Expert Investor: Market & Watchlist Update With Julia Lee

Bryce: [00:01:28] Welcome to another episode of Equity Mates, a podcast where we help you learn to invest in 45 minutes or less. We break down the world of investing from beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going, bro? [00:01:43][15.1]

Alec: [00:01:43] I'm very good. Bryce very excited for this episode because we've got one of our favourite guests back after a little bit of a break. There was a lot going on reporting season Covid, but Julia Lee is back with us again. [00:01:57][13.4]

Julia: [00:01:58] Great to be back and chatting to you guys. Thanks for having me. [00:02:01][3.0]

Bryce: [00:02:01] A bit of a quiet period there as markets went crazy. I think the last time we spoke to you, Julia, correct me if I'm wrong, was just as Covid was picking up over in Europe and coming very slowly across to Australia. But since then, a lot has happened in markets. So maybe we'll start with covid and maybe if you can just talk us through to kick things off. Any major lessons that you've picked up from the Covid crash, that sort of fastest drop that we saw over in March and then the fastest correction that we've seen as well. [00:02:34][32.9]

Julia: [00:02:35] So I think the speed of the correction and recovery has been a surprise, because traditionally when we do see big market crashes or corrections, they do tend to play out over time. But this one was a very quick one. And I think it really highlights that at the moment the market is pricing in things very quickly. I guess just having a look at the market at the moment, one of the most frequent questions I'm getting is are we going to see another crash? And I'm just amazed at the number of people that are still in cash waiting for another crash. And in my mind, I look at the market through three different filters, the macro filter, the micro filter earnings, and then also in terms of timing. And I suppose when I look through the macro filter at the moment, things are looking good for risk assets like the share market or even not so bad for property and property prices in the US have been rising. And that's because for me, when you see a large amount of stimulus coming through, the governments and central banks around the globe pumping in money to the economy, that tends to be good news for the share market. And it certainly has been good news for the share market. We've seen unprecedented amounts of stimulus and money hitting economies. And here in Australia, it's been very unusual where we've seen the support coming in even ahead of the event. So before bankruptcies started to peak and happen, we've already seen stimulus like job keep a job seeker coming through, as well as some of those incentives to help small businesses. So, look, it's an unusual event, but for me, I'm looking at more of the seeds of the next boom having been sown rather than the next crash. And any corrections here for me are an opportunity to buy into the stock market at a cheaper levels. [00:04:25][110.3]

Bryce: [00:04:26] So, Julia, does that mean that your trigger point for getting out of the market again will be if that government stimulus dries up? I mean, there's a bill trying to pass through Congress at the moment. Correct me if I'm wrong. I like you're much more across this than I am. But if this stimulus that's coming through governments at the moment isn't to continue, is that more of a warning signal and until then, sort of ride the market? [00:04:48][22.6]

Julia: [00:04:49] That would be a big warning signal because it is stimulus at the moment that's helping to support the market. I have no doubt about that. I guess a larger view is that markets go through cycles. And if you have a look at the business cycle with is an expansion in money supply and then a contraction in money supply, you'd have to say at the moment we're seeing an expansion in money supply, which means we're at the part of the up cycle. The risks come when we start to see a contraction in money supply growth, that things become a lot more difficult in terms of investing in the market. So definitely watching that business cycle, which at the moment is all about the expanding money supply, which is great news for risk assets like the share market and to a certain extent, even for things like property. [00:05:36][46.3]

Alec: [00:05:36] So, Julia, we are now living in a world where Covid seems to be a I guess it's a reality for at least the medium term. It doesn't it doesn't really seem to be going anywhere. Obviously, Victoria is bearing the brunt of it. But I guess globally, until we have a vaccine, we're not really going to see business as usual return. When you think about things like a traditional business cycle and, you know, traditional market cycles discovered change your thinking about any of those sort of more traditional analytical tools. How are you adjusting your thinking in light of this sort of structural Covid reality that we're living through? [00:06:13][36.8]

