SPEAKER_02: 0:02

Welcome back to Finance Friends. I'm your host, Fabian, and this is season four. This season we're diving deep into the world of investing. Not just where to put your money, but how to think like a professional investor. We are bringing you conversations with highly intelligent, incredibly motivated investors with weekly episodes. Make sure you stay tuned in. Welcome back to Finance Friends season four. Can't believe it. To kick things off, we've got Andrew McKee. He's the co-founder and MD of Alston Asset Management, one of the leading Australian investment management firms based out of Queensland. They specialise in multi-asset portfolios via managed accounts and also large cap and small cap Aussie equities. Andrew is super insightful. He started his career studying economics before working the family business, which is car dealerships, and then working as a stockbroker, before he realized that he prefers to manage money long term rather than focused on transactional investment advice. He shares his insights around his investment philosophy, talked a lot about monopolistic investing, as well as the difference between growth and value investing. Make sure you have a listen as we kick things off because he is a gem. Andrew, welcome. Baby inks for having me. Good to have you in Melbourne. Yes. Just talking about crazy wind yesterday and pollen in the air. So if we have a coffin fit halfway through, please excuse us.

SPEAKER_03: 1:42

Yeah, thank you for the peppermint team, mate. That was a nice touch. Appreciate that.

SPEAKER_02: 1:46

Well, I I make sure I look after my guests. They make it a special gift, a special um travel from Brisbane.

SPEAKER_03: 1:55

Yeah, coming down to Melbourne for the good weather.

SPEAKER_02: 1:59

And uh so have you always lived in Brisbane?

SPEAKER_03: 2:02

Uh I was actually born in Townsville. So yeah, so Queenslander through and through us. All your all your New South Wales listeners just turn off now, but um so yeah, Townsville and then then Brisbane mostly uh when growing up, yeah.

SPEAKER_02: 2:16

Yeah, I spent a few, did a few trips to Townsville. I was sure I was I was seeing someone in Townsville for a while.

SPEAKER_03: 2:22

Oh, yeah, okay, right. Yeah, I realize it's not the place for me. Yeah, uh beautiful place nonetheless. Yeah, you would have been the quality flying into Townsville, weren't you? Yeah, interesting. Yes. Yeah. No, it's an interesting place, not so warm.

SPEAKER_02: 2:34

So did you so you you went to high school in Townsville?

SPEAKER_03: 2:38

Is that right? No, I went to I was like a baby basically there, and then we moved to Brisbane when I was probably five or six. Okay. My parents were from uh North Queensland, so a little country town called Serena, which is just outside of Mackay. Yep. Um, so they sort of traveled around a bit for work and things and then moved to Brisbane. Yeah. And what did your parents do for work?

SPEAKER_02: 2:57

And the reason why I ask you is did that have an influence on you and your career?

SPEAKER_03: 3:01

Oh, I think it definitely did. I mean, uh, not you know, salubrious background, you might say. So um both left school, I think, you know, sort of nine, grade nine, grade ten. So dad was uh apprentice motor mechanic, mum worked at the council there, and then um, yeah, just a good lesson in sort of progress and opportunity that's in Australia to, you know, if you work hard and you've got ability, you can sort of go well. So um, yeah, you went, you know, from um apprentice motor mechanic to mechanics, so then sales, and then eventually ran dealerships and then eventually got to buyer dealerships. So it's in the um uh new new car um franchise dealership network, so had few of those. So um, so definitely that uh philosophy of you know investing in your career and um working hard and you know the opportunities will come. Uh but also from you know a business point of view, he had a good business, he looked after the team really well. I think he understood um inherently that you know the the business is really just a collection of people sort of coming together, yeah, and the you know you've got to look after the team. Um, you know, they look after customers, and um you know if you build a philosophy around that you'll have probably a pretty good business.

SPEAKER_02: 4:16

Yeah, I think that's obviously important. Team and culture sort of drives business. Yeah, exactly. So at what point in your life was it during high school that you started wanting to study business or do finance? Or was it sort of a later thought in life?

