Meet Michael: He's putting his money where his mouth is

Michael is wise beyond his years. At just 24 years old, he's developed an investment strategy that will help build the funds to buy his first house, and later, compound his wealth to support his family, fund his retirement and donate to the causes that matter most to him. 

His risk tolerance has considerably changed in just six years of investing. He's learnt to avoid the "noise" of markets and build a portfolio of long-term growers. He's consistently on the hunt for undervalued companies with structural tailwinds, strong balance sheets, quality management teams (with skin in the game), and a history of growing earnings. 

When it comes down to it, the one thing Michael has over many of Livewire's readers is time. Hell, if he has figured all this out at just 24 years old, imagine what he could do in the 42 years until his retirement... 

Like many his age, Michael is passionate about sustainability, environmental management and climate change. Unlike many, he's putting his money where his mouth is.

"I am innately curious. I want to learn about the amazing companies that are trying to solve different climate problems, and try to generate a good investment return out of these companies while having an impact," he says. 

"I am growing up in a world facing a climate crisis, and I've learnt that limiting your carbon footprint and being sustainable can actually be partly solved through investing. 

"We're going to need trillions of dollars invested in new technologies to reach net zero. So I think young people, like myself, need to understand and idenitify the companies that are doing amazing work." 

In this Meet the Investor profile, Michael shares some of the tools that he uses to become a better investor, his top five investments, as well as the side hustle that has gained him a following of over 67,000 on TikTok and 8,000 on Instagram.  

Enjoying Livewire's Meet the Investor series?

We are looking for more readers to feature in our Meet the Investor series in 2022. If you are interested in sharing your story, contact us using the email address below:

content@livewiremarkets.com

Livewire investor profile 

• Name: Michael
• Age: 24
• Employment status: Full-time and self-employed
• Years investing: 6
• Investment goals: Medium Term – Build funds towards a house deposit; Long Term – Build wealth for my family, retirement and philanthropic causes.
• Products used: Analysis – TIKR; Current Holdings – Australian/International Equities (Superhero/Stake) and Private Crowdfunding (Birchal/Crowdcube); Previous Holdings – ETFs, LICs and Managed Funds (Spaceship).
• Biggest portfolio holding: Genex Power (13.70%)

1. How old are you and how long have you been investing?

I am 24 years old and have been investing for around six years since I started university when I was 18. Studying Commerce and Science with a Finance major, I wanted to start taking greater ownership of my savings and set myself a New Years' resolution to read the Australian Financial Review each day to get a better understanding of business and financial markets. This led me to open a CommSec account and make my first ever investment in a microcap medical cannabis company called Cann Group (ASX: CAN), which ended up being a failure that I’ll discuss further.

Since then, I have grown a curiosity and passion for learning about new companies and industries both domestically and abroad while developing my knowledge about investing. Aside from my studies at university, I’ve found reading books, listening to podcasts, and following fund managers on Livewire Markets and other resources to be really insightful and has helped shape my own investment philosophy. 

Notable books for me have been Roger Montgomery’s Value.able, Peter Lynch’s One Up On Wall Street and Peter Thiel’s Zero to One. For podcasts, I’d recommend Equity Mates, Chris Judd’s Talk Ya Book, Invest Like the Best and All-In. These have allowed me to understand how top investment professionals approach investing and navigate equity markets, as well as how entrepreneurs create high-quality businesses.

What started out as making speculative, uneducated bets on stocks has since developed into investing in businesses I believe in over the long term – all thanks to these resources. 

2. What is your investment objective?

My investment objective can be broken into two horizons. In the medium term, as I’ve only recently finished university and began my working career, my goal is to build funds towards a deposit on a house for myself in the next five years. In the long term, I’m aiming to build wealth for my family, fund my retirement comfortably and be able to allocate capital to philanthropic causes I believe in.

As for my risk appetite, this has changed considerably in my six years of investing. 

