1. ASX special situations investing - this is a reasonably fertile hunting ground, particularly at the smaller and less efficient end of the ASX spectrum. Opportunities here often include merger arbitrage investing once a signed deal has been announced, or investing in a company in anticipation of a future binding takeover agreement. These opportunities consistently appear and become available each year, and for the past 5 years or so they have netted me a pre-tax unlevered annual return of circa 19% p.a. Some recent examples here - Ooh Media Group, SDI Limited, Hartshead Resources, Clearview Wealth, Accent Group.

2. ASX small and mid caps - there is a lot of inefficiency in ASX small and mid cap land. Large caps by and large are overvalued due to a glut of passive superannuation money being allocated to them almost irrespective of valuation metrics or merit. Whereas small and mid caps are often forgotten, may not have any broker coverage, and the lack of market liquidity in many of these means prices can bounce around quite a bit away from fair value. A lot of ASX small caps are looking very cheap to me today. Ones I have invested in recently include MLG Limited, Humm Group, Peter Warren Automotive.

3. In addition to investments at the smaller end of the ASX, I’m allocating to some reasonably prices quality European large caps. The European market may not have matched the recent historical growth of the US S&P 500, but there are still quality large / mega caps there that trade at more reasonable valuations today. The MSCI Europe index trades at around 18 x earnings today, which while not ‘cheap’ looks more reasonable relative to the US S&P 500 index that sits at around 27.5 x earnings.

If you have questions, comments or thoughts on the above, please post as I would love to hear them.

Thank you and best regards

BowTiedStocks

Nothing in the above is investment advice.

• PWR is a car dealership group operating across Australia’s eastern seabord, with over 85 auto franchise sites.

• The business IPO’d on the ASX in April 2021 listing at $2.90 per share, raising approximately $260m. Today’s share price of $1.75 is significantly below the IPO price, with a total market cap around $300m.

• Of note, the company holds land ($150m) and buildings ($79m) with a total book value of $229m on its balance sheet. Net tangible asset (NTA) value per share at 30 June 2025 was $1.42 per share.

• The Warren family continues to hold a significant ~ 37% stake in the business, and were purchasing more stock in 2024 at prices between $1.80 and $2.44 per share.

• FY25 earnings were depressed with a competitive new car market, the business achieved an NPAT of $13.4m. This puts is on a Price Earnings ratio of ~ 22x and ~ 11x EV / EBITDA today, which is significantly below larger peer Eagers Automotive Price Earnings of 35x (!!) and ~ 16.6x EV / EBITDA.

• If PWR can lift profitability and return the business to achieving an NPAT / Sales of even 1.5% on $3bn of sales (inclusive of acquisition Wakeling Automotive), this would generate ~ $45m in annual NPAT and put the business on a PE multiple of 6.7x earnings.

• At a share price of $1.75 per share, the business has downside protection with respect to the NTA of $1.42 per share (principally the value of land and buildings). Based on annual earnings of $13.4m being achieved in a ‘soft’ year, you are not paying a lot for the residual value of the operating business.

What does it do?

• PWR is an automotive dealership group that operates 85 auto franchise sites across the eastern seabord of Australia from Brisbane to Victoria. It has been operating in Australia for over 65 years.

• It sells new and used cars through its dealerships and also provides sales and support including parts, service, finance and insurance and aftermarket.

• PWR represents more than 30 original equipment manufacturers (OEMs) i.e. car brands, and its franchise brands include Peter Warren Automotive, Frizelle Sunshine Automotive, Sydney North Shore Automotive, Mercedez-Benz North Shore, Macarthur Automotive, Penfold Motor Group, Bathurst Toyota and Volkswagen, and Euro Collision Centre.

• 20% of brand mix is now partnerships with emerging Chinese automotive brands.

• The business has grown from 74 franchise operations in 2021 to 85 franchise operations at 30 June 2025.

How does it make money?

• New vehicle sales, used vehicle sales, sale of parts, revenue from service of vehicles, provision of finance and insurance products relating to the vehicle purchases, sale of aftermarket accessories.

• In FY25, the split of revenue by segment was:

o New and demo vehicle sales -> 65% of total revenue

o Used vehicle sales -> 15% of total revenue

o Parts sales -> 11% of total revenue

o Service revenue -> 6% of total revenue

o Finance and insurance products -> 1.5% of total revenue

o Aftermarket accessory sales -> 1.3% of total revenue

Financial Performance

• Number of new vehicles sold was down in FY25, but the business saw growth in used vehicle sales and service & parts revenue:
  
  

• PWR operates on low profit margins but high turnover / sales volumes. New cars are typically sold on low margins based on supply agreements with the OEMs, with higher margin opportunities coming from the ancillary parts sales, servicing, finance and insurance offerings etc.

• FY25 was a softer year for new car sales, and one with heightened competition amongst dealers and new brands looking to establish themselves in Australia and grow market share. Total revenue was flat year on year. Gross Profit % also fell to 16.1% from 16.9% the year earlier.

• PWR is of the view that gross margins have now stabilised, and we can see they have fallen significantly from the FY22 post COVID peak. That post COVID period of 19-20% gross margins may well be an anomaly:

• The combination of flat sales, declining gross margins, and a small increase in opex lead to a $24.9m reduction in FY25 EBITDA vs prior year.

