EM Chat: The Journey Begins

Bryce: [00:01:29] Welcome to Episode one of Equity Mates, very excited to have you here with my Equity Mate/ Buddy Alec Renehan or the renegade. This is a podcast where we're going to be breaking down investing to try and make it a bit more realistic and accessible for you. [00:01:47][18.3]

Alec: [00:01:48] We're on our investing journey, and we hope to take you along for the ride and hopefully learn some things and impart some wisdom and tell you about some of our mistakes along the way. [00:01:57][9.3]

Bryce: [00:01:58] Great. So I guess we'll start with you then, Ren. Tell us a bit about yourself and what was your first investment? [00:02:05][6.7]

Alec: [00:02:05] OK, so my investing history got off to a interesting start. I got interested in a few years ago now when I was working and I had a bit of money saved away. I wasn't quite sure what to do with it. Ended up putting my first five hundred dollars into Slater and Gordon. I had a law firm that has had some subsequent subsequent issues, shall we say, and has has no time to name anybody yet has has tanked. It is an understatement. But look, since then I've learnt a lot. I've done better than that. First investment really couldn't have done any worse. But yeah, look, it's not something I enjoy. I find it interesting to look at companies and how they're going. Yeah, I hope I can share that interest with all you listeners out there. [00:02:57][51.7]

Bryce: [00:02:58] Nice. Well, my first investment was when I was in Eastbourne and it began back when I was in kindergarten and my parents encouraged me to put away fifty cents a week into a little concept saving account. And then I reached five hundred dollars by the time I was in year seven and my dad encouraged me to put it into a diversified financial company called Bridgework Investments, which I still hold today. I got them at the IPO and I think about 40 cents or thereabouts. And it's still proves to be one of my most successful successful investments today. So Ren, I think we should then say, what are we going to achieve with this one? [00:03:38][39.9]

Alec: [00:03:38] Why? Why everyone out there should listen to us. So what's the first thing they're going to be doing? So basically what we want to do is we want to make investing accessible to everyone, people who might have a bit of money tucked away and don't really know how to get into the stock market. We want to break it down for you. Tell you what we know, what we've learnt, the mistakes we've made and make it a bit more accessible for you for. The first segment we want to do is a bit of news. And every podcast we'll talk about developments that have happened both in the market. And we'll also talk about what's happening in the broader world if it has an effect on the market or on our or your investments. [00:04:16][38.1]

Bryce: [00:04:17] And we're not professing to be experts in anything that we talk about. But we you know, this is something that we just do whatever it has to be. So I think it's a great opportunity for us to capture that. [00:04:27][10.6]

Alec: [00:04:28] And yeah. And if it can save you some time, you know, if you can get some things that are important for us rather than having to do the research yourself and that makes markets investing, then I don't know what else. [00:04:42][14.3]

Bryce: [00:04:43] I think one of the other major things that we're going to be doing and it's quite exciting, is interviewing a bunch of our mates because, you know, we're all at different stages in our investment journey. A lot of our mates are investing and have different attitudes and beliefs towards the best way of investing. And we want to capture that and track how we grow and learn about each other's investments and also our own investment strategies. So that's something to look forward to. [00:05:12][29.7]

Alec: [00:05:12] Yeah, absolutely. And another thing that we want to do is we want to talk to you about some some of the companies that we're looking at, some of the industries we're looking at. Again, we're not experts by any means, but if we can talk about how we look at companies, what we look for and we decide that money into a company or into shares, hopefully you can take something from that. You can definitely learn something from our mistakes and hopefully you can learn from some of the things we've done right along the way as well. [00:05:41][29.0]

Bryce: [00:05:43] And so I think something that is going to be of use is our hypothetical funds that we're going to start to create a track that will be available on our website, Equity Mates dot com. So essentially each week or each episode sorry, it's podcast, we will be adding a stock of our choice to this fund that we create using amounts of money that are accessible and realistic. We're not going to be doing ten thousand, twenty thousand dollar hits. We're going to be talking five hundred thousand dollars. [00:06:11][28.4]