Julia: [00:06:14] I think one of the things that you have to do well as an investor is have a great imagination because really you're trying to visualise what's going to happen in the future. What? The earnings are going to look like what the business is going to look like, what management teams are going to do, and I think the covid-19 experiences really highlighted that, you know, the share market is about the future. To give you an example, last month was reporting season, August, and the two best performing stocks, which surprised in terms of earnings, were actually two stocks which hit hard by covid-19 ones, the travel stock called corporate travel, which looks at travel services to the corporate sector. And that stock was up by eighty three percent in that one month and the second best performing in the ASX 200 in August. Twenty twenty was IDP Education, which looks at student placement for international students as well as English testing, another area that's been hit hard by covid-19 because of the travel restrictions into Australia, as well as the ability to be on campus at these universities now. And that stock was up 50 percent for the month. And that really demonstrates the market is looking through the current situation and as always, the market prices in the future. So it is pricing in what things are going to look like in 12 to 18 months time. I almost try to imagine myself being in the future, serving in twenty, twenty five and looking back on this covid-19 experience and the lockdown and wondering what I wish I would have done as an investor. And to me, having that perspective helps me to make decisions. Now, when you're in the midst of the worst economic conditions since the Great Depression, to get a clearer idea on what the future might look like, because when you're in the middle of lockdown and you can't go anywhere and covid-19 is spreading, it's very easy to become extremely pessimistic about the bill. But for me, I'm looking at the next 12 to 18 months. What are the key catalysts? And there are a number of phase three vaccine trials now going on. So it really does look like there's a strong probability that there'll be a vaccine. And then I have to ask myself, what would a vaccine be, a positive or negative for the markets? And for me it would be a positive for the markets. [00:08:40][146.5]

Alec: [00:08:41] It would be crazy if a vaccine was a negative for the market, something incredibly wrong during this period in terms of pricing assets. If leaving covid is a net negative, [00:08:52][10.5]

Julia: [00:08:53] I can see why it could be if we did see stimulus being one wound back too quickly. So I think always coming out of a big economic event, the risk is that the support is taken away before the economy can stand on its own two feet. So I guess if there is a vaccine and governments to suddenly like, oh, well, everything's OK, so we won't offer support anymore, I think that would be a problem. But I think governments and central banks have been quite clear that they're willing to support the economy at this stage. And we've seen a big move by the Federal Reserve having a more flexible inflation target, which means they're not going to be in a huge hurry to raise interest rates, even if inflation does start to get to two percent or even a little bit higher than that. [00:09:40][47.6]

Alec: [00:09:41] So, Julia, I like the idea of putting yourself in twenty, twenty five and thinking back. I think we're all about long term investing here at Equity Mates. And it's very easy to get caught up in the day to day noise, especially when there's so much going on with the Fed printing and covid and everything going on. If you put yourself in twenty, twenty five and you think about this period that we're going through and some of the trends that are emerging or perhaps accelerating because of covid, what are you saying or what are you thinking about as some of the more permanent structural changes lost beyond covid and into twenty, twenty five that you're factoring in in your investing thesis? [00:10:17][36.2]

Julia: [00:10:18] Covid has definitely seen the acceleration of trends, especially towards technology. So one of the areas I am looking at is the consumption of data centres, how we connect to those data centres. So these are stocks like Next DC, which are data centres or Megaupload and Megaupload is, I guess, software user networks where instead of having to have the hardware to be able to connect multiple data centres, you can use this software to not connect to just one. But as many data centres as you like, I think is over two hundred data centres that you can connect to. And not only can you transfer data from, I guess, your company to the data centre, but you can also transfer data centre to data centre. So as we move towards the cloud, we're going to need all of these type of services. So I see that as a big engine of growth and I guess I see it as a traditional utility. So the old fashioned Telstra's of the world, these are the new and upcoming Telstra's of the world, which will enable us to communicate. [00:11:18][60.3]

Bryce: [00:11:19] So, Julia, let's move to reporting season, because obviously there are a number of. That came out and smashed expectations and then a number that have sort of licking their wounds, were there any major surprises from reporting season that came about because of Covid? [00:11:37][17.6]

Julia: [00:11:38] There's always surprises. I think the big one was a lot of the retailers, the bricks and mortar retailers, which we know have been struggling because a lot of the stores have been closed or there hasn't been as much traffic. We actually saw quite strong outperformance coming through. I mean, Premier Investments, which owns Nagel's Peter Alexander, is an example of that. And that's because some of these retailers haven't had to pay rent and they haven't had to pay wages. So salary has been supported or Covid by a large extent by job. KEPA and then they haven't had to pay rent. So as long as they had a way to do online sales, actually they're seeing some of the best profits they have ever seen and forecasting the best profit. So when you have a company and you strip out the two biggest expenses, which are usually things like salary and wages and rent, it was a pretty good environment. The question I always ask with stocks like these that are benefiting from the covid-19 situation is, is this something that's temporary or is it forever? And if it's temporary, I try and use this time to find a way to get out of the stock because these conditions won't last and the outlook will get less rosy down the track once these conditions pass. But if the conditions are forever, for example, our acceleration in the consumption of data that's likely to stick around, or our online shopping, which is likely to continue, then I will back those companies. So a key question I was asked when I'm investing in this being either in a very negative or a very positive impact on the company, is is it a temporary event or is it forever? Because I don't want to price in forever based on a temporary event. [00:13:27][109.2]

