If you are one of them, or are planning to become one, and are looking for investment ideas, then read on.

Listed below are three super ASX exchange traded funds (ETFs) that could be top picks for an SMSF. Here's what you need to know about them:

VanEck MSCI International Quality ETF (ASX: QUAL)

The first ASX ETF that could be a strong fit for an SMSF is the VanEck MSCI International Quality ETF.

This ETF focuses on high-quality global companies with strong balance sheets, consistent earnings, and high returns on capital. Rather than chasing short-term growth, it targets businesses that have proven their ability to perform across economic cycles.

Holdings include stocks such as Microsoft (NASDAQ: MSFT), Nvidia (NASDAQ: NVDA), and Visa (NYSE: V). These businesses operate at global scale and benefit from entrenched positions in their respective markets.

For an SMSF, the VanEck MSCI International Quality ETF can work as a core international holding, offering exposure to global leaders while leaning toward financial strength and durability rather than speculation.

It was recently recommended to investors by the fund manager.

Betashares Global Defence ETF (ASX: ARMR)

Another ASX ETF that may appeal to SMSF investors is the Betashares Global Defence ETF.

This fund provides exposure to global defence companies at a time when government spending in this area is increasing. Geopolitical uncertainty, regional conflicts, and heightened focus on national security have led many countries to commit to higher defence budgets over the long term.

Holdings include companies such as Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC), and RTX Corporation (NYSE: RTX). These businesses often benefit from long-dated government contracts, which can provide revenue visibility.

Overall, the Betashares Global Defence ETF offers exposure to a sector that is less tied to consumer spending and economic cycles, adding diversification to a long-term portfolio.

This fund was recommended by the team at Betashares.

Betashares Global Cash Flow Kings ETF (ASX: CFLO)

A final ASX ETF to consider for an SMSF is the Betashares Global Cash Flow Kings ETF.

This fund invests in global companies with strong and consistent free cash flow generation. This focus can be particularly attractive for retirement-focused investors, as cash flow underpins dividends, reinvestment, and balance sheet strength.

Holdings include stocks such as Alphabet (NASDAQ: GOOGL), Costco Wholesale (NASDAQ: COST), and Johnson & Johnson (NYSE: JNJ). These businesses generate significant cash while operating in industries with long-term demand.

The Betashares Global Cash Flow Kings ETF could complement growth-oriented holdings by adding exposure to companies that emphasise financial discipline and sustainable returns. It was also recently recommended by the fund manager.

The post 3 super ASX ETFs to add to your SMSF appeared first on The Motley Fool Australia.

For those with $10,000 to invest and a disdain for stock-picking, exchange-traded funds (ETFs) could be the answer.

They offer instant diversification, access to entire sectors or themes, and the ability to compound returns over time without the stress of picking individual stocks.

But which ASX ETFs could be worth considering? Let's take a look at three that could be worth considering in October:

Betashares Global Defence ETF (ASX: ARMR)

The first ASX ETF to look at is the Betashares Global Defence ETF. It gives investors exposure to some of the world's leading defence, aerospace, and cybersecurity stocks. These businesses are benefiting from rising global defence spending as nations strengthen their capabilities amid ongoing geopolitical tensions.

The fund's holdings include global defence giants such as Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC), and RTX Corporation (NYSE: RTX). These are all key suppliers of advanced defence systems and technology to the United States and allied nations.

Defence has historically been a resilient sector, often performing well even during periods of market volatility. With governments prioritising security and military modernisation in a more uncertain world, demand for high-end defence solutions is expected to keep growing. It is no wonder then that analysts at Betashares recently recommended the fund.

Betashares S&P/ASX Australian Technology ETF (ASX: ATEC)

Another ASX ETF that could be a good option for the $10,000 is the BetaShares Australian Technology ETF.

This popular fund provides exposure to some of the country's fastest growing and most innovative tech stocks. It includes many of the names driving Australia's digital transformation, such as WiseTech Global Ltd (ASX: WTC), Xero Ltd (ASX: XRO), and NextDC Ltd (ASX: NXT).