Previously, I had a high tolerance for risk. I sought higher short-term returns, but in practice, this was a poor approach. Since then, my appetite for risk has become more calculated and focuses purely on the underlying business, rather than the day-to-day noise of the market. 

As the father of value investing, Benjamin Graham, famously said, “In the short run, the market is a voting machine but in the long run, it is a weighing machine”. While I still consider short and medium-term events that drive equity markets, including certain industry themes and macroeconomic factors, I now mostly focus on how a business will perform over the next five years.

I’m currently working as an analyst at an investment management firm, so set aside a portion of my salary to consistently invest in companies I own and new companies I want to allocate to. This is while still enjoying time with friends and family so I don’t let my investing dominate all my regular expenditure and balance outside of work.

3. What products do you use to execute your strategy?

Previously, using a CommSec account, I invested in Australian small caps, thematic ETFs and certain LICs of notable funds with investment philosophies I subscribed to. On top of this, I would also allocate funds to investment apps such as Spaceship, where I could conveniently invest regular $250 deposits to certain portfolios. As I continued to develop my learnings, I realised that these ETFs, LICs and investment apps I was investing in had several holdings that I didn’t want exposure to such as BetaShares Climate Change Innovation ETF (ASX: ERTH) including a large holding in Zoom Video Communications (NASDAQ: ZM), which for various reasons, I didn’t agree with.

Because of this, I now only invest in individual domestic and international listed companies through cheaper brokerage accounts with Superhero and Stake. I also have a number of holdings in private, unlisted companies via crowdfunding platforms like Birchal and Crowdcube, where I’ve been able to invest in fast-growing, sustainability companies where those funds will remain illiquid over several years and avoid the day-to-day risk of public markets.

For all my company and financial analysis, I use a financial tool called TIKR which is run by S&P. It costs about $250 (AUD) a year for a subscription and provides access to company financials, broker estimates, valuation metrics, ratios, and more for thousands of global stocks. With TIKR I can see how companies have been performing over recent years, the valuations they are trading on, as well as their top shareholders and any changes to their holdings in these companies.

For those investors that are interested in sustainable investing like I am (and this isn't a recommendation but more to show that there are investment options out there that can have a true impact), there's a new investment app called Bloom Impact Investing which allows you to invest in listed companies that are having a positive environmental impact, as well as real assets like solar farms and waste plants.  

Another quick one would be the Munro Climate Change Leaders ETF. They have a really interesting portfolio of the top companies that are working to solve different environmental problems. For example, I hadn't considered that a lot of carbon emissions can be reduced with greater energy efficiency, whether that's for buildings or construction, and Munro really opened my eyes to that. 

4. How would you describe your strategy?

My current investment strategy has been heavily influenced by learnings I’ve gained from Peter Lynch, who averaged a 29.2% annual return whilst managing the famous Magellan Fund at Fidelity Investments. 

Fundamentally, I adopt an investment style that combines value and growth at a reasonable price (or GARP) approach. I invest in businesses that I understand or interact with in my day-to-day life such as Spotify, Disney and Universal Store, where I know who their customers are and how they operate. 

If I don’t understand a company’s core activities, for example, certain mining, biotech and insurance companies, then I can simply remove these from my investible universe, as I don’t have a competitive edge on the market in being able to better value these companies.

For the companies I do allocate to, they must operate in industries with structural tailwinds, have a strong balance sheet, quality management teams with skin in the game, a history of growing earnings and margins, and a robust competitive advantage, as well as good returns on capital. 

Aside from these key characteristics, these companies must trade on valuations that I believe are below their true intrinsic value, where the market is mispricing how much the company is worth.

At a portfolio management level, I tend to dollar cost average my holdings if their share prices have fallen and they trade at an even large discount to their intrinsic value. This is like seeing staple items on sale at the supermarket, where you buy more than usual because of the discount. With this approach, I can avoid the day-to-day noise in the market and simply follow these companies in their growth journeys and assess whether they are tracking with my fundamental investment thesis. If they stray away from my thesis, then I can think about exiting my position.

