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Chris Judd on his new game: stock picking · The Money Puzzle

0:10
Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm
0:13
Speaker 1: James Kirkby. Welcome aboard everybody. You've probably read and seen
0:17
Speaker 1: that in twenty twenty six, the expectation is very much
0:20
Speaker 1: that small cap company smaller stocks will beat large cap stocks.
0:24
Speaker 1: They certainly did so last year. That's expected to extend
0:29
Speaker 1: in the year ahead. And today I have a small
0:32
Speaker 1: caps fund manager specialist who has beaten the market so
0:36
Speaker 1: far with his fund. He's better known far and white
0:39
Speaker 1: for his exploits in AFL. It's Chris Judd, former Carton
0:44
Speaker 1: and West Eagles star who now takes his risks in
0:48
Speaker 1: the share market with the Serruti Macro Group. How are you, Chris?
0:53
Speaker 2: Very well, Jimes, thanks for having me on the show.
0:55
Speaker 2: Looking forward to sitting down and having each other about stocks.
0:58
Speaker 1: Well, you know, small caps, which is your I know
1:01
Speaker 1: it's not exclusively your area, but it's very much your
1:03
Speaker 1: area for the moment in your fund, and that's where
1:06
Speaker 1: you've concentrated so far. So it did as an area
1:11
Speaker 1: of investing, it did better than large caps last year.
1:14
Speaker 1: That's not always the case. And we've actually had shows
1:17
Speaker 1: on this already that it is expected to do better
1:20
Speaker 1: than the bigger caps in this year.
1:23
Speaker 3: Now.
1:23
Speaker 1: I was just looking this morning getting prepared for the show,
1:25
Speaker 1: and I see, in fact that isn't the case so
1:28
Speaker 1: far this year. That is, small caps as a sector
1:31
Speaker 1: has slightly underperformed large caps. But will take it that
1:34
Speaker 1: the wind is behind you. Why is it seeing that
1:37
Speaker 1: small caps will do better than the big guys this year?
1:41
Speaker 3: So I don't broadly think they will.
1:43
Speaker 2: I think small caps in Australia are incrediblyli on interest
1:47
Speaker 2: right cuts to do well. I think small cap stocks
1:51
Speaker 2: rely on not just institutional fliers, but also on retail
1:55
Speaker 2: flowers of mom and dad investors, and when interest rates
1:58
Speaker 2: are going up as they currently are, those mum and
2:01
Speaker 2: dads feel at the value of their house is worth less,
2:03
Speaker 2: their bills are higher, and they that have less money
2:07
Speaker 2: to invest or feel like they have money less money
2:09
Speaker 2: to invest because they look at their biggest asset deg
2:12
Speaker 2: their house, and they're less confident about taking risk elsewhare
2:15
Speaker 2: so broadly speaking, I'd take the other side of that.
2:18
Speaker 2: I suspect if we get another two rate rises, which
2:21
Speaker 2: I think is currently consensus this year, I think large
2:24
Speaker 2: cap stocks, which rely on super annuation flows which are
2:27
Speaker 2: much more steady and reliable, will outperform. But I do
2:31
Speaker 2: think there are stock specific small caps which have macro
2:35
Speaker 2: tailings that's going to overpower that interest rate environment. So
2:39
Speaker 2: if you look at a lot of things, you know,
2:42
Speaker 2: Trump are talking about critical minerals is obviously front of
2:44
Speaker 2: mind for a lot of investors. But tomorrow we think
2:47
Speaker 2: that'll be shipbuilding, manufacturing capacity, currency debasement, etc.
2:51
Speaker 1: It's interesting. I mean, certainly, I don't who knows what
2:54
Speaker 1: would happen, but certainly the argument that riats are going
2:56
Speaker 1: up has just been sort of fortified, if you like,
2:58
Speaker 1: by the outbreak of the OR, which we've had a
3:01
Speaker 1: show on just a few days ago. Okay, now the
3:04
Speaker 1: obvious question, and you've thrown me to some extent, which
3:08
Speaker 1: is always good. But with ETFs, which have been the
3:12
Speaker 1: great challenge for all fun active fund managers, and you're
3:15
Speaker 1: an active fund manager, right, your value proposal out there
3:18
Speaker 1: is I pick or we pick the winners. But certainly
3:23
Speaker 1: with something like an ETF OR, you've got hundreds and
3:26
Speaker 1: hundreds of companies of wildly variable quality, often very much
3:30
Speaker 1: dependent on people onlike say a large cap here if
3:34
Speaker 1: the BHP management team, for some reason lexit tomorrow. BHP
3:39
Speaker 1: probably would be able to continue on. But a small
3:41
Speaker 1: cap company is often just a little kernel group of
3:44
Speaker 1: people who've done things very well, and so they are
3:48
Speaker 1: more volatile. For the person who says, yeah I like
3:51
Speaker 1: small caps, Yeah I'm into that, but you know this,
3:53
Speaker 1: it's so variable. I prefer to just buy an ETF
3:57
Speaker 1: and just buy the small cap sector and that it
3:58
Speaker 1: does better than big caps one I'm going to win.
4:01
Speaker 1: How do you differentiate from the ETFs.
4:05
Speaker 2: Well, I mean, if you look at ETF buying, it's
4:09
Speaker 2: I mean, we don't invest for ideology, but it's very
4:11
Speaker 2: much anti capitalists to start off with, to just buy
4:13
Speaker 2: a company based on its size.
4:15
Speaker 1: But you're saying that it's a bit dumb. Is it dumb?