WiseTech continues to dominate global logistics software, Xero remains a leader in cloud-based accounting, and NextDC is capitalising on the surging demand for data storage and artificial intelligence.

Overall, by investing in the BetaShares S&P/ASX Australian Technology ETF, you gain exposure to Australian innovators that could deliver outsized returns as digitalisation and automation reshape the economy over the next decade. It was also recently recommended by the team at Betashares.

Betashares Australian Small Companies Select ETF (ASX: SMLL)

Finally, the Betashares Australian Small Companies Select ETF could be a top option.

It tracks the Nasdaq Australia Small Cap Select Index, which screens for small-cap shares with positive earnings, strong debt servicing ability, and solid valuations. This helps avoid the riskier, speculative stocks and instead focuses on quality growth names.

The fund generally holds between 60 and 90 stocks, allowing investors to benefit from the growth potential of Australia's next generation of corporate leaders. It is another fund that Betashares recently picked out as one to consider.

The post Where to invest $10,000 in ASX ETFs right now appeared first on The Motley Fool Australia.

Geopolitical instability is pushing governments around the world to increase their military readiness.

In June, the 32 member nations of NATO committed to raising their defence spending from 2% of GDP to 5% by 2035.

This was directly beneficial to the Betashares Global Defence ETF because it only invests in defence companies headquartered in NATO member or allied nations.

Betashares said defence was one of the 2 best-performing ETF investment themes in the second half of FY25.

What's in the ARMR ETF portfolio?

This thematic ASX exchange-traded fund (ETF) is fairly new, having only been listed in October 2024.

The ARMR ETF tracks the VettaFi Global Defence Leaders Index (before fees).

It gives investors targeted exposure to companies that derive more than 50% of their revenues from the development and manufacturing of military and defence equipment and defence technology.

The ETF currently holds 43 stocks focused on defence, with 84.7% of assets in aerospace and defence companies, 8.2% in software, and 6.5% in research and consulting services.

Its country allocation is led by the United States (59.5%), followed by France (11.5%), Germany (9.3%), Britain (8.8%), and South Korea (3.1%).

Here is a table of the top 10 holdings in the ARMR ETF and what those companies do.

What about income?

In terms of dividends, the ARMR ETF intends to pay one distribution per year.

ARMR ETF paid its maiden dividend of 53.546615 cents per unit this month.

There is a yearly management fee of 0.55%.

The post Here is what you're invested in with ARMR ETF appeared first on The Motley Fool Australia.

"Space is hard" goes the old saw among space investors. But here's a new truism you might want to memorize: Space is hard -- and it can also be weird.

Investors got their latest lesson in just how strange space investing can get late last month, when NASA revealed that it's planning a new mission to send a volunteer space mission into orbit to adjust the orbit of the Hubble Space Telescope -- and potentially extend the telescope's lifespan by another 15 to 20 years.  

Cue Elon Musk

It should surprise exactly no one to learn Elon Musk is at the center of this latest "weird space news" story. As NASA explains, the space agency has signed an agreement with SpaceX to study potentially sending a "Polaris Program" mission Crew Dragon spacecraft to Hubble, where it will dock with the telescope and use the engines on the Crew Dragon to lift Hubble to a higher orbit.  

For those not familiar with Polaris, this is the private space initiative set up by pilot, billionaire, and Shift4 Payments (NYSE: FOUR) CEO Jared Isaacman last year. Polaris was initially founded to run the Inspiration4 mission that sent four private astronauts (Isaacman captained the crew) to space for a three-day orbit of the Earth in September 2021.

It has since evolved into a multi-mission project that will launch at least three more times -- all aboard SpaceX spaceships -- and attempt to set records for the highest Earth orbit crewed mission ever flown, the first private spacewalk, and the first test of SpaceX Starlink laser-based communications from space, to space.  

Which brings us back to NASA -- and Hubble.

As NASA advised late last month, Polaris and SpaceX have proposed running a mission "at no cost to the government," aiming to potentially keep the 32-year-old Hubble Space Telescope in operation into the 2050s. Although there may be some risk in allowing private contractors to take control of the NASA satellite, the alternative is to allow Hubble's orbit to decay naturally -- in which case the spacecraft might fall back to Earth as early as 2030.  