Ultimately, this has formed a mixed portfolio of Australian small-cap and international large-cap growth companies, with a strong tilt toward sustainability.

5. Could you please share your top five holdings in % terms and tell me a bit about why you hold each of these positions?

Genex Power (ASX: GNX) – 13.70%

GNX is a diversified energy provider with a portfolio of renewable energy generation and storage projects across Australia and is one of the only pure-play renewable energy companies listed on the ASX. Currently, it has two solar assets in operation in QLD and NSW, while also developing a battery project and its flagship Kidston Pumped Hydro, Wind and Solar projects, where it's using an old gold mine as a hydropower resource. The company has $60 million of cash and has been well funded by large government bodies on its projects. In the past few years, multiple ASX-listed renewable energy companies have been acquired including Infigen Energy, which was bought by Spanish giant Iberdrola in 2020, and Tilt Renewables, which was acquired by Mercury NZ and a consortium of AGL Energy, the Future Fund and QIC in 2021. Both Atlassian founders Mike Cannon-Brookes and Scott Farquhar have invested in GNX through their investment firms Grok Ventures and Skip Capital. In August 2022, a consortium including Skip Capital and PE firm Stonepeak Partners announced a takeover bid of $0.25c to buy GNX, which was well above the company’s 1-year low of $0.11.

The Walt Disney Company (NYSE: DIS) – 10.39%

DIS is an entertainment company we all know and has two segments – Media and Entertainment Distribution; and Parks, Experiences and Products. As an avid film and TV show fan, I believe Disney has the not only best portfolio of content in the industry but also the most loyal following. Often people don’t realise the assets that Disney actually owns within its Media segment, including Marvel Studios, Lucasfilm, Pixar, ESPN, Hulu, 21^st Century Fox, Sky, National Geographic, ABC, as well as many others. In late 2019, the company launched its streaming service Disney+, which along with Hulu and ESPN+, recently reported a combined 221 million subscribers, just edging out Netflix’s 220 million. Netflix first started streaming in 2007, and Disney was able to become #1 (by subscribers) in merely three years, thanks to the wide array of content for people of all tastes and age groups. While Disney+ is still unprofitable, the company is investing heavily into a huge sleight of Marvel and Star Wars films and TV shows over the next 10 years and is beginning to implement alternative pricing tiers with ads. The loyalty that its fans bestow on its original content won’t deter subscribers from these ads and as seen with the success of Alphabet’s YouTube, I believe Disney+ can grow to become a huge source of earnings for the company. DIS has also continued to generate huge box office returns in cinemas since the COVID pandemic – namely with Spider-Man: No Way Home. I believe the company will continue to dominate the entertainment industry with the assets it owns and the projects they’re currently developing. DIS is an example of a company that I understand deeply and am a passionate customer of its products myself.

Enphase Energy (NASDAQ: ENPH) – 8.78%

ENPH is a leading manufacturer of solar energy solutions, namely semiconductor-based microinverters that convert energy from solar panels and energy monitoring software. Solar panels produce electricity as direct current but need to be converted to alternating current for household appliances and connecting to the grid. As more consumers have grown conscious of their carbon footprint, and the price of solar panels and batteries has come down, solar panel usage for residential electricity has increased. In the US alone, it’s estimated around 5% of homes are now powered by solar energy, with each installation requiring microinverters. This leaves a huge addressable market for key players to take market share, of which, ENPH has already been seizing the opportunity with growing earnings and margins over recents years and forecasted revenue of $2.25 billion for FY22. While it competes with another microinverter manufacturer SolarEdge Technologies, and currently trades on a forward PE of 64 times, I believe ENPH will still be a strong beneficiary of household solar energy demand over the next decade.