Alec: [00:13:28] So we want to start with the positives of reporting season and then we'll get to maybe some of the less positives or some of the negatives. So if we start with some of the positives, what was some of the really pleasing results and really pleasing companies that you saw report during the reporting season, actual results or sort of momentum that they're building in their business? [00:13:48][20.0]

Julia: [00:13:49] Sure. Well, first of all, I guess reporting season as a whole was an unusual one because there was a whole bunch of companies that still weren't providing an outlook statement. So companies are still saying that it's very difficult to forecast what their profitability or revenue is going to be like given the covid-19 situation. So some companies haven't given guidance at all. I have a lot more confidence in those companies that have given guidance because, you know, they get a bit more visibility into their business. So it's likely, I think, that they will outperform. But I guess having a look across the market and we actually saw companies that haven't been doing so well, you would think that would have been impacted negatively by covid-19 doing extremely well in terms of share price performance. So corporate travel up eighty three percent, IDP education up by 50 percent. We saw Reliance world wide up by forty two percent. We saw G eight education up by twenty eight percent, flight centre up by twenty five percent. So what we actually thought would happen in terms of share price performance is actually being I guess an artificial environment that's been created because of the amount of stimulus coming through that's helped to support some of these companies under pressure. So it's been an unusual reporting season. Generally, I use reporting season to try and figure out which companies are going to outperform over the next six to 12 months. But in this case, a lot of the impacts from the rising share price have been due to temporary factors rather than permanent ones. I really have to really have to go through and sift through reporting season. Having said that, our fund had a really good August. We were up more than nine per cent in the month of August. So great to see some of the stocks in our portfolio plugging along. I can give them a bit of a plug. [00:15:43][114.5]

Bryce: [00:15:45] And so does this mean you've been less active in terms of trading than you would have been previously during reporting season? [00:15:51][6.2]

Julia: [00:15:52] The fund is quite active where a concentrated portfolio of fifteen to twenty five stocks. So usually during reporting season we do end up picking up some stocks and dropping some stocks as well. So I mean we'll get to the buy now. Pay later space in a second, I guess. But one of the stocks we held during August was Afterpay that on the 1st of September we sold it. That was good timing. I guess that was as a consequence, just being very aware that that space was getting very crowded [00:16:20][28.5]

Bryce: [00:18:15] And so what about some of the poorer performers that have come out of Covid without any sort of surprises there? Because to your point just then, you know, some companies that you would expect to perform poorly actually did the opposite. Were there any that actually came out worse off? [00:18:31][16.7]

Julia: [00:18:32] That's a good question. Well, I guess we have a look at Australia. We are very reliant on China for our exports. So China had both a positive and negative impact. The negative impact came from Whitehaven Coal was down by 33 percent during the month. We've seen China increasing, I guess, the tariffs on Australian goods or looking at investigations into some of our exports into China. So Treasury Wine Estates was down 14 percent. Chinese instigated two investigations into Australian exports of wine into China. So that's been a negative. And then the other thing is a two million. We've been hearing that because of covid-19 and the inability to travel and some logistics and Passover, it's being impacted that the traditional Dega model where people come here and I guess buy baby formula or vitamins and send them to China, that that's being impacted negatively. So A2 milk, which has been a bit of a darling of the market for the last ten years, are down 12 percent for the month and Blackmore's down by 10 per cent. So China on one hand having a very good impact on iron ore stocks because iron ore prices are above one hundred dollars a tonne, but a negative impact in some areas like wine as well as baby infant formula and also vitamins. [00:19:52][79.9]

Bryce: [00:19:53] Julia, we've also spoken with you previously about gold on a number of episodes. I'd be interested to hear your thoughts on how you have seen gold perform throughout this period and where that's kind of sitting in your sort of thesis and portfolio. [00:20:08][14.7]

Julia: [00:20:09] I like gold for this covid-19 period, and I like gold because of the amount of stimulus and money printing that's happening around the globe. And this is likely to continue happening around the globe. I think the amount of stimulus that we're seeing at the moment really does, Wolf. The amounts that we saw during the global financial crisis. And to give you an idea, during the global financial crisis, as we were coming out of the global financial crisis, gold prices were up twenty four percent in 2009. They were up 30 per cent. In 2010, they were up 10 percent in 2011, and they were up seven percent in 2012. So I think this period is a good time for gold, but it does remain quite volatile. So I do use timing tools. We still hold one gold stock in our portfolio that's more than double. But we sold evolution mining when we did see gold prices starting to pull back. But I have to admit, I had another look at gold today because it looks like that correction could be over. And for me, it's really about using those timing tools. Otherwise, holding gold stocks in the portfolio can get quite painful because it's not unusual to have the gold stocks in your portfolio up six or seven per cent for no reason or down six or seven per cent for no reason a day. So. It is a very volatile investment. We don't hold more than seven percent of the portfolio in gold at a single time, and we ramp up our positions and decrease our positions based on technicals in gold at the moment. [00:21:36][87.3]