And of course, the fact that the mission would be performed gratis for NASA just adds to the attraction.

Space volunteers

The volunteer nature of this mission, however, does raise some questions for space investors going forward. Chief among them: How are for-profit companies like Northrop Grumman, Boeing, and Lockheed Martin supposed to compete with a company like SpaceX if it's -- even only occasionally -- going to run off and do volunteer work for NASA for free?

In this particular case of the Hubble mission, of course, it wouldn't really be SpaceX volunteering its services. Rather, billionaire Isaacman -- who is hiring the SpaceX Falcon 9 rocket ship for his flight anyway -- will be picking up the tab.

But in future years, as the cost of spaceflight plummets (in and of itself a problem for space launch companies like the Boeing-Lockheed joint venture United Launch Alliance), the chance that SpaceX might do further missions for free, in order to ingratiate itself to its biggest customer, could rise.

After all, according to SpaceX, once it gets its Starship mega-rocket up and running, the cost of each launch could theoretically fall as low as $2 million -- a relative rounding error that could prompt SpaceX to do some missions for free.

And SpaceX isn't the only space company that's begun performing science missions for free. Upstart small rocket company Rocket Lab (NASDAQ: RKLB), for example, is promising to send a space probe to Venus sometime next year. With funding provided by philanthropists, MIT, and Rocket Lab's own cash, the mission could cost as little as $10 million -- or about 2% of what NASA pays private contractors to conduct similar missions.  

What it means for investors

Suffice it to say: This is not how for-profit companies ordinarily operate.

And, yes, as a space fan myself -- and as a taxpayer -- I applaud the idea of private businesses using their own capital, and supplementing it with help from philanthropists, to advance the cause of space exploration. As an investor, however, I do wonder what this might mean for for-profit aerospace companies like Boeing, Lockheed, and Northrop.

The good news is that, according to data from S&P Global Market Intelligence, these three companies in total still enjoy annual "space" revenues in excess of $30 billion, largely paid for by NASA and other big space customers. For the time being at least, there seems to be more than enough paying work to go around.

As the cost of access to space falls, however, and new rivals become unpredictably -- and illogically! -- willing to do formerly paid-for space work for free, the economics of space investing could become increasingly uncertain.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Space investing just got weirder appeared first on The Motley Fool Australia.

For many decades, the prohibitive cost of sending humans outside earth meant space travel was monopolised by the public sector.

But this is no longer the case, according to Nucleus Wealth head of investments Damien Klassen.

"For me, what is incredible is the pace of cost reductions being seen in the sector," he said on the Nucleus blog. 

"Elon Musk's SpaceX has brought the cost of launching equipment into space down by a factor of 10. And there is a realistic roadmap to bringing it down by another factor of 10."

He pointed out that only 20 years ago solar power was "a novelty", but after dramatic cost reductions, it is now transforming the energy industry.

"The question is, what sectors could be affected by a similar change? What emerging trends should we be watching today?" 

Klassen said the entry of the private sector makes the new space race very exciting.

"Plus it is an interesting hedge on the continued souring of US-China relations. If the space sector isn't at least on your radar, it should be."

How to get exposure to the space sector

There are many ways to invest in the space industry in overseas markets.

Mammoth US defence contractors, like Boeing Co (NYSE: BA) and Lockheed Martin Corporation (NYSE: LMT), are one path.

"But space investment is only a part of a very large company. And they are often not working on some of the cutting edge technology."

Klassen mentioned that there are a couple of space-themed exchange-traded funds in the US too: Procure Space ETF (NASDAQ: UFO) and ARK Space Exploration & Innovation ETF (BATS: ARKX).

But as for ASX shares, he named 4 companies.

"Electro Optic Systems Hldg Ltd (ASX: EOS) is the biggest of the crew," said Klassen.

"Brainchip Holdings Ltd (ASX: BRN), Xtek Ltd (ASX: XTE), and Kleos Space SA (ASX: KSS) round it out."

