Ask A Fund Manager
Looking back
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?
KH: I've been doing it long enough, and I've had a couple of stocks go to zero. And those are really annoying, and they do hit the portfolio.
But I actually think, when you go back, the biggest losses are actually the opportunity cost, where you don't see… When something goes to zero, you see the basis points, you can do the attribution report, and you can say, "I lost that many basis points on it".
Actually, the ones that you lose more on are the ones that you sell too early.
So we invested in WiseTech Global Ltd (ASX: WTC) pre-IPO. And then topped up a lot in the IPO. And there was a lot of debate at the IPO about whether the IPO was being priced too high or too low, but it was in the $3s and the stock is now in the $50s. So I'm glad that I didn't sell out my WiseTech because it got to $10 and was too expensive. I think it's really understanding those longer-term.
Now, there have been stocks like that, wonderful stocks that we bought into the IPO and then felt like they'd run too hard and said, "Okay, that's enough". Something like Netwealth Group Ltd (ASX: NWL) — sold that one a bit too early and it's just gone from strength to strength. Magellan Financial Group Ltd (ASX: MFG) I owned in the very early days, and got to where I thought it had gone too far — and it went from strength to strength.
So those are the ones I think they actually cost you more money, when you don't let those really quality business models compound and reinvest — when you don't let those run.
Now, a lot of them, they do get to maturity. One of the largest contributors over the fund was A2 Milk Company Ltd (ASX: A2M) — I owned it from its listing in Australia. Fortunately, we called that one really well, where we looked at the A2 price and the market share of the China infant formula market that was implied in that market in that price, and we felt that it was implying something like 15%.
And at that point, no brands had got beyond 12%. And we just thought the odds were against the Aussie battler, particularly when you knew there was going to be competition coming in because their IP protection was maturing.
So you can always look back and say, "Oh, I wish I'd held that one longer", but then you always have names where you held it too long and it rolls over, too.
What is that Buffet quote? It's simple, but not easy.
I'm fortunate in that I have a talented analyst team here locally who are doing the detailed work and refreshing the valuation. And then we tap into a global team of our portfolio managers and analysts all around the world, which lets us do due diligence and really tap into competitive threats.
A lot of our work on A2 was informed by our colleagues sitting in Shanghai and talking to them: "What do you think is the likelihood that A2 is going to get to 15%?". And we can have those conversations. That's a real benefit that we have in trying to [decide], "Are we going to sell too early? Are we going to sell too late?"
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