Alec: [00:06:12] So the way we envisage it is much like we invest, we have our jobs and we try and save money from every paycheque. And when we reach a certain amount, five hundred dollars or a thousand dollars, we then fly out of a company with that. And so we call. I want to make the hypothetical fund reflect how we invest and how we think most everyday people would invest if they have the sort of knowledge and they were interested in the share market, which is cited from your paycheque and then put it in the market when you have [00:06:40][27.8]

Bryce: [00:06:41] so looking forward to that. And that would be able to be viewed and tracked online, along with a number of other segments that we're excited to bring you back later on down the track. So I think to close the little intro Equity Mates episode one, we just want to highlight again that it's a podcast for everybody via a bunch of what it's not. As we said, wait, I'm not claiming to have any sort of experience or expertise above that which you can probably find online or go on for a lot. We just think that there's a number of you out there who want to start investing or have heard about it. I just don't know where to start. And we hope that you can take something from this to either get you going or trigger a conversation. And so we're really looking forward to getting your feedback and comments along the way. Yeah, and I [00:07:29][48.4]

Alec: [00:07:29] think the the point is, if the two of us can invest, then really anyone can invest. So whether you've been investing for years and you want another resource to follow the news and get another perspective, or you have never invested before, but you're thinking about it now, if we can do it, anyone can do it. So hopefully we can help you out and give you some advice on what. Beautiful. [00:07:54][24.4]

Bryce: [00:07:57] OK, Ren. So the field of investing, I guess, is really big, it's huge. And one of the problems that I faced when I first started was trying to filter my way through so much information to try and get an understanding or a basic understanding of what the best strategy is. [00:08:14][17.4]

Alec: [00:08:15] And I'm sure for a lot of listeners, that's the big the big sort of resistance point in even getting started. I just don't know where to find information. They don't know what they should be looking at. And so they just don't even try. [00:08:28][13.7]

Bryce: [00:08:29] Yeah, they will get really scared about it. Yeah. But I think that, you know, it's definitely possible through a good attitude and understanding of the basics to really get involved. [00:08:40][11.2]

Alec: [00:08:41] Yeah, I think that's what we want to try and sort of start with in this podcast is what, what should you like, how should you approach investing? What should what's important like what should your sort of attitude and objective? Because if you understand that, then at least you have a filter. When you're looking at all this information, you sort of know what what you should be looking for, what you don't really need to worry about. And so we're going to start that. And then in later, podcast episodes will get a bit more specific. We'll talk to you about the different sort of things you can invest in and things that we have invested in. But today, if you can leave this podcast with an understanding of the attitude that we take that we think would be a good one for just sort of everyday. [00:09:23][42.1]

Bryce: [00:09:24] So going off that, then the attitude, I guess, that we try to embody in our investing strategy is a value based strategy, which in itself encompasses a variety of characteristics. Why is it our chosen strategy, do you think? [00:09:38][14.5]

Alec: [00:09:39] Well, for me, the reason that I follow that is because it makes the most sense for me and I guess for the way that I think about value investing is trying to find companies that are undervalued by the share market. So you look at the price that you can buy their shares on a market and you think of it as if you're buying a part of the company, which which you are. But you don't worry about the sort of daily fluctuations. You don't worry about trading volume. You look at the fundamentals of the business. You look at how much money they're making, whether you understand that business model, whether you think the long term prospects are good, and then you look at the price you're going to pay. And if you think it's a good value buy, then you buy it. [00:10:23][44.7]

Bryce: [00:10:23] So that's probably the broadest definition of value investing Ren. And I think that it's important that you've made mention to separating stock market pricing from fundamentals of the business, because I know that personally, it was a mistake that I made early on was that I would get so carried away and looking at charts and thinking that, you know, stocks are on the run, it's a great time to buy where and I didn't really have an understanding of what those prices actually meant. And I really didn't have an understanding of what the actual business did and where it was positioned in the market, which is probably more important, is more important than the price on a daily basis. [00:11:00][36.6]