The Australian companies are small caps, so there is considerable risk compared to the much larger overseas investments.

"If you are looking for Australian stocks, then be prepared for some red ink on your P&L," Klassen said.

"You need to be comfortable with the product and see a path to profitability."

He warned investors to avoid buying "a dream".

"If there is another space race, you can expect most defence contractors to benefit. That will not be the case for smaller stocks."

Electro Optic Systems shares have lost 37% for the year, while Xtek has shaved 26% off its value. Meanwhile, Brainchip has gained 10.5% so far in 2021 and Kleos Space has returned a handsome 56.5%.

The post Want to invest in space? Here are 4 ASX shares appeared first on The Motley Fool Australia.

Two years ago, NASA put out a call for America's biggest space companies to build it a "Human Landing System" to return American astronauts to the moon. Last year three teams signed up to do just that, and NASA doled out $967 million in contracts to help Jeff Bezos' Blue Origin (in cooperation with Lockheed Martin (NYSE: LMT) and Northrop Grumman, Leidos Holdings subsidiary Dynetics, and Elon Musk's SpaceX design and build prototypes for NASA to choose from.

And this month, NASA finally picked its winner: SpaceX.

The Washington Post reports, NASA decides

In a story that you know must have just burned Jeff Bezos's biscuits, The Washington Post (which Bezos also owns) reported last week that SpaceX "beat out Jeff Bezos's Blue Origin and Dynetics" as well. For $2.9 billion, paid in installments so that it "fits within NASA's current fiscal year budget," NASA will hire SpaceX to: 

• Build a Starship spacecraft,
• Dock it with an Orion spacecraft (which will be delivered to lunar orbit by a NASA "Space Launch System" rocket),
• Take onboard two astronaut passengers,
• Land them on the moon, and then
• Bring them back up to re-board the Orion for their return to Earth.

As NASA explained, although SpaceX's Starship is still in development, the rocket's enormous capacity promises "to greatly improve scientific operations" on the moon. Perhaps even more importantly, though, SpaceX's bid "was the lowest [bid] by a wide margin." Both Leidos's bid and the bid submitted by Blue Origin, Lockheed Martin, and Northrop Grumman were described as "significantly higher" than SpaceX's price.

The reason: SpaceX was already building Starships on its own dime as part of Elon Musk's goal of colonizing Mars. Because SpaceX was willing to pay "over half of the development and test activities" costs of building a Starship itself, it was able to charge NASA much less than the other bidders. In fact, SpaceX is probably viewing the moon contract as NASA helping to pay for some of SpaceX's development costs, rather than vice versa!

What the losers said

Not everyone was thrilled with NASA's decision. After absorbing the initial shock, on Monday both Dynetics and Blue Origin filed protests with the Government Accountability Office (GAO).

In a statement to SpaceNews.com, Dynetics questioned "several aspects of the acquisition process as well as elements of NASA's technical evaluation." NASA had rated Dynetics' management "very good," but rated its bid "marginal" for technical quality, citing concerns about the Dynetics lander's weight. Additionally, it seems that Dynetics' bid was well in excess of $6 billion -- far more than NASA had budgeted for this leg of the Artemis project. 

Blue Origin bid just under $6 billion, still more than twice SpaceX's bid. Accusing NASA of running "a flawed acquisition" contest, Blue Origin alleged that the space agency "moved the goalposts at the last minute." Although it did not specify how NASA moved said goalposts, it argued that awarding only one human lander contract "eliminates opportunities for competition, significantly narrows the supply base, and ... delays [and] endangers America's return to the moon." 

From that language, it appears Blue Origin was hoping NASA would choose two winners, as initially envisioned. And seeing as it submitted a bid higher than SpaceX's but lower than Dynetics', Blue Origin would have been the logical winner of any second contract. So that's what Blue Origin will probably be asking for now -- not that GAO take away SpaceX's win, but that it demand NASA award a second contract to Blue Origin as well.

