The Rules of Investing

Value investing is all about buying stocks that are trading below their intrinsic value. In practical terms, that often involves investing in companies and sectors that have been shunned by the market due to particular macro headwinds. "It should be no surprise as to where the pockets of opportunity are," says Tim Carleton, Auscap Asset Management CIO and today's guest on the Rules of Investing. "They're in the more cyclical sectors that people are most concerned about from an earnings perspective." In today's interview with Livewire's David Thornton, Tim runs through two retail stocks in the Auscap Long Short Australian Equities Fund that fit this profile. I won't give them away, but one is the only stock on the ASX with a return on equity above 50%, while the other is a long-term compounder poised to take market share. He also discusses why he's avoided the tech and energy sectors, what he expects from earnings season, why he doesn't put much weight in earnings beats and misses, and why lithium is a crowded trade (yet remains invested in it). Note: This episode was recorded on July 26, 2023. Timestamps 0:00 - START 1:30 - Have we avoided a hard landing? 3:30 - Australian base case 4:30 - Reporting season 10:00 - Stock prices follow earnings 12:30 - A checklist for finding value 14:20 - Consumer discretionary in 2023 17:55 - Two COVID beneficiaries primed for growth 20:50 - Avoiding tech and energy 23:00 - Lithium is crowded, but does that matter? 29:20 - Look past the market's time horizon 44:00 - Bottom drawer retail stock

A year ago I sat down with Oscar Oberg, lead portfolio manager at Wilson Asset Management. His thesis then was that small caps were beaten down and due some mean reversion. Alas, small caps haven’t done much since then, with the Small Ords returning 3.91%. Yet Oscar’s thesis also remains unchanged. In fact, it’s gotten stronger! Not only is he positioning for a rebound in smalls and microcaps, he’s doing it with overweight exposure to consumer discretionary, a sector that has been tarred and feathered by today’s macroeconomic landscape of high inflation and high rates. As Oscar puts it, “there’s no mean reversion without consumer discretionary.” In today’s episode, Oscar lays out this thesis and the companies that make it up. He also discusses: the relationship between the tech rally and small caps; generating return with short-term tactical trades; and how he deals with low liquidity, and the primed aged care stock under takeover. Note: This episode was recorded on Tuesday July 20, 2023. Timestamps 0:00 - START 1:50 - When will small caps bottom? 4:30 - No small cap rally without consumer discretionary 6:30 - Profit taking 7:30 - Why large cap tech matters to small caps 10:14 - 30-40% rally is not out of the question 14:30 - Harvey Norman's (ASX: HVN) property backstop 16:00 - Wearing the volatility 17:00 - Industrials 20:20 - Going tactical 24:15 - Mermaid Marine 26:30 - Body language matters 27:30 - City Chic (ASX: CCX) was a mistake 29:20 - Managing liquidity in small caps 32:45 - Takeover target 34:50 - Balance sheets look good 36:55 - Going public too early 40:25 - The classifieds company for the bottom drawer