What investments do you like at the moment?
I am personally invested in our listed investment company, Clime Capital. The shares are trading at a 10 per cent discount to net tangible assets and pay quarterly dividends. The total return to shareholders since March 2009 has been over 90 per cent. In the rest of the market, though, you’re really trading off quality to get value at the moment. If I was buying a sector it would be the banks. What the International Monetary Fund said the other day about them needing tougher stress tests was gaga.
What are you avoiding or selling?
Some of our bigger positions that have delivered extraordinary returns such as Telstra, [salary packager and car leasing administrator] McMillan Shakespeare and Australand debt securities need to be trimmed to hold them within our risk parameters.
What is the best investment decision you’ve ever made?
In March 2009, Clime took a substantial position in McMillan Shakespeare at below $3 for our clients at the time. The shares have increased in value by 400 per cent and lifted dividends by 100 per cent in three years. That investment opportunity resulted from our return on equity filter and a depressed share price caused by the GFC. The icing on the cake was the appointment of a managing director who had immense experience in managing a larger organisation. The management of a fast-growing company tests managers. It’s a risk often ignored by investors.
Now describe your worst one and what you learnt.
A few years back and before the sharp uplift in the Australian dollar, I backed the merger of three plastic manufacturing companies through a listed company called HomeLeisure. The shares moved sharply higher on the merger and just as the benefits of the integration were coming together, the $A sharply revalued. That was the first nail and the second came when major retail clients went to a direct import model. The shares collapsed and all the component parts of the business had to be fire-saled. The lesson? In business, things rarely go to plan and when a share price reflects the certainty of success, that’s the time to sell.
Who is your investment hero and why?
Sam Kaplan was my mentor at NRMA. He taught me that if you find companies that can grow and continually reinvest back into them, the compounding is very powerful. It’s what Warren Buffett’s done for 50 years.