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Stefan Angelini is Joined by Matt Williams of Airlie Funds Management to discuss investing into Australian Shares / Stocks. Matt has over 20 years industry experience, he entered investment management in 1993 when he joined Perpetual Investments as an equities dealer. From there Matt progressed to be an equities analyst and portfolio manager. From 2011 to 2015, Matt was Head of Equities at Perpetual. Since joining Airlie in July 2016 Matt has managed Australian share strategies for institutional clients.
Stefan Angelini
Good day everyone welcome to another episode of Investor Types what we're talking about today is we're going to deep dive into investing into Australian equities but more or less
buying into the names of companies you love and we're lucky enough to be sitting down with Matt Williams a 24-year veteran into investing into Aussie equities Matt thanks for coming on mate
Matt Williams
Thanks Stefan
Stefan Angelini
Matt could you tell us a bit about your journey in investing into Australian equities in your experiences
Matt Williams
Yeah so I started in the early 90s basically fell into the into the industry and realized they
absolutely loved it loved the variety loved loved looking at companies and using your brain and it's a you know it's a real mental challenge and an intellectual challenge and there's a there's a bit of science obviously involved in investing but but you can't be a good bit of art and psychology is thrown in there well so as well so it's a it's a fascinating it's a fascinating industry and I've been very lucky very privileged I think to be part of it over the last 24 years
Stefan Angelini
Now you're running a portfolio Airlie funds management and focusing mainly on investing
into mid to large cap companies that's the it's more or less than names at a lot of Australian people know within Australia you said that
Matt Williams
Yeah yeah generally so it's the Airlie Australian share fund that myself and co-manager
Emma Fisher are running here at Airlie and it's you know look we're pretty pretty conservative and this is a real kind of core funders it's a it's a fund that's not going to you know blow the lights out in terms of you know taking big bets that may or may not work it's basically a core fund it's a great fund for having for the long term for savings and you just we're just going to try and own the best businesses in Australia at any given point and we it's a quite a concentrated fund we're gonna have it with 25 stocks we're going to be mostly fully invested we're not going to run on time the market so much you know our cash limit is about 10% so we just want to own good stocks and own them for the long for the medium to long term
Stefan Angelini
They say it was really something other day they say those who have tried the time the market have normally lost and that's why many people don't try and time the market anymore it's just all that once you focus on long-term you generally become a winner
Matt Williams
Generally that's right I think some people are good at it
Stefan Angelini
Yeah
Matt Williams
But I think the Australian market is such that I think on a global basis it's it can it's a much easy kind of thing to time but Australia I think is is a bit different so you know we prefer to take that off the table and a good companies and you we've all seen those stats right you know about you know if you've missed the 20 best days or the 30 best days in the market over a period of five years you've missed a lot of the return and I find those stats fascinating because it is it just shows you just how hard it is to try and jump in and out of the market with the whims of sentiment
Stefan Angelini
100% so let's look at some of the volatility that happens in markets and more or less so we're filming this in July 2020 and there was the the day of Covid really hit on the 23rd of March 2020 when the ASX200 was out of 4500 points fell from the top of around about 7100 now for those of you who don't know out there be ASX200 that's essentially the Australian index or a measurement of Australia's largest 200 companies and it sort of gives a indication as to where the Australian markets are from stocks perspective now since that 36% drop it's risen to approximately 6,000 points which is a rise at 32% we'll look at individual companies cause I know you like to buy individual companies let's look at one of Australia's market darlings CSL went from the top of 341 down to 282 drop 17% 4 months later hasn't changed still at 282 hasn't risen a dollar look at NAB NAB dropped from $27 all the way down so nearly just below $14 dropped 48% since then has risen to about eighteen nineteen dollars risen about 34% will go further so we look at a mining company so BHP which a lot of people know went from 41 down to 25 so dropped about dropped about 15% then it's risen to 38 so risen that's a that's a 52% climb Macquarie Group Macquarie Group really got smashed during this period dropped from 151 to 72 so drop a 52% then in the next 4 months it's risen to 124 that's an increase of 72% now these are massive levels of volatility a lot of these companies some are back to power pre-covid level others are close to others are fire off but can you give us some insights from a professionals perspective what's been happening to the Australian market during Covid
Matt Williams
Yeah look it's been you know in my 24 years it's been a you know haven't seen anything like this we've seen similar you know down cycles and situations but you know this this situation is worse than the GFC and unfortunately it's really touching on so many people you know so many people's lives and businesses you know unlike the GFC where I think really it was a financial kind of financial markets real issue mostly this one is really much different and much tougher and you know it's really hard for people in the market that you know we've I don't need to probably you know lay the point you know there's been heaps written on everything that's going on it's been remarkable we know the the fastest bear market has given way to the quickest bull market leaving us in in a situation now where it's a very you know as you say well here we are back at some of these stocks at par but you'd have to look out at the operating environmentfor a lot of these stocks and say well hang on is it is the environment better or worse than pre- Covid and clearly the operating environment is worse so it's quite a tricky period for an investor and and it also goes to again to show just how you know not doing anything can sometimes be the best strategy and a lot of what we did in the fund was really due on March 23 when the market hit the bottom we were adding to our core positions positions we liked back then and not doing much else really and that's proven to be you know I think the correct correct strategy