• PWR derived a very small $13.3m NPAT on $2.48bn of sales in FY25, an NPAT/Sales of 0.54%. In the five year period prior (FY20 – FY25), the business achieved a weighted average NPAT / Sales of ~ 2.1%.

• If PWR can improve profitability and get the business back to producing 1.5% NPAT / Sales returns or better, this would deliver ~ $45m NPAT on $3.0bn of sales (inclusive of Wakeling Automotive acquired business). At today’s market cap of ~ $300m, this would put the business on a 6.66x price earnings multiple.

• If it can get to 2% NPAT / Sales, that would deliver $60m of annual NPAT and a PE multiple of 5x.

• A 2% NPAT / Sales return would be at the low end of what listed peer Eagers Automotive has achieved over the long term (2% - 2.5% NPAT / Sales margins)

Balance Sheet

• While borrowings total $539m at 30 June 2025, $444m of this is ‘bailment finance’ or ‘floor plan finance’ that is used to fund floor plan inventory for both new and used vehicles. The finance provider retains the vehicle title until it is sold by the dealership to the end customer.

• PWR’s net debt excluding the bailment finance was a relatively low $47m at 30 June 2025.

• PWR holds land ($150m) and buildings ($79m) valued at a total of $229m on the balance sheet. These assets underpin the 30 June 2025 NTA of $1.42 per share.

• Equity book value of $525m at 30 June 2025, but $326m of this relating to ‘intangibles’ – this is all effectively ‘goodwill’ from acquisitions.

Dividends

• PWR paid an interim dividend of 1.6c and a final dividend of 4c for FY25 (5.6c total dividends, fully franked). A yield of 3.2% at today’s share price of $1.75, or 4.6% grossed up for franking.

Shareholders

• The Warren Family holds 37% of shares and Regal Funds and Perpetual were also substantial (>5%) shareholders at 30 June 2025:

• Perpetual ceased to be a substantial holder in August 2025. Regal increased its holding to 10.36% in October 2025. And Spheria Asset Management also became a substantial holder in November 2025:
  
  

• The Warren family (Paul Warren) was buying more stock in the company in June 2024 at prices between $1.80 and $1.90 a share. He was also buying stock in the company in February 2024 at $2.30 - $2.44 per share.

Other points of note

• In December 2025 PWR announced its acquisition of Wakeling Automotive, comprising 30 dealerships and generating more than $500m in annual turnover. Wakeling operates in Macarthur NSW as well as Woollongong, Shell Harbour and Moss Vale. Consideration for this acquisition is $28m (will be debt funded) and it will add significant scale to the PWR business, particularly in Western Sydney. The transaction is still to complete and is subject to conditions such as ACCC and Original Equipment Manufacturer (OEM) approvals.

• Noting the significant land and buildings value on PWR’s balance sheet of $229m, one may argue that PWR’s occupancy costs or rent expense would increase if PWR were to realise the value of this property through a sale or sale and leaseback arrangement. While a cost is currently running through the P&L as a depreciation expense against the building value, no such cost is recognised for the significant land value.

• Conservatively, if we apply a 6% cap rate to the $229 land and buildings value, the implied annual rent expense would be $13.7m. Adjusting NPAT expectations by this amount would therefore be prudent when looking at what profits the business might generate following the realisation of land and building values via property sales.

Microsoft, Apple, Meta, Alphabet, Amazon, Tesla and Netflix have all recently reported quarterly results, with many of them growing revenue and earnings quite strongly.

Here is a snapshot of how they have each performed relative to their prior corresponding period:

Microsoft

Microsoft recently reported its Q4 results for the quarter ended 30 June 2025:

• Revenue up 18% to $76.4bn

• Gross margin up 16% to $52.4bn

• Operating expenses up 6% to $18.1bn

• Operating income / profit grew 23% to $34.3bn

A story of double digit revenue growth and strong operating leverage, with revenues growing at more than twice the rate of operating expense growth.

Microsoft has been investing like crazy in capital expenditure - capex for the quarter (including finance leases) was $24.2bn, up 27% year on year. This is principally to support demand in cloud and AI offerings.

Over Microsoft’s full financial year ended 30 June 2025:

• Revenue increased 15% to $281.7bn

• Gross margin up 13% to $193.9bn

• Operating income / profit grew 17% to $128.5bn

• Net income / profit after taxes was $101.8bn, an increase of 16%

In its outlook statement, Microsoft expects FY26 total revenue and operating income to grow by double digits, with operating margins relatively unchanged year on year.

At Microsoft’s share price today of $522.04, its market cap is ~ $3.88trn. This places the stock on a Price to Earnings ratio of 38x.

Amazon

For Q2 ended 30 June 2025:

• Revenue increased 13% to $167.7bn

• Operating expenses increased 11% to $148.5bn

• Operating income / profit grew by 31% to $19.2bn

• Net income / profit after taxes was $18.2bn for the quarter, an increase of 35%

AWS sales grew particularly strongly, up 17% year on year. The most incredible thing in Amazon’s Q2 results announcement is the huge investment made in AI - free cash flow was $18.2bn for the trailing 12 months to 30 June 2025, whereas it was $53.0bn for the trailing 12 months to 30 June 2024.

