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Published 19 July 2012 05:02, Updated 26 July 2012 04:16
What investments do you like at the moment?
We focus on companies that are profitable and where we can identify profit growth; we like them to pay a dividend and we like them to have a management team that we know and that has delivered in the past. The biggest positions in our portfolio at the moment are things such as Adelaide Brighton, Regis Resources in gold mining, Flexi Group, iinet and Mermaid Marine. With all of those we think we can forecast the earnings with some certainty and we’re very comfortable with management.
What are you avoiding or selling?
Speculative resource stocks. We avoid them anyway but more assiduously now. That part of the market’s been absolutely trammelled and unless we have a major turnaround in sentiment, it will remain under pressure. The fear of a China slowdown is too great. The stories behind a lot of speculative miners are pretty flimsy and plenty of them have been found out in this market downdraft.
What is your best ever single investment decision?
It was designing, with Ben (Griffiths), an investment philosophy that gets to grips with what makes stocks go up. We use it every day and has generated the results year in, year out. (Eley Griffiths Australian Small Cap Fund made 2.4 per cent before fees in the five years ending March 31, 2012, while the S&P/ASX Small Ordinaries lost 3.9 per cent.)
Now describe your worst decision and what you learnt.
In the early days we owned Pan Pharmaceutical. But there was no warning with that one, not really any learnings, you wake up one morning and discover the Therapeutic Goods Administration has closed the business. The (recently collapsed) Hastie Group is an example where we stuck with management too long but we did join a few dots and decided to bail before it went completely belly-up. I’m fond of telling the team that it’s important to hate every stock in the portfolio – that’s the only way you remain objective.
Who is your investment hero and why?
Jesse Livermore. He’s the subject of a book from 1923 called Reminiscences of a Stock Operator, which is fictitious but based on interviews with Livermore. What he has to say about markets is still valid. I also like the first Baron Rothschild, who said of his investment approach: “I almost always sell too early and buy too late.” Which is of course how you make money in markets.