G’day Rask Core,
I hope you are well.
Is it just me, or does it finally seem like it’s a great time to be a long-term investor?
In my Rask Core 🌏 member update for January 2023, I told you my first priority for 2023 was: “I’m going to go on the offensive. In every way I can possibly think of (sensibly)”.
Since then, I made my first-ever “acquisition” for The Rask Group.
I say ‘acquisition’ (in quotes) because I didn’t buy a company, or a business. I bought IP.
I bought the rights to The Australian Property Podcast. I paid $100,000 for it, split over a couple of years.
It might seem strange — or even incredibly risky — to some readers, but the return on investment (ROI) could be 5x or more, per year, to the company. If I get it right.
And, of course, if I don’t get it right, I lose $100,000.
I’ll spare you the essay (internally they’re called “owenessays”) but my conviction in podcasts as the medium for delivering the best investing, news and business insights couldn’t be higher right now.
Risks persist, of course. But if I’m right about the ecosystem and how educators and media companies will use podcasts to deliver value to hundreds of thousands of listeners, using our company’s capital in this way could be enormously beneficial in the fullness of time.
And in case you’re now wondering ‘Owen, what on earth are you going to do with a property podcast?’ my plan is to build the most trusted property investor/buyer podcast in the country.
In a seemingly endless sea of untrustworthy or unscrupulous operators, I think there’s a genuine opportunity to help educate hundreds of thousands of property buyers and investors.
Importantly, we’re not doing this alone.
Six-time author, property investor and economist Pete Wargent; founder and buyer’s agent Amy Lunardi, and founder and leading Australian mortgage broker Chris Bates, are my co-hosts.
Or rather, I’m their student.
You can subscribe to The Australian Property Podcast on Apple Podcasts, Google Podcasts and Spotify. We’re moving ahead with a full launch of the series in the coming weeks.
Dollar-cost averaging lookin’ good.
As you know, nothing has changed with our model ETF portfolios. Remember, I’ll always email you (via this email address) when we’re making changes to the model portfolios.
Over the past month, I modestly continued to add small amounts to our company’s ETF portfolio, which uses Pearler to automatically (but sometimes manually) follow the Jupiter strategy. Jupiter is our ‘high growth’ option, which includes 90% growth assets / 10% defensive.
💡 Potential changes coming soon…
It’s likely, especially given movements in interest rates and inflation, I’ll make changes in our ETF portfolios in the months ahead.
My current thinking — which is not yet crystallised — is that we will: reduce our exposure to the GOLD ETF, reduce our exposure to SUBD, and reduce our exposure to AAA.
I have not yet made this decision, so don’t act on it. This is just where my thoughts are going lately, given I expect we’ll see cuts to interest rates either later this year or (more likely) in 2024. I think the economy is going into a worse patch than most data currently suggests. That could present big opportunities for all investors across the defensive (e.g. bonds, term deposits) and growth (e.g. shares) side of your portfolio.
It’s important to remember that the economy is not the stock market — please don’t make the mistake of thinking ‘the economy is going bad, therefore my stocks will too’.
On the contrary, it might soon be the right time to go more on the offensive (slowly and modestly) and be ready for an eventual return in stock prices. The stock market is forward-looking.
Finally, in terms of investment research, I recently added a research report on Laserbond Ltd (ASX: LBL) to Rask Core 🌏. This is a small Australian engineering company, which I think is quite risky but is also very interesting for many reasons. You can read the Laserbond report here.
Hunt for anti-fragile companies; avoid everything else.
As always, I spent most of February and the beginning of March thinking about, reading about and talking about, companies and markets.
Over the past six weeks, some of the more interesting conversations I had around investing included conversations about finding the highest quality companies, no matter where they are found.
I spoke with Magellan’s Elisa Di Marco about companies like Visa and Mastercard and what she thinks makes them spectacular businesses.
Before that, I had a conversation with Nathan Bell of Intelligent Investor about companies like Universal Music, ING Groep, and ratings agencies like S&P Global and Moody’s.
There’s a bit of groupthink going on here because I already think like these two investors — I love strongly competitively advantaged companies operating in growth industries. That’s why I still own shares of Xero and Pro Medicus — many-many years after I recommended them to Rask Invest members.
Insert a slight digression…
One of the biggest issues I had with Rask Invest, which was our ‘high conviction share research service’ we offered to the public to help us all invest better, was that I had to force our analyst team to bring new research to members.