Q3 guidance is for net sales between $174bn and $179.5bn, growth of 10-13% compared with Q3 2024.

Amazon’s trailing Price to Earnings ratio is around 34x.

Meta

For Q2 ended 30 June 2025:

• Revenue increased 22% to $47.5bn

• Costs and expenses increased 12% to $27.1bn

• Operating income / profit grew by 14% to $31.3bn

• Net income / profit after taxes was $18.3bn for the quarter, an increase of 36%.

Average price per Meta ad increased 9% yoy - this to me is astonishingly strong! Capex for the quarter was $17.0bn, investing heavily in infrastructure and AI.

Meta’s trailing Price to Earnings ratio is around 28x.

Alphabet

For Q2 ended 30 June 2025:

• Revenue increased 14% to $96.4bn

• Costs and expenses increased 14% to $65.2bn

• Operating income / profit grew by 14% to $31.3bn

• Net income / profit after taxes was $28.2bn for the quarter, an increase of 19%.

Google Cloud revenues increased 32% to $13.6bn, led by growth across core Google Cloud Platform products, AI Infrastructure and Generative AI Solutions. The stalwart Search also delivered double digit revenue growth.

With strong and growing demand for Cloud products and services, Alphabet is increase its investment in capital expenditure in 2025 to ~ $85bn ! This is a $10bn increase on what was announced in February this year.

Alphabet’s trailing Price to Earnings ratio is around 22x.

Apple

For Q3 ended 28 June 2025:

• Revenue up 10% to $94.0bn

• Gross margin up 10% to $43.7bn

• Operating expenses up 8% to $15.5bn

• Operating income / profit grew 11% to $28.2bn

Apple achieved double digit growth in iPhone, Mac and Services, and achieved growth in each of its geographic segments around the world.

Apple’s trailing Price to Earnings ratio is around 35x.

Tesla

For Q2 ended 30 June 2025:

• Revenue fell 12% to $22.5bn

• Gross profit fell 15% to $3.9bn

• Operating expenses fell 1% to $3.0bn

• Operating income / profit fell by 42% to $923m

• Net income / profit after taxes was $1.2bn for the quarter, a decrease of 16%

Tesla is a car company, its not a megacap tech stock. But Elon and his true believers would beg to differ. And it often gets lumped in with ‘tech’ so I thought I would share its results here. This is the one set of results that stands out as being incredibly poor relative to the others where strong growth was achieved.

Tesla’s trailing Price to Earnings ratio is around 191x (LOL!!).

Netflix

For Q2 ended 30 June 2025:

• Revenue up 16% to $11.1bn

• Gross profit up 31% to $5.8bn

• Operating income / profit up 45% to $3.8bn

• Net income / profit after taxes was $3.1bn for the quarter, a up 46%

Netflix’s operating margin for Q2 was a strong 34%. Member growth for the quarter was ahead of forecast. Netflix generated net cash from operating activities in Q2 of $2.4bn, vs $1.3bn in the prior year period.

Netflix’s trailing Price to Earnings ratio is around 52x.

What to make of it all?

US megacap tech is firing on all cylinders. Very strong revenue growth, and most of this is also flowing down to the profit line. These businesses are also huge cash generators.

The outlook remains strong (according to the execs of these companies), with outlook statements generally expecting further growth in the back half of this calendar year.

Given everything is going well, some of these businesses are placing huge bets on AI, investing in tens of billions of capital expenditure in keeping them at the leading edge of the AI arms race. Whether this will ultimately deliver solid returns for shareholders is another question - very much a wait and see as to how this all plays out.

But one thing that can be said - valuations for these businesses are generally very full with most of them on 30+x earnings. They will need to keep executing and growing strongly for years to come for today’s share prices to be justified.

BTS

Tax is a real cost, when we think about our investment returns or our income more generally, it is best to think about it on an after tax basis (i.e. how much money actually makes its way into your pocket at the end of the day). The holy grail is deferring or minimising the amount of tax you pay, so that you can let your wealth grow and compound without a significant annual tax expense drag being placed on it.

1. Defer crystallising / realising gains - you can’t get taxed on something that didn’t happen (although our current Labor government are trying to do this via an unrealised gains tax for superannuation balances above $3m - outrageous stuff!). Making long term investments in growth assets that will appreciate over time should avoid the need for regular selling of the asset/s, which would typically trigger a taxable event. If you make long term real estate investments, invest in quality compounder companies or diversified index funds, and providing you gear them sensibly, then you should put yourself in a position to hold those assets for many years without needing to sell them.

   This lets the uninterrupted compounding of returns do its work without being subject to tax which can eat a big chunk into those returns. You could then sensibly gear these assets, with the interest associated with your borrowings being tax deductible.

2. If you do have to realise gains, try to find losses to offset them - as much as we try to avoid it, our investments will not always go up in a straight line and some will in fact result in losses. It is often better to cut a loss than to just hold it wishfully waiting for the price to magically go back up. It might be worth at least partially exiting a loss making investment if this loss can be used to offset a gain from another investment in your portfolio. Let me be clear - I’m not advocating for dumping a loss making stock purely to offset a gain you have made elsewhere. But if you are thinking of exiting the stock anyway, think about doing it during the same financial year so that your loss there can offset a gain elsewhere.

