in Sydney, Melbourne and Brisbane, we expect to unearth learnings and investment ideas that could really make a difference to how you should invest. For those of you who couldn’t come along, let me recap and underline what I learnt from my three-days of hosting some of the smartest investment minds in, and outside, the country.
Platinum’s Kerr Neilson, Investors Mutual’s Anton Tagliaferro, Perpetual’s Vince Pezzullo and WCMQ’s Paul Black have long been legends of stock-picking and every time I get to talk to them, I know I learn something that makes me a better investor.
Look for the unloved
Kerr Neilson admits he looks for the companies that have been mistreated by the market, which he believes have lots of potential upside. He said he’s not afraid to look through companies in the dingy part of the market and when you think about it, a few years back, that’s where Bluescope was. He advised that you have to work out whether a market beating up on a company is linked to a structural problem or where it is a temporary issue.
When I recommended BHP some 18 months ago, it was because I argued that its unloved status would be temporary. And if you gave it three years to go from $14 to $20, you’d still make $6 on $14, which would have been a 42% return or 14% per annum. The actual return was $19 on $14 and that made it a 135% pay off and it was with arguably the best mining company in the world.
Look for moats
Paul Black was beamed in from Laguna Beach, California, USA and explained the investment drivers behind his global growth fund — WCM Investment Management — outperforming the global benchmark by 5.2% every year for the last 10 years! That’s a huge effort and two standout reasons resonated with me.
First, they look for companies that, as Warren Buffett put it, have wide moats. The idea here is that a company with a wide moat is like a castle and the moat offers the company protection for its market, its profits and its share price. However, the guys who drive the local WCM Quality Growth fund, with the ticker code WCMQ, say they look for companies with growing moats.
These companies have a growing competitive advantage. By having a filtering system like this, WCM usually winds up with a bagful of very good operations, such that Paul is less concerned with the macroeconomic headwinds that can send stock market indices plummeting.
Look at the culture
The WCM crew also believe the culture of a company can explain why it has a growing moat. Companies such as Costco, Amazon and Google have always been singled out for their cultural quality. It’s not a ‘be all and end all’ matter but Black says there is a high correlation between culture and company performance.
The most recent addition to Paul’s portfolio is a Canadian company called Shopify (SHOP) and listening to him I had a new thought, and it surprised me that I’d never thought of this before — why would I get a local fund manager to invest for me overseas? I wouldn’t want a New York based fund manager to invest for me here, so why wouldn’t I use an overseas fund manager to invest overseas?
Look for reality
Back to local stocks, and two guys who impressed the audiences were Anton Tagliaferro from Investors Mutual and Vince Pezzullo from Perpetual Equity Investment Company.
Anton gave us his four rules of investing:
- Know the difference between speculating and investing.
- Understand momentum versus searching for value.
- Avoid info-overload but search for knowledge, which he said this Report specializes in! (Thank you Anton.)
- Don’t get fooled by perception and always look for reality.
He summed up his investment philosophy as: “We seek to buy and own companies with a competitive advantage, with recurring earnings, run by capable management that can grow…at a reasonable price.”
Investors Mutual looks for value beyond the top 20 stocks because Anton says most investors are heavily exposed to these top stocks and he likes “boring” companies, such as Pact and Amcor, rather than the likes of WiseTech.
Look for long-term growth
Perpetual’s Vince Pezzullo chases regular income and long-term capital growth and he likes the banks for a number of reasons, despite their Royal Commission challenges, with Westpac his favourite. He likes oil and thinks the outlook for commodities is positive, despite some short-term threats from Donald Trump’s trade war.
His top local holdings are: Westpac, Woolworths, Suncorp, NAB, BHP, Incitec Pivot, Star Entertainment, Oil Search and Medibank.
He’s worried about small regional banks and you should look out for our video replays of his presentation — it was very insightful.
Look for surprises
Another interesting presentation came from Simon Shields of Monash Absolute Investment Company, who explained how an absolute investing LIC [ listed investment company] plays both a long and a short game.
How he played Afterpay Touch was very instructive. He explained how he didn’t go long the stock until it announced its plan to expand overseas. He said this news was not in the share price and as they had proved the model locally, he foresaw there was potential upside at $7.25. He then sold out progressively at $14.70 in July this year, $17.60 in August and then $20 again in August.
He also said that some analysts are intimidated by big companies with plenty of influence. When that happens, it creates shorting opportunities because the reality will eventually show up in the company’s accounts.
His LIC is trading at a discount to its net tangible assets and this led to a lot of questioning around the potential gain when you buy into a LIC when the market is mispricing the actual value of the shares and the performance of the fund manager.
That said, those fund managers do need to communicate more effectively as some managers, who are good stock pickers in their own right, have shown themselves to be even better marketers of their funds!
The lesson is to be mindful that LICs priced with a significant premium could one day come back to bite you.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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