SPEAKER_03: 4:35

Yeah, I wasn't sort of the best student. I think probably um, you know, around the kitchen table, learning a lot around, you know, business and managing uh people and I guess uh the stresses of business, you know, from a young age. Um probably good at sort of math, you know, despite myself, you know, was pretty good. So then yeah, just got an interest in that probably later on in in high school and went down that sort of accounting economics sort of route and then um you know, probably last year started studying and then got to uni and just did economics at uni. I did like uh the broader sort of thinking around economics and sort of the behavioural aspects and also the cyclical nature of uh yeah, the thought processes that goes into that and the consequences and so on. And I think that's helped a lot in um you know investment career as well, because it's uh obviously has a huge influence.

SPEAKER_02: 5:31

Yeah, I think macro plays more important role than than micro. Yeah. See, everyone has different different thoughts on that. So then when you finished university, what did you do?

SPEAKER_03: 5:42

Uh I came out in the pretty deep sort of recession of the 90s, so wasn't a lot around, so scratching around. Uh got a job with Westpac in their graduate program. Um, so had sort of a bit of experience through various parts, but um the boom, boom part of the industry at that time was credit collections, because obviously we're in recession, so um I started so started you know ringing people up, basically collecting money uh for the bank. So um that was interesting. Um, you know, progressed right through to repossessing cars when you were 21. So um it was an interesting stuff. I hope you were going to the gym back then. No, I certainly wasn't. So uh yeah, they'd I don't know if I'd probably leave my actual name, you know, when I was recording a message there. So um, but yeah, that was a that was a good um I guess insight into perhaps making bad financial decisions. Yeah. Uh worked, you know, in even credit approvals and back in the day, you know, like a Harvey Norman, you know, an interest-free loan, then converted to a 33% interest loan if you didn't pay it off in time, so that sort of stuff. So yeah, there was some good foundational parts of that. So yeah.

SPEAKER_02: 6:52

And how do you from that position, what can you talk me through? Let's just keep going through your career. I want to know how do you how do listeners all want to know how do you go from being an economics student to possessing cars to to leading, you know, one of one of the largest um, you know, the massive investment management firm.

SPEAKER_03: 7:11

Yeah, um, I think um, you know, you go from there to I think always do further study, so that was definitely the case. I did work in the family business for a few years um whilst also studying. So I I went uh back and did graduate diploma in um applied finance with FinZier, and then I also did uh um a graduate diploma in financial planning with FinZier and whilst working in the business, and that sort of also you know gives you a foundation in um investment markets as well as uh financial planning, I guess, back in the day. Um and then uh decided to leave the family business that wasn't sort of my go and um and worked in stockbroking. So got a job with um uh one of the larger firms in in Brisbane and um and that's sort of where the career and sort of equities went from there.

SPEAKER_02: 7:59

Yeah, so you're a stockbroker because there's many stockbroker or were you an equity analyst at a stockbroking firm?

SPEAKER_03: 8:05

No, stockbroker. So started on the sort of desk and then um yeah, just gradually sort of learnt a trade from there.

SPEAKER_02: 8:12

So what does a what does a stockbroker do back in the what is it to 90s 2000s, yeah.

SPEAKER_03: 8:19

Um look, it's you know, it's sell side basically, so you know, reverses buy side, so just a very different um philosophy, you might say, to an investment buy side person, particularly longer term. So, you know, ultimately the business model is geared around transactional, you know, turnover. And so ideas and uh, you know, generating those ideas were critical. Um and I think although that was a good foundation of understanding businesses and understanding investors and understanding markets and things like that, uh, probably didn't really resonate with the conflicts there in terms of perhaps long-term investing versus you know the the short-term need from a business model perspective of generating turnover. Yeah. Um, but you know, you learn from a lot of great people as well. It's a very well-established firm, been around over a hundred years. So, you know, there was a lot of history with that firm and um and a lot of great knowledge knowledge there as well.

SPEAKER_02: 9:16

So for our for our investors, uh listeners that might not know, a stockbroker will get research internally or research their own companies that might be listed in Australia. Yeah, then they'd call their clients or email their clients and say, hey, I've got an opportunity that we think this company is going to go well. Yeah. Do you want to buy this company and then we charge you will charge a fee to make that transaction.