3. Keep your investments in a structure not subject to a high marginal rate of tax. High income earners in the top tax bracket will be taxed on every marginal dollar earned above $190k at 47c in the dollar (a 45% top marginal rate plus 2% medicare levy). If you are in a high paying job earning above $190k per year and you also have other investments in your personal name (whether it be shares, cash in a bank account, an investment property), income from these investments will also be taxed at your top marginal rate. The only exception to this is if you employ a negative gearing strategy where the costs of the investment exceed the income, and this ‘loss’ would need to push you down under the $190k threshhold.

   Even at $120k per year of income, your marginal rate of tax is 39c in the dollar inclusive of the 2% medicare levy. Compare this to the company tax rate of a flat 30c in the dollar, or even a rate of 25% for some companies. For some, it might make sense to set up a company to hold investments, with investment income taxed at the company tax rate rather than a higher marginal tax rate for the individual. This does need to be considered though, as there are some other differences in tax treatments between structures - as an example, an individual may be eligible for a 50% discount on capital gains where the asset is held for 12 months, whereas for a company this 50% discount is not available.

   Besides setting up an investment company, other options for a high income earning individual to manage the marginal rate of tax on their investment income might include:

   • holding those investments in superannuation - here there are limits on how much you can put into super while receiving a tax concession, and there are also stringent limits on being able to withdraw this money once it is in the super environment. It is effectively ‘locked up’ until retirement.

   • holding those investments in your spouse’s name if they have a lower marginal rate of tax. This works particularly well if a spouse is a stay at home carer and / or is working in a part time capacity, where their marginal tax rate based on income may be 30c in the dollar or even something less than that.

4. If possible, realise gains on investments in years where your ordinary wage income is lower. It might not happen often, but some years your ordinary earnings might be a lot lower. Maybe you are taking a career break, or maybe you are taking extended unpaid parental leave. Such things might have the impact of reducing your marginal rate of tax for a particular year. Depending on the size of your investment gains, it might make sense to realise those investments in a year when your other income is subdued.

5. Take advantage of the principal place of residence (PPOR) exemption. A family home can be a great investment if made at the right price. Gains on the sale of your PPOR are also not subject to any tax. Investing wisely in a PPOR is therefore a way of generating tax free gains and appreciation in wealth that fully escapes the tax net (one of many reasons why investing in residential property and the family home is taken so seriously in Australia!)

6. Consider making extra contributions to superannuation. Tax concessions available for contributing to super are still good, they are just not as generous as they once were. Putting additional money into superannuation is still a good way to manage your tax burden, provided you are confident you won’t need to access that money until retirement. This strategy is particularly beneficial for those on higher incomes and subject to higher marginal rates of tax, as they have more tax ‘saved’ by putting concessionally taxed contributions into super.

7. Prepay deductible interest for investment loans in advance. If you borrow money to invest, and these investments produce assessable income, you are generally entitled to a tax deduction for the interest expense associated with the borrowing. You may be able to adopt a strategy where you prepay interest for say 12 months in advance, and if you did this just before 30 June it would effectively bring forward the tax year in which you would get to claim this interest deduction.

8. Make sure you are claiming all investment and work related expenses - online subscriptions, computer costs, newspaper subscriptions, attending conferences etc may all be tax deductible where they relate to your management and oversight of your investments. Or similarly if there are costs you have personally incurred relating to your current job, you may be able to claim a deduction for them. A good accountant can help you make sure you are capturing everything here and are not leaving any savings on the table.

There are a few ideas. As I said nothing particularly groundbreaking there and there might not be anything new there for some of you. You might get a new idea from something in the above. Let me know what you think, if you have any other good strategies that you use, or if you have any questions on the above.

BTS

I’ve been investing and reading about investing for over 20 years, and if someone were to ask me where they should start to educate themselves on investing (particularly in equities), these are the resources I would point them towards:

1. The Intelligent Investor - a bit cliched but this is the bible of value investing, written by Benjamin Graham. Reading this book will help frame your thinking on investments and assessing good from bad. Was first published a long time ago in 1949, but the core principles are still as relevant as ever today.

   Buy The Intelligent Investor here: https://link.amazon/B0awijpEP

2. Security Analysis by Graham and Dodd - another foundational book on value investing, first published all the way back in 1934. Here you will get a framework for evaluating securities, and learn about key concepts such as the margin of safety.

   Buy Security Analysis here: https://link.amazon/B0eBxKGWk

3. Buffett Partnership Letters and Berkshire Hathaway Shareholder Letters - there is an unbelievable amount of alpha to pick up from reading over all of Buffett’s investment letters, from his earliest days. I’m convinced a lot more people claim to have read the Buffett Partnership Letters and Berkshire Hathaway Shareholder Letters than actually have read them all. The fact you can download these letters all for free from your computer at home is simply incredible - easily worth the price of 5x MBAs in my view.

   Learn from the greatest there ever has been, how he thought about investing and positioned his capital in a wide range of market conditions and over a 50+ year period! See how his investing strategy and philosophy evolved as he matured and as he grew his capital base.

4. Howard Marks memos - Howard Marks is an incredible thinker, and has an amazing ability to express complex concepts with real simplicity and eloquence. Howard was always more of a credit market investor than an equity market investor, but his thoughts on markets, market cycles, and the role of psychology and behavioural finance in investing are valuable for investors across any asset class.