Alec: [00:11:00] Yeah, and now don't get us wrong. There's a lot of people out there who make a lot of money speculating who day trade and trying to pick when there's going to be a massive run and they try and profit off that. But at least for us, we take a more long term approach. And what we want to do is when everyone is selling and prices are low, that's when the opportunity to get good value. That's where the opportunity to get good value is. And so that's when we want to buy. And then when markets are high like they are now in America, that's when you're not going to find much value. And that's in many cases when you would sell. I guess we should take a moment to talk about Warren Buffett, because we'll be mentioning a lot during this podcast and there's a pretty good reason for that. He is known as the world's greatest investor or history's greatest investor. But his strategy is something that we we understand and it's very value based. And it's probably worth talking about sort of how his strategy evolves. So when he started, he was one of his mentors was a man called Benjamin Graham, and he was sort of the father of value investing. And what he he did was, look, it was purely looked at the numbers, so it looked at the company's financials, looked at that by the tangible assets they had. And he was trying to find companies where there was such value that, you know, even if the company was going to be liquidated today and all of the assets sold, you would still be getting more money from that liquidation than you paid for the price of the shares. So absolute value. So the assets themselves are more than the money you pay and then any profit the business makes is just a terrible loss. Yeah. And so that's how it started. And in the early years of his partnership, that's what he his investing partnership, that's what he looked at doing and quite successful. But as he grew and. As more investors got in the market, it became harder and harder to find such undervalued companies. So he summed it up quite well in a little say that he went from looking for good companies at great prices to great companies at good prices. And that's kind of what we want to want to talk about here. And that's the kind of attitude that we take to invest in. We think you should look for companies that are good value, look for them yet that indicate that it makes sense. How are you going to make money and get growth? [00:13:28][147.7]

Bryce: [00:13:29] And you mentioned that his strategy has maintained or has consistently been valued based, but it has changed in the way his approach that. So can you sort of give an example of how that's changed from looking at the fundamentals in terms of the value of the company to more perhaps other reasons that he can perceive value? [00:13:50][21.1]

Alec: [00:13:50] Yeah, yeah. Bigtime so I mean, I guess some of the examples where he's made a lot of money, like Coca-Cola, American Express, Gillette. Yeah. Gillette, like there's a big sort of name brand companies that we know now. He got in on a lot of them quite early. And for these sort of big companies, big companies now not as big when he bought into them. It wasn't just about the financials and it wasn't just about getting it, looking at asset value and stuff like that. But it was also about looking at the market, looking at the potential to become big multinational companies. So, you know, with Coke, they have that on their proprietary recipe. Coke has a really streamlined business model as well, where they almost have no overhead costs and most of their costs are passed on to like third party bottlers. So they're very streamlined. They have great cash flow. And as an investor like you, you have the potential to make a lot of money in a business model like that. Similarly to, you know, to a company like American Express, like the electronic payments market was becoming bigger and bigger when Buffett invested in them, like credit cards were becoming more of a thing. And he saw the potential there, not just because of the company's financials, but because of their future prospects to to become a huge player in that market. And he picked it. Right. And so that's what we want to look at. Yeah. Like we're not just numbers, guys. We want to sort of look to the future and see, like say what what we think is going to be big and has a lot of growth prospects and things where industries will grow a lot. [00:15:25][95.1]

Bryce: [00:15:26] I mean, the numbers side is something that I definitely want to really improve and learn a lot more about, because it's definitely a very important part of value based approach. Yeah, but I think what we're basing our decisions on at the moment when we're investing is the macro side of things. So, you know, where it's positioned in the market or where it's position within the industry. Is it a dominant market position? Doesn't have a great competitive advantage over the rest of the competition. Is it an industry that has high barriers to entry and then also things like management, like does the company have a stable management? Does it have a CEO, CFO that's well respected in the industry? Do they have a very good record? How do they treat their shareholders? All of these things and stuff that I look at them? Yeah, absolutely. When we sort of base our decisions around buying stock. [00:16:18][51.4]

Alec: [00:18:11] So to give you some idea of how we approach value investing, do you have an example of an investment that you've made and sort of the thought process behind it and why you bought it? [00:18:23][11.6]

Bryce: [00:18:23] Yeah, definitely. My Bellamy's is probably a company that was my first real attempt at this value-based. Up until then, I'd been doing a lot of diversified financial sector and ETFs and that sort of stuff. And Pelamis was my first attempt, as I said, at looking at a broader industry and trying to sort of pick macro and consumer trends. [00:18:47][24.1]