Alternatively, Blue might try to couch its bid in installment payments, as SpaceX did, so as to similarly fit "within NASA's current budget," suggested Blue Origin CEO Bob Smith in a statement to the Post. That wouldn't change the fact that Blue's bid comes in at twice SpaceX's cost, but it might give NASA the financial flexibility to award a second contract.

What comes next

Ordinarily, the twin GAO protests of SpaceX's NASA contract would draw work on the lander to a screeching halt, and keep it halted until the GAO renders a decision(s) -- which it must do within 90 days. In the current case, however, with SpaceX already building Starship prototypes on its own dime, and presumably not needing NASA's money to continue the spacecraft's development, it's likely SpaceX will continue working. 

As for the challengers, however -- Dynetics parent Leidos, and Blue Origin partners Lockheed and Northrop -- well, investors in those companies will just have to bide their time and hope for the best. GAO will wrap up its consideration of the challenges by the end of July, and once GAO has decided, NASA intends to "begin work immediately on a follow-up competition" to "provide regularly recurring services to the lunar surface that will enable these crewed missions on sustainable basis." 

Big as "$2.9 billion" sounds, it's really only the beginning of what these companies hope to earn from NASA's return to the moon.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post SpaceX will take NASA to the moon — maybe appeared first on The Motley Fool Australia.

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In this edition, Cyan Investment Management director and portfolio manager, Dean Fergie, reveals two Aussie businesses that are winning big contracts, and some ASX-listed foreign companies to avoid.

The Motley Fool: What's your fund's philosophy?

DF: Our philosophy is to find smaller, less well-known stocks that are commercially proven but not well-recognised and likely to go through a sustained growth phase for the next 3 to 5 years or more. 

We tend to avoid really speculative businesses and businesses that are mature, and look for the next ones that are up-and-coming.

MF: So is it fair to say that your investments are focused on smaller cap?

DF: Yeah. Our philosophy is that the bigger you get, the harder it is to grow at double digit-plus rates. So by definition you have to look down at the spine of the market.

COVID-19 crash 

MF: How's the fund going this year with all the volatility?

DF: The short answer is volatile. We took a lot of pain when COVID first came out and then have retraced some of that and more since that time.

MF: Did you manage to buy anything during the March dip?

DF: We bought quite a few stocks. I think we played it reasonably well. But you can probably always do a little bit better in hindsight. 

What I saw is the stocks or the funds that were really defensively positioned in March did really, really well. Then in April and May they all did relatively poorly and vice versa. 

We made some smart investment positions, but did we put all our money into that cohort of tech stocks that have done exceptionally well? No, unfortunately not.

I think more than ever it's a really important time to be diversified. Because if you've got all your stocks in a really defensive basket, or a really aggressive basket, or technology-laden, or value-based, there'll be times when you'll do incredibly well and times where you'll do incredibly poorly. And it's very uncertain when those periods are going to be. 

Buying and selling 

MF: What do you look at closely when considering buying a share?

DF: The ability to scale… Obviously that leads to technology businesses, specifically software, but also businesses that can grow organically or that are embarking on potentially a new kind of business angle that's not largely been explored already. 

We look at a lot of tech businesses, financial services, and we're quite big in education. We've dabbled quite successfully in some food businesses — one of our early investments that was successful was Bellamy's Australia Limited (ASX: BAL). Professional services as well.

MF: What triggers you to sell a share?

DF: Disappointment in terms of management execution, or potentially if there's new competitors to come into the market, or just companies [that] disappoint on an earnings front. 

If you think you're losing money on something, or if something's changed, just sell out. Take the capital loss and move into something that's more successful. That's the way we look at things.

MF: Even if the company is doing reasonably well, would you sell out because it's reached a certain target that you might have set for yourself?

DF: Yeah, there's an element of that. I guess what happens is that if you have stocks that become very successful, they become quite a large part of your portfolio. We have a hard limit of not having any one position more than 10% of our portfolio. So when you have businesses that rise exponentially, you're forced to sell them down. I think that's sensible. 

One of the beauties of stocks is that you have these incremental changes to your holdings. It's not like buying a house where you're either all in or all out. You can fine-tune your exposure to stocks relatively easily and cost-effectively. 