5. Joel Greenblatt’s class notes - from the special situation investing classes Greenblatt taught at Columbia University. Greenblatt’s investing track record was incredible at Gotham Capital, generating annual returns of ~ 50% from 1985 to 1994. Another disciple of value investing, Greenblatt’s style also had a ‘special situations’ bent to it. His book titled ‘You Can Be A Stock Market Genius’, while a bit of a cheesy title, is a great book that I would also highly recommend.

These are my top 5 recommendations for those wanting to learn about the art of investing. The knowledge and wisdom you can gain from each of these resources is really priceless, and yet they are available to all of us for such a nominal price. These resources themselves are some of the best investments you can make.

If there are other great investing resources that you would recommend, I’d love to hear of them in the comments.

Best,

BTS

Australian Shares

• ASX large caps are on the whole very fully valued and in some cases materially overvalued. Most of these companies are also domestic economy focused - while many Aussie large caps have attempted to expand offshore in search of growth, few have been successful.

• Australian domestic growth opportunities appear constrained for ASX large caps - we have a slowing economy and a consumer that is close to tapped out, wedged between the forces of high housing / rent costs, high household debt levels, and a rising cost of living that has escalated rapidly in the past 3-4 years.

• Many of the ASX large caps are trading on rich earnings multiples, implying significant future earnings growth is needed to justify current share prices. However, the growth opportunities for most of these businesses are difficult to see.

• Looking at the entire ASX, the earnings yield for the Australian stock market today is ~ 4.74%. (Earnings yield is the inverse of the market Price / Earnings ratio - this is ~21.08x earnings). As the chart below shows, this is quite low by historical standards and well below the average since 1980 which is something closer to 6.60%.

• When government bond yields (a proxy for the ‘safest’ asset class) are yielding close to the aggregate earnings yield from the sharemarket, it suggests the risk premium attached to investing in ‘riskier’ equities may not be sufficient.

• Relative to what companies are earning (and that’s the best guide for valuation that I’ve ever come across), the Australian sharemarket is certainly not ‘cheap’ today or full of abundant and easily identifiable value.

US Shares

• The US sharemarket has been the driver for global equities returns in recent years. US large caps have generated really strong returns, driven by the share price growth of the megacap tech companies such as Amazon, Apple, Alphabet, Beta, Tesla, etc. While these are in large part excellent businesses and today seem to some extent impenetrable, most of the share price growth in these megacap tech stocks has come from a change in sentiment towards valuation rather than earnings growth. While the earnings growth has been there, earnings multiple expansion has been the primary driver for the past decade.

• Similar to ASX valuations, today’s S&P 500 earnings yield of 3.80% is low by historical standards, going all the way back to 1957.

• Only on three occasions has the S&P 500 earnings yield been lower than where it sits today:

  1) the 2001-2002 dot com bubble,

  2) 2009 following the GFC and the collapse in earnings, and

  3) 2020-2021 following the COVID panic and the short term fall in earnings.

• The S&P 500 earnings yield of 3.80% compares to the US Treasury 10 year bond yield of 4.25% - the risk premium to invest in ‘riskier’ equities is actually negative!! To me this is a clear sign the US sharemarket is on the whole overvalued.

• To add to this, there is growing uncertainty around the US economic outlook, particularly following Trump’s recently announced Tariff policies and approach to international trade. So earnings yields are low in an environment where earnings may have peaked!

What to do?!

We have expensive Australian and US sharemarkets at present - these are the markets where our large superannuation funds allocate the bulk of their equities exposure - food for thought for those nearing retirement and with large amounts of their savings tied up in equities in these markets…

How can we invest when faced with this scenario? There are a few options:

1. Keep investing in these markets at current high valuations, and reduce your expectations of future returns. Not my preferred option…

2. Put more money in cash and wait it out until these markets are not so richly valued - it is always difficult to predict how long this may take, and holding cash while very useful in the short to medium term is not a terrific investment over the longer term.

3. Invest in different geographic markets, where opportunities are likely to be more prevalent. The UK stock exchange (FTSE) for example, is home to some well established multinational businesses (Astra Zeneca, Shell, Unilever, British American Tobacco). It trades on a lower price earnings multiple of ~ 17.7x today (equating to an earnings yield of 5.65%).

   Another good example of a cheap sharemarket is China - the Chinese sharemarket has had a tough few years and today trades on 10.7x earnings as shown below - an earnings yield of 9.35%.

   

4. Another option is to just do more work in the AU and US markets - accepting that while these markets on the whole may be overvalued, there will always be opportunities within for someone to roll up their sleeves and use a bit of elbow grease. Particularly at the smaller end of the market cap scale, where companies are less researched and picked over and are subject to greater mispricings driven by lower market depth and liquidity.

5. Put your money in other asset classes - if you think other asset classes (whether it be property, fixed income, etc) present better investment opportunities, you could allocate your capital there instead.

6. Lastly, you could do a combination of these things.

What am I personally doing?

Here is how I am playing things today:

1. Building my cash base for future deployment into large caps at better valuation points. I like large cap investing and am happy to even buy index funds, I just want to be doing it at favourable prices.

2. Being very selective with new investments, and in particular focusing on special situations type investing where returns are not so correlated to the broader market indices.

