Meet Andrew: He loves small caps, growth funds and cycling

A few weeks ago, an unexpected email hit my inbox. The note was from Andrew, a regular Livewire reader based in Victoria managing his investments. Andrew’s note delivered a succinct message: “Attention, James Marlay – you are missing a trick!“

I love getting feedback from our readers and promptly set up a call to hear Andrew’s idea. Livewire is a dedicated website allowing fund managers and investment professionals to share their insights. 

What Andrew thinks is missing are interviews with investors that use Livewire as part of their investing process. He said he wants to understand how they use the information on the website, which contributors they follow, and the lessons they have learned as investors.

Livewire readers are passionate and astute investors. I’m also cognisant that individuals and advisers often have different objectives than fund managers. So, I’m taking action on Andrew’s feedback and plan to publish a series of interviews with Livewire readers.

Andrew agreed to share his own experiences to kick off the series. If you are interested in sharing your investing journey, please send me a confidential enquiry by clicking the contact button at the bottom of this wire or by emailing team@livewiremarkets.com.

Livewire Investor Profile

Name: Andrew

Age: 57

Employment Status: Full Time

Years Investing: About 25 years

Investment goals: To self-fund retirement

Products used: Direct Equities and Managed Funds

Biggest portfolio holding: Codan (ASX:CDA)

Passion: Cycling 

How old are you and how long have you been an investor?

I’m 57 and probably in my early 30s was when I really started to get into investing.

Were your parents investors?

My mother was. She was the influencer. She was a secretary working in a high school and a single parent, my father died very early. So, she decided that when the floats came along for Commonwealth Bank (ASX: CBA), Westpac (ASX: WBC) and Tabcorp (ASX: TAH) and some of those companies in the 90s, she decided to jump on. She encouraged myself and my two siblings to invest.

I've probably got my mother to thank for getting started. She was my biggest influence.

What's the objective of your investing?

Just so that I can fund my retirement. I'm not going to rely on the pension for that, so it's really going to fund, I guess, the next phase and the next adventure coming along.

Can you share a few experiences that have shaped your investment strategy?

In the earlier days, I was a really passive investor.

I opened a CommSec account just before the last mining boom, so 2003 - 2004. It just so happened I bought into Neptune Marine, a microcap float company with underwater welding technology. I understood the technology and I bought into that company and it ended up being a 10-bagger over about a 12-month period, and I sold out. I just set a stop loss target – quite fat, dumb, and happy.

Eventually, I looked at my CommSec account one day and suddenly there was a notification saying it had sold on me. But why complain when it's a 10 bagger?

It actually went broke about 12 months later, went absolutely bust. For me, it was more dumb luck than anything else that I'd actually just set this buyout limit so there was no emotion selling out – CommSec did it for me. But I think, early on, that was a mistake. Because it really emboldened me, and so I took a whole bunch of risk in pharmaceuticals and a whole bunch of microcap floats. I got into a company called Ritract (RTL) and I probably put too much into it. It ended up going broke and of course, I lost a lot.

That was a wakeup call, a serious lesson. I think from then on in, I was more measured and selective about what I invested in, real companies with real earnings.

I work in the defence sector, so I bought into some of the defence sector stocks, where I understood and knew the companies. For example, I bought into one of them straight after it floated, which was a company called Service Stream. It's in the service sector and really did well on the back of the National Broadband Network.

I used to work with Bob Grant in the defence sector. Bob moved on and became CFO for Service Stream. When I saw this I said, "Right, I'm going to have a piece of this." That did really well. A year ago it was a 10-bagger, I still own it today and it's probably a four-bagger today.

I rode it all the way up and then rode it all the way back down again. That was probably another lesson too: knowing when to sell out.

It's really easy to know when to buy, but knowing when to sell, that's the toughest thing.

I understand you have moved your strategy away from looking for pure income into more capital growth. Could you tell me a little bit more about the philosophy that you're employing there?

A few years ago I subscribed to The Barefoot Investor, Scott Pape. I was really building up the portfolio for yield, so I'd have a whole bunch of yield stocks and that would then effectively semi-replace my salary and contribute to my retirement. It was an article I think that Scotty wrote that really talked about how, if you're looking for yield, just sell down some of your growth stocks. It was all about total shareholder return.

From that point onwards I realised you don't necessarily need to get income from the yield. You can just do it by selling down part of the units, so that's when I started getting into some of the managed funds. Some of those managed funds are returning 15, 20, 25% per annum. Well, just sell down 5% or 6% and you've got your yield – particularly if you're in the pension phase.