SPEAKER_03: 9:36

That's right. I mean, most the two revenue streams for most stockbroking firms are um transactional turnover, you know, so brokerage. Yeah. And then the other one is um is corporate finance. So uh there's a there's a related, they're they're related in the sense that um a lot of the broke broking side is you know seen as distribution for their corporate. So they'll do you know, obviously capital raisings and new IPOs and uh placements, might be equity and debt, um, and they distribute that through you know their their broking network, so both in retail and institutional. Um, and they have an underwriting fee as well. So they're the two main revenue streams for most broking firms, still the case today. Um, and uh yeah, and and it's a necessarily part of the industry, you know, but um it's just whether or not that sits with your broad up investment philosophy, I guess.

SPEAKER_02: 10:27

And is the can you recall an IPO back in the day that you're very excited about when you're working as a broker and you brought to your clients that has been a success story today?

SPEAKER_03: 10:37

Oh look, I think one of the most interesting ones was actually the ASX demutualization. So um back in the day, every state had an exchange. So they were all, you know, the New South Wales Exchange and the Queensland Exchange, and they merged to become the ASX Australian Stock Exchange. They had members um who had a seat at the exchange, and they would for that seat they were able to, you know, do trading and and so on on the exchange. Um, so and it was a mutual, so they demutualized, and um, and so if you had a seat on the exchange, you got issued uh shares in the float of the ASX per member. I think back in the day it was like 167,000 shares if you were a member of the exchange back then. So, you know, what they are today, whatever there's$70 a share, well$60 a share. So, you know, they did very well out of that. But that was you know, that was an interesting sort of process. Um, and you know, a good let good lesson there. One of the sort of older heads, one of the partners sort of there who who was a member of the exchange. You know, I was a young person going, you know, do we buy what's the target price? You know, do it is it something we should buy? And he's just leant over to me and gone, it's a monopoly, just buy it. So I think that resonated from uh quality of business over sort of price of the stock. So that you know, over the long term a quality sort of business monopolistic power, procing power, competitive advantage they shine through, whereas in the short term you get a bit obsessed with the immediate price of the business itself. So that was a good lesson.

SPEAKER_02: 12:15

So have you taken that lesson to the way you invest today and look for companies that have uh you know monopoly in their market or you know that creates pricing power?

SPEAKER_03: 12:27

Yeah, I think Rupert Murdoch said it once once that um you know monopolies are a terrible thing unless you own one. And so I think they're very like it is a foundational part of business. You know, if you if you have pricing power and control of you know the price of the product you're selling, regardless of what it is, um, usually you've got a higher return on capital and better cash flows and more robust sort of business. And so those principles of what makes a good business, they may not all be monopolies, but they could be monopolistic in their in their in the way that that industry is structured or the way they've built their business. So I think that goes to sort of security of your capital longer term and more robustness of that business. So one would be say, like a Michael Porter, who's Porter's Five Forces, which actually goes through you know what are the five forces of competitive structures and it helps you to sort of identify really good businesses, um, control of their suppliers or customers and so on, you know, the likelihood of substitutes coming in, yeah, those sort of things.

SPEAKER_02: 13:32

Yeah, the barriers to entry, etc. Yeah, and Australia, we're not we're not big for pushing competition.

SPEAKER_03: 13:38

No, no.

SPEAKER_02: 13:39

We we love to have individual or dual or four banks, for example, that's it, you know, can control market share.

SPEAKER_03: 13:46

Yeah, it's an interesting um global dynamic in Australia that um and we're a large cap, so we're ASX 100, and one of the reasons we sort of say it's good in Australia is you end up with these sort of concentrated market positions. No one really knows why. One of the reasons is that perhaps um, you know, we have a we have uh you know large geographic sort of area, but um, you know, reasonably small population versus the US, say where you've got reasonable sized cities, um, and there's a lot of them, that five to ten million. And so they can have a reasonable business start in one of those cities and then grow from there. But uh perhaps with us, that constraint of geography doesn't allow that to happen so much or so easily. That's one of the reasons that are out there. But you name an industry, you're probably looking at a fairly, like you've already said, you know, duopoly cartel, monopoly type structure, often in large caps. So um you're already sort of part ahead of the game.

SPEAKER_02: 14:43

Yeah, well, I guess the for them to get to ASX 100, they've probably had some straight hold over the Australian market.