Alec: [00:18:48] So and so for the listeners, maybe go through like what the industry is. [00:18:52][3.5]

Bryce: [00:18:52] Sure. So Bellamy's is a provider of infant formula and it's an Australian company based in Tasmania. And it its business model is essentially a licencing business model where they have third party suppliers of all of the formula, and then they put their branding and their name on the formula and distribute it that way. [00:19:15][22.9]

Alec: [00:19:16] OK. And what did you think was the reason? [00:19:18][2.7]

Bryce: [00:19:19] I thought it was good value. I mean, it was only Ren listed for a couple of years, not even I think only about 12 months. And it started to show a good run. So that got me interested in itself at the time as well. I had been looking at the demand they were starting to get from the rise in middle income or middle class in China. Yeah, because a lot of the Chinese didn't really have much confidence in the quality of their products in home grown in China. [00:19:51][32.0]

Alec: [00:19:51] And there was a there was a big health scare about Chinese [00:19:54][2.5]

Bryce: [00:19:54] made massive health scare. The Chinese started looking abroad for much more recognised brands of infant formula. Bellamy's was really well placed in the Australian market. It was it had a huge lead in market share. I think we still they still sell about seventy five per cent to Australian market. But yeah, they had a massive Australian share, a really well respected brand, and as a result, the demand from China started to come through. So I sort of thought that that was going to continue. And so I jumped on all of them at just under five dollars. And for the next two years, thereabouts, it skyrocketed. It hit peaks of about 16 million. Now, unfortunately, I failed to stay on top of the company. [00:20:38][43.6]

Alec: [00:20:38] Yeah, well, I feel this caught everyone by surprise, though. [00:20:41][2.9]

Bryce: [00:20:41] It did catch everyone by surprise in the UK. There's a few people saying that they picked it, but they only, I think, are saying that in hindsight, that's pretty funny. [00:20:48][6.6]

Alec: [00:20:48] Yeah, yeah, yeah. So what happened? When did it all turned that [00:20:52][3.5]

Bryce: [00:20:52] essentially they came out with a profit guidance, that then they had to readjust to the market and then they did another readjustment of profit guidance below what was expected. So people started freaking out, looking into the company a bit more and realised that there were a lot of sort of fundamental problems with their inventory and that management hadn't been quite truthful with what was going on with the company. And that's a reason we say that management is a very important thing to look at. Now, it's very hard to tell that that was going to happen six months ago. As we said, hindsight very helpful to make these calls, but essentially it lost its it's lost its value completely. [00:21:32][40.0]

Alec: [00:21:33] So it's one of those things where, you know, even so often as individual investors, it's tough to sort of know how managements kind of like but even big institutions, it's tough to know because. Well, so what happened was they they entered because, as you were saying, they just they basically a company that just holds the Afterpay and they get third party suppliers that provide them the dairy. And they entered supply agreements that had minimum levels of supply and demand slowed. And if they didn't reach that minimum level of supply, then there was sort of punishments built into the contracts. And they have to pay the suppliers for not reaching that minimum wage [00:22:12][39.5]

Bryce: [00:22:12] because they've also locked in contracts. Yeah, because they were forecasting that this demand was going to continue or at the time that the strong demand was that they were scared that the supply was actually going to run out. Yeah. So that's why they locked cells into this. And it sort of makes makes me think it's my first learning about the other side of value investing. If a company is way to overinvested. Sorry, overvalued by the market. Yeah. It could be a time to get out. [00:22:38][25.7]

Alec: [00:22:38] Yeah. Yeah. I think that's something that we're sort of learning as we go that just as important as buying at the right time and at the right price is also selling at the right time, at the right price. And I mean, there's always there's always horror stories of someone who sold out and then the company went on. A massive rocket, there's all these unrealised gains, but I think the important thing is to be quite conservative in investing and it's always better to to sell out when you've made money and maybe leave some excess profit on the table rather than to hold it to long like you Bellamy's I did with Slater and Gordon. And all of a sudden you think, you know, you're feeling quite good about. [00:23:20][42.1]