3. Hunting for opportunities at the smaller end of the market, using the relatively modest size of my capital base to my advantage going where institutional money is unable to tread due to size and liquidity constraints. The smaller end of the market is more inefficient - it is less researched and picked over by analysts, and many funds are ruled out of investing in companies below a certain market cap size. Less competition usually provides a favourable hunting ground.

4. Spending time researching some UK listed large cap multinationals, although I’m yet to pull the trigger on any purchases here.

I expect we will see a reasonable pullback in Australian and US equity markets in the short to medium term. I do have exposure to both of these markets, however am comfortable with the long term merits of the businesses I have invested in here. Rather than trying to ‘time the market’ and sell at the top and buy back in at the bottom, for good quality companies at not crazy valuations holding through the cycle has proven to work out ok.

The beauty of equity markets is that there will always be good opportunities somewhere, it is just a matter of doing plenty of searching and putting in the work to uncover them.

BTS

I learnt early on that it would never be enough to rely purely on your salary income. We can’t all work forever and we also need to be mindful of the unexpected twists and turns life can take - ill health, job loss, relationship breakdowns etc. For these reasons and more it is important to have some money / investments set aside to help you get through the rainy days. My family drilled into me as a youngster the importance of delayed gratification, saving and investing the surplus - concepts that are almost foreign in some circles today where everyone wants to get rich quick yesterday!

But more significantly, the earning power we have via our jobs and careers is capped by the number of hours we are able to work. Even if we have highly skilled and high paying jobs, as soon as we stop working and the labour hours stop, so does the income. And high earning labour income is taxed very highly in Australia today too!

In order to continue to earn money in the event you are unable to work or no longer want to work, you need investments that pay you dividends and / or appreciate in value (the value appreciation usually follows earnings growth, although at times it can get untethered from this).

This is why putting your capital to work is so important - so that you are leveraging not just your direct labour hours worked but also your ownership interest in assets (known as ‘capital’). That capital can generate a return while you sleep, while you’re taking time away from work to care for family, or while you are enjoying an European summer holiday. And even better, as that capital grows it really starts to compound year after year. Einstein said it himself: “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.”

So knowing the importance of setting some money aside for the future, why do I choose to invest principally in equities today? There are a few reasons:

1. You don’t want your purchasing power to be eroded over time by the corrosive impacts of inflation. Leaving your money sitting in cash is one of the worst investments you can make over the long term - you purchasing power will be eroded by inflation each and every year!

2. Equities have over time proven themselves to be one of the best performing asset classes over a long term timeframe, provided you can hold through the volatility. Annual returns for major established sharemarket indices have tracked around 8-10% per annum. These returns follow the progress, innovation and improved profitability of businesses and economies across the globe.

3. While equities have underperformed residential property in Australia in the last 20 years, I view the returns equities can generate as much more sustainable long term than the returns Australian property can generate into the future from today’s starting point. In the last twenty years Australian property has benefitted from the following tailwinds: double income households becoming the norm, the continual decline in interest rates over this period, and all manner of demand side stimulus from governments. The two major factors here (a doubling of income earners in a household and the large drop interest rates) are effectively unrepeatable going forward. In my view the time to buy residential housing as a great investment was 20 years ago (saying this with the benefit of hindsight and knowing where today’s prices are), not today.

4. Equities can be volatile and I see that as a benefit rather than a disadvantage - sharemarket volatility can allow you to purchase incredible investments at great entry points when the market panics. You just need to make sure you’ve set yourself up so that you’re not forced to sell when the volatility is working against you.

5. Equities, particularly large cap equities and I’m talking public market equities here, are extremely liquid relative other asset classes such as private equity, infrastructure, real estate. You can convert your investment or portfolio to cash almost instantly if you so desire. This makes it very easy to get in and out of investments, to reposition yourself quickly and to swoop and take advantage of the opportunities that the market serves up at any point in time. While small caps are less liquid, this can also present opportunities where volatility rears its head through for example others being forced to sell.

6. Equities allow for true diversification - you can diversify by company size, by industry sector, by country or geography. If you think Australia and its banking sector is facing a risky and low growth environment going forward, you can diversify your equity investments away from this.

7. A big reason for me is I find equity investing extremely interesting and engaging. Learning about a business, its competitive advantage, industry headwinds / tailwinds, how the market views the business and values it relative to how I view it and value it I find extremely stimulating. It also provides the opportunity to capitalise on mispricings as I see them.

8. It is easy to measure your performance and whether you’re adding value / generating alpha, as you can benchmark against the market returns generated by indices. If you’re consistently falling short of the benchmark, then that is probably a sign from above that equity investing in terms of specific stock picking is perhaps not for you, and maybe you would be better investing in indices and focusing your time on other value adding pursuits.

9. There are always opportunities in equity markets. No matter how overvalued the S&P500 or ASX200 may be, there are an absolute dearth of listed companies, all doing things on a daily basis in an effort to unlock or realise value for shareholders.

10. And finally number 10 - investing in equities is a great way to make money well beyond your expectations or what would be possible from salaried employment. As well as being what I find an intellectually stimulating pursuit, it can provide a path to real wealth.

There you have it folks, 10 of the key reasons why I’ve been a consistent equity investor for near on 30 years now. This isn’t a comprehensive list - let me know what you like or dislike about equity investing, would love to hear your thoughts!