4:17
Speaker 3: Is that?
4:17
Speaker 1: What do you mean that it's none thinking?
4:19
Speaker 2: Well, yeah, I mean we think capital should go to
4:21
Speaker 2: it where it's most efficient. And to just say that
4:24
Speaker 2: I'm going to buy ASX two hundred, which really means
4:27
Speaker 2: I'm going to buy four percent in Commonwealth Bank, twelve
4:29
Speaker 2: percent in BOHP or whatever those percentages are. I think
4:33
Speaker 2: it's fine as a savings tool, but I think the
4:36
Speaker 2: idea that that smart people have the time to meet management,
4:40
Speaker 2: can't be more efficient. I think that's wrong, and there
4:42
Speaker 2: are plenty of active managers over the journey that can
4:45
Speaker 2: beat the index. It's also a dangerous thing to believe,
4:48
Speaker 2: you know. It was interesting that Buffett would say just
4:50
Speaker 2: by ETFs when he was one of the great active
4:53
Speaker 2: managers of all time. You know, coming from my background
4:56
Speaker 2: in professional football, the odds of playing professional sport as
5:01
Speaker 2: an UNDERNIGNS footballer or a gazine into one.
5:05
Speaker 3: You know, if you told every kid, don't even bother
5:06
Speaker 3: about it.
5:07
Speaker 2: You know, the odds of you winning in your pursuit
5:10
Speaker 2: to play professional sport is so unlikely.
5:12
Speaker 3: Don't even think about it. You know, what a terrible
5:14
Speaker 3: way to live.
5:15
Speaker 1: So it's a lack of aspiration? Is it to just
5:18
Speaker 1: broadly wander into ETFs and I check what the market
5:22
Speaker 1: has to offer?
5:23
Speaker 2: I'm saying it's lack of aspiration. If you've got time
5:25
Speaker 2: to meet management, think for yourself and think clearly about
5:29
Speaker 2: what could happen in the world if you don't have
5:32
Speaker 2: the time or the skill set to do those things.
5:34
Speaker 2: It makes perfect sense as a savings tool for people
5:36
Speaker 2: that just want to be able to sleep at night.
5:38
Speaker 2: And have a savings tool that should be able to
5:40
Speaker 2: grow steadily and compound over time. But yeah, I think
5:43
Speaker 2: for people who are skilled at what they do, that
5:45
Speaker 2: have access to management and can think for themselves, I
5:48
Speaker 2: think it's non aspirational and also problematic if you extrapolate
5:52
Speaker 2: it to the extremes and companies just get funding depending
5:57
Speaker 2: on their size. Isn't a great lead to or partsis
6:00
Speaker 2: in a way to invest due to ideology. But at
6:03
Speaker 2: the extremes it becomes problematic as well.
6:05
Speaker 3: Yeah.
6:06
Speaker 1: Sure, that sort of weight of money argument where this
6:08
Speaker 1: sort of the money flows into super by low and
6:10
Speaker 1: then it flows out the super into the big cap stocks,
6:12
Speaker 1: and the big cap stocks keep getting the money. Yeah,
6:14
Speaker 1: I understand. So with your area, there is actually, before
6:19
Speaker 1: you say it, I'll say it, there is some academic
6:21
Speaker 1: sort of proof that active management can form better in
6:26
Speaker 1: the small cap space because there is so little research, right,
6:30
Speaker 1: so I so little, don't I mean even in my
6:32
Speaker 1: own world, I can tell you that twenty years ago,
6:35
Speaker 1: the coverage of companies in the media, for instance, there
6:39
Speaker 1: was good coverage right across and many small caps were
6:41
Speaker 1: also covered. I don't see them covered anymore. Individual small
6:44
Speaker 1: cup companies, they're never small, they're never covered and stop
6:47
Speaker 1: broking researchers don't cover them, so it's uncharted terrain. So
6:50
Speaker 1: you have this great opportunity to get in there find
6:54
Speaker 1: the company that no one's found. But what how do
6:59
Speaker 1: you with the particular risk of the small cap fund manager,
7:03
Speaker 1: which is the particular vulnerabilities if you like, of small
7:06
Speaker 1: cap companies where it's a great company which has a
7:09
Speaker 1: great product but a great team, but that can go
7:12
Speaker 1: after is really fast and as I say, that's not
7:15
Speaker 1: going to happen to come Bank or bh B, It's
7:17
Speaker 1: just isn't going to happen. They have that sort of
7:19
Speaker 1: fortress that most that investors like. So how do you
7:22
Speaker 1: get around that?
7:23
Speaker 2: There's a few things to touch on there. I think
7:25
Speaker 2: the big opportunity in small caps A is there under
7:28
Speaker 2: research and under owned, but B it's who's on the
7:31
Speaker 2: other side of the trade. Often, so when you're buying
7:34
Speaker 2: the HP or Commonwealth, the person you're buying that off
7:37
Speaker 2: or selling it too is usually another fund that has
7:40
Speaker 2: analysts and research teams and execution teams. Often when you're
7:45
Speaker 2: buying a small cap stock, the person you're buying and
7:48
Speaker 2: selling that off is a mom and dad that's working
7:50
Speaker 2: fifty hours a week that's exhausted and emotional and hasn't
7:53
Speaker 2: met management and just hasn't had the time or the
7:56
Speaker 2: skill set to form a more functional opinion on that stuff.
