ST Wong is the chief investment officer of Prime Value Asset Management.

What’s the investment question that you always hope to get asked but never do?

Why is making fewer mistakes key to superior investment performance?

There is a lot of focus on the most exciting stocks, but little attention paid to avoiding losers in the market. Avoiding underperformers has a big impact on portfolios: for example, avoiding underperformers in the building materials sector such as Adelaide Brighton and Boral during the last year.

Investment is an odds game – no one gets it right all the time. In fact, the key to investing success is as much about avoiding losers as it is picking winners. Having said that, managing a portfolio is also about balance.

Managing a portfolio too defensively, so it avoids all losers, is counter-productive to superior returns – we try to learn from our losers, move on, and try to avoid repeating the same mistakes.

Conversely, over-celebrating winners and overconfidence can be just as bad. We must be humble and remember many top performing stocks could have been picked just as easily with a pin!

How do you know when you have found a stock that you want to invest in?

I like to hear directly from the management. Candidness and lack of hyperbole are key attributes I look for, as the thing I value most is hearing a balanced view of a business – this means the bad and the good.

My ideal is a business with a valuable franchise which can sustain the business over many years. Typically, I ask simple questions – how likely will the business be here in three-to-five years’ time, and how likely is it to be more valuable than today? I favour simple over complex businesses as it’s very difficult to work out if a business is sustainable.

Knowing why I don’t want to be invested in a stock is just as important. For example, we exited our position in Vocus in 2016 immediately on learning a major shareholder had sold a substantial portion of their holding. Perhaps I acted on the work we had done on Vocus in the past, but it was the right decision.

Do you think that CSL can get to $250?

I think CSL has a very good chance of breaking the $250 mark.

The company’s near-term operating metrics are strong. Notably, CSL’s immunoglobulin business is benefiting from significant US plasma collection footprint investments made by management in the preceding years. CSL’s improved market position comes at a time when product demand is strong and competitors are somewhat constrained to keep pace with supply.

Nevertheless, it’s always useful to get an absolute return perspective. The stock is trading at 34 times 2019-20 earnings, not cheap, and suggests CSL must maintain a strong earnings growth profile to justify its premium P/E ratio. It’s possible the market could underestimate CSL’s earnings potential via further price increases, and the strong pipeline of new specialty products.

What’s your view on the mini-rotation into value?

Rotations happen occasionally as specific ‘style’ or sector valuations ‘blow out’ relative to historical ranges. The rotation we experienced in September is one of those episodes, triggered by an over-extended bond yield, on the downside.

Whether this marks a market leadership change from growth to value as a style is the question.

Do you feel more positive about buying stocks aligned to the domestic economy?

Yes I do. The signs are always tentative in any recovery. But the property market looks to have bottomed, the recent unwinding by APRA and interest rate cuts should be supportive of the economy.Advertisement

Looking ahead into 2020, should there be a pull through in fiscal stimulus, the prospect of activity and wage growth should also be broadly positive.

We’re always looking for new TV shows to stream. What’s caught your eye?

Unabomber, starring Sam Worthington as a FBI profiler working to catch an anonymous bomber who lived like a recluse in the mountains of Montana and built untraceable bombs.

Finally, a recommendation for the readers on a good value quick bite in Melbourne?

Journal Canteen on Flinders Lane. Limited menu but offers home-style Italian food that hits all the right buttons in a great location.

Reporter – Sarah Turner
Sep 25, 2019 – 9.03am


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