Stefan Angelini
Yeah I think I was reading something other day with that if you were to sell it out close to
the bottom or even halfway down and you do buy back in you lose you lose so many
of your losses for the next few years and as is staff before if you're out for 20 of the up 20 of the up days in a year you're probably going to make a loss and that's just holding true investing is an emotional game especially when you start buying individual stocks and that's why I've got a lot of clients who prefer to use a manager to invest their money simply because that emotional roller-coaster can magnify your losses
Matt Williams
Yeah that is so true Stefan after I've been through you know the early 90s recession
the tech wreck of 2000 the GFC and I guess you know you'd hope I've learned something over that period and what you learn to do is you know separate your emotions and the sentiment that is out there and you know you know if you remember back to late March the sentiment was pretty absolutely dire but you've got to separate you set the sentiment from the numbers and the numbers were very attractive and telling us even though you know we put some problem probabilities around just that the likelihood of the length of the crisis and even on some of the you know more bearish scenarios the numbers were quite attractive and then obviously the central banks globally around the world stepped in at that point and you know that was really the sign that they weren't going to let this develop into a full-blown financial crisis and so from then it's been it's been a one-way or one-way rocket ship upwards
Stefan Angelini
Yeah what history tells us is that after huge periods of government stimulus after big injections of government stimulus markets rally and markets rally hard and we've never seen any sort of government stimulus like we're seeing right now for businesses for individuals so look what's hopefully it gets back to where it was and the world returns normal but what's happening right now so a lot of people jump on the bandwagon so they see a stock going up I see something the market going up and I go I need to get involved FOMO don't want to miss out wanna make sure I get involved but where are you seeing valuations and how important is it to do you think to value a business and buying in a good valuation as opposed to just buying in because it's going up
Matt Williams
Yeah look I think you're separating their speculation from investing and speculation is fun you know it can be found and particularly in markets where it just seems to be going one way as it is now but you know one of the great sayings about the market is that it's a it's a great mechanism for transferring money from the impatient to the patient and we like to try and be patient and buy things that we that we can value and can understand but there's no doubt given the given the the outlook valuations seem you know don't seem you know we're struggling to find super attractive opportunities I guess is I guess is what we're saying you know the winners out of this crisis coming you know in the bull market out of the crisis have been you know obviously the tech the tech names particularly the buy now pay later stocks the Staples, you know Kohls, Woolworths even Wesfarmers you throw in there and then the mining companies they've been they've been the real winners so far coming out out of the crisis and I think the laggards sort of the more economic sensitive companies building materials some retailers that you know really struggling and obviously the you know some consumer discretionary companies travel travel companies you know those those companies have been the losers
Stefan Angelini
So when we talk about postcodes do you think these companies that you've just spoken about you know those consumer discretionary there's building materials do you think they'll recover as hard or do you feel that those those businesses detect the buy now pay later schemes those sorts of things do you think they're the real winners over time
Matt Williams
I look at time to say I think post-Covid so let's say Covid is no longer a issue there's a vaccine or you know people feel that we're on top of this and it's you know things open up fully then look my number one pick my number one stock for that period is Qantas I think it's the most leveraged to a post-Covid environment where we all start traveling again you know international travel opens up people you know they're they're desperate to go on an overseas holiday so that's my number one sort of pick and we hold that in the funders sort of their you know as as part as a portfolio structure view that we need something that if indeed tomorrow vaccine is looks more closer than than it does you know right now then that is the stock to own and we're happy to own that and they've raised money recently so the balance sheet you know it's looking it's looking good it's just the length of time I guess between between something happening and in how long these companies have got to operate in a more tougher environment
Stefan Angelini
This is thing and investing into stocks it's it's a waiting game it's it's a long-term approach trying to get in and out really fast it doesn't generally work for people if you're going to take that approach I tried to do it when I was younger when I was in my late teens I thought I could be a day trader I don't think ended up losing money and paying a heap of tax which I didn't love but then you look at alright well what makes you how long do you normally hold a stock for what's your view so if you're buying say that Qantas that you spoke a bit how long do you want to hold for or any businesses in your portfolio
Matt Williams