Bryce: [00:23:21] Yeah, you've lost a lot. It's a really hard mentality to get over at the time. It's so easy to look back in hindsight and say that I could have sold. I should have sold at the time that it's you've tripled quadrupled your money. It's a lot harder to make that call because you have some sort of emotional attachment to the stock. Yeah. And so another thing, I think in terms of what is a good investing attitude to have, one of the characteristics that fades into value investing is managing patients, both understanding when to buy, understanding when to sell, and also understanding the long term financial implications of being patient. Yeah, in terms of compound interest and that sort of stuff. Yeah. So I would encourage our listeners to that. If you can start to practise being patient from the start, then you're going to it's going to go a long way. [00:24:15][54.1]

Alec: [00:24:15] Yeah, absolutely. And there are also a few quite practical reasons in Australia to try to be patient when you're investing. So every time you buy or sell shares, there's a frictional cost in the brokerage. So, you know, I trade with CommSec and they charge nineteen ninety five patriae. So every time I buy, every time I sell, the Commonwealth Bank takes 20 dollars. And so it becomes quite expensive. It does become quite expensive. And I mean if you're trading a huge dollar amounts then the Bryce were not. Yeah exactly. So you know, if you're a big institutional investor, a brokerage is something that you can call and you can try and make money on the daily fluctuation that the I'm not a big institutional investor and I don't I don't want to keep paying brokerage when I don't have to figure something else that is quite good in Australia, were quite good for foreign investors, is that if you hold an asset for longer than a year, the capital gains tax is halved. So you get a few. Interesting. Yeah. So you get a 50 percent discount on the capital gains tax that you pay. Now, for those who are new to investing, capital gains tax quite simply is rather than income tax, when when you hold an asset that appreciates in value, so you get a capital gain on that asset. So, you know, you hold a share and it goes from ten dollars to fifteen dollars, five dollars of capital gains. It's the same when you buy a house and it depreciates in value. That's a capital gain because it's it's the value of the asset has increased rather than you're earning income. So, yeah, it's taxed a little bit differently. If you hold the asset for longer than a year, you get a 50 percent discount in the capital gains tax. So that's a pretty good incentive to be patient to hold it. And you can make a little bit more money that way. Interesting. I didn't [00:26:13][117.5]

Bryce: [00:26:13] know that. Yeah, it's good to know that. [00:26:14][1.5]

Alec: [00:26:15] That's why you go listen to our podcast, because we'll have great tips and tricks like that forever. [00:26:19][4.3]

Bryce: [00:26:20] Interesting. OK, what else? I mean, I've learnt my lessons from May not very patient. I've lost money from being worried that I'm going to miss out on a price increase and we jumped in at the wrong time or probably jumped in when our run has finished. And I've been trying to make a quick return and I've worked a lot higher than I would have liked. And then that has gone on to fall in value. And if I had been taken by even a matter of weeks, it would have made a big difference. [00:26:48][28.3]

Alec: [00:26:49] So it may sound like we're contradicting ourselves a little. We've just told you a story about how we held Bellamy's for too long and ensure it dropped in value and now approaching patients. But I don't think we're contradicting ourselves. I think the important thing is that if you get to invest in value stocks, what you're doing is you're betting on what you're looking at the company and you're saying that it is at good value now, which by implication means you're saying that the price will rise because it's such a good value investment now, like it's a good deal to buy part of this company now. Yeah, it's relatively cheap. And the price you're betting the price will accumulate. So it will appreciate, appreciate, as the rest of the market realises, that the strengths of the company, the potential has whatever it is about the company that makes it such a good value. Yeah, but at the same time, you do have to keep informed, you have to pay attention to what's going on. And so while something like the Pelamis incident probably was more difficult to to sort of. We'll see coming in the mail. I know that the Slater and Gordon investment, I mean, there was a bit of writing on the wall. There was rumblings that they were sort of fudging the numbers a bit with their accounting. And eventually it turned out that that was true. And ASIC, the regulator, investigated them. It turns out that they were massively overstating the profits not to get too much into the weeds about the specifics of accounting for law firms. But basically it was a lot of work that they were doing. And law firms like Slater and Gordon do know when they law work and they were already adding to their revenue some of the legal work that was currently in process where there was actually no guaranteed revenue out of it. So it was those families, but in essence, they were fudging the numbers a bit without being a bit creative with their accounting and the market reaction. And the market reacted. And if I had been more abreast of company developments, I'd been a bit more engaged. Maybe I wouldn't have lost my money. So, you know, like, you've got to be patient, but you can't be patient. [00:29:06][136.8]

