About 18 months into the worst global financial crisis since the Great Depression, finance industry experts reveal their personal holdings and disclose the reasons behind their investment decisions.
It seems that the bigwig finance investors share a common theme – they are active, decisive and confident after doing the research. Hesitation is for others. They like investing their own cash in companies where senior executives also hold a sizeable stake. It says something about the company’s outlook.
Financial planner and investment adviser Gerard O’Shaughnessy reflects on buying Rio Tinto for $83 a share before selling it for $130 at its near peak last year. O’Shaughnessy says lingering doubts about a successful takeover of Rio Tinto was behind his decision to sell the miner. “I didn’t see a lot of upside in Rio without the BHP Billiton bid,” O’Shaughnessy, of Carroll, Pike & Piercy says. “I thought the Rio stock would plummet if the BHP offer fell through, so I decided to sell. It’s important to take your profits.”
Also vitally important is asset allocation, O’Shaughnessy stresses. His self-managed super fund, family trust and personal investment portfolio include shares, fixed interest, cash and commercial property. He likes diversification. His commercial property via a private equity trust is off its highs and retreating in a slowing market. He says he’s happy to hold and accept a good yield while waiting for a market recovery.
His share portfolio includes National Australia Bank, Commonwealth Bank, Westpac, BHP Billiton, Woodside Petroleum, Platinum Asset Management, Australian Foundation Investment Company, Oil Search, Wesfarmers and Telstra. He says he eagerly participated in company capital raisings because they provided a terrific opportunity to buy quality stocks at deeply discounted prices. Woodside Petroleum was also good buying at low $30 levels as it offers quality oil and gas projects and exposure to rising crude oil prices in the medium-to-long term.
“You don’t have to go beyond the major stocks to get good value,” O’Shaughnessy says. “I’m looking at buying Woolworths because it looks cheap on long-term fundamentals, has proven management and holds a dominant market position.” United Group is also on O’Shaughnessy’s investment radar as the diversified company has government and infrastructure contacts as part of a full order book going forward. The Melbourne home owner and father of three adult children says he is reducing his cash reserves in a low interest rate environment. Cash will lose its value with higher inflation.
But one who is topping up his cash reserves is Gavin Wendt, a resources analyst at stock market research house, Fat Prophets. The father of two children has established a separate bank account solely to cover future education expenses. In this regard, it’s the preservation of capital rather than the return on capital. Not that he isn’t a keen investor – his share portfolio includes Rio Tinto (“I like to have a big miner”), West Australian Metals, Bandanna Energy, Territory Resources and Argo Exploration. “I like to identify value before stocks become household names,” he says.
Wendt says the principal asset of West Australian Metals is a uranium project in Namibia. He says: “It’s trying to be the next Paladin Energy.” Wendt says the newly appointed non-executive chairman Graham Woolford showed confidence in his company after recently buying $525,000 of West Australian Metals shares. Wendt says Bandanna Energy is sitting on big coal reserves in Queensland’s Surat Basin and is destined to become a producer, while Territory Resources exports iron ore to China and is a potential takeover target. “There’s always the prospect of corporate activity in the iron ore space,” he says. Argo Exploration is a South Australian gold, copper and uranium explorer with reasonably good discovery prospects.
Wendt considers himself a long-term investor as opposed to a trader. “I back my judgment with patience,” he says. Today’s sharemarket offers plenty of long-term opportunities, but Wendt expects short-term pull-backs on the mere hint of any bad news, particularly among the big companies. Wendt says Sydney real estate has been a good long term investment. The value of his family home in Abbotsford, about 10km west of the central business district, has more than doubled in the past 10 years.
Stockbroker Alex Beer’s equity holdings include Clough, Structural Systems, Essa Australia and Minara Resources. They are held in his self-managed super fund that’s constantly changing during the global financial crisis. His super fund’s cash component grew after selling building materials and sugar company CSR in May last year on news a slowing economy would be bad for the residential housing sector. About the same time, he also sold engineering services group Downer EDI because he believed it was over valued. “I made a small loss on CSR and a good profit on Downer,” Beer, of State One Stockbroking, says. His super fund also holds a direct investment in an “income-producing” commercial property.
Nickel producer Minara Resources is also in Beer’s personal portfolio, but the only one at this time. He participated in the company’s capital raising late last year, believing it offered good value at 30c a share, as Swiss company Glencore, which holds a major stake in Minara Resources, underwrote it. “And when directors buy their own company’s shares, it’s a vote of confidence,” Beer says. Minara’s share price has since climbed above 60c in line with an improving nickel price.
The Perth-based stockbroker says he looks to buy “simple, established and proven stocks, with strong cash flows and low debt levels”. “I’m looking to generate a high return on equity,” Beer says. “I don’t necessarily stay in the top 100 (stocks); I don’t mind buying small companies if I’m satisfied with the asset quality and management.”
The 29-year-old Beer says his next investment will probably be a residential property to escape the rental grind. “But I will always have some cash on the side,” he says. “You need liquidity to go after the next best thing.”
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