8:00
Speaker 2: So it gives you a greater chance to win. And
8:04
Speaker 2: the second side of it around risk. From my perspective,
8:07
Speaker 2: small companies, they're much easier for us to access management, right,
8:11
Speaker 2: I'm not going to get a one on one with
8:12
Speaker 2: BOHP management. They're also generally easier businesses for us to
8:16
Speaker 2: understand because they have fewer business divisions, fewer currency risks,
8:20
Speaker 2: et cetera. But also we size it appropriately, So two
8:24
Speaker 2: percent of the farm is a small position for us,
8:27
Speaker 2: four percent is a large position, And that sizing is
8:30
Speaker 2: really important as well when you're investing.
8:32
Speaker 1: A maximum cap of four percent on a single individ No,
8:35
Speaker 1: we don't have a cap.
8:35
Speaker 2: So the industry is filled with mandates where funds create
8:40
Speaker 2: all these synthetic rules that turn into jails. So to
8:43
Speaker 2: explain what you mean by that, tris well, So if
8:46
Speaker 2: I was to optimize for my business and I wanted
8:48
Speaker 2: to grow our fund as bigly as possible and get
8:52
Speaker 2: the biggest management fees available. I would make sure we
8:55
Speaker 2: were selling a very specific type of fund, a small
8:58
Speaker 2: cap fund where we only invest in small cap Australian shares,
9:01
Speaker 2: or a growth fund or a value fund, and I
9:03
Speaker 2: will go to the wealth allocators. Wealth managers and capital
9:07
Speaker 2: allocators say here's Australians that they go, Okay, that fits
9:09
Speaker 2: neatly in our basket. We've got X to spend here,
9:13
Speaker 2: and you can grow your fund quickly in that environment.
9:15
Speaker 2: The issue with that is if you're just a growth
9:18
Speaker 2: fund and every three or four years growth completely tanks,
9:22
Speaker 2: you don't have the ability to protect yourself elsewhere, and
9:25
Speaker 2: those growth funds in those times go to the allocation
9:27
Speaker 2: and go, I hope your value funds did well this year.
9:30
Speaker 2: So myself, all my liquid net wealth is in this strategy.
9:33
Speaker 2: My parents all their wealth, full stop is in this strategy.
9:36
Speaker 2: It needs to be able to work in lots of
9:37
Speaker 2: different environments, not just when you see it's in distructgy
9:40
Speaker 2: Did you mean it's in the fund. Yeah, So our
9:42
Speaker 2: fund is not just a small cap fund. We've owned
9:46
Speaker 2: Google before, for instance, but when liquidity environment is reasonable
9:49
Speaker 2: or better, most of our stocks are in the small
9:52
Speaker 2: cap space.
9:53
Speaker 1: Okay, okay, very good. I think we take a break.
9:55
Speaker 1: I want to talk to you about something that I
9:58
Speaker 1: always put a small cap fund there, which is you've
10:00
Speaker 1: got this great advantage right, it's you found this company,
10:03
Speaker 1: no one else knows it. Problem is the risk is
10:07
Speaker 1: you've nothing, You've no other sounding board and are they
10:10
Speaker 1: telling you the truth? Back in a moment, Hello, Welcome
10:21
Speaker 1: back to The Australian's Money Puzzle podcast. I'm James Kirby
10:24
Speaker 1: and I'm talking to Chris Judd, who is the manager
10:27
Speaker 1: at the Servicey Macro Fund, which is a fund that
10:32
Speaker 1: has it's mostly concentrated in small caps. I'll give you
10:35
Speaker 1: the floor for one minute to tell us how you've
10:37
Speaker 1: been performing. Tell us how the small cap index did
10:40
Speaker 1: last year and how you did against it.
10:42
Speaker 3: Yeah.
10:43
Speaker 2: Oh, the last twelve months we did thirties just dowunder
10:46
Speaker 2: thirty six percent, which was a really good twelve month period.
10:48
Speaker 2: I think how index was in the mid twenties, So
10:52
Speaker 2: small caps had a really good year over the last
10:53
Speaker 2: twelve months since we started the fund. We've been annualizing
10:56
Speaker 2: a bit out of twenty five percent. And I think
11:00
Speaker 2: that detail index by that Timpson is so Father's early dies.
11:03
Speaker 2: You know, we're almost three is into the fund.
11:04
Speaker 1: I was going to say, you're three years into the fund. Yes,
11:06
Speaker 1: So so people would look for a track record, of
11:08
Speaker 1: course with funds of three to five years. But that
11:10
Speaker 1: is that that is, and I could say, someone could
11:12
Speaker 1: very quickly say, well, you know, he's got to win
11:14
Speaker 1: behind him. Small caps have been very hot for a while,
11:16
Speaker 1: but that doesn't mean people don't lose money.
11:18
Speaker 2: When we started, you had negative money supply in the US.
11:20
Speaker 2: Small caps were horrible in twenty twenty three, and we
11:23
Speaker 2: were invested largely a lot in large caps during that time.
11:26
Speaker 1: Okay, now here's the risk. I imagine for you the small caps.
11:32
Speaker 1: You go into the company and you've got great access
11:34
Speaker 1: I mean as a fund manager, to access as Chris Judge.
11:36
Speaker 1: Someone's going to answer the phone to you anyway, if
11:38
Speaker 1: they know anything about sport at all. That I'm presuming
11:40
Speaker 1: you get indoors that others don't. But that doesn't stop
11:43
Speaker 1: people lying to you or exaggerating to you. And you
11:46
Speaker 1: don't have six different analysts to call and say, what
11:49
Speaker 1: did you think? You're on your own. So how do
11:52
Speaker 1: you manage that risk?