Alec: [00:21:37] So, Julia, seven percent seems like a specific number. It's obviously a specific number, but it feels like it feels like there's logic behind it. It's not like an arbitrary five or 10 or something. Why seven percent? [00:21:49][12.1]

Julia: [00:21:49] We generally hold 15 to 20, five stocks in our portfolio. So 100 percent divided by sort of 15, seven percent is a large amount at the moment is much less. And that's more like two to three percent, but a maximum of seven percent given the volatility of gold. What happens is that when gold prices run, all the gold stocks tend to run at the same time. So the outlook for gold looks better. The earnings will gold companies look better at the same time, the technicals will go look better at the same time. So if I'm looking at the market and looking at the best potential investments, I might give you four or five gold companies coming up. And if I invest in all of them, then I'm overweight. An extremely small sector, which is extremely volatile. So generally, as a rule of thumb, I try not to really exceed seven to eight percent in a single stock position in the portfolio. So I try not to hold one gold stock to that amount, but I guess a portfolio of gold stocks to that maximum amount. So at the moment I'm at about two percent. But as I get more positive on the shorter term outlook for gold, I can rent that up to about seven percent, but not just as one company, but probably three or four. [00:23:02][72.9]

Alec: [00:23:03] Fair enough. You mentioned by now Paladar and talking about someone being overweight, a particular sector or a particular stock. Bryce is currently ninety five percent of his portfolio is allocated to buy now pay later for [00:23:18][14.8]

Julia: [00:23:20] the Bryce look just like your stress levels. [00:23:23][3.2]

Bryce: [00:23:24] So I actually sold 50 percent of my Afterpay holdings about four weeks ago when it was in its sort of higher mid 80s, I think 82 or whatever it was. But look, it is what it is and we'll let it play out. But I can say it hitting one hundred. But there's just so much Chad in our group and just the general community of people just pouring their cash into this. Know, I'd like to hear your thoughts on it, Julia. [00:23:51][26.8]

Julia: [00:23:52] I love the Afterpay story. I mean, it's me Afterpay demonstrates so many elements of behavioural economics, which I really enjoy. And for me, Afterpay is built around this premise of the pain of paying. The more painful it is to pay for something, the less likely you are to spend money. Which is why if you were to pay for everything during a month with cash, you'd end up saving money because spending cash is very painful compared to buying things through a credit card, which is less painful, especially Tapan Go, which is very fast or some websites. Now, once they have your payment details, once you press buy, you don't even have to enter your payment details Afterpay. It takes that a step further and divides into four payments because it's less painful to pay for a quarter or something. Or think about paying for a quarter of something than one hundred percent or something. So it's been very successful built around that premise. But what we have seen is that a huge amount of retail investors have come to the share market for the first time. And I think this is a fantastic thing. But when you're looking at investing for the first time or even if you've been investing for a while, one of the hardest things to work out is what to buy. And there's been a number of studies done on what people tend to do when this choice overload, when there's too many choices out there. And that's certainly usually the case when it comes to investing, when there's so many choices out there. How do you make a decision? The studies have found that people tend to do one or three things. One, they just buy everything. And I guess you can equate that to an exchange traded fund where you can pretty much buy the whole market in one stock transaction. Or secondly, they do nothing. They get paralysis. And there was a study that was done with 401. KS or superannuation over in the US, and they found that for every ten extra choices gave someone for superannuation, every ten investment choices, that the participation rate reduced by about two and a half percent per memory. And then the other thing that people tend to do is they do what they're familiar with. They do whatever's caught their attention. So if they've read about something in the paper or they've seen something on TV or their friend has mentioned something, then they do that. And that's with stock tips from friends, I mean, or at barbecues. But you're talking about different stocks come in and I guess relying on some of the brands that you know and trust and certainly a lot of millennials know about Afterpay and it's been growing. I guess those things get popular. You get these herding you. So I guess herding is around people becoming positive on the same thing at the same time and a bubble forming, and I think it's quite interesting because this certainly seems to have been a hurting impact in terms of the buy now, pay later space. And for me as an investor, I'm both positive and negative on hurting. For me, I get really excited by the hurting effect because it means that stock prices go up really quickly, very fast. But on the flip side, I get very nervous about the hurting effect because I know that most bubbles, they burst and they burst painfully. So for me, when I know that I'm in the middle of a bubble or I think I'm in the middle of the bubble, as soon as I think that bubbles over, I get out very quickly. So I try to be one of the very first people to the exit points. For me, the catalyst came from that PayPal announcement that in the last quarter of twenty twenty that people over in the US will be offering payments in four instalments to their members. And PayPal's customer base is [00:27:28][216.2]