Bryce: [00:29:07] Be relaxed. [00:29:08][0.1]

Alec: [00:29:08] Yeah, you've got to you've got to stay. You've got to stay engaged. And and, you know, and this [00:29:14][5.8]

Bryce: [00:29:14] is this is with reference to buying individual stocks, something that we'll talk about probably next episode is what what you can how you can get into the market and not have to worry about staying on top of your company. [00:29:26][11.3]

Alec: [00:29:26] And just to give our podcast another plug, like, I think that's going to be a real, real value from our podcast is, you know, you listen to us for half an hour and once every couple of weeks and we'll try and keep you. We'll try and keep you informed and we'll try and give you some of the information that you need. And hopefully we can one day save you from the mistakes that we've made. [00:29:46][20.5]

Bryce: [00:29:48] I just I think it'd be good to finish on a note one of the final attitudes or characteristics that we are currently doing that add to our whole idea of what is a good investing attitude is to make regular saving commitments so that you can also have a regular buying opportunities, say something small from each paycheque. It doesn't have to be huge amounts of some apps out there as well that can help contribute to your saving goals or help you get to your saving goals. But there's a good saying that in investing, well, don't save to save, save to invest, because it's better to have your money out there trying to work for you than it is sitting in a bank account at the moment with historically low interest rate rates. So I would encourage on Ren is and I support regular payments into an account that allow us to then make regular purchases of stocks or at least have some capital available so that when we see a good opportunity where I want to jump on it. [00:30:49][61.2]

Alec: [00:30:49] Yeah, absolutely. And it doesn't have to be much. I mean, if you just. Well, I mean, your story is a perfect example. You know, you started investing as a kid by saving 50, 50 cents away. And I mean, if you can do it as a kid, then anyone can do it. You know, don't make coffee, make it instant coffee rather than buying a coffee. Yeah. You know, you've saved for months. Yeah. 20 blocks away. So do that. Put 20 bucks each week and before you know [00:31:15][25.8]

Bryce: [00:31:16] you'll be in the stocks. Yeah, I think that's a pretty good night to finish. And I hope that we've been able to sort of encompass what we perceive as a good investing attitude is. Yeah. And what are some of the good characteristics that contribute to that attitude next episode? [00:31:32][16.0]

Alec: [00:31:32] So we want to get a bit more specific. We want to start talking about the different things that you can invest in the index and then also looking at specific stocks and sort of what what we look at when when we assess whether a stock is good value. [00:31:49][16.9]

Bryce: [00:31:49] Yeah, there's a number of opportunities to get into the market, which we'll go through next episode. So, guys, thanks for listening. Really excited that we've been able to get episode one. Alan, it's been in the making for a while. We've been pretty keen to get it going. And, you know, as I say, you miss 100 percent of the shots that you don't take. Yeah, it's the hardest part is starting. So I'm sure we will look back in hopefully ten episodes time and cringe at the of this episode. But you know what? We're pumped that we've got it going and we hope that you've been able to at least get an understanding of who we are, what we're about in this episode, maybe take a few things away. And until next time, just have to think about what we said. Head to our website, Equity Mates dot com. We'd love to hear your feedback and any comments that you have. Please hit us up right now podcast as well. We'd appreciate it. [00:32:40][51.2]

Alec: [00:32:41] Any anything you want us to talk about. Any suggestions? Were very open to ideas. [00:32:45][4.2]

Bryce: [00:32:45] Yeah, yeah, yeah. Hopefully you'll be with us next time on episode two of Equity Mates. [00:32:49][4.1]

Alec: [00:32:50] Thanks for listening. [00:32:50][0.4]

Speaker 5: [00:32:53] Equity Mates and the people appearing in this programme may have positions in the company's mission. This is general advice for me. Please speak to a financial professional, Thomastown. How will this change your individual situation? [00:32:53][0.0]

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