SPEAKER_03: 14:49

Yeah, yeah, that's right. But it's just a unique Australian thing. Yeah.

SPEAKER_02: 14:53

So then from stockbroking, uh, how long were you in that role for?

SPEAKER_03: 14:58

Uh so really started in that and then switched to um more the wealth side probably in 2008, and that's when we started the business. And uh from there was more we started as more of a wealth management business, so more traditional planning, which is the planning background that I had as well. And then from there we went to really um, we were a very early adopter of managed accounts, yeah. Uh, IMA, so individually managed accounts, and also then SMA, so separately managed accounts.

SPEAKER_02: 15:28

So, what's the difference between the two for our audience?

SPEAKER_03: 15:32

The IMAs, if you looked at the three main structures, you've got a unit trust, like managed fund, you've got a SMA, which is essentially a model portfolio, um, but it de-unitizes the investment. So you can have direct portfolio, but there's one model. Yeah. An IMA will still have typically a model portfolio, but they're individual customizable portfolios. Whereas under an SMA, everyone gets the same model. You know, they all get the same portfolio, even though it's direct ownership, which has distinct structural advantages over unitized investment, um, cash flow management, tax management, and so on. But it's sort of like the next level up in terms of tax optimization and customisation is an IMA.

SPEAKER_02: 16:16

And giving you we're one of the first businesses to launch managed accounts, um, how how did you why did you what made you do that?

SPEAKER_03: 16:25

I think um, yeah, originally if we look back at hub, net wealth, those platforms development, um, it was about taking de-unitizing investments and how do we do that scalably? You know, how do we manage a direct portfolio professionally? Um, and you know, not have all your money in a unit trust, have it directly owned for all the tax advantages. And they were sort of very obsessed with that. And uh we had a similar view. We think that ultimately provided um you know great benefits to investors. And uh, and so you know, we'd go along, I'd go along to the independent, you know, society of managed account providers, and they'd all be there and we'd be there. And um, yeah, back in the day it was a bit of a cottage industry, to be honest. And um, we just thought ultimately it goes well for advisors if you're a good advisor and you you would be conscious of tax and after-tax return management, structural structural sort of discussions uh for clients, you know, you're trying to maximize after-tax returns, minimize fees, all those things. Um, then that if you if you are like that, then that has a distinct structural advantage. So that's why.

SPEAKER_02: 17:32

And obviously operational efficiency, I would imagine, because if you, you know, when you're a stockbroker, you'd have to place, you know, 20 of your clients, you call your clients, they want to, they all want to buy the ASX, then you'll have to do 20 calls, 20 trades.

SPEAKER_03: 17:47

Yeah, and the same with uh with financial planning as well. You know, if you if you really saw the explosion of uh manager accounts that occurred post-Rule Commission, and the reason for that is just the compliance burdens on a financial advisors. So whether it be a stock or an individual fund, if they had to switch, there would be a a record of advice required. That's administration, perhaps a phone call, and so on. Um, you know, the financial advisor uh typically will run out of steam at maybe you know, 20 clients if they're ringing each one.

SPEAKER_01: 18:17

Yeah.

SPEAKER_03: 18:17

So what you also find is that it led to um you know inequ inequity. You know, often it was the biggest clients that get the phone call, and the smallest clients got the last were last to hear about anything, or the change never happened because it was just slow, um, you know, manual sort of processes for financial planners. And so there's an equity thing there. I think in all clients are getting treated the same and get the best execution um in a you know sort of timely manner. And uh, I think also what you see in the financial planning industry is that because of the administrative burden, the changes to the portfolio usually occurred at the annual review. So the best time of the year for Fabian's portfolio to be adjusted just happened to be the day that you did your annual review with your financial advisor, and nothing else happened throughout the year. That didn't really fly in the modern world, and I think um modern investors expect more than that um from their advisor. They expected them to be a little bit more proactive than that, and I think that's an enabler as well. So that's we sort of saw that coming and saw the advantages to investors, advantages to advisors, and we were lucky to sort of come in at the back of that sort of um tailwind for the industry.

SPEAKER_02: 19:32

So you too. When you started the business, how many partners were there? And do they all come from the previous stockbroking firm that you were working at?