ZeroCo (Unlisted) – 6.56%

ZeroCo is a private, sustainable home care products company based in Australia. The company is trying to reduce the plastic waste generated from common household products using a closed-loop system where products are delivered carbon negative direct to door, emptied from refill pouches into reusable “Forever Bottles” made from ocean and landfill plastic, and then returned in a complimentary reply-paid envelope and reused. The business has been growing rapidly since the start of the COVID pandemic and expanded its product range to now include home cleaning and body care items. For FY22, they reported 80% YoY revenue growth to nearly $10 million, with improving gross margins and around 70% of monthly sales coming from returning customers. Since its inception in 2020, they’ve been able to collect and divert over 2,363,129 water bottles worth of rubbish from oceans and bins and continues to set big waste goals. In late 2021, it announced a crowdfunding campaign through Birchal where they raised $5 million in 6 hours, alongside a $6 million private equity raising which included VC firm Square Peg Capital, Skip Capital, and other notable investors. The Founder and CEO Mike Smith's management style of transparency and dedication to climate change is something I strongly subscribe to and the investors that have backed Mike and the team are a testament to his ability to create a high-quality business. It’s also comforting to have some illiquid holdings as these can sit in the background away from public market noise and potentially achieve a high return in five to 10 years if an exit event occurs.

On Semiconductor (NASDAQ: ON) – 6.08%

ON is a leading semiconductor manufacturer that specializes in intelligent power and sensing solutions for electric vehicles, autonomous driving, sustainable power grids, cloud/5G computing and other industrial systems. In the past five years, it’s grown its revenues and earnings significantly while expanding its profit margins. Currently, it has US$1.6 billion of cash on its balance sheet, minimal debt, and in July 2022 it traded on a PE of 14.37 times, which offered relative value against its semiconductor peers. ON’s portfolio of products is primed to benefit from the tailwinds of decarbonization and digitalization in the next five to 10 years, and if the company can continue its track record of financial performance, I believe the market will better appreciate the company’s value.

6. Could you tell me about your worst investment? What did you learn from this?

My very first investment was one of my worst. As mentioned previously, I bought shares in a medical cannabis company in 2017 called Cann Group (ASX: CAN). At the time, medical cannabis had been legalised by the TGA in Australia. The then Health Minister Greg Hunt had also publicly endorsed that Australia could become a big exporter in cannabis globally. Based purely on a few news articles I’d read about all of this, I decided to invest in CAN, along with other listed medical cannabis companies like AusCann (ASX: AC8) and CresoPharma (ASX: CPH). 

For a few months, the hype around the legalization fuelled an uplift in their share prices and I was cheering. Then over the next two to three years the reality set in as these companies had years of clinical trials ahead of them before they could even generate any revenue, let alone gain a profit. Six years later, and down an average of about 80-90% on my investment in each of the medical cannabis stocks, I’ve never looked back and am glad I learnt my lesson in doing due diligence on a company before investing and never buying businesses that are pre-revenue.

Another lesson worth mentioning is my investment in Afterpay around the same time in 2017. Again, I’d read a few articles about this up-and-coming fintech company that was challenging credit cards in Australia and decided to invest at around $6 a share. Over the next two years, it had risen to above $30, and I’d made a substantial return. 

At the time, I was further into my Finance major at university and had learnt more about financial analysis and valuations of companies. I performed a rough valuation of Afterpay and found it was trading well above what I had deemed as its intrinsic value, so I decided to take my return and exit the position. I was also on a holiday in Europe at the time and needed more money to finish the trip. In 2020, Afterpay rose to a high of around $150 a share and while some may deem this was an irrational level priced by the market, the lesson for me was to not use any investments to fuel any short-term expenses, especially since potential returns can be missed.

7. How does Livewire help with your investing process and what tips can you share with other investors about using Livewire? And what can we do better? 

As an avid, daily reader of Livewire for over three years now, I can safely say it is one of the best investment learning resources I have encountered in my journey so far. Whether through Buy Hold Sell videos, articles from fund managers or The Rules of Investing podcast, there is so much you can learn about investment philosophies and new companies that you’ve never heard of.