That's one of the great advantages of the stock market that I think a lot of investors don't really take advantage of. They want to buy everything at the bottom and sell everything at the top, and that's unrealistic. 

So we just buy more stocks at lower prices and sell more of them at higher prices, and not try and be too binomial about those decisions.

What's coming up?

MF: Where do you think the world is heading at the moment?

DF: I wouldn't be alone in saying that the broader economy has got a lot of challenges ahead. But what we're seeing in 2020 is that there's been a massive disconnect between economic outlook and the stock market. They just don't reflect each other anymore. 

A lot of that has actually been driven by incredibly low interest rates. Just emotionally, investors don't want to leave their money in any kind of defensive asset class if it's not giving them any return. 

So every opportunity where there's a market dip, they've looked at getting into the stock market. And even the biggest funds, the pension funds, and massive super funds tend to be allocating more towards equities. On top of that, you've got a massive amount of retail day traders in the market sending stocks sky high with massive volumes. 

So whilst I think the near-term economic outlook does look challenging, I don't think it's necessarily a bad thing for the stock market because even if you've got businesses that are earning 3% or 4% earnings yields and potentially 1% or 2% dividend yield fully franked, that's a better outcome, if you're prepared to take the capital risk, than leaving your money in the bank right now.

At the end of the day, that's what drives the stock market, demand versus supply.

MF: That situation you just described, do you think it's a fundamental structural change that's here to stay? Or do you think the situation will return back to "normal"?

DF: It will depend on the direction of interest rates. They clearly can't go very much lower unless they go negative and I don't think that's looking like a realistic outcome. 

I would suggest that a lot of that rotation into stocks has already happened. The All Ordinaries Index (ASX: XAO) is not back to pre-COVID highs, but it almost is. Certainly the smaller end, the Emerging Companies Index, is 10% above where it was pre-COVID. 

So you're seeing a lot of money flow back into the stock market really, really aggressively. And it almost creates its own demand. It's almost like this elastic band in that you rail against the bullishness of the stock market till it runs so far that you just give up and cave in — and go and buy stocks like everyone else. 

But there are patches of the market that look crazily overvalued.

When we saw a potential vaccine come out and all those tech stocks tumble within the space of a day, I think that was a little bit of a warning sign — a canary in the coal mine — that it just can't go on forever. 

Sooner or later, all investors are going to come back to buying things on fundamentals. 

Overrated and underrated shares

MF: What's your most underrated stock at the moment?

DF: One stock that we've held for a while and just hasn't performed like we expected is a business called Quickstep Holdings Limited (ASX: QHL), which is an advanced carbon fibre manufacturer. 

They do a lot of work for the defence force… It's capped at sort of $60 million [market capitalisation], it does about $80 million in revenue, and is moderately profitable. 

They just penned a deal to buy a maintenance division of Boeing Co (NYSE: BA), which will add to their revenue. We look at that on just basic earnings multiples and revenue multiples and think it looks really cheap. 

Then when you look at it versus a number of these other advanced manufacturers in terms of like Titomic Ltd (ASX: TTT), AML3D Ltd (ASX: AL3), and Amaero International Ltd (ASX: 3DA)… it just looks ridiculously good value. So that's one we like. 

It's been a long slog for them to get where they are now, but they've got a lot of cash on their balance sheet. Contracts with global defence force businesses like Boeing, Lockheed Martin Corporation (NYSE: LMT) and Northrop Grumman Corporation (NYSE: NOC) — I just think it looks like a no-brainer in terms of a business to buy into, but the market just hasn't recognised it yet.

Another one that's going great guns at the moment is a hospital software provider called Alcidion Group Ltd (ASX: ALC). Again, they just signed a $9 million deal with a hospital in the UK. And they've got more than 20 million bucks in recurring revenue. They're getting very close to profitability. Global rollout. Reference sites.

MF: I see that one's spiked up this month?

DF: Yeah. It hasn't really done too much in the last 6 to 12 months. Everyone got pretty excited, went from I think about 6 cents to about 30, and has sort of come back.