SPEAKER_03: 19:38

Oh, it's a bit of a mix now because the two the two main businesses we've got still got the wealth business, so we still understand advisors and uh the pressures for advisors. I think there's symbiotic relationship there, there's a lot of learnings, and then there's obviously the asset management team as well, are also equity holders. So there's a bit of a mix of both. Yeah.

SPEAKER_02: 19:57

So can you maybe share a little bit of information about the business and the name of it, how big you are, and um how many employees and Elston is the is a business.

SPEAKER_03: 20:07

So Elston Private Wealth, we look after about two and a half billion um in that business, and that's uh private individuals, typically self-funded is our market, maybe not ultra high net worth, but um you know average portfolio size is around two million, and most of that is IMA customizable portfolios from a tax point of view. And then um, and then asset management, so Elston Asset Management, and we are specialist managed account providers, uh, mostly multi-asset class. Uh, we do also have Australian equities, both large cap, which is the team that I'm in. Um there's six in that team. And then we also have emerging leaders, Aussie equities as well, which is X100. So um, yeah, so we cover the sort of range as a multi-asset class team that do all the uh uh all the selections and due diligence on managers, both passive and active managers across the main asset classes outside of equities, and then we have you know equities team that that do that directly.

SPEAKER_02: 21:05

Yeah, and what's your role within the fern?

SPEAKER_03: 21:08

So I'm managing director of the overall group. Uh so my role is more s strategic. Uh so where are we going? We're doing that strategic cycle at the moment. So that's a three-year cycle. So I would get involved in that, um, trying to formulate you know where we're going um in the broad context, keeping strategy pretty simple, um, and then just really focusing on execution and making sure the executive team are focused on that execution, culture, stakeholder thinking, that type of uh that sort of thinking goes into uh strategy as well for our business. So that's my role. Um, but it's not a sort of full-time gig. My day day job is in Aussie Equities large cap team. So there's four portfolio managers on one of one of the four, and then we have a team of analysts as well uh that we work with. Yeah.

SPEAKER_02: 21:57

So can you explain? You've talked about monopolistic characters of uh characteristics of a of a of a company. That's obviously one consideration when you when you look to pick stocks. Can you share your investment philosophy or process with our audience?

SPEAKER_03: 22:13

Look, I think one of the advantages of Elson is that uh we do have four portfolio managers, we all get a vote and we also have all different views. And so I think that dilutes the potential risks of having biases. You know, everyone's got behavioural biases and styles, things like that. So I think that's a good thing. It rounds that out. Uh for me personally, I'd be more of a style agnostic person. So I would look at businesses um, if you might say, on a relative basis. So to way to explain that, I guess, is that every business has a value. It's just determining um the growth of that business and uh the quality of that business to work out what that value should be. Um if you look at say multiples, I think people don't understand multiples well. Say if I pay 10 times PE for a business versus say 15 times PE for the business, it's hard to sort of conceptually get that. And why would you do that? I think the best way to explain it is to inverse that in terms of what is your return. And people can relate to returns a lot better. So if you if you pay 10 times earnings for a business, your return is 10%. You're gonna get 10% return back in terms of the profits that you've purchased. So it's easier to understand that. Now, if you pay 30 times earnings for something, you get three percent return on your capital. So why would you do that? Yeah why would you why would you willingly get a lower return? And so under understanding that there is a linkage between the valuation and the growth and the quality of that business. So you might pay 30 times justifiably if that say 3% return is doubling every three years, yeah, versus the 10% return might be static and not growth. So you can only relate or values of businesses only are relatable or relative to something else. Yeah. So growth, quality of those businesses, and so on. So that's that's sort of my view is that um, you know, you can have variety rather than being sort of style, these are growth type businesses, these are value type businesses. No, it doesn't really matter. They all have their own valuation. What you need to look at is the relative context is what's the growth of that business like? Is that justified in terms of its valuation? Yeah, it's a different level of thinking about it.

SPEAKER_02: 24:40

Yeah, because it's one thing, past growth is no guarantee of future growth.