Bryce: [00:27:29] massive, [00:27:29][0.0]

Julia: [00:27:31] bigger than Afterpay or money or sizzlers or any of those type of companies. So I thought, well, that's the initial bursting of the bubble. That was the signal for me to get up. And look, I've seen the impact that competition has on different sectors many times before. The thing that I always refer to is Telstra. Telstra used to be a monopoly. And then when the market opened up and you had focus on Vodafone and TPG coming into the market, well, what does increasing competition do to the biggest player? And the answer is that it's the biggest player that has the most to lose in terms of market share and growth. So the biggest player in terms of the buy now pay later space that we know of is Afterpay. And so it has the most to lose in terms of potential growth down the track. So the market is factoring that in. I think this space will continue to grow and maybe Afterpay shares will get to one hundred dollars. But I think for the time being, the market is just re-evaluating to see the impact that eBay has, whether it's going to be a bit of a flop like Amazon has been on the retail space here in Australia, where it hasn't had the huge impact that we were expecting it to have or whether we do see people really eating into the potential growth of Afterpay in the buy now, pay later space. [00:28:53][82.3]

Bryce: [00:28:54] Yeah, fascinating stock. I mean, the hundred dollar comment was probably my bold prediction for 2020. [00:28:58][4.5]

Julia: [00:28:59] So that comment, you could be absolutely right and I could absolutely be right. And that's the fascinating thing about the share market, because you can still be right and lose money, because when you make predictions, it's important to give a time frame. Mm hmm. So the hundred dollar comment. Well, is [00:29:17][18.7]

Bryce: [00:29:19] the way [00:29:19][0.1]

Julia: [00:29:20] we're going to get there. [00:29:21][0.9]

Bryce: [00:29:23] I mean, there was a moment only a matter of weeks ago where it looked like it was going to hit one hundred dollars very, very soon. But, yeah, I agree with you, it's one of those stocks that has played out in the psyche of many investors for a long time. It's just fascinating to watch, really. I'm 50 percent in now Ren. So my portfolio has gone from ninety five percent exposure to whatever the maths is on that. [00:29:45][21.7]

Julia: [00:29:48] And you got pretty close to one hundred Bryce. Twenty five dollars. Ninety seven cents [00:29:53][5.4]

Bryce: [00:29:54] if they go and then pay back. [00:29:56][2.5]

Julia: [00:29:58] So this could be an opportunity to get in shape because obviously the market for buy now pay later is expanding. The big question is now whether you see other payment providers jumping into the space. [00:30:10][11.8]

Bryce: [00:30:11] Yeah, well, we saw recently that NAB launched a credit card, interest free credit card, I think, to start trying to compete with these by now piloted companies. Obviously, there's a few strings attached with monthly fees and whatnot that if you do the maths, it doesn't really make sense. But they're certainly now coming to this market as well to try and compete. So if the banks start playing as well, then that sort of growth story is impacted. [00:30:35][23.9]

Julia: [00:30:36] Can I ask you guys a bit of a personal question? Yeah, sure. Do you have credit cards? [00:30:41][5.4]

Alec: [00:30:42] Yes, I do, but I don't really use it. Yeah, I just have it. [00:30:47][5.2]

Julia: [00:30:48] Yeah, it's interesting because in my office there's a lot of millennials sort of in their early 20s. And I ask that question to the millennials in the office and they said, no, we don't have credit cards, we don't believe in credit cards. A generation just doesn't have credit cards. And that's really why I think the buy now pay later space is taken off. Millennials one is access to a credit card whether they have a credit history. But secondly, it's also, I think, a shift in terms of thinking when it comes to debt and credit that they have been quite conservative in their thinking and they see Afterpay more as a budgeting tool rather than a. [00:31:24][35.9]

Bryce: [00:31:24] Covid, yeah, it is interesting because, yeah, I mean, credit cards have always had a stigma around how painful they can be if mismanaged, and it's always, you know, you told don't ever get a credit card. But I think, though, the mentality of buying things when you don't necessarily have the money to do it and still paying it off over a period of time, that's where I find the crossover interesting between credit cards and Binalong highlighted because the default rates are that it's still that principle of buying beyond your means. In some instances, it's just the Bonnar pilot of space have managed to sort of make it sexy, I guess, and not as scary as having a credit card with interest rate payments and all that sort of stuff. So fascinating. [00:32:08][43.8]

