Ask A Fund Manager
The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part 1 of our interview, Hyperion Asset Management lead portfolio manager Jason Orthman explained why Tesla shares are still cheap. Now in part 2, he tells us the ASX stock purchase that he’s most proud of and the travel company that bit him.
MF: If the market closed tomorrow for 5 years, which stock would you want to hold?
We really like its culture in terms of how relentless they are, how they continually want to improve their product, improve their offering, focused on the consumer continually. It’s very hard to compete against.
There’s a lot of optionality in that business. It’s still very early, if you think of the transition to digital advertising, the transition to cloud [computing], the transition from physical retail into e-commerce. They’re all multi-trillion dollar opportunities. And Amazon’s still really early in it, despite its dominance.
[Regarding] the regulatory issues… our research suggests the risks around that are actually relatively low. So something like Amazon, if you woke up in 5 years’ time, I think you’d do pretty well.
MF: What did you think of Jeff Bezos stepping down as chief executive?
JO: The fact that he’d been driving that business for 20, 25 years means the culture’s really embedded. Even if you go and visit an outpost, [like] some of their offices here in Australia, that same culture and core values are embedded as they would be in the head office in Seattle. Being founder-led for all that period of time, he really embedded those values in the business.
The business is now bigger than Jeff Bezos, and he’d been stepping back from day-to-day management for a number of years. So that focus on, again, the product, the consumer, innovation, that’s going to continue on as is.
We took that in its stride. If it happened 10 years earlier, that would’ve been a concern. But happening now, I think they’d be absolutely fine.
MF: Have you held Amazon for a long time?
JO: The fund will be 7 years [old] on the 1st of June. And it’s been in that fund for most of that journey, not from day one, but for most of that journey. We would’ve held that comfortably over 5 years.
MF: Which stock are you most proud of from a past purchase?
JO: Tesla’s a really good one. There wasn’t a lot of need for us to make that investment. As I said, we watched that for 5 years before we purchased it.
The amount of controversy, misinformation, level of shorting on that stock was extreme. So to go ahead and still purchase that and seek out 6 or 7 times [return] is pretty pleasing.
Closer to home, Domino’s Pizza Enterprises Ltd (ASX: DMP), [which] we still own in our Australian products, and we did own it in the global equities fund at one stage.
It went through the mainstream media through 2017 – there were question marks over the sustainability of its business model. We believed that that was a false narrative – the underlying economics of that business was strong.
There was no need to have underpayments through that system. Franchising is a tough business, so you’re always going to have pockets of that. But we believe that the underlying economics were there, the management team was really strong, and our market research suggested the system is really robust.
So [we were proud] to buy that stock when there was a lot of negative media through the traditional papers and TV. As far as we’re aware, we’re the only large institutional fund manager that actually purchased stock through that period.
And it’s gone from $40 to over $100 today. We’re pretty proud of that because it was a long consensus call and went against everything that was being spoken about in the market and the media.
MF: Is there a move that you regret from the past? For example, a missed opportunity or buying a stock at the wrong timing or price.
JO: Yeah, it was purchasing Tripadvisor Inc (NASDAQ: TRIP). We’ve put it down as one of the mistakes that we’ve made on this journey.
Our research didn’t pick up how sticky consumer behaviour was and how strong the competitive offerings were. And we compounded that error, not only buying Tripadvisor but selling out of Priceline, which is now called Booking Holdings Inc (NASDAQ: BKNG).
We thought Tripadvisor could disrupt those traditional booking engines. It took us about two quarters to realise our research was incorrect, and we exited. And that saved our investors a lot of money. We lost money on that investment, but we didn’t experience the significant downside that those that have held onto that business had.
So there are some learnings we took out of it. But that experience with Tripadvisor was disappointing.
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Returns as of 15th February 2021
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Tony Yoo owns shares of Amazon. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon, Booking Holdings, Tesla, and TripAdvisor and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon, Booking Holdings, Dominos Pizza Enterprises Limited, and TripAdvisor. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.