SPEAKER_03: 24:45

Yeah. As well. And I think you know, that's why um a high quality business should should get a higher multiple because it is more predictable. Yeah. You know, so um you don't know what earnings are gonna be for any business. So you know, if you it's a big guess, really. Yeah. You know, it's where glorified values at the end of the day, we don't really know what's gonna happen with markets. You certainly don't know what's gonna happen with businesses. But as you get into those structures of businesses, they're more predictable, therefore you have more certainty, therefore, you can pay more for that business.

SPEAKER_02: 25:18

Yeah. So is there an example of a a company that you have invested in, I don't know, say the last five or ten years that's done exceptionally well? Yeah. And can you maybe share a little bit of insight into your your thesis behind that investment?

SPEAKER_03: 25:31

Yeah, I think something like Macquarie Bank, um, we've owned for you know 13, 14 years in the in the portfolio. Um, probably bought it was$25 or something, it's$230 a share. But um really why, I guess, is that um it's the culture of that business, it's the um sort of freedom within boundaries, uh, risk framework, the entrepreneurial nature of that business, and its ability to adapt over time and drive more quality, um, then it's geographic expansion. Yeah, you know, so um and they tend to go in niche. So they might expand into Brazil and they'll have a small team that has a particular niche, might be in, I don't know, derivatives or something, and then they build relationships from there, and that's how they expand the business geographically. So um, you know, if we look at it long term, their opportunity set is enormous. So if you're versus say a domestic Aussie bank selling residential mortgages, um you know, you're a pretty limited sort of way they go. Yeah, so um those I think that's a uh a great business and great example of uh why culture environment is really critical and strategy is really critical, longer term thinking.

SPEAKER_02: 26:50

Um do you get to meet the management of these businesses to get a feel for the culture? Yeah, sure.

SPEAKER_03: 26:56

Like one of the one of the things that we try to work through is that you know every every CEO tells you how great their business is. So you have to be a a bit of a cynic. Yeah. And so you need to really be sure. And so one of the ways of being sure is trying to test them out on what they say they're gonna do versus what they actually actually done. So execution is way more important than strategy. So you can have a great strategy, they can talk about their 10-page you know, PowerPoint deck of what they're going to do, but if they don't execute on it or they haven't executed in the past, they've got no sort of management sort of credibility. So execution always trumps uh the strategy, and so their ability to execute over time is way more important. So actually, historic versus forward-looking um you know, execution.

SPEAKER_02: 27:47

It's interesting. I when I did my MBA, I heard a um an uh interesting line that said uh culture each strategy for breakfast. I don't know if you've heard that before. Yeah, yeah. So you've just one thing having a strategy, it's the other thing you know, having the people to be able to execute it.

SPEAKER_03: 28:00

Yeah, you can have and complex strategies over simple strategies. So, like a great example, I think, that's we've just added Seek in the portfolio, it is monopolistic in in Australia as well, but um Seek has three strategies. You know, they want to take market share, so want to increase their market share in placements, um, they want to um increase prices over time, and they want to have operating leverage, so discipline around their costs. So they've got three strategies. That's it. The the the hard bit is execu executing on that strategy. Well, so you want to increase your market share, but how do you actually increase your market share? You know, that's not easy to do. So then it's the the detail of how they actually go about execution of that. But simplicity is also critical. If you've got a 10-point strategy plan and you know they execute two out of the 10 pointless, you better off have three and execute on all three. Yeah. So, you know, a good example of um simplicity of a strategy execution.

SPEAKER_02: 29:01

Um it's also easy to have you, you know, followers on board if they understand and know the strategy and it's not too complicated.

SPEAKER_03: 29:08

Correct. And if it changes every week, a new new strategy every week, what's the you know, the team gets really confused with that? So, you know, you've got to sort of put the flag on the hill and and go for it. It gives people certainty and they understand where they're going. And I think that that's important as well.

SPEAKER_02: 29:22

Yeah. And what about uh an investment you've made that haven't hasn't gone right? And what did you learn from that?

SPEAKER_03: 29:28

Oh, look, as fund managers, you get sort of there is no ego because it just it gets beaten out of you very quickly. Um, you know, it is a race that has no finish. So um, you know, there's just just name it. You know, I could thousands of things I beat myself up about. Yeah. Now, it can be something you've bought that's gone down, but it equally can be something you've sold that continues to go up. And that's that's a painful experience as well. So, you know, it's a big thing. I know.