11:54
Speaker 2: Well, that's the art of it. To be honest, but
11:57
Speaker 2: we there's certain social cure you're looking for when you're
12:01
Speaker 2: speaking to management. You know that they touch their face
12:03
Speaker 2: after making a big statement. How do they treat their CFO?
12:06
Speaker 2: What's their interaction in relationship?
12:08
Speaker 3: Like there? Then you asked around.
12:10
Speaker 2: You know, one of the things that other companies are
12:14
Speaker 2: usually really comfortable on is sharing views on their competitors.
12:18
Speaker 1: And we can get okay, but tell me, as I said,
12:21
Speaker 1: the point is, you're on your own to some extent,
12:23
Speaker 1: and you are dependent on the honesty of the management
12:27
Speaker 1: in telling you about not just how the company is going,
12:29
Speaker 1: but how they expect it to go. How have you
12:33
Speaker 1: gone with that? Have you had occasional where someone's let
12:36
Speaker 1: you down on that?
12:37
Speaker 3: Of course?
12:37
Speaker 2: Yeah, of course that's again and we're just really ruthless
12:39
Speaker 2: in selling once we feel we've been misled. That's one
12:42
Speaker 2: thing we don't have second chance for. Like we're reasonably
12:46
Speaker 2: comfortable with that, other funds aren't. You know a lot
12:48
Speaker 2: of funds really sweat each quarter to quarter and they
12:50
Speaker 2: want the numbers to be precise in that quarter. I've
12:53
Speaker 2: had operating businesses before. We've found in an apparel business
12:56
Speaker 2: with a friend. Things don't legally fall at the end
12:59
Speaker 2: of each month, every month, or at the end of
13:01
Speaker 2: each quarter, and so we're sympathetic or really try to
13:04
Speaker 2: understand how the business works, not just how the numbers work.
13:08
Speaker 2: So we're sympathetic if there's a bad quarter, if we
13:10
Speaker 2: understand the reasons. What we're not sympathetic on is if
13:12
Speaker 2: we've been lied to or misled and we just sell
13:14
Speaker 2: them move on to the next adventure. I guess the
13:17
Speaker 2: metaphor which some people find a bit offensive, but it's
13:19
Speaker 2: like we view ourselves as the most attractive woman in
13:23
Speaker 2: the world at a bar.
13:24
Speaker 3: We've got capital.
13:25
Speaker 2: We can invest in any company we want, all the
13:27
Speaker 2: companies of the bloke's coming up to us. If someone's
13:30
Speaker 2: got bad breadth, or we don't like their teeth, or
13:33
Speaker 2: he's bored, we don't have to invest in it.
13:35
Speaker 3: You know.
13:36
Speaker 1: For telling me, your total funds under management are in
13:38
Speaker 1: the obosking the thing, it's pretty smaller. I want to
13:40
Speaker 1: be done under.
13:41
Speaker 4: Small it's seventy five million bucks. So you don't have
13:45
Speaker 4: this great depth of liquidity if things went wrong. Do
13:47
Speaker 4: you have a do you have or do you aspire
13:49
Speaker 4: to have a sort of big daddy step someone to
13:52
Speaker 4: take a stick in you, because as an investor, I
13:54
Speaker 4: would like to see that if I was with you.
13:57
Speaker 2: Wow, I disagree, but I think it's much harder to
14:01
Speaker 2: double a four billion dollar portfolio than it is a
14:04
Speaker 2: seventy five million dollar portfolio. We can get into things
14:07
Speaker 2: that are under research, and we also invest while we're investigating,
14:11
Speaker 2: which gets really hard to do. The bigger you get,
14:14
Speaker 2: we can meet a company like it, start investigating, and
14:17
Speaker 2: start buying at the same time. Two days later, we
14:20
Speaker 2: can find something we don't like, sell the position and
14:22
Speaker 2: there's been no harm done. That's incredibly hard to do
14:25
Speaker 2: when you're sort of a four or five billion dollar fund.
14:27
Speaker 2: So we think there's a real edge in being small.
14:29
Speaker 2: I think if you're a tenion dollar fund, sure you're
14:31
Speaker 2: vulnerable because your cost base becomes a bit restrictive if
14:34
Speaker 2: you don't grow your fun But no, I think you know.
14:38
Speaker 2: Under I think under four or five hundred million is
14:41
Speaker 2: sort of the sweet spot for funds where they can
14:44
Speaker 2: be sophisticated enough, but they have a real edge in
14:46
Speaker 2: terms of speed of decision making and liquidity that the
14:50
Speaker 2: larger funds miss out on.
14:51
Speaker 3: And we're not chasing super fund flowers.
14:53
Speaker 1: Like when you see small funds shuttering their doors, which
14:56
Speaker 1: they often do these days, often explaining that it's become
14:59
Speaker 1: too hard.
15:00
Speaker 2: What do you think, Well, you need fifty million bucks
15:02
Speaker 2: to really wash your face in terms of all the costs.