Nowadays, I use Livewire to learn how certain fund managers that I follow are navigating the market and companies they think are offering value. The way I see it, these are trained, investment professionals whose job it is to recommend stock picks that generate excess returns. 

For me, I can learn about new, interesting companies or hear about some of my current holdings and use this as a high-level screen to then do my own thorough research and analysis and form my own investment thesis. The information that Livewire provides has also led me to even check monthly fund reports of certain fund managers to see any changes in their holdings, which might also generate ideas for other investors. 

I don't dislike anything about Livewire. It is a phenomenal media resource for aspiring investors and the array of different content across articles, videos and other forms, can serve all types of readers who are at any stage of their investment journey. If anything, I hope that Livewire can continue to reach more audiences or even venture into schools/universities so that more young Gen Z investors like myself can learn about investing earlier. 

8. Do you have a favourite contributor you recommend other investors follow?

This is easily the hardest question to answer as I have quite a few contributors I would highly recommend to other investors. Depending on your own investment philosophy, my favourites would have to be:

• Quality, Growth Businesses: Stephen Arnold, Bob Desmond, Jun Bei Liu, Chris Demasi, Andrew Macken and Roger Montgomery;
• Climate Change: Nick Griffin;
• Small Caps: Gary Rollo, Eleanor Swanson, Chris Stott and Matthew Kidman;
• Innovation: Hamish Corlett and Michael Frazis.

9. Is there a lesson you’ve learned as an investor that could potentially help others?

The three key lessons I’ve learned as an investor that I believe can help other retail investors: 

Investing with impact: 

While investing in sustainable companies may not align with every investor’s own philosophy, I think it’s important to consider that with most of the world trying to reach net zero carbon emissions by 2050 to avoid climate disaster, there needs to be trillions invested across renewable energy, energy efficiency, and the circular economy. This is a massive opportunity for companies exposed to these areas. I believe that having an impact on the climate and achieving high investment returns can be achieved simultaneously. 

The concept of 'di-worsification':

‘Di-worsification’ is a term I learned from Peter Lynch in his book One Up On Wall Street, which highlights the idea that adding investments to a portfolio can actually weaken an investor’s risk-return tradeoff. By impulse investing in a company because you received a tip from someone, favouring a particular sector, buying into a company you don’t understand, or other similar reasons, you may be adding unnecessary risk to your portfolio. It also requires more work to monitor and keep track of a high number of holdings, so I’d encourage investors to consider if they are experiencing ‘di-worsification’.

Ignoring the noise:

The last key lesson, particularly for younger investors who use their phones a lot each day, is to ignore the noise of the market. While it’s important to stay informed with current macroeconomic events and general news, if you invest in high-quality businesses that you understand and believe in over a five-year horizon, then you shouldn’t need to check your brokerage account each day. If the market closed for five years, which companies would you be confident in putting your money into over that period? Asking yourself this question can reduce a lot of stress with your own investing.

10. Can you share a personal passion or ambition you have for your future?

Some of my biggest personal passions are sport, food, travel and cinema. In October this year, I’m going to the US and Mexico with friends and can’t wait to check out the local cuisine in different cities and see some live sports games.

Outside of investing and the goals I hope to achieve, as well as my day-to-day job, a big ambition of mine is to grow my side hustle, a social media cinema brand called cinemaze which I started during the COVID pandemic last year. With two friends now on board as well, we create content about film and TV shows on various platforms, and now have over 67K TikTok followers, 8K Instagram followers and a podcast called CINEMATES, which is gaining some traction as well. We’re striving to become the #1 film and TV show podcast in Australia and hopefully host some big guests in the film industry on the show in the future. 

Enjoying Livewire's Meet the Investor series?

If you enjoyed hearing about Michael's investing journey, please give this wire a 'like', and if you know someone who might enjoy the article, why not send them the link?

You can access more of our Meet the Investor interviews by clicking here.

We are looking forward to hearing from more of our readers in 2022. If you are interested in being profiled in our Meet the Investor series, contact us using the email address below:

content@livewiremarkets.com