Yeah look it depends on the stock itself but there's been stocks where I've owned in my portfolios over my career for 20 years one in particular being Reece the plumbing wholesale company you know it's a it's a it was the first company I was given as a young analyst to look at and so it's just held a special sort of place for me and the fact that it's been an absolute you know cracking investment
Stefan Angelini
Yeah
Matt Williams
Over 25 years is obviously why it's still in the in the portfolio so and then this company like Nick Scali that IPO in 2003 I've owned from since they're almost you know off and on but mostly on for that period Mineral Resources the IPO it in 2006 it's been in my portfolios again off and on but mostly on since since then Premier Investments you know this the Salomon retail vehicle that's been in the portfolio for I don't know 20 years on I'd probably has it a guess so and it's interesting like the common denominator among all those stocks is that they are you know family-run or you know or found out found a run or founder owned
Stefan Angelini
Yep
Matt Williams
So that's interesting I think you know I think you if you if you find a company that's run by someone who's got massive skin in the game and when I say skin in the game like I own a lot of the company and they take a they take the right long-term decisions you look at the Wilson family who've run Reece they've just made we know after winner of decisions over the last 25 years
Stefan Angelini
Well they're stake 70 70% of the company
Matt Williams
They own about 68
Stefan Angelini
68 and they've recently launched into the states as well so taken that plunge to now into the day if they if they make these investments to go offshore or to change the main structure of the business they're risking their own money and no one likes to lose their own money
Matt Williams
Yeah
Stefan Angelini
Yeah
Matt Williams
So those kind of stuff those kind of stocks have have been with me for a long time but then
there's others where yeah look it depends on what the circumstances of your investment thesis is they might be in for a year or something it depends on how on how things go also you make you make a decision you buy a company you've realized you know hopefully you realize quickly if you've made a mistake and you exit you know I think that's a that's a real skill of investing that has taken me a long time to to to get on top of I've still not on top of it really but
Stefan Angelini
Yeap
Matt Williams
Yeah yeah yeah I'm better than I then I was so that's the so yeah how long you hold a stock for it it really depends but hopefully when you're buy stock you're thinking at least a two to three year investment
Stefan Angelini
Yeah and you look at so CSL which got that I think $4 in the early 90s rose rose rose rose and 4 5 years ago it was at 150 and you think well this thing has gone so far so fast do you sell and if you don't need to sell and you believe in a company why sell and then it gets up to 280 bucks and you sitting there gone well that was a roller coaster this is exciting and you just if you believe in something you don't need to sell it then again that that's investing holding on to something for the long-term hoping it really wins what when you invest in the stock though so it's it's you can you can do what you might say and you can follow what what some experts say but a lot of people like to go deeper a lot of people talk about you know what what financial what financials do you read what do you really look into you know you've got a really a four stage approach when it comes to picking certain companies you love so you like to focus on four
string four things financial strength management the business quality and also the valuation now what makes you pick those 4 things when you look into buying a company
Matt Williams
Yeah this is that's the process we've looked at those 4 things since the early 90s when
myself and colleague John Sevior and founder David we started investing together so look we try and keep it simple and those four things we found that have kept us basically on the on the straight and narrow
Stefan Angelini
Yeah
Matt Williams
It's it's really to help you when when there's big fads in the market you know think back to the tech crisis or think think to all the leverage businesses the asset traders in before the GFC you know the Babcock and Browns and those kind of things it's basically a process to keep us on the straight and narrow
Stefan Angelini
Yeap
Matt Williams
During times of extreme and so it's not to really not to blow up the portfolio at any at any point so financial strength for us is a key you know we just we just think that you can sleep at night no matter what happens look the last ten years since the GFC financial strength in a company hasn't really mattered but suddenly three months ago it matters big-time
Stefan Angelini
Yes
Matt Williams
And so it's those periods where that that test really really comes into the fall the rest of the tests really really what we're trying to do is find something unique in the business why do we own this what's why will this business succeed in maybe in a competitive industry where others weren't and so we're basically looking for something unique and an example would be Wesfarmer who own Bunnings right I think Bunnings is a very unique business it's basically got that hardware market sewn up you know it's it's a fantastic business it's just so good the returns on capital it's I'm resisting the word dominant or monopoly or anything like that but it is it's a strong business let's just say that I think it's a very strong business and then I look at something like a mineral resources and people say our mining service is terrible you know it's been a graveyard for investors but my knee but mineral resources has a unique mining services proposition where it's much more a sustainable earning stream as if as opposed to the typical mining services company and so we're looking for we're looking for something unique within the be you know within these businesses that we can we can go well this is how value will be created over time and that's what the other tests really really are about and sometimes the uniqueness is of just a really good strong management team you know and I'll go back again to sort of Nick Scali selling furniture you know that is a competitive industry you know if not one of the most competitive but because of Anthony Scali the CEO he's his unique style he's he's growing up growing up in the business you know that is the unique proposition for that company and it's been a fantastic investment for nearly 20 years so that's what we that's what we're looking for we're trying to identify that uniqueness in the company