15:04
Speaker 2: So it's incredibly hard to people would be amazed to
15:08
Speaker 2: have expensive is to start a fund. So if you've
15:10
Speaker 2: got a proper trustee which we do in equity trustees
15:13
Speaker 2: the custody and a jpm organ fund administrator XYZ, you
15:17
Speaker 2: need to get to at least fifty million bucks for
15:19
Speaker 2: management fees to sort of wash your face. And obviously,
15:22
Speaker 2: when funds just don't get to that level, there's an
15:25
Speaker 2: extended period of time where they just are unable to
15:28
Speaker 2: keep writing out checks for a loss making business. So
15:30
Speaker 2: that's sort of what happens. But once funds are over
15:33
Speaker 2: that fifty million dollars hurdle, you know, we think they're
15:36
Speaker 2: in a sweet spot of operating wise, going to survive,
15:39
Speaker 2: but it still being small and nimble enough that they've
15:41
Speaker 2: got an eage. That size is not just liquidity. We
15:45
Speaker 2: don't have industry super fund money for instance, you know,
15:48
Speaker 2: taking on that sort of money, it's a huge pool
15:51
Speaker 2: of capital, and most managers are desperate for it because
15:53
Speaker 2: of the management fees that come with it, But the
15:56
Speaker 2: restrictions are enormous. You know this whole list of naughty stocks?
15:59
Speaker 1: Is it all mom and dad money? You have retail money.
16:01
Speaker 2: Yeah, we've got some family officers and most of our
16:04
Speaker 2: investors are self managed super fund high networths.
16:07
Speaker 1: Very good. All right, Now, let's just talk about small
16:09
Speaker 1: caps for a moment. It's difficult to do that because
16:11
Speaker 1: there's so many. How many are you comfortable with? How
16:14
Speaker 1: many individual small cap stocks are you comfortable within the
16:18
Speaker 1: fund at any given time.
16:20
Speaker 2: We've got thirty eight positions currently. But for us even
16:24
Speaker 2: that's a bit misleading in a sense of we've got
16:27
Speaker 2: four gold stocks, which to us is basically one position.
16:31
Speaker 2: So we're not technical mining experts. We like gold as
16:35
Speaker 2: an asset class, So rather than take a level of
16:39
Speaker 2: risk where we could get the idea right in the
16:41
Speaker 2: trade wrong, we've spread that risk over. I guess it's
16:44
Speaker 2: like a homemade ETF. So we got two uranium stocks,
16:47
Speaker 2: which again to us is really one position. But yeah,
16:50
Speaker 2: by and large, you've got thirty eight current positions.
16:52
Speaker 1: All right, and inside this small cap sector, I mean,
16:55
Speaker 1: obviously goods, red hot, so deliverage gold, companies that are
16:59
Speaker 1: just absolutely flowing as you'd expect them to be. That
17:02
Speaker 1: doesn't mean they can't get things wrong, of course, but
17:04
Speaker 1: just from a sexual point of view, where are you
17:07
Speaker 1: looking right now? Where are you hunting?
17:10
Speaker 2: Yeah, so we've got a revise towards stops with high
17:13
Speaker 2: amounts of tangible assets on their balance sheets.
17:16
Speaker 1: Like hard assets. Why is that that sounds like industrious
17:19
Speaker 1: to me?
17:20
Speaker 3: Yeah, that's right.
17:21
Speaker 2: So in tangel assets, if you look at the amount
17:24
Speaker 2: they create of balance sheet number in the US is
17:30
Speaker 2: just growing exponentially, and we think that's coming to an end.
17:33
Speaker 2: We think that's rolling over, and we think Stock's going
17:36
Speaker 2: to win tomorrow and not the software darlings of yesterday,
17:39
Speaker 2: which have already started to roll over, but you know,
17:43
Speaker 2: companies that actually produce things hard assets Stock.
17:47
Speaker 1: Can I say that's like a rotation to industrials, which
17:49
Speaker 1: is happening all across one markets, Yeah, across the front.
17:52
Speaker 1: That seems to be happening all around the world.
17:54
Speaker 2: Just Yeah, there's different acronyms that we like, the one
17:55
Speaker 2: from Davos to Detroit. So we think that's what we're
17:58
Speaker 2: starting to see and we've been thinking that, not just
18:01
Speaker 2: in the last three months, we've been thinking that for
18:03
Speaker 2: a considerable period of time.
18:04
Speaker 3: If you look.
18:05
Speaker 2: At I'm not sure if you're a Louis Vincent gave
18:09
Speaker 2: fan but gave co. Yeah, he's got the three type
18:13
Speaker 2: of equity bubbles. He speaks about new technology, new geography
18:17
Speaker 2: are not enough to go around. We've had new technology
18:20
Speaker 2: since the invention of the iPhone, which extended a little
18:23
Speaker 2: bit longer than usual AI to sort of a fifteen
18:25
Speaker 2: year period. We think that's right for a change. We
18:27
Speaker 2: think not enough to go around things like the US
18:30
Speaker 2: electrical grid, things like manufacturing capacity in the US. We
18:33
Speaker 2: think these are the dominant themes. They're going to take
18:36
Speaker 2: over from software, who's been a clear market leader for
18:39
Speaker 2: the last fifteen years or so.
18:41
Speaker 1: Right, I would have forgive me if I'm wrong, but
18:44
Speaker 1: I would have thought there isn't the same kind of
18:46
Speaker 1: spectrum of industrials listed industries to choose from, right. There
18:49
Speaker 1: used to be.
18:50
Speaker 2: Here, well, not things that manufacture, but I mean one
18:53
Speaker 2: of our larger holdings is Mative Route, which has a
18:55
Speaker 2: huge skilled labor workforce. So skilled labor is in em
19:00
Speaker 2: shortage of the time when mining deposits are getting deeper
19:03
Speaker 2: and at a time when companies are trying to sweat
19:05
Speaker 2: their assets longer. So yeah, there's not a lot of
19:08
Speaker 2: companies that produce goods in Australia. It's almost impossible to
19:12
Speaker 2: do so with electricity and labor where it is. But
19:15
Speaker 2: there's still plenty of companies that we put in that
19:17
Speaker 2: industrial basket, and something like a Mata Group would be
19:19
Speaker 2: an example of that, or via some which is a
19:22
Speaker 2: diversified water services provider.