Julia: [00:32:09] Absolutely. And I think the value of the final pay later space is in the data that I collect. Yeah, I would love to have access to that data. Find out what everyone's buying was popular trends just as they're emerging. [00:32:24][15.1]

Alec: [00:32:26] So, Julia, we've covered a few different topics, people are used to hearing your voice for our mastermind episodes where we pitch a stock and for people waiting to hear the stock pitch, we won't be this episode. We're just touching base with Julia and catching up, but it will be coming back. But we are excited to talk some individual stocks and in particular to hear some stocks that are on your watch list or at least that you're looking at at the moment for Berman. So I guess maybe if we start, General, what stocks are catching your eye at the moment. [00:32:55][29.0]

Julia: [00:32:56] So I'll run you through two biggest positions. One is Tetlow Whales and the other is Mesoblast. I'll start off with massive loss because it's been a pretty dramatic six weeks for me. It's one of the largest holdings in our portfolio. And at one stage we did see massive blush is absolutely plummeting, just looking back on [00:33:19][23.4]

Bryce: [00:33:20] it down the back. [00:33:21][0.7]

Julia: [00:33:22] And in June we sold the shares down 20 percent in a week, which was pretty big, but we were back up in the portfolio. So with Mesoblast, this is a biotech company that's been working on trying to use stem cells to treat certain conditions. So they're in phase three for things like lower back pain, heart failure, things that a massive addressable market. And the big catalyst for Mesoblast is that the Food and Drug Administration over in the US, which allows drugs to be approved and then sold in the US, set a date of 30th of September for the approval of one of their products, which is when we stem cell for sale in the US to treat acute graft versus hostess's in children. And the thing with acute graft versus host in under Twelve's is that there is no treatment at the moment. So it's pretty tragic if you've gone through chemotherapy or bone marrow transplant and then you get acute graft versus host and there's no treatment. So I think it's an exciting area. They're already selling the product under the brand of stem cell in Japan, and it's a major milestone in the US to have M.S. or stem cells being used and approved to treat a condition. So a huge milestone. So the FDA, when it comes to new or novel therapies, they set up a panel of experts because it is new. So in this case, because it was going to be used with cancer patients, they set up an oncology committee of 10 people, 10 experts, to give them advice on certain areas, they say, of concern. And two days before that meeting, they actually released the notes to that meeting. And the notes that they released were extremely bearish. They were questioning the efficacy of stem cell and they were questioning the manufacturing part. And as soon as the market got hold of those notes, there was a massive selloff in the shares. I held onto the shares because I thought this was an advisory committee and the shares actually fell thirty one percent on the 11th of August. So the next few nights I didn't sleep very much. And I woke up to oncology advisory committee and they were in favour of the drug nine to one. So nine people were in favour and only one opposed. A couple of days later, the share price was up 10 percent one day and then thirty nine percent another day and then up another 10 percent the following week. So we had a good we had a good Augusts in the end, but that comes up for final decision by the 30th of September. So I've made my point in this huge story is that with biotech companies that go through phase one, phase two, three trials and they're very expensive, they just eat up capital. They're constantly doing capital raisings. But when they get to phase three and then to approval and potential commercialisation, that to me is a different stage of company to a company going through phase one face to face three and being really capital intensive and sucking capital. So Mesoblast, I feel like it's exciting because it's moving from being capital intensive to hopefully offering a return on capital over the next few years. So that's why I like Mesoblast. It's got a number of catalysts and not only the acute Grothus children, but also using it in covid-19 when the body tends to inflame up and affect other organs and also the lower back pain and heart disease. [00:36:53][211.1]

Bryce: [00:36:53] It's good insight [00:36:53][0.3]

Julia: [00:36:54] edition on its own. Sorry, I don't want to talk about myself. [00:36:59][4.9]

Bryce: [00:37:01] I found that really great insight because I often struggle when it comes to these biotech companies to know when to think about entering the stocks, especially if they come out and say, oh, well, you know, we think we're going to play in this space and develop a drug that no one's seen before. And then the stock shoots up and then they have to go through these phases of trials, as you've just spoken about. It does make it hard knowing. And is the right time to enter, that's going to be less speculative and more based on sort of what is to come in the future or not. [00:37:33][31.6]

Julia: [00:37:33] And that's a great point, Bryce, because I find that I can avoid making a lot of losses by not getting sucked into stories to keep a clear mind on what revenue growth is going to look like and commercialisation, because there's lots of great stories on the share market and within individual companies that making money and growth is a totally different ballgame. [00:38:01][28.2]

