By Rob Hay, Head of Distribution & Investor Relations at Collins Street Asset Management
24 May 2023
Technology, financials, industrials, shares, bonds and more. There is no end of opportunities to invest in, both across and within asset classes. So which way do you go? How do you decide what to buy and (perhaps more importantly) when to sell? What type of fee alignment are you after, and to what extent do non-financial considerations impact your choices?
For those of us who have been active in investment markets, the words of Frank Sinatra in his 1968 classic will undoubtedly ring true:
I’ve lived a life that’s full
I travelled each and every highway
And more, much more
I did it, I did it my way
Which begs the obvious question, what is your way? Have you given thought to what your guiding principles are and do you actively consider them at every stage in the investment process?
At Collins St Asset Management there are several key aspects to our investment philosophy which guide us on our investment journey as deep value, contrarian investors:
1. True value is blind to traditional sector and index weightings.
Understanding a balance sheet and profit and loss statement is essential, and when doing research into a company, the way in which it is classified by the broader market does not necessarily represent the true nature of the business and risk/return profile of operations.
2. Deep research can uncover compelling value for the patient investor.
Quite simply, if you don’t understand it don’t invest in it. Additionally, if you don’t have enough time (or liquidity) to see the investment thesis through to fruition don’t invest in it. Understanding and patience are essential elements in successful investing.
3. Wonderful investments should be backed with conviction and not diluted by lesser ideas.
Money is hard to make and easy to lose. Compelling, asymmetric investment opportunities may only present themselves a few times a year. For us, we want our best ideas to have impact and make a difference to our returns, something that can only be done with a flexible mandate that allows conviction when ‘right-sizing’ a position in the portfolio.
4. Buy businesses, don’t trade stocks.
Momentum (both euphoric and depressive) can push share prices far below (and in excess) of their fundamental valuations, presenting exciting opportunities to both buy and sell – so long as you understand the business you are seeking to buy or sell. Emotion can move prices quickly, fundamentals less so.
5. Great ideas can’t be found from the comfort of an office.
As a ‘hands on’ investor you have to be ‘comfortable feeling uncomfortable’ and prepared to challenge your investment thesis with real world data. What better place to seek out real world data than in the real world? Meeting with a company’s competitors, suppliers, customers and other stakeholders can help to identify genuine disconnection between market pricing and company fundamentals, as well as help framing what the true (or next) question in the research process might be. Often the answer to a question does not lead to a conclusion but rather another thesis to be tested out in the field.
Some of these ideas may resonate with you. Oothers you may wish to challenge, expand upon or supplement with other factors you consider important. The key questions though are, does this guarantee success and what happens if I don’t bother thinking about my personal investment philosophy? As the song goes……
Regrets, I’ve had a few
But then again too few to mention
I did what I had to do
I saw it through without exemption
I planned each charted course
Each careful step along the byway
And more, much, much more
I did it, I did it my way
Investing and the expectation of future profit is always done in a world of imperfect information. Nothing is guaranteed. However, the benefits of giving thought to your personal investment philosophy (or making an assessment of someone else’s if investing through a fund manager or an adviser) has clear benefits:
1. It helps refine your investment universe and gives some context as to how your overall portfolio should be built (what could be included and what is definitely excluded). This could include ethical considerations, fee structures and how interests are aligned, how active or passive you want to be (or expect of others) and whether or not you seek to run with or against the herd.
2. You can judge whether or not an investment is ‘true to label’ and how it might suit your personal circumstances by observing its ups and downs over time, whilst also setting appropriate expectations about how an investment should behave in different market conditions.
3. Entry and exit points can be executed with discipline.
4. Ongoing reviews of your portfolio and the decisions you have made can be framed from the perspective of your philosophy and conducted with less emotional ‘noise’.
5. Greater ownership of the investment decision making process can be taken.
Naturally, no single investment philosophy is going to generate top tier performance at every stage of life, nor at every stage of the market cycle. However, standing true to your beliefs can over time be a very powerful and enduring driver of returns.
Yes, there were times I’m sure you knew
When I bit off more than I could chew
But through it all, when there was doubt
I ate it up and spit it out
I faced it all and I stood tall and did it my way
At Collins St Asset Management our flagship Collins St Value Fund, underpinned by a high conviction, deep value investment mandate of asymmetric ASX listed stocks has achieved a net return of approximately 14% p.a since 2016, nearly 4% p.a. higher than the market since that time. These returns were not achieved in a straight line and nor are they guaranteed into the future. They are the outworking not of random stock selection or emotional decisions at different points in time, but rather of our enduring investment philosophy, and relentless focus on both preserving and growing the wealth of our clients, both now and for future generations.
For what is a man, what has he got?
If not himself then he has naught
Not to say the things that he truly feels
And not the words of someone who kneels
Let the record shows I took all the blows and did it my way
We look forward to continuing this journey over the years ahead and staying true to our ideals in the pursuit of our desire to make a difference.
To learn more about Collins St Asset Management’s distinctively different approach to investing please contact Rob Hay, Head of Distribution and Investor Relations, either via email at: RHay@CSVF.com.au or by phone on: 0423 345 975.