Mat’s Investing Blog

Mistakes of commission:

• Acquired BHP (ASX:BHP) at $34.64 as it was undervalued and sold it at $39.96 due to my realisation that I never really understood the stock. Current value: $48.57. Unrealised loss of 25%.
• Acquired AED (ASX:AED) at $1.75 as there was unrealised value. Sold at $1.91 for no obvious reason. Current value: $2.70. Unrealised loss of 41%.
• Acquired BEN (ASX:BEN) at $9.92 as it was severely undervalued. Sold at $9.48 for no obvious reason. Current price $14.05. Unrealised loss of 40%.

The last thing I was expecting this morning was Australia’s best bank in merger talks with Westpac but I guess Gail Kelly didn’t want to stop managing her old bank! My initial thoughts indicate that this is a pretty good deal as St George is trading well below historical highs and while also being a very well run bank with a low cost base. I’ll have further assessment on that aspect once more details become available.

What’s truly interesting about this deal is that Mrs. Kelly’s intimate knowledge of St George should allow unprecedented levels of cost savings to appear very rapidly. In fact this may end up being a case of the tail wagging the dog but I hope the combined bank doesn’t lose their focus on the customers as they become a bigger entity.

I have an explicit rule that I can only ever put 5% of my net worth into high risk stocks. I classify these stocks as being in two camps: Graham style value stocks or unprofitable companies with a net asset backing that is higher than the current worth of the shares. Currently I own two of these stocks: ADL (ASX:ADL) & BBW (ASX:BBW).

ADL, or Admerex Group, is an unprofitable software company with net assets per share of 250% of its current share price. It ticks off a few of the rules I apply to stocks but notably has poor management, an overly complex product and is pretty badly unprofitable with its cost base growing faster than revenue. I however have discovered that its software is the best in the business and if the management were to be fired for mismanagement the company could very quickly attain profitability simply by focusing on key markets.

BBW, or Babcock & Brown Wind, is a fund containing a vast number of wind farm related assets all over the world. When I purchased the stock it was profitable but the market had valued the company below net assets making it a true value stock in the Grahamian sense. In this case the discounted price didn’t present a decent enough margin of safety for me but the simple fact that I could own a stake in green energy production made me purchase the shares. In fact, if the company can continue to grow as it has shown signs of doing then I may hold it for some time.

I’ve been fairly lucky with these two purchases this year. Combined they have grown 38%, to 7% of my portfolio,  but they could both just as easily vanish completely tomorrow. However, I’ll let you know in 12 months how they are going!

Note: I’m listing these stocks with the knowledge that you shouldn’t touch them with a 50 foot pole. I’ll never list my recommendations to earn money, aka my portfolio, but I will outline sure ways to lose it.

Warren Buffett: the richest man ever and one of a select group who didn’t build their fortune by creating a single fantastic business. If you were fortunate enough to be around when he took over Berkshire Hathaway and bought $10,000 of its stock at $7.60 then those 1300 shares on Friday were worth a cool $164 million. He achieved those returns via hard work and a steadfast determination to always stick to his core values and I can’t see his feats every being bettered.

While he has exemplary intellectual prowess in his field, and undoubtedly would have succeeded in any era, he was extremely fortuitous in his timing of birth. Not only was the stock market immature when he first started investing but the vast majority of the globes worth wasn’t in play as it is today. Literally every living American has money in the stock market, via direct investments or retirement plans, and the global nature of business has allowed foreign countries to invest unprecedented sums. Warren was lucky enough to ride the wave that the mountain of cash created from the early 60s to today giving him dramatic compounding on top of his excellent purchasing. Simply put he was the right mind in the right country at the right time.

While I don’t foresee his success ever being repeated I should outline one scenario where it could happen. If in the next 5-10 years, before the economies of China and India really hit their stride, the world credit market would totally collapse then the potential for another great accumulator to write their name in history would present itself. However, the general nature of business these days makes it highly unlikely to occur.

All journey’s must have a start and so here we are.

A little about me: I’m a full time securities investor working with my own capital with the aim of creating enough wealth to be able to help change the world in a tangible way. My investing style is similar to Warren Buffett’s, albeit without the history, and therefore I’m definitely in this for the ultra-long term.

Via this blog I will never give investing advice or my economic thoughts but I will outline my mistakes in order to help me retain lessons that I’ve learned. I will also dabble into the amusing companies that I run into and discuss any excellent resources that I find.

But as with any true Graham/Buffett/Fisher investor you will require patience if you want to follow this blog as things won’t move all that fast but I hope you enjoy sharing the journey.