Many ‘mum and dad’ or retail investors like to look to see what shares some of Australia’s most prominent professional fund managers are buying in the hope of finding investment ideas or even turning a few bucks profit themselves over time.
That’s fair enough as the professionals should be doing the most in-depth research and often have the advantage of being able to meet with company management teams to get an even better read on the likely direction of the business.
One prominent fundie in the media is Steve Johnson of Forager Funds Management that runs an ASX-focused equity fund.
Forager is a ‘value investor’ which traditionally describes an investment style popularised by U.S. academic and investment guru Ben Graham who even taught the ‘world’s most successful investor’ in Warren Buffett.
Graham essentially taught that professional investors should value stocks and then look to buy them at a discount or with a “margin of safety” to their exchange traded price as that would offer the surest chance of positive returns.
Value investing also traditionally favours buying “cheap” stocks, rather than “growth” stocks, where it’s harder, inter alia, to find a margin of safety.
Unfortunately though traditional “value investing” on the ASX has proven tough going for many professional fund managers on the ASX over the last few years with the likes of Forager and Perpetual Limited (ASX: PPT) failing to beat the market.
For example the Forager Australian Share Fund has returned 6.16%pa (net of fees) over the last 3 years (as at its January 2019 report) while the benchmark S&P All Ords. Accum. Index has returned 10.01%pa.
In fairness though “since inception” the Forager Australian Share Fund is around 3.7% ahead of the index.
So let’s take a look at its top 5 ASX share holdings as at January 2019.
- Macmahon Holdings Limited (ASX: MAH) is a mining and engineering services business forecasting “adjusted” full year EBIT between $70 million to $80 million, with net debt between $25 million to $30 million. The stock is flat over the past year.
- iSelect Ltd (ASX: ISU) saw its H1 FY 18 revenue fall 8% to $74.3m and produced an interim statutory net loss of $6.9 million.
- Enero Group Ltd (ASX: ENO) is a digital media and public relations aggregator that just reported a half year profit of $6m on revenue of $108m.
- Thorn Group Ltd (ASX: TGG) is expecting a full year loss of $6m. The equipment leasing and lending group has seen shares fall steadily since 2015.
- MMA Offshore Limited (ASX: MRM) just reported a half-year normalised loss of $14.6 million on revenue of $119.5 million. It provides offshore engineering services, the stock has gone from $2.18 in March 2014 to 16 cents today.
The surest way to make money in the share market is to charge others to manage their money, failing that you can either manage your own money, or pay others to manage it.
I’d suggest learning to manage your own money and appreciating that in the share market today growth and value are indivisible, while share prices over the medium term will always follow cash flows higher or lower.
Therefore, I’d suggest investors look to companies likely to consistently grow earnings while selling for reasonable valuations.