As much as we trained the Rask community to remember that 99% of long-term investing is doing nothing, our members would — rightly so — expect us to ‘give us new ideas’ every month. After all, they were paying us a membership fee.
It wasn’t good enough for me to say, ‘keep paying us, I’m confident we could find something soon’. Especially in the bull market from 2018 – 2021.
The reality of long-term investing is, however, that you probably only need 1-2 really good ideas every year to make a boatload of cash (assuming you’re a high conviction, long-term investor).
One challenge is that the ASX simply doesn’t have enough great companies trading at (or near) reasonable valuations, most of the time.
For example, I would have loved to have recommended WiseTech shares for Rask members — but it was never really cheap enough for me to recommend (it’s up 400% since I last said that).
… back to the topic…
The thing I took away from these two conversations, with Elisa and Nathan, is that it’s just a complete waste of time for me to invest in any individual company/share that is anything short of great.
(To be clear, I’m not saying you should remove index funds or ETFs — they’ll still be the majority of my portfolio going forward… you’ll see why, below.)
However, if we are going to invest in an individual share for the long run, why do so many of us bother with mediocre or even ‘good’ companies? Why not just invest in *great* companies, all of the time?
I think the answer has something to do with a combination of habit and impatience. All investors have a craving for new investment ideas. And it takes time and effort to change our ways and be truly long-term focused…
“Don’t just stand there, do something!” should be reworked for investors as, “don’t just do something, stand there!”
But that doesn’t sell newspapers.
There’s a now famous story of Charlie Munger, the billionaire side-kick of Warren Buffett, who said he read Barron’s (an investing newsletter) for 50 years and only ever got one good idea.
“I read Barron’s for 50 years. In 50 years I found one investment opportunity in Barron’s out of which I made about $80 million with almost no risk. I took the $80 million and gave it to Li Lu who turned it into $400 or $500 million. So I have made $400 or $500 million reading Barron’s for 50 years and following one idea.” – Charlie Munger
I’m not suggesting we’ll all be the next Charlie Munger. Or find an investment with “almost no risk”. But what I am suggesting is that your capital/money is finite.
So don’t waste it on ‘could be’ or ‘gonna’ companies.
Don’t get sucked into reading the AFR, The Australian, social media or financial news every day thinking that you’ll find actionable insights. In Charlie’s example, the probability that he would find a good investment idea in a daily newspaper or magazine would be: 1 / (365 * 50) = 0.00005479452055.
I’ll borrow a line from Jason Zweig, the brilliant columnist.
Given the amount of financial media and writing I do every year, I now realise I’m paid an annual salary to say the same things 365 different ways.
Low costs.
Long-term focus.
Core and satellite.
ETFs for the Core.
Individual stocks and funds for the satellite.
Avoid buying and selling.
Become friends with the tax man.
Make the fewest decisions you can…
It’s the oldest recipe, with a modern spice.
(If you’re stuck at this point, take some to consider putting an investing plan in place (congrats to Jackson for his DIY plan that was shared inside Rask Core!)
So what do “the best companies” look like?
Back to the topic at hand…
In my Australian Business Podcast discussion with the multiple-time founder and venture capitalist, Nick Crocker, you may remember telling us that his definition of business “success” is to ask yourself, ‘does the business still exist?’
If we think about that in the context of what we know about the stock market overall – that less than 5% of all companies do better than bonds — the most important consideration for true long-term investing success would probably be this: To finish first, you must first finish.
Let’s look at it another way…
“If you had to invest for 10 or 20 years, which company would you buy and why?”
This is a question I received in 2021 via Twitter.
It seems like a simple question, at first, but it’s extremely difficult to answer, for many reasons.
Having thought about it for a while, my answer now can be summed up in a few words: whatever is anti-fragile.
(For what it’s worth, I have not read Nassim Taleb’s book.)
In my mind, an anti-fragile investment is one that ‘doesn’t break’.
But according to Investopedia:
“Anti-fragility goes beyond robustness; it means that something does not merely withstand a shock but actually improves because of it. The concept was developed by professor, former trader, and hedge fund manager Nassim Nicholas Taleb.” – Investopedia
To me, an index fund is the ultimate example of anti-fragile in financial markets. An index fund drops the losing stocks from the fund and adds more money to the winning stocks, automatically.
That’s why an index fund in the year 1900 would have had perhaps 50% invested in railroads (the best stocks at the time). Today, it would have lots of big technology companies (the best stocks of today).
Beyond index funds, I think individual companies can also display characteristics of ‘anti-fragility’.
Regulated profits
Many large and important banks are anti-fragile because they basically must be profitable all the time.