Alec: [00:38:02] So, Julia, you mentioned the second stock that you was your biggest position was try to haul the whale right from memory, owns a lot of very high quality real estate with long term tenants. So that probably is a key piece of information for people who are surprised that you'd be holding real estate investment trust during the time that we're living through through that one as well. And maybe also for people who are interested in the right space but are struggling to sort of understand what routes will be resilient during this time and what may not be so resilient. What was some of the work you did to make yourself comfortable with this particular one? [00:38:42][39.4]

Julia: [00:38:43] So when it comes to real estate investment trust, it's actually easy for a lot of people to understand because Australians love property and essentially you're talking about a property investment. So when it comes to a portfolio of properties, there's usually two ways you can make money. One, the price of the property goes up. So a capital return or two, you get Ren from the property. So an income return. So when you're looking at a company like Chadiha Wales or any property trusts, the two key questions you ask yourself is, one, what's the rent like? And two, will is the property price going to go up? And that's basically some property companies as a few other components like that have a funds management side of the business. But generally the two key factors behind a property investment, a capital growth and income when it comes to the property sector during covid-19, obviously the property sector has been hit hard because a lot of property owners are collecting rents. So whether that's in residential property or whether that's in retail property, the same type of things happening. And of course, if you're not collecting rents, then you're likely to get less rent in the future. Then the price of your asset or the price of your property usually goes down as well. So the property sector at the moment, the outlook's not good. You're getting less rent. The outlook for renegotiating rent is not good because rents are falling. And as a consequence, you're also seeing the actual value of the property decreasing as well. And that's probably the worst in the retail space. So things like shops, shopping centres, shop landlords are doing it pretty tough at the moment because of lockdowns. So my preference in terms of property is industrial property, which is more resilient. We're doing a lot more online shopping, so we need to store that and we need logistics for that and warehouses. So I like industrial property first and then probably office property next, even though the outlook is still relatively soft. And I question what our working life is going to look like when we come out of covid-19 whether we will be going back to offices or whether we'll need less office space. And then last in line is retail space shopping centres and things like that. So we've had a whole Wale's. I liked it because generally the tendency for properties when you enter into a rental contract, they're about four or five years long. The average weighted tenancy for Chattooga Wales is about 14 years, which means it has very stable rental income. And then the other side of things is that they hold quite unusual assets. They hold things like the Telstra exchange towers. Coles distribution centres have just bought a portfolio of BP petrol stations, which they then went back to BP. So very stable income as well, like the quality of tenants, is very high and it's likely that those tenants are going to keep on paying rent. So they've managed to collect rent. There's a high yield on its seven percent on the price that we bought, the seven percent yield, which is paid quarterly, and also the revaluation of the assets actually went up from memory, went up by ninety two million dollars. So the value of their property went up by ninety two million dollars in the last one year. So that's why I like charitable wells and that's how I evaluate real estate investments. If someone asks me about, for example, rural funds R.F., which is another rate, and asked me, well what do you think of this? I'm usually trying to get an idea of what it will look like in terms of collecting rents and also the capital appreciation side of things. So the value of the property and I know it coming out of drought. So I think that agricultural assets are going to go up in value because they're going. To be more productive, so the capital component looks good, and then if you have a look at, I guess the income component will be pretty stable tenants there as well. So a yield of about four point seven percent on rural funds. We don't own that one. But just to give you an example of how I evaluate property investments, capital side and the income side. [00:42:46][242.9]

Bryce: [00:42:46] Awesome. So, Julia, we've revived the Equity Mates hypothetical portfolio, which we started way back when for four years ago or whatever. Just one year you took it offline and we've got it back out and it's now forming a part of our show. [00:43:03][16.3]

Alec: [00:43:03] And we did buy Afterpay to Dollars, though, in twenty seven. Pretty happy with [00:43:07][4.1]

Julia: [00:43:09] the back of Afterpay TSRA. [00:43:11][1.1]

Bryce: [00:43:13] The community didn't want us to continue the Afterpay run, so we've actually liquidated the whole thing and we're starting again. But anyway. Well, that yeah. On paper. But how had it been performing. Yes. I mean Afterpay obviously was just absolutely killing and I think we had seven stocks on there, four of which were in the positive, three were in the negative. I think we had I was at IAC Ren, the Australian Agricultural Company that sort of bombed a bit. We also held an inverse tech ATF, absolutely burtis. But anyway, it was all fun and games. But the reason I'm bringing this up is because now for all the guests that we speak to, we've got an expert watch list that we get Tik-tok to add to the watchlist from from the guess that we have on the show. So I'm assuming if we were to put one on on behalf of you, Julia, it would be Mesoblast or shot a hole, or is there another one that you'd like to specifically throw into the Equity Mates hypothetical [00:44:15][61.5]

Julia: [00:44:16] if it is as of today, share price? [00:44:18][2.1]