What types of products do you use to execute your strategy?

About two-thirds of my portfolio is in direct stocks, with around one third in managed funds.

Over the next 12 months to two years, as I get towards the pension phase, I'm going to shift that around. Probably more into the managed funds, to take a little bit of risk off the table and a little bit less volatility.

TOP PORTFOLIO POSITIONS

1. Codan (ASX:CDA) 44%
2. Commonwealth Bank (ASX:CBA) 5%
3. Frazis Capital Partners 5%
4. Lakehouse Global Growth Fund 4%
5. Austal (ASX:ASB) 4%
6. Service Stream (ASX:SSM) 3%

How do you feel about the volatility that Codan creates in your portfolio?

I bought it around six or seven years ago when China ripped off the gold detector technology IP and the stock went south. I knew of the company and I liked what it did. I think I got in at about a dollar a share, and they're sitting at around $17 or $18 today. That's why that represents the biggest part of the portfolio.

It's pretty binary. On some days, it's actually quite euphoric, and then on other days, it's completely the opposite.

It's been a pretty wild ride, but I am a big believer that as long as your investment thesis holds, you've got to let your winners run. You've got to hold your nerve and just let them run. It’s tempting to sell but no matter how hard you peer at the right side of a chart, you can’t tell what it’s going to do.

Traditional portfolio management theory would have seen you sell out of Codan many times and manage that position down. So, what was behind your thinking in holding your nerve and staying on that winner?

The founders still own the business, they've still got significant skin in the game. I just like the way that, whenever they grow the business through acquisition, it's a really well-considered acquisition strategy.

There’s another really smart thing they did, in forming a strategic alignment with Caterpillar. All their products, particularly those from mine sites, all get sold through the Caterpillar network, so they've just extended their reach 200-fold or 300-fold. That translated into year-on-year earnings per share growth.

If you look at the history of Codan, apart from probably the blip they had when they had their IP stolen, they've actually done really well. They consistently under-promise and over-deliver.

How do you deal with losing positions?

The selling is a really interesting one. I now enter every stock into a spreadsheet and think about when I would sell out. As an example, in Service Stream, it was when Bob Grant, the CFO, left the company. He retired and that's when the stock went south. He got out when the going was good and NBN rollout was concluding, and I should have executed on that signal. But I think this is something that will probably resonate with a lot of investors: you can't consider the tax implications, the capital gains tax. It must be an investment-based decision only, just forget about the tax. Ignore it. Because that clouds your investment decision when you are thinking of exiting.

How does Livewire help you with your investing process, and what tips you can share with other investors about using Livewire?

One way I use it is for investing thematics, about what I should be looking for in the market – that’s probably the first thing.

The second thing is if a fundie's ideas resonate with me, then I typically go and have a look at the fund and I do some due diligence on it. If I like the fund, I'll call up the fund manager, have a conversation or two, and depending on how that goes, then I'll tip some cash in and invest with them.

That’s how it worked with the likes of Joe Magyer at Lakehouse and with Michael Frazis at Frazis Capital.

The other interesting one is BlueLake Partners – I really like what those guys do and am starting to do my due diligence on them. When I look at their track record, it's mind-boggling how well they've done.

Favourite contributors

• Joe Magyer, Lakehouse Capital
• Michael Frazis, Frazis Capital Partners
• Marcus Padley, Marcus Today (so entertaining)

Here's the question I'm most and least looking forward to asking: what can Livewire do better, or what do you dislike about Livewire?

What I love about Livewire are the stories and thematics explored and such a diverse bunch of contributors. Buy Hold Sell is always interesting and Patrick Poke’s passion in the “Rules of Investing” is infectious. Always a good Saturday morning podcast.

The stuff that could be improved is a move away from fundie-only focus. I’d really like to hear about how other investors use the information that they gather from using Livewire. I think there is an opportunity for Livewire to interview the investors that use the website and to share their investing experiences with others.

Can you share a bit about a passion or an ambition that you have for your future?

Once the world opens up, I want to visit my daughter in London. She’s a school teacher and like everyone in the UK, it’s been hard. I’d also like to cycle some of the great routes around the world. Tour de France, the Giro d'Italia, some of those. Basically, I want to go to some of those events and then jump on the back of some of them and do some cycling around those nations.

What lessons have you learned as an investor that could potentially help others?

1. Trade less.
2. Let your winners run.
3. Understand when to cut your losses

I'd love to hear about your investing journey

If you are interested in sharing your investing journey, please send me a confidential enquiry by clicking the contact button at the bottom of this wire or by emailing team@livewiremarkets.com.

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