The government mandates that big banks be profitable through extreme regulation.
But before you go and buy all of the bank stocks you can poke a stick at please know that just because a bank, like CBA or NAB, would probably survive a bad recession, it doesn’t mean it’ll be a great investment — I’d still back an index fund.
Holding on, but letting go
Another type of business model that could be considered anti-fragile is companies have some adaptive abilities as a result of their purpose.
Let me unpack that waffle…
A company like Washington H. Soul Pattinson (ASX: SOL) or Warren Buffett’s Berkshire Hathaway (BRK) have these features.
Their purpose is to invest shareholders’ money in other businesses — not to run a business.
So, just like an index fund, they adapt to changes in the market, almost automatically (i.e. you don’t need to make changes, the management of SOL or BRK does it automatically).
Put another way, SOL and BRK are not “one-legged stools” like, say, Meta/Facebook — where the only thing Meta does is advertising on social media platforms.
(Just so you know, when I was asked the question about investing for 10 or 20 years, my first response was: an index fund, followed by SOL.)
SOL and BRK are known as holding companies.
Holding companies, where the talented and aligned founder is still in control, are at the top of my anti-fragile list.
They can still blow up. And make other grave mistakes.
But if they’re good managers, long-term focused, cost-conscious and forward-thinking, I’d be willing to park dollars with these types of businesses for the long haul.
Hyper-flexible compounders
Next, I want to draw your attention to what might be considered ‘hyper-flexible’ companies. Flexibility is not only good for the core of your body, but it’s also good for your portfolio.
In this bucket, I’d put companies like the Netflix of old, or Amazon under Jeff Bezos.
Through an adaptive culture and visionary management, these types of businesses adapt to the world around them. For example, Netflix went from DVDs to streaming online.
Amazon went from books to an ‘everything’ store, to Kindle, to cloud computing.
A common thread is both of these companies attacked their own business models (DVDs and physical books, respectively) before anyone else could.
In addition to culture and leadership, these companies also often seem to require a big tailwind to push them along and into new markets quickly.
I think these companies are very hard to find early in their journey, though it’s not impossible.
In any case, investors have to be thick-skinned and risk-seeking to own and hold these adaptive businesses.
David Gardner, co-founder of The Motley Fool, is the best investor I’ve seen do this. Then there are books like 100-to-1 and Gorilla Game to help you build a process around finding these companies.
Moat attack survivors
Finally, there are some companies I can’t easily ‘bucket’ into categories.
Or, at least, I haven’t fully thought it through.
These are companies like S&P Global, Moody’s, Fitch or even MSCI. These companies are the ‘gatekeepers’ of the finance industry.
If you have seen the movie, The Big Short, you will remember these are the companies who completely failed in their job of protecting investors in debt markets during the GFC.
For example, S&P Global was paid money to put ‘ratings’ on stocks, bonds and everything in between. And those ratings are supposed to be the ‘trusted’ ratings for investors to rely on.
The thing is, these companies broke that trust in every single way possible.
But here’s the rub: S&P Global shares are up 14-fold since the GFC!
Clearly, there is something about these types of companies that makes their moats impossible to breach.
In other words, they’re doing virtually the same thing as 15 years ago and went through the most significant ‘moat attack’ that they could — even Hollywood made a movie about it! — and their stock prices still went up!
What does it all mean, Basil?
If you made it this far through my update, well done.
Or if you skipped down to this part, here’s all you need to know: picking individual stocks to buy and hold for 10+ years is really tough…
However, if are planning to invest for 10 years, I believe the one thing we should all be looking for is the companies that are ‘anti-fragile’. The companies that cannot easily break.
***
I’m considering putting some money where my mouth is. I’m considering finding 10 – 20 of the best ‘anti-fragile’ companies I can find, sharing them with you, and chucking a few dollars behind them, to conduct somewhat of a ‘real-life anti-fragility experiment’.
If you’re keen for me to do this, or want to suggest companies that might fit into the hallways of anti-fragile fame, use the Rask Core 🌏 forum to share your thoughts.
Free Rask Courses
Did you know you have access to most of our online courses for FREE, as a Rask Core Member?
✅ Read my post in the Community for more instructions on how to access your unique member coupon code.
Thanks again for your support and for being part of our community.
Onward & upward.
Owen “Rask” Raszkiewicz
Founder, Rask
The Rask Group owns units in IAF, VAS, GOLD, IVV, IHVV, AAA and HBRD. Owen owns shares of Xero and Pro Medicus.