Bryce: [00:44:19] Well, we don't actually necessarily buy it. It's more of this is what our experts are watching. [00:44:24][5.5]

Julia: [00:44:25] Yeah, OK. I'll probably say bless him because it has a number of catalysts. And if you're just checking the share price, you probably won't capture the you of a hole, which is a large component with the return, not Swan. [00:44:39][14.3]

Alec: [00:44:39] And Julia, while we're hitting you up for questions without notice, [00:44:43][3.9]

Julia: [00:44:46] I'll tell you [00:44:47][0.7]

Alec: [00:44:49] another thing that we we like to do at the start of every year is make bold predictions. Bryce predicted that CSL would be the largest company traded on the ASX by the end of the year, so far as is looking good for, I predicted would have a two trillion dollar company. And Apple have done me very well with Covid. Obviously, the majority of our bold predictions are now out the window and so we're getting some more from our guests and we're making some more ourselves. So as we get towards the end of the interview today, we're wondering, do you have any bold predictions for the rest of twenty, twenty or into twenty, twenty one? [00:45:23][34.4]

Julia: [00:45:24] I'm going to pick an area where I'm not an expert, so just disclaimer there. But I think prices might be up next year, not down. [00:45:36][12.6]

Alec: [00:45:38] Interesting. Any reason why you think that? [00:45:40][1.8]

Julia: [00:45:41] Well, there are people that are doing it tough and they've been offered support by the banks, but that's actually less than really what the market was anticipating. So it's a small portion of loans here in Australia. We're still yet to see job keeping job seeker roll off. So the impacts of that. But given the amount of support coming through and very, very low interest rates that are likely to stay low for at least the next three years, I think that probably could do well and in fact, probably have started doing well in the US. House prices have been rising there. [00:46:18][36.6]

Bryce: [00:46:19] Are you bold enough to put a figure on what percentage we're looking at? [00:46:22][2.9]

Julia: [00:46:22] It's not going to be a big percentage of the market expects property prices to fall next year. I thought that was going against the trend, [00:46:31][8.6]

Bryce: [00:46:33] not [00:46:33][0.0]

Alec: [00:46:34] Bryce is going to be very happy to hear that because he's actually looking for a place in vogue clothes at the moment. So we're not sure. [00:46:41][7.2]

Bryce: [00:46:42] We don't want Afterpay as [00:46:44][1.9]

Julia: [00:46:47] the result of having a view on something like property being less negative than what the market thinks or positive rather than negative is also the implications of that. What does that mean for the banks? Is that going to mean that bank share prices might bounce back a lot more quickly and actually have a positive return over the next six to 12 months rather than a negative one? Have we reached peak negative negative sentiment for the banks? These are the things I dream of at night. You could only buy Bryce, [00:47:17][29.6]

Bryce: [00:47:19] I guess, just to close it out. Julia, you know, we've covered a fair bit tonight. It's been awesome to catch up with you. So so thanks for your time. But I found it fascinating at the start of this conversation. You said you can't believe that people would almost still be sitting in so much cash at this stage. Given what is going on in the market, what would sort of be your advice to someone who is just starting their journey now and at that point with a bit of cash, but still uncertain of what's going on in the markets? [00:47:47][27.8]

Julia: [00:47:48] Yeah, the share market is all about pricing in the future. And I guess the uncertainty comes because there's a huge disconnect between the share markets performance versus what's happening in the underlying economy, but the share market prices in the future. So I always try and think of it as having a time machine going into the future two years in time or five years in time, and then looking back and wondering what I should have done. So not basing my decisions on what's happening today, but what I think is going to happen in 12 months time. [00:48:18][30.1]

Bryce: [00:48:19] I love it. A great way to finish. And I hope some of our listeners were able to take something from that and get started on their investing journey if they are feeling a bit reluctant to do so. So, Joy, as always, it's been an absolute pleasure to have you back on Equity Mates. And we look forward to continuing our mastermind series throughout twenty, twenty and big. Thank you. [00:48:39][20.9]

Julia: [00:48:40] I love chatting to you guys and congratulations on all the success with Equity Mates. It's been great being part of the journey. I'm watching it grow. [00:48:48][8.0]

Alec: [00:48:48] Thanks so [00:48:50][1.3]

Julia: [00:48:50] thanks for [00:48:51][0.4]

Speaker 5: [00:48:51] listening to Equity Mates investing podcast production of Equity Mates Media. Please remember that everything you hear in Equity Mates investment podcast is general advice on link. The content has been prepared without knowing the personal objectives, specific financial circumstances or goals. The host of Equity Mates Investment Podcast may maintain positions in the companies discussed before considering any investment. Please read the product disclosure statement and consider speaking to a licenced financial professional. [00:48:51][0.0]

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