SPEAKER_01: 29:56

I sold a stock about six months ago. Oh yeah. And then um Rare earth is take it off and I'll just 75% on the table.

SPEAKER_03: 30:04

Yeah, it goes nowhere for 10 years and then suddenly has three months bang. But um so look, I I just think it's a constant learning, and that's why it's such a great trade to be in and profession to be in. And um, you know, I think it's your humility comes along with that because you just have so many errors along the way and you beat yourself up so much. I think Kerry Packer said it really well. If you could um be right 60% of the time, you'd end up ruling the world. You know, he would end up ruling the world because you know the the probabilities and the percentages are just stacked a little bit in your favour. But it means you're gonna be 40% wrong.

SPEAKER_02: 30:42

Yeah.

SPEAKER_03: 30:42

Now, in investment markets, you it's probably 55, 45 at best. Yeah. You know, so you gotta get used to being wrong in in the industry and um and you know, overcome that and learn from that and then try and just get better over time.

SPEAKER_02: 30:56

The thing is, if you invest a dollar in a business, you can only lose one dollar, but that dollar could turn into ten dollars if the business goes tenfold.

SPEAKER_03: 31:03

Yeah.

SPEAKER_02: 31:04

So your upside's uncapped and your downsides capped at your capital.

SPEAKER_03: 31:07

That's right. Yeah, and Macquarie's a good example,$25. Anyway, along that journey, GFCs, there's been a long journey along there. COVID, um, there's always a broker report sell side experience. You know, there's a there's a broker report every day about Macquarie, whether target price, sell it, buy it, whatever, you know, you've got to get the transaction going. Um you almost need to ignore that and just just flow through with the lot longer-term quality of that business. So, you know, and if you you could have sold it many times over in that journey, you know, so um and and paid the price for that.

SPEAKER_02: 31:41

Yep. And the business that you're a part of, Alison, how would someone invest in your in in the funds? So you have the Australian Equity Large Cap Fund, Australian Equity Um X100 or emergent companies, yeah. And then you have a managed uh account option. Yeah.

SPEAKER_03: 31:59

So how would someone access that? Look, most of our clients on asset management, we look after about six billion there. Most of our clients are actually financial advisors, which is why we need to understand the advice industry really well, because a managed account is a practice management solution as much as much as it is an investment solution. So to access us, typically it's through a financial advisor. Now we're on, I think, most of the major platforms, you know, eight or nine of the major platforms. And uh and managed accounts are uh are typically multi-asset class. So going from conservatively constructed to right up to sort of high growth, maybe pure Australian equities. Uh, and so you know, that's usually how you access, not to say that you can't access us directly, you can access us access us directly through the platforms as well.

SPEAKER_02: 32:48

You don't need a financial advisor, but that's where you can set up like a net wealth account and say I want to invest in the Alston Aussie equity fund.

SPEAKER_03: 32:55

Yep, yeah. Um, and you know, we're just extending that as well. So for example, we've just launched income SMA. So we're going from we're looking more at the issues for advisors where they've got different demographics to deal with, you know, and um aging population. Yeah, so um income security, um moving a lot of people, baby boomers typically are moving now into that drawdown phase. So cash flow matching, uh, so we've built a specific model variant for that uh that's true to label in terms of income generation, um, more certainty of income, predictability of income, both in terms of the equities component but the non-Australian equities component as well. And we're currently incubating more of a high growth version as well, so high growth SMA. So an advisor can, you know, have got a younger demographic who's looking to accumulate you know assets, they'll be say ASX 100, but the higher growth businesses, yeah. Um, the combination of that portfolio with the emerging leaders as well, so they're sort of put together, and then the exposures outside of Aussie equities are also growth type managers as well. So it's they're all true to label in terms of their components and allows an advisor to bring their client through that journey or target specific demographics of client. Um, and it can also be for tax. So you could have a uh say uh the growth will typically have lower turnover, lower realizations. So someone in a higher tax entity um would go into that, uh they'll pay less tax on a capital gains tax point of view. Um, equally the income version might have more turnover, um, so more realizations, obviously, more income, more franking credits, and so on. Um, so someone who's got say a capital loss that they want to absorb, you know, over time through realizing capital gains, that would be so you can also overlay tax optimization at the advisor level as well.