Best

BTS

The ASX 200 is currently at 7,646 at time of writing, and is down a tepid 1.37% over the past year. However while the overall index has stayed relatively unchanged, this masks what has been happening under the surface. We have seen big end of town ASX20 stalwart mature businesses such as CBA’s share price increase by 35% and even tired old Telstra is up 20% on a year ago. Explanations for such strong appreciation for ex-growth companies are commonly chalked up to ‘solid, defensive businesses’ and ‘big super funds buying / passive inflows’.

At the same time a lot of air has come out of ‘growthier’ mid and large cap valuations on our local bourse. These stocks have been regarded as ‘quality’, ‘growth’ equities in nature, and many have been fund manager favourites in some cases for the best part of a decade. Many of these have fallen significantly in the past year.

Here is a list of some of the ASX ‘growth’ stocks that have taken a tumble in the past 12 months, and how far they have fallen:

• Mineral Resources $MIN.AX - down 77%

• Reece Group $REH.AX - down 43%

• Kogan.com Ltd $KGN.AX - down 42%

• NextDC $NXT.AX - down 32%

• Dominos Pizza $DMP.AX - down 30%

• Megaport Ltd $MP1.AX - down 29%

• Macquarie Technology Group $MAQ.AX - down 25%

• ARB Corporation $ARB.AX - down 22%

• Seek Ltd $SEK.AX - down 16%

• Goodman Group $GMG.AX - down 14%

• Wisetech Global $WTC.AX - down 6%

• CAR Group Limited $CAR.AX - down 4.5%

What the above examples demonstrate is that many of the established ‘growth’ stocks on our index have seen their share prices mysteriously stop growing. In fact, many of the share price declines have been pretty brutal if you had heavy exposure to any of these names.

There are however still a few of these established growth companies that have managed to buck the trend:

• Technology One $TNE.AX - up 74%

• REA Group $REA.AX - up 33%

• Resmed $RMD.AX - up 19%

And there are of course also the less established new kids on the block hot stocks that have taken the market by storm and sweep the punters away with their strong growth prospects:

• Promedicus $PME.AX - up 91%

• Life360 $360.AX - up 42%

Are we now witnessing a changing of the guard, where the ‘sexy’ growth stocks underperform the boring, mature ‘value’ stocks in sectors such as telcos, banks and insurers? This is what has occurred over the past year.

I think for many on the list of the big fallers, valuations had moved outside the realms of reality. People were extrapolating the past success of these businesses, many of which are very good businesses, too many years into the future. Dominos Pizza as an example was viewed by the market as a global growth stock, and then it went and announced its plans to shutter 205 loss making stores. It is perhaps no coincidence that the timing of this announcement followed the exit of long standing CEO and large shareholder Don Meij, who was a great promoter.

Perhaps the other aspect the market is starting to appreciate is that we are no longer in a ZIRP (zero interest rate phenomenon) environment. Interest rates are no longer at 0.1% in Australia as they were during the emergency COVID period, they have reverted to above 4%. While they may come down from here, it is difficult to see them falling below 3% anytime soon other than a doomsday scenario where our economy tanks (in which case, earnings and cashflow forecasts would likely need a downwards revision).

In the more ‘normalised’ interest rate environment that we have today, we should be discounting future cashflows these businesses produce by a higher discount rate than we were three years back. This would have the effect of brining valuations down.

I’m personally not betting on a return to strong share price growth for these former ‘growth’ market darlings - the returns in recent years were largely driven by valuation / multiple expansion rather than growth in the earnings of the businesses. Multiple expansion can only take you so far, and once the sentiment turns, it can be very difficult to turn it around. Strong beats to earnings forecasts would be needed I feel in order to reverse a turn in sentiment.

Not only that, many of these stocks can still not be considered ‘cheap’ today based on traditional valuation metrics. Reece Group for example still trades on a Price Earnings ratio of around 27x, and this is for a mature business selling plumbing, bathroom and HVAC products. ARB as another example is on around 25x earnings after its heavy falls.

My own investing style is more focused at the ‘value’ end of the market, so while I have minimal investing exposure to the growth names mentioned in this article, it has nonetheless been interesting to watch and to think about what comes next.

BTS

I wanted to take some time to jot down my thoughts on today’s market selloff. The selloff on the ASX was well telegraphed, with Wall St falling heavily on Friday. While futures markets were initially predicting a fall for the ASX of ~ 6%, the ASX did recover some ground after the open to close down 4.2% for the day.

The ASX200 has now fallen 10.5% in the past 6 months and is down 5.7% in the past 12 months. While reasonable falls, they are hardly catastrophic. The also need to be considered alongside the frothy valuations that are across many parts of the large cap market. Commonwealth Bank is a good bellwether, representing nearly 10% of the index. Even after recent falls it is still trading on a Price Earnings ratio above 20x and is above 3x book value. This in an environment where ‘easy growth’ for the banks looks rather difficult to come by.

So while we have had some recent falls, and while valuations aren’t quite as stretched as they once were, they still look very full to me in the large cap space. The ASX200 index is currently at 7,343 - I think it would need to fall to 6,500 before I would really be interested enough to start searching for some value there.