Stefan Angelini
One thing that so important as you just said the management management it's so hard for an individual like myself to assess the management and when you don't sit there and sit down with them look them in the eye but understand their background as well and and even when it comes to board levels you know the clash of personalities I've seen some businesses who have merged into other companies and then tried to on board their board members and they don't get along with the existing board members and things can really fall apart I think it's sitting it's a crucial part of investing understand how businesses run who runs it and but I want to move on to something else something I'll get us all the time all right the two main pillars when it comes to investing into Australian stocks people invest with dividends some people invest for growth dividends versus growth what do you prefer
Matt Williams
Yes so you know in a 25 stock portfolio that we run it and in Australia where you know unfortunately there's not the the choice of growth that you can get particularly say in the US market so it's got to be a mix of both you've got mature companies that you want to just pay out the cash and pay a good dividend a good Frank dividend and that's all you want them to do really I think so many Australian companies have have blown themselves up by not being satisfied with that sort of that sort of mission it's not exciting enough for them and so they they go and do these big projects or go and acquire offshore or something something and I don't have the skill to do that but look I look if I had if you if you had a choice between and this is this in the example of you CSL you know CSL back at 120 dollars at the time they forward dividend yield was around you know high ones maybe 2% versus Telstra at the time where the dividend yield was 6%
Stefan Angelini
Yep
Matt Williams
Now I don't know about you but give me CSL at 120 bucks yielding low versus Telstra yielding high you know I'll take to see sell any day of the week so I think that's the you know that's where my foot is in definitely in that camp
Stefan Angelini
Cause dividend yield stays if they stay the same and the share price doubles essentially you're getting double the amount of dividend that you were getting when you bought it
Matt Williams
That's right you're looking for dividend growth you know that's the that's what you really like is growth
Stefan Angelini
Yeap
Matt Williams
Dividend growth and sustain you know if it's if it's there's something behind it it's not just they it's not just a flash in the pan or a cyclical uplift but there's something behind it yeah you take that investment any day of the week over just a steady run-of-the-mill dividend pay
Stefan Angelini
I like that so don't look at something that's paying the big percentage just because it's flashing lights typically they're not reinvesting back into the company well enough if you can find something that's paying a decent dividend with good growth potential your dividends gonna grow with the company and your underlying well it's gonna grow as well look perfect and but so Matt it's been a real interesting conversation the main the main point of this conversation is to help people understand well if they wanted to jump into Australian stocks an Australia investments let's say you've got to someone who's a property investor or a property lover out there and they go I want to start investing into Aussie stocks can you tell me what would be their personality type what would you say to them what advice would you give them
Matt Williams
Well you know it's interesting time in the market right now because there's so many speculators you know we've seen all the date you know the the Robin Hood traders in the US and
Stefan Angelini
Yeah
Matt Williams
The the lucky people who have invested in Afterpay just in the last few months you know in
the low and have risen at all you know rode it all the way up to $70 and so people feel yeah there's the FOMO aspect and go I should be getting a piece of that and look at that is fun speculation is fun and people learn their lessons but I'll go back to the point that you know actually investing is a bit boring really because once you find something in and indeed you own it sitting on your hands is it can be quite dull but it takes discipline you've just got to you've got to be able to do that and again I go to my great saying which I love is that you know the over time the stock market is a mechanism for for transferring wealth from impatient people to patient people and so when all these day traders and speculators you know get washed out of the market which it usually happens that you know it this you know it's in a cycle then that money goes to the goes to the patient investors and they're now you know people speculators kick the can you know you are there you know this is stupid that market you know the markets are you know ridiculous and I've lost my money but really you know the market is not about that it's about investing for the medium and and longer-term which is actually sometimes pretty boring
Stefan Angelini
Yeah well you look at a lot of the people that have made their wealth around the world around Australia it's the people that have been willing to take their time to say look it's a long term approach happy to sit here happy to do so that let the market do what it's got to do and I couldn't agree with you anymore Matt so in saying that look I want to say thank you for imparting some of your knowledge are on me and all the people watching been really insightful thank you so much so ladies and gentlemen if you're thinking about investing into names you love into names you really know this is part of conversation for you Matt 24 years of experience mate thanks for taking the time today I really appreciate it
Matt Williams
Thanks Stefan
Stefan Angelini
Now for those of you out there if you've got any questions feel free to comment on the video otherwise feel free to reach out to me [email protected] and I'll get back to you when we can alright Matt take care mate
Matt Williams
Thanks bye
Stefan Angelini
Bye