19:24
Speaker 3: But yeah, we're not buying cabrets or mars for instance.
19:27
Speaker 1: So mining and mining services are Is that becoming a
19:30
Speaker 1: substantial power of the portfolio then.
19:32
Speaker 2: Mining services is yeah, yeah, and skilled labor is a
19:36
Speaker 2: theme we like, Aging demographics is a theme.
19:38
Speaker 3: We like superannuation flows as a theme.
19:40
Speaker 2: So we really want to find companies expressed to sectors
19:44
Speaker 2: with long term secular tailings.
19:46
Speaker 1: Okay, at this point to the show, when I have
19:48
Speaker 1: a small CAFs manager on or any manager on, I
19:50
Speaker 1: do like them to pick for the listener two stocks
19:53
Speaker 1: to have a look at, just to have a look at.
19:55
Speaker 1: Maybe you have if you mentioned these, tell us whether
19:58
Speaker 1: you have them on the books already. That's all.
20:00
Speaker 3: Yeah, Well, Vice an sorry is our biggest holding.
20:03
Speaker 1: Tell us about Byson.
20:04
Speaker 2: What's that Vice as a diversified water services business. Their
20:08
Speaker 2: main business was de watering iron or deposits, so fifty
20:11
Speaker 2: percent of iron or deposits in the Pilbra under was it.
20:13
Speaker 3: For real and with all them is now.
20:18
Speaker 1: So.
20:19
Speaker 2: But they also have a water consulting business that they
20:21
Speaker 2: bought recently, a wastewater business, so they're diverse going away
20:24
Speaker 2: from just being resource based. Where the asymmetry lies in that,
20:28
Speaker 2: we think is in Vice on asset management, where they've
20:31
Speaker 2: peaked a large amount of land which has a significant
20:33
Speaker 2: amount of water on it, and they're looking to sign
20:36
Speaker 2: an off take for that water for groups in the
20:37
Speaker 2: Pilbra and that may even be end up being a
20:40
Speaker 2: government water called potentially who've got a current tender out
20:44
Speaker 2: for water and there's not many groups that could service
20:46
Speaker 2: that tender. So I think that's really interesting. We love management.
20:49
Speaker 2: We think they're a really strong team. We think it's
20:51
Speaker 2: the sort of business that can't be disrupted by AI.
20:54
Speaker 2: It's a really long term compounder going organically at about twenty percent,
20:59
Speaker 2: but through acquisition much stronger than that, and yeah, we
21:02
Speaker 2: really like it, so that would be an example of
21:03
Speaker 2: the type of business we like. And it's about a
21:05
Speaker 2: four hundred and thirty million dollar market cap, so it's
21:08
Speaker 2: not demonymous, but really growing strongly and still under owned
21:13
Speaker 2: by certainly large institutions.
21:15
Speaker 1: With thirty eight stocks are So how often do you
21:17
Speaker 1: actually buy in the stock?
21:20
Speaker 2: Rarely, so we trade most days to position the portfolio
21:23
Speaker 2: how we want.
21:24
Speaker 3: So we're really disciplined.
21:25
Speaker 2: If we like something the most of this valuation, we
21:28
Speaker 2: want it to be our biggest holding, are in our
21:30
Speaker 2: top five biggest holdings. It's really annoying for us if
21:33
Speaker 2: we really like a stock and we've got one percent
21:35
Speaker 2: in it, because if it doubles, it hasn't moved the
21:37
Speaker 2: needle for us. So most of our trading has donet
21:40
Speaker 2: almost intra portfolio competition.
21:42
Speaker 1: Okay, balancing the actual stuff you already have.
21:46
Speaker 2: Yeah, so really being fair, and how much do we
21:48
Speaker 2: like this? Do we like this more than that at
21:50
Speaker 2: this valuation? Well, why isn't it bigger?
21:52
Speaker 3: If we do?
21:53
Speaker 2: And then a new stock or I feel it enters
21:56
Speaker 2: an Exitsu portfolio about once a month. Sometimes there's more
21:59
Speaker 2: of a cadence that, but new stocks coming in and
22:01
Speaker 2: out are reasonably rare, but we're trading most days to
22:04
Speaker 2: get position sizing.
22:05
Speaker 3: Right.
22:06
Speaker 1: Are you able to tell me your stuff that you've
22:07
Speaker 1: exited recently?
22:11
Speaker 2: There's a couple we're exiting. I see, then, what are
22:14
Speaker 2: we excellent? Oh well, so we exited EL and as
22:19
Speaker 2: you want, I actually really like EOL. So EL what
22:24
Speaker 2: was it?
22:24
Speaker 3: Why? Why do we like it?
22:27
Speaker 1: One?
22:29
Speaker 3: We just think.
22:32
Speaker 2: Evaluations are reasonably high, not as far as some other
22:34
Speaker 2: SaaS businesses. We just think the selldown in SAS has
22:37
Speaker 2: a long way to go, not because companies like zero
22:40
Speaker 2: don't have a viable business going forward, but because investors
22:44
Speaker 2: no longer want to pay fifty times eighty times one
22:46
Speaker 2: hundred times earnings.