The challenge for many ASX large caps is growth looks difficult to achieve - stretched and maxed out consumers, high household debt levels, and a reluctance to chase growth offshore (rightly so in many cases based on historical precedents) means a lot of the large caps are mature businesses that are left to perhaps eke out some mediocre growth attributable to increases in the population size. Commodities and oil and gas are a different story, but outlooks aren’t looking terribly rosy for them either right at the minute while we digest the potential impacts of Trump Tariffs on the global economy.

What will be more interesting is how this selloff impacts investor and consumer sentiment. A lot of hot air has come out of the ‘high growth’ darlings of the ASX. The examples are many - Reece, ARB, Seek, Carsales, NextDC, Goodman Group, Dominos Pizza are just a few of my favourites. While these darlings have been knocked off their pedestal, they are still trading on ‘growth’ multiples and are by no means cheap. If they miss guidance, I can foresee further significant falls until they find a base supported by value today.

We need to remember that while we haven’t had a significant market downturn for some time (question over whether the rapid COVID drop should be counted here), sharemarkets do fall significantly. 30% falls are not unheard of and even 50% or more can occur. There are a number of large cap stocks on the ASX that I think could easily fall 50% from where they are and they still wouldn’t be screaming cheap. To add to this, we may get the double whammy of multiple contraction at the same time as significant downwards earnings revisions!

Time will tell and nobody has a crystal ball. Risk management is key in times like these where the confidence might be knocked out of the market rather quickly. Low leverage balance sheets, no leverage at the investment level, and a good diversification of exposures is what has personally worked for me.

I am not so proud an investor and stock picker that I will never buy index funds to capture the market return. I am willing to make significant allocations to market indexes, but I need to see those indexes as great value before doing so. We are nowhere near that level yet.

In the meantime, I’m predominantly building cash, researching quality names, and allocating to some special situations opportunities I’m coming across.

Interested to hear your thoughts on today’s selloff and how you are positioned, please feel free to share them.

Best,
BTS

I do quite enjoy the process of writing and thinking, and I also believe that the process of writing your thoughts down helps to clarify your thinking and to ‘think better’. The purpose of this blog will therefore be two-fold: firstly, to share my learnings, experiences and views with the audience on the topics I’m interested in and have some expertise in. I’m confident most will get some benefit from this. The second reason is a selfish one - to help me think better and more deeply and to provide an outlet for me to express my thoughts.

As a finance professional with over 20 years of experience in the corporate world, and as a personal investor with closer to 30 years of experience investing in equity markets, I am keen to share what I have learnt over the years and my views on things. I don’t know everyone’s personal circumstances, so don’t take what I write as personal advice, but I am more than happy to share how I have positioned myself on various things over the years and what has worked for me.

There will not be a rigid structure or format to this blog, I will delve into topics I find of interest and generally these will be across the key domains of: investing, business, markets, career, economics, personal finance, philosophy and thinking. I will also prepare articles addressing questions or feedback raised by readers or my followers on X.

Most readers are here to learn something across the domains of investing, finance or business, and I am keen to facilitate that as much as I can. What you will get from the blog is an insight into how I think about things as someone with a finance background and considerable investment experience (both good and bad!). It is the same general advice I would pass on to my own kids.

A bit more about my background – I have a dual degree in Business Management and Commerce, with Commerce majors in Finance and Accounting. I started work at one of the ‘prestigious’ big 4 accounting firms all the way back in 2003, while I was an undergrad and still completing my studies. My starting salary in 2003 is etched into my memory – the princely sum of $32,000 p.a., inclusive of super!! I now sometimes get dividend cheques from investments exceeding that starting salary, but I never forget where I started and the grind involved!

I worked in the tax division at this firm for over a decade, qualifying as a Chartered Accountant during my early years there after finishing university. It was a great place to learn from experienced tax professionals, some of the smartest and most dedicated in the country. It certainly taught me the value of hard work and the dedication required to client service as a partner at one of these firms. Most of the partners at these firms earn over $450,000 per year, some are in the millions of dollars.

While I enjoyed the experience, and I believe it equipped me extremely well for later pursuits, in time I realised I did not want to spend the rest of my career in a big 4 firm environment. My interests were more diverse and I didn’t want to do the same thing forever in quite a pressurised environment with long work hours. It is clear the trade off these partners have to make in terms of balance and time with family etc. So I next pivoted to a broader corporate finance role, and spent a number of years doing corporate finance advisory work before ultimately moving into a senior finance role in industry.

I currently work as a senior finance exec for a private business that operates in three countries and generates annual revenues of close to A$100m, employing close to 200 people.

All the while over the course of my career, and even pre-dating my entry into the professional world, I’ve had a passion for investing in stocks and with that an interest in understanding businesses. I think I purchased my first shares at around age 14 (they were Telstra for those interested!). To this day I continue to spend considerable time each week researching equity investments and managing my investment portfolio.

That’s enough for now in terms of an intro about me, I really look forwarding to sharing my thoughts with you in the coming weeks and months. A few ideas I have for future blog topics:

- How to get started on the journey to building wealth

- My investment style and philosophy

- Why I don’t own bitcoin

- Individual stocks vs index funds

I will add to this list as I think of ideas. If there are any topics you’d like to see my write about, please let me know!

Best,

BTS

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