With a lot of stocks, they run on momentum and then they kind of lose a bit of momentum and people get bored and they want to be on the next big thing regardless of what it is. So often you need a new contract or something new to excite people about it. 

I think [Alcidion]'s one of these businesses that just hasn't been big on announcing new contracts, but they've signed some that are really, really significant for a business that size. 

And you've seen that with the success of companies such as Pro Medicus Limited (ASX: PME) and the like. When those businesses get some success, certainly overseas, they can become very, very big businesses. 

MF: What do you think is the most overrated stock at the moment?

DF: I look at businesses like these Israeli technology ones like Weebit Nano Ltd (ASX: WBT), Dotz Nano Ltd (ASX: DTZ), Audio Pixels Holdings Ltd (ASX: AKP). 

They're all speculative businesses that are doing nothing in terms of revenue, keep sucking in investor cash, and don't make money. And they've got valuations in the hundreds of millions of dollars and I'm not necessarily sure that they've got anything particularly special. 

I'd say the same thing about businesses like Titomic — [they] don't really do much and they're still capped at a couple of hundred million bucks.

MF: Do you think there's a phenomenon these days of amateur investors egging each other on in internet forums?

DF: Oh, no doubt. A lot of investors will buy stocks because they're going up. It's pure speculation, but they just want to be in something because they think it'll be worth more next week than this week, not because they understand it, not because they think they're buying it at a cheap price, just simply because it's going up. 

You look at Kogan.com Ltd (ASX: KGN), Temple & Webster Group Ltd (ASX: TPW), Adore Beauty Group Ltd (ASX: ABY) as well. They've all got good business models, but the selling product online is not necessarily a business that's got huge barriers to entry. I mean, anyone can open up a Shopify store. 

Sure, you don't have the customer base, you don't have the reputation, you don't have the buying power, but they're not businesses that I think should be trading on 6 times sales and 100 times earnings. I can't see them scaling up any time soon. 

There's a lot out there that I would be very, very wary of on a purely valuation perspective.

Looking back

MF: Which stock are you most proud of from a past purchase?

DF: Afterpay Ltd (ASX: APT) is the obvious one. 

MF: Do you still hold it?

DF: No, we sold out a while ago. 

One that we bought quite a while ago is RAIZ Invest Ltd (ASX: RZI). That one did struggle for a while. It's an online investing platform — I think they offer a really, really good product. Their app's got great functionality. 

They're getting a lot of long-term customers — more people are interested in investing. I think that's a business that's got tailwinds from the structural change that people want to think more about investing in stock markets and not leave their money in the bank. 

Secondly, it's a technology play and it's getting good growth both here and they're looking to launch overseas as well. So that's one that I think will go really well. 

But probably our two biggest winners we've ever had are Afterpay and Bellamy's and, oddly enough, we made a lot of money out of Experience Co Ltd (ASX: EXP) for a while before it kind of went really badly.

Stocks never go up and down in a straight line. And that's one where we got in early and managed to get out enough of them that we ended up getting a good return for our portfolio over a period where it went up 2 or 3 times before they… struggled a little bit.

MF: Has COVID-19 changed or altered your investment methods at all?

DF: What's happened is that investors, if you think of yourself as a traditional strong "numbers and valuation" player… then you would have left a hell of a lot of money on the table. 

I think you're naive to think that the market is just driven by valuations. It's not. It's driven by sentiment, excitement, enthusiasm, momentum, those sorts of things. And they will drive stocks much higher than might be, in your view, intrinsic value. And they can all disappear overnight. 

So you've got to appreciate that there's a lot of other drivers in the market other than pure financial fundamentals and try and kind of second guess where other investors are going to either see risk or opportunity in the market — and try and take advantage of that.

Advice for your readers is try and blend a little bit of fundamental analysis with what you see as an opportunity and excitement towards positions. 

Probably the highest profile stock float this year has been Adore Beauty because it's a mainstream business. A lot of females know about it. It's run by a female founder. It's a great news story. 

But it was, we thought… incredibly expensive. 

People I saw were saying "Oh look, you know, there's a girl… and she wants to buy shares because she thinks it's a really good company." 