22:47
Speaker 1: The place got ahead of the business, basically.
22:49
Speaker 3: That's right.
22:50
Speaker 2: So AOL we thought would get infected with that, we
22:53
Speaker 2: really like it. We think management a grade. It was
22:56
Speaker 2: more just where can we reduce exposure to sort of
22:59
Speaker 2: an infection ancestral aided stocks, which we think is still
23:04
Speaker 2: got a while to play out.
23:05
Speaker 3: So it was more of a right yeah.
23:07
Speaker 1: Which plays back into your spring towards the traditional and
23:12
Speaker 1: from the intangible. Heroes of last year being the software
23:16
Speaker 1: champions okay, very good. Stick with us. We're going to
23:19
Speaker 1: ask a couple of questions from listeners back in a moment. Hello,
23:29
Speaker 1: Welcome back to the Australian's Money Puzzle podcast. I'm James
23:32
Speaker 1: Kirby here with Chris Judd of the Sarahity Macro Fund.
23:35
Speaker 1: That is a fund which specializes so far in small
23:37
Speaker 1: cap investing. It's run by Chris Judd, who you may
23:40
Speaker 1: or may not know as a former footy player of
23:43
Speaker 1: great renown. Okay, Patrick asks, I think your episode on
23:47
Speaker 1: gold had poor advice. Gold is not an investment. It
23:51
Speaker 1: doesn't give a return. And then he puts it against
23:56
Speaker 1: shares and he says the shares have additional tax advantages
23:59
Speaker 1: and ranking credits and dividends and there's so much better.
24:03
Speaker 1: I don't know about that. I love it. I think
24:04
Speaker 1: gold's damn good and it's been good for years. What
24:07
Speaker 1: do you think, Chris? None of this is adviced by
24:08
Speaker 1: the way information only.
24:11
Speaker 3: Look, we like gold.
24:12
Speaker 2: One thing we do try and avoid is getting religious
24:14
Speaker 2: about investments. And we see that a lot, and people
24:17
Speaker 2: get whether it's gold or stock or a big cooin
24:20
Speaker 2: or property sort of it's easy to come almost a
24:23
Speaker 2: religious seal about it and try and defend that position.
24:25
Speaker 2: To argue goal has been a bad investment when it's
24:28
Speaker 2: got a multi thousand year track record and there's boom
24:30
Speaker 2: since the early two thousands, seems an incredibly strange time
24:33
Speaker 2: to hit you wagging in that bed.
24:35
Speaker 3: But yeah, we like gold.
24:37
Speaker 1: How many gold manterers did you say you have bo.
24:39
Speaker 2: We've got four different gold stocks. We've got about fourteen
24:43
Speaker 2: percent of our fund third end to percent of our
24:46
Speaker 2: funding gold stocks.
24:47
Speaker 1: Was that the case when you started in the early days.
24:51
Speaker 2: No, that's great. I mean we've it's been a little
24:53
Speaker 2: bit higher. There are times that's really high for us.
24:56
Speaker 2: But yeah, we think we just think it's got a
24:59
Speaker 2: long way to play. I think the bubble that didn't
25:01
Speaker 2: get spoken about much was really you government bonds. You know,
25:04
Speaker 2: you had eighteen trillion dollars worth of negative viewing debt
25:07
Speaker 2: in COVID. That was the bubble to us, not big coined,
25:10
Speaker 2: not gold. They're sort of symptoms of that bubble, aren't minding.
25:13
Speaker 2: And we think if that's the case, it's got a
25:15
Speaker 2: long winning go.
25:16
Speaker 1: And the gold to some extent fits into your hard assets.
25:19
Speaker 3: Well, both heard adds to your political risks like you had.
25:21
Speaker 2: Russia had three hundred billion dollars of effects reserve sanction
25:24
Speaker 2: when they invaded Ukraine.
25:26
Speaker 3: Why any sovereign.
25:27
Speaker 1: Nice and they said, we'll never let that happen again,
25:29
Speaker 1: We'll have gold next time.
25:30
Speaker 3: Well, that's right.
25:30
Speaker 2: Why would any sovereign nation store their surplus reserves in
25:33
Speaker 2: an asset that can be sanctioned, even if he's paying
25:36
Speaker 2: a yield of you know, or four percent? So yeah,
25:39
Speaker 2: I think that trends long term and secure in nature.
25:42
Speaker 1: Okay, Patrick, I hope that was useful to you. I
25:46
Speaker 1: see your point. Of course, doesn't pay income, and there
25:49
Speaker 1: are long periods, long long periods in historical cycles for
25:53
Speaker 1: gold is useless as an investment. But in the overall
25:57
Speaker 1: scheme of things long term it has been good and
25:59
Speaker 1: more than that, it would seem to be in a
26:02
Speaker 1: secular trend just now. And I don't think the outbreak
26:07
Speaker 1: of hostilities in the Middle East will do with any
26:10
Speaker 1: damage at all in terms of it's a price trajectory. Okay, Amanda,
26:15
Speaker 1: I read your feature. This is a feature in the
26:17
Speaker 1: Australian Chris which was actually by me who which said
26:21
Speaker 1: I read your feature about giving up on small cap
26:23
Speaker 1: stocks in The Australian. You should never give up on
26:25
Speaker 1: any chance to firstify your investments. I think you made
26:29
Speaker 1: a mistake. That was about mis saying I'm giving up
26:31
Speaker 1: on buying small caps one by one individually because I've
26:34
Speaker 1: been burnt too many times, Chris, and I was actually
26:37
Speaker 1: moving into ETFs and funds, And I don't need to
26:42
Speaker 1: ask you what you think of that, because you're a
26:43
Speaker 1: smart cap far manager, so I'm sure you agree. Unless
26:46
Speaker 1: I'm wrong.
