Over the last few months, as part of our regular Q&As, we have asked some of Australia’s leading investment professionals to share their most memorable investments - the good ones and the bad. In a showcase of responses, we find out those they are most proud of, those that would have benefitted from the power of hindsight, and why sometimes it’s the simple investments that do the best.
"I’ve probably learnt more from the negative outcomes of our investment decisions." Ben Squires, NGS Super
Dan Farmer, Chief Investment Officer at IOOF
My most memorable investment is memorable because it was my first, a minimum $500 allocation of Woolworths shares in the IPO, it seemed like a big investment at the time, unfortunately I sold out way too early.
Ben Squires, Chief Investment Officer at NGS Super
I’ve probably learnt more from the negative outcomes of our investment decisions. The list is long, however here are a few important items:
• If you don’t understand the investment you're making and couldn’t easily explain it to your members – then it's most likely a bad investment.
• Treat back tested results with a high degree of scepticism.
• Trying to time the market is futile and only through taking a longer-term orientation will you be able to achieve persistent outperformance.
• Make sure managers and staff incentive structures are aligned with your investment objectives.
• Understanding the risks within a portfolio is very important. Just like reading a map, if you don’t have a sign post for the risk you’re taking, you may end up having unintended positions that could surprise you.
Kylie Willment, Chief Investment Officer, Pacific at Mercer
One of the things I’m most proud of from my time at TCorp was the building out of the asset classes exposures from fairly vanilla listed equity and government bonds to diversifying return sources such as real assets, multi-asset and other alternatives. Of course, as you start investing in unlisted assets, even a well-diversified portfolio will carry more asset-specific risk than a listed equity portfolio. It's somewhat inevitable that there will be misses from time to time. That’s where prudent risk management comes in. You need to make sure that your portfolio is resilient to any asset specific event or drawdown.
"Sometimes I think we overcomplicate things in this industry, so stopping to check yourself every now and then to make sure you’re not trying to be too smart is probably a good thing." - Michael Winchester, First State Super
Frank Gooch, Chair at Pengana International Equities
On a personal note, the best investments I have made relate to my education and that of my children. From a stock point of view, buying Macquarie Bank shares soon after it listed and holding on to them through various cycles has delivered both capital growth and dividends over a very long period. My worst investment was probably buying a home in Melbourne at the peak of a cycle many years ago and having to sell it shortly after the cycle turned when I transferred to Sydney.
Michael Winchester, Head of Investment Strategy at First State Super
Investing during the Global Financial Crisis was certainly memorable and there were plenty of lessons learned. We had a few investments which did well and others which didn’t, but often it was the simple things which did best. Sometimes I think we overcomplicate things in this industry, so stopping to check yourself every now and then to make sure you’re not trying to be too smart is probably a good thing.
Norman Zhang, General Manager, Investments at Media Super
Media Super had a sizeable investment in an equities strategy with a deep-value style bias since 2013. 2013 to mid-2016 was a tough time for value investing and the strategy significantly underperformed during this period. It is always difficult to hold onto an underperforming investment (over several years) but the Media Super Board held its resolve as there was nothing fundamentally wrong with the manager. The value style rebounded sharply from late 2016, and the investment recovered all its prior underperformance. The significance of this investment was that it demonstrated firsthand the benefits of having a long-term investment mindset, but also the potential for value destruction if short-termism were to drive investment decisions.
Stephen Wood, Portfolio Manager at UBS
Definitely Dominos. Ticked all the boxes on returns on capital and exceptional management who earn every cent they get paid. It has been wonderful watching this company's unrelenting drive from minnow in Australia to now the largest local player and now successful on the world stage. The vision and investment in technology has been great to watch. It has been very kind to our investors.
"On a personal note, the best investments I have made relate to my education and that of my children." - Frank Gooch, Pengana International Equities
Kim Ivey, Co-Founder of LSL Partners
One of our favourite stocks for some time has been NetEase. NetEase is the world’s largest desktop and mobile gaming company. We believe the company is capitalising on a willingness of cashed up younger consumers in China to spend their leisure dollars. NetEase’s top games are typically highly immersive and massively multiplayer online roleplaying games. Through player surveys, we found the company engenders phenomenal loyalty and can gross north of AUD1 billion per year. The company’s 2016 standout hit, Onmyoji, actually cracked the top ten mobile apps by revenue generation in Australia, a phenomenal feat for a Chinese language title.
Victor Gomes, Portfolio Manager at UBS
REA Group is one of my favourites. I first invested when in an earlier life an ex-BT colleague and I were managing a small Aussie broadcap equities fund. From out of the ashes of the early 2000's tech wreck we discovered that some of its survivors were prospering and even delivering on some of the promise that had driven much of the excesses of the tech bubble. I recall us going along to visit them in their modest offices in Sydney's William St in early 2003, having been cast out and ignored by the market. Back then they were trading at 27c and were still called realestate.com.au (later renamed REA Group). At the time anything with a ".com" in its name was still regarded as toxic. Despite the perceptions, we were encouraged by their recent moves to achieving a positive cashflow and also the significant utility that their product now offered customers compared to an old fashioned newspaper classified. We made it one of our fund's largest holdings and did very well for our investors.
Garry Laurence, Global Equities Portfolio Manager at Perpetual
We have been investing in online businesses since the inception of the fund seven years ago. We recently invested in Vipshop which is a leader in online apparel retailing in China. They have over 60 million active customers and this customer base is growing at 20% per annum. Recently Tencent and JD.com took a stake in Vipshop and we think these investors will help them to grow their customer base into the hundreds of millions and we expect their operating margin to grow over time as the business scales up.