One of Australia’s best stock pickers shares what’s at the heart of every great investment

Note: This interview was recorded on Friday 15 November 2024.

Let's be clear: Past performance is not a reliable indicator of future return.

That said, Robert Gregory from Glenmore Asset Management would happily stack his performance over the past seven years against just about anyone else in Australia.

Since its inception in June 2017, the Glenmore Australian Equities Fund has returned 271% versus the ASX All Ordinaries Accumulation Index’s 94.44% - good for an annual return of +19.3% per annum since inception, as at 30 October 2024.

While performance has been exceptional, no silver bullet, magic formula, or secret herbs and spices have driven it.

Rather, Gregory puts it down to the amount of research he does for each stock that ends up in the portfolio—which can take a minimum of months but, as is often the case, has been followed by Gregory for years.

Other key elements of Gregory’s philosophy include buying quality businesses at the right price, but also understanding what lies at the heart of those 'quality' businesses. 

"The overriding philosophy is to invest in quality businesses at attractive prices", says Gregory, adding that a quality company has, almost always, a product or service that resonates with investors. 

"It should have a really high-value proposition. It might help the customer save money. It might allow the customer to make more money in its business. It might bring enjoyment to a customer's life, but generally speaking, at the heart of every great investment, you're going to have a great product or service," Gregory says.

In the following episode of The Pitch, Gregory shares a little more about his journey and the key elements of his process. 

Edited Transcript

Chris: Can you just tell us a little bit about your journey and how you came to found Glenmore Asset Management?

Robert:  I studied commerce at Melbourne Uni, and after that, worked at a few corporates, a financial services firm