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Daniel Moore is co-portfolio manager of the Australian shares fund at IML in Sydney.
What impressed or concerned you in this reporting season? Any surprises?
It’s fair to say the reporting season was mixed, with roughly a third of results beating expectations and about a third in line. What surprised me was the resilience of the consumer. We saw several consumer discretionary retailers deliver results that were better than expected. Monetary policy always operates with a lag, but during this cycle the lag has been particularly pronounced. The banks are also faring well, with arrears remaining near historic lows, despite fears of a bad debt cycle.
Without a US tech rally driving gains, Australia’s sharemarket has posted a middling performance this year. Where are you investing?
Economic conditions look challenging at the moment due to sticky inflation and higher interest rates. However, there are some businesses which are indirect beneficiaries of higher interest rates
These are typically the larger, more established companies which struggled when interest rates were close to zero and cheap funding was plentiful. These companies struggled due to new competition or suffered from competitors adding capacity with low-cost debt.
With interest rates rising and venture capital drying up, the competitive environment for some companies has improved drastically. The smaller players must either exit the market, or focus on profitability, usually by implementing a more rational approach to pricing. We’re also seeing a more rational approach to capacity expansions, assisting margins outlook. This is creating buying opportunities for us in telcos, as well as pallet, insurance, explosives, and refining companies.
What piece of advice or anecdote helped inform your approach to investing?
While many investors are focused on finding their next big winner, the best advice I have been given is to focus just as much on avoiding losers. This is the key to successful investing over the long term and is true for many other disciplines, including sport.
Novak Djokovic is probably the greatest of all time of tennis. What makes him the GOAT is he makes fewer mistakes. While the number of winners he hits is typically around 20 per cent better than his opponents. What is more striking, however, is his unforced error count, which is close to 40 per cent better. This balance has been the key to his enduring success.
Our experience with investing is that a similarly balanced approach focusing both on risk and return delivers much better outcomes.
This is an extract from an article written by Joshua Peach for Australian Financial Review, published on 28th September 2023.
Read the full article below:
Read the full story: What Djokovic taught this fund manager about investing- Australian Financial Review
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