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Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Chester Asset Management portfolio manager Rob Tucker recalls how painful long-term investing can be, but why it's worth sticking to it.
The ASX share for a comfortable night's sleep
The Motley Fool: If the market closed tomorrow for four years, which stock would you want to hold?
Rob Tucker: When I think about those sorts of questions, I do think about pricing power — when a company can raise prices without impacting customer engagement.
I would say CSL Limited (ASX: CSL) has those attributes. It would be CSL or the Lottery Corporation Ltd (ASX: TLC) for me.
MF: Do you hold Lottery Corp?
RT: We do, yep. Since they've de-merged, they've shown a really strong ability to tweak prices with Powerball and some of the other games. It's certainly one that's got margin expansion through the ability to sell digital tickets, and some pricing levers. I like the Lottery Corp.
There is probably a five-year wait in terms of the Victorian licence, so that's a near-term potential obstacle. That's why I'd err on the side of saying CSL on the five-year yields and I'd hold if the market was closed.
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.
RT: One thing we've done occasionally with our fund, in the cyclical space, we'll value the asset in the ground and come up with a net asset value. That's how we value the company. Sometimes we've been a little early in the strategic merit of that asset base. Sometimes we have to be very patient and [cop] a fair bit of drawdown on individual stocks because we've been a bit early.
I'll use a stock like Comet Ridge Ltd (ASX: COI) [as an example]. Comet Ridge we bought in 2018 on the premise that it is a large gas discovery in the Bowen Basin and at some point that asset will be the next cab off the rank in terms of production. They have a joint venture with Santos Ltd (ASX: STO) for half of it, and 100% owned the other half.
Comet Ridge has been a painful stock for us, but as we sit here today five years later, we're really excited about what happens the next two years, because it is absolutely still a gas resource in the middle of Queensland that's going to be desperately needed to help solve the East Coast gas crisis.
That's an example of one I've still got high conviction in, but I've been wrong for four years basically.
MF: That would be painful, especially for professional investors like yourselves, because you have to report performance periodically. Even if you have high conviction for a long time, it's a tricky balance, isn't it?
RT: Yep. And smaller caps tend to have more volatility.
Large caps, if something changed fundamentally with CSL, our fund's of the size we could change our mind in the first two hours. With a small cap, you've got to be really vigilant and very, very detailed in why you're holding those interested companies. And they can move aggressively against you.
The other point is just sometimes getting the portfolio weights wrong. Sometimes some of your best ideas, you've only got a 2% position and you wish it was a 4% position. Sometimes you've got a 4% position you wish was only a 1% position.
When they're going down, you want less of them, when they're going up you want more of them.
It's always getting the portfolio weight right is as much a challenge in portfolio management [as] getting the right stocks.