SPEAKER_02: 34:49

So and also a lot of people that will need income are probably you know investing through their super fund and in pension phase.

SPEAKER_03: 34:55

So franking credits, rebates tax-free at this point.

SPEAKER_02: 34:59

Who knows what will change in the future. That's right. As governments uh put their hand on the big pool.

SPEAKER_03: 35:03

Yeah, yeah. I was a shame I just saw recently that Reese, um you know, Reese Plumbing just did a uh a buyback of their shares. And uh they you know it's pretty tightly held by the Wilson family, so it's is not a lot of shares around. So they actually did it off market, so people just you know submit their shares that they want bought back and the company buys them back. But um prior to 2022, you could do that as a structured buyback where the listed company could buy it back with say a smaller capital component. So in this case it was$13, they might give you five dollars of capital, and the rest would be a fully frank dividend, yeah. With a with the attached franking credits, it was a way of distributing franking credits out to uh to the owners, to the to the shareholders. Um, that's been stopped from 2022. I think it's a real shame. It's still available for private companies, but it's not available for for listed companies. And I think you know, in Australia, those franking credits are owned by the shareholders, that it's their asset. Yeah. And you know, limiting the ability to distribute them is I think a real shame and um and and something I think that should be changed. I mean you think in a private company that's how you do it. You could buy back stock all day long and do that and distribute those out. But yeah, there are there are a tax-free, you know, risk-free advantage for Aussie investors, and you know, the company's paid the tax on their behalf and they deserve to be able to receive those. So they made some particular comments around that as well, which was good.

SPEAKER_02: 36:33

And uh might just towards the end, and I know you have to fly out. So where do you see the the market in the next sort of three to six months? Because it seems like everything's quite expensive around at the moment. Most asset assets are at at record highs.

SPEAKER_03: 36:49

Yeah. Look, um anybody tells you what the they think the market's they know what the market's gonna do is you know, lying, basically. So, you know, we don't know what's going to happen with markets. I don't anyone can. So um, but what we do know is that there's certain things we don't want to participate at this stage, and so it's easy in the Australia's Aussie equities context to sort of avoid certain areas. And I think outside of those certain areas, there's a lot of actually opportunity. Um, and it's related to a particular market dynamic at the moment, which is momentum-based uh trading. So momentum is not fundamental. It doesn't matter about what I was saying, you know, in terms of multiples and growth and you know, quality of business, it doesn't matter. That that's out the door. It's very much charts. Yep. If the share price is going up, then you buy, and if it's going down, you sell. If it's on, if it's you know, 10 times earnings, it can go to two times earnings, if it's on 50 times earnings and go to 100 times earnings, doesn't really matter. So, um, so there's those momentum um driven uh uh opportunities because if you are a fundamentalist with a longer term fundamentalist with a long-term view, you presented those opportunities all the time. You gifted these opportunities, um, and so we see a lot of these sort of gifts at the moment. Um, and when that changes, and there's a change from being purely momentum-based, who knows when that will be, but then you'll you'll sort of reap the rewards of that. So we see a lot of opportunity out in some of those sort of names.

SPEAKER_02: 38:20

Yeah, awesome. Thank you very much for coming in. It's been a pleasure. Yeah, good to know you over the last few years. And well, you're a client of Rever Recruitment, so thank you. I've heard you present many a times, and I'm sure our audience will get a lot of insight from our discussion today.

SPEAKER_03: 38:35

Thanks a lot, I mean, I really appreciate the invitation. Cheers.

SPEAKER_02: 38:41

Thanks for listening this week. Stay tuned for our next episode and keep up to date with us by following the Finance Friends podcast on Instagram and TikTok. Plus, connect with us and our guests over on our LinkedIn page, all linked in the show notes.

SPEAKER_00: 38:58

Disclaimer This podcast exists for informational and entertainment purposes only. The personal opinions of the speaker and guests do not represent the view of any other party. If this recording contains reference to financial products, that reference does not constitute advice nor recommendations and may not be relied upon.