26:47
Speaker 2: I agree that if you don't have time to make
26:49
Speaker 2: management a full time employee or business owner, I don't
26:52
Speaker 2: think it is wise to invest in individual small caps.
26:55
Speaker 2: I do agree with that. But we do have the
26:56
Speaker 2: time to make management and do the work, so it
27:00
Speaker 2: makes sense for us.
27:01
Speaker 3: But yeah, a.
27:02
Speaker 1: Peculiar question, but it just struck me. You mentioned about
27:05
Speaker 1: people and judging them and you know, man watching basically,
27:08
Speaker 1: whether people put their hand up to their chin or
27:10
Speaker 1: whatever when they're telling you they're going to Dublin size
27:12
Speaker 1: next year. Do you need to meet them a personally,
27:14
Speaker 1: happy to meet them online.
27:17
Speaker 3: We're happy to meet them online, but a person is preferable.
27:20
Speaker 1: Okay, okay, very good. And of the number of stocks
27:22
Speaker 1: you have, those thirty eighth stocks roughly, how many would
27:24
Speaker 1: you reckon you've actually had a face to face with.
27:28
Speaker 3: I don't think there's any Australian ones.
27:31
Speaker 1: We haven't you haven't, Okay, right, boy, I hang on.
27:35
Speaker 2: Say we are next Gen the uranium developer with a
27:39
Speaker 2: Canadian deposit. We haven't met the CEO, but we've heard
27:45
Speaker 2: him present several times online and we've met other people
27:49
Speaker 2: from the company. But I haven't actually met Lee. I
27:52
Speaker 2: don't think, but yeah, I think all the others we've met.
27:55
Speaker 3: Yeah.
27:56
Speaker 1: It strikes me how far away you are from a
27:58
Speaker 1: pund manager I most recently who taught me that they
28:00
Speaker 1: have an AI whatever app and they tip for all
28:04
Speaker 1: the agms. It puts all the agms together and it
28:07
Speaker 1: gives them a little bulletin on what was said, which
28:09
Speaker 1: means to never even look online at the agms that
28:12
Speaker 1: the people they're investing in, which is so far away
28:14
Speaker 1: from your much more sort of boots on the ground approach. Okay.
28:18
Speaker 1: Final question from Trevor regarding the popularity of ETFs. Something
28:23
Speaker 1: that I think is covered very lightly is the dealing
28:26
Speaker 1: of capitive gains. The ETFs have to distribute all their
28:30
Speaker 1: capital games each year, So a high income earner has
28:32
Speaker 1: little control on when to realize their capitive games, eg.
28:36
Speaker 1: Even after they retire. But that would be the same
28:38
Speaker 1: with a fund, wouldn't it. I mean you buy and
28:40
Speaker 1: sell and I have to take your final outcome of
28:42
Speaker 1: the year. I can't say, oh damn, he went and
28:44
Speaker 1: sold that too early or whatever. That's just the nature
28:47
Speaker 1: of the game, isn't it.
28:48
Speaker 2: Yeah, we don't pay tax in the fund. It flows
28:50
Speaker 2: through to the un holder. The holder doesn't know what
28:52
Speaker 2: the realized gains are going to be each year, but
28:55
Speaker 2: they do get distributed all those realized gains to pay
28:58
Speaker 2: tax and have liftover. Should there be realized games obviously,
29:02
Speaker 2: But that's right. Yeah, it's different. Yeah, that's the deal
29:06
Speaker 2: because everyone's tax everyone's unique tax situation, so it's impossible
29:11
Speaker 2: for us, when you're dealing with you know, one hundred
29:13
Speaker 2: or different investors to try and plan for that.
29:16
Speaker 3: So that's a fair point.
29:17
Speaker 1: Okay, thank you for that, Trevor, and thank you very much, Chris.
29:21
Speaker 1: I'm in the I operate this podcast here in the
29:23
Speaker 1: harolsun building. I mentioned this because when I went down
29:26
Speaker 1: at the brick, they were having their morning tea footy
29:30
Speaker 1: season whatever get together they were wearing. There are various
29:33
Speaker 1: scarfs and everything, so I mean I have to ask
29:35
Speaker 1: you for the season just starting. Who do you think
29:38
Speaker 1: might win this year at the round final?
29:42
Speaker 2: I think gold Coast So I take my stock picking
29:46
Speaker 2: very seriously. I'm actually a terrible tips of football and
29:51
Speaker 2: given my history, people paying more respect to my tips
29:53
Speaker 2: than they should. But I think gold Coast is going
29:55
Speaker 2: to win the Grand Final. But that should mean nothing.
29:59
Speaker 1: It was a good your answer anyway, tell you that
30:01
Speaker 1: you didn't look around. Wish it was good? Okay, very
30:03
Speaker 1: good Chris John the Sarahity macro Fund. Very nice to
30:07
Speaker 1: have you on the show. Best of look. Thanks, thanks,
30:10
Speaker 1: thank you Chris, and thanks for listening. Folks. Keep the
30:13
Speaker 1: emails coming The Money Puzzle at the Australian dot com
30:16
Speaker 1: dot Au. Today's show was produced by Leah sammacdu I
30:19
Speaker 1: Talk to you soon.