You've got to put a framework of what you're buying around it. What are you getting for your money? And if you don't know that, you shouldn't really be investing because it's not that straightforward.

The post This cheap ASX share is supplying US giants: fundie appeared first on The Motley Fool Australia.

"The more stuffed the mind is with knowledge, the less one can see what's in front of him" – Lao Tzu

How good are your powers of observation? Watch the below video, and count how many passes the team in white makes?

How did you do?

The video catches a lot of us out because it uses our own attention against us. The analytical side of our brain is constantly whirring away, working on the latest task we've given it. When we tell it to count the passes, it springs in to action, ruthlessly focusing our attention on our latest goal. But by doing so we can completely miss what is hiding in plain sight. Even when it's a moon-walking bear!

This simple video is a perfect parallel to the challenge we face as investors. To find the truly great opportunities that the rest of the market is missing, we need to quiet our analytical mind, and simply observe the world as it is. Business schools place a big premium on things that can be quantified and analysed in a spreadsheet, but often the most profitable investing insights come from just reflecting on the world around us.

In The Tao-Jones Averages, author Bennett Goodspeed makes a strong case that we must learn to tap in to our creative and intuitive side to be able to stay alert to investment opportunities (and threats!) before the rest of the market:

"analysts are prone to be surprised by developments outside their focus, just as, say, the Swiss watch industry was unprepared for developments in the semiconductor field"

Goodspeed's book provides dozens of examples of how the power of observation can lead to surprising investment insights. A classic case was that of Jim Rogers, co-founder of the market-trouncing Soros Fund.

In 1973, Rogers was reading the newspaper and became puzzled by the outcome of air battles during the Six-Day War between Egypt and Israel. Always in tune with oddities in the world around him, Rogers noticed that the Israelis, who had better trained pilots and superior aircraft (supplied by the U.S.), were losing the air war to an Egyptian air force that, on paper at least, should have been vastly inferior. Most analysts at this point would dismiss the thought and head back to their trading terminals.

But Rogers was always on the lookout for pieces of information that didn't fit with his model of the world and just couldn't let it go.  Rogers inferred that, with inferior aircraft and training, Egypt's success in the air battles must be the result of superior "smart" electronic weaponry such as guided missiles. Fascinated by the insight, he dug deeper, reviewing defence spending, interviewing pentagon officials, and even contacting Senator's to get their take.

At the time, U.S. companies that designed "smart" electronic weaponry were deeply out of favour, after years of under-investment from the pentagon. At the time even Lockheed Martin (NYSE:LMT) was rumoured to be going bankrupt. But Rogers' observation and research led him to realise that a vast wave of future investment was coming and so he bought large positions in several electronic weaponry system designers.

Over the next decade the shares Rogers purchased exploded in value with returns of 2,000 to 5,000 per cent, and Lockheed became a "blue chip" share at the top of every fund manager's buy list.

During the decade Rogers worked with George Soros, their fund generated a cumulative return for investors of a whopping 4,200%. As for Rogers, a handful of astute observations such as these was all it took to make him a multi-millionaire, before deciding he'd had enough and retiring at just thirty-seven.

At Pro we are always on the lookout, trying to catch the next 800-pound Gorilla that's still hiding in plain sight. As we introduced in How to Catch a Monster, over the past 21 years, shares in energy drinks maker Monster Beverage (NASDAQ:MNST) have soared a mind-numbing 2,400-fold. Every $10,000 investment in 1994 would be worth over $24 million today. During those early years, think of all the thousands of Wall St analysts that could have seen Monster Beverage cans taking over their local store, or being guzzled all around them, and yet never took the time to look up from their spreadsheets to capitalise on the opportunity right in front of them.

From time to time we all need to take some time out, give our analytical brains a break, and just observe the world as it is. Whether it's chatting to friends and family around the barbeque, or relaxing on holiday in some exotic location, let's keep our eyes open. The next shareholder-return-Gorilla could be moon-walking right in front of us.

The post Take The 'Investor Observation' Test appeared first on The Motley Fool Australia.