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Published 18 October 2012 04:34, Updated 25 October 2012 16:15
What investments do you like at the moment?
At Monash Investors our aim is to reliably grow investor wealth each year.We look to buy shares in companies that will make money irrespective of the prevailing market or economic conditions. Stocks with these characteristics can be found in many industries such as technology, leisure, child education, healthcare and insurance. For example, businesses are increasingly wanting cloud based applications and data storage. This trend is still in its infancy. Technology One has now made its suite of enterprise software products available via the cloud, which is helping it to increase its sales and its margins. The need to store data is also exploding with mobile devices and video growth. NextDC is building a national network of telco neutral data centres. These companies trade at prices well below similar companies overseas.
What are you avoiding, selling or shorting?
We are generally staying away from well-researched defensives such as banks, Telstra, consumer staples or utilities. These stocks have run as investors have sought out safety and yield, and they also are facing various headwinds. For example, utilities such as AGL and Origin are seeing pricing pressure from regulators as bond yields have fallen and consumers are cutting back on electricity and gas where they can due to higher prices. On the other hand, our shorts tend to be event driven rather than structural long term exposures. Recently we have made money from shorting companies on CEO resignations and profit downgrades in the building materials and mining services sectors.
What was your best ever single investment decision?
Buying Transurban when it listed as an infrastructure bond in 1996. As a young analyst I bought it for myself and recommended it for my funds. Thanks to a one-off from the federal government, it was on a tax free yield of 10 per cent per annum and your capital gains were tax free, too, if you sold it before it converted into a share a few years later. In that time, the stock went up fourfold and I used that money for a deposit to buy my first home – a unit in Bondi. It was really just one of the many gifts that the government gave to Australians around that time – CSL, Qantas, CBA, Telstra – that all did very well.
Now describe your worst one and what you learnt.
The company that caused me the greatest grief was James Hardie, which I was holding for its strongly growing United States fibre cement business. A commission of inquiry was held on its divestment of asbestos liabilities. It wasn’t just that the stock price collapsed but I worked for Colonial First State at the time and it was a large institutional investor in the company. So I had some responsibility to encourage a positive resolution. I learnt that you can be surprised by what is uncovered in a royal commission – the risk is not worth the return. It reinforced the value of the investor saying, “when in doubt, get out”.
Who is your investment hero, and why?
I have been fortunate to work with many very good investors. The one that stood out was Greg Perry. He consistently beat the market over many years despite running huge amounts of funds under management. He is very good at identifying the key financial drivers of businesses and analysing their impact. But more than that, he demonstrated to me the importance of analysing the human side of business, the attitudes and abilities of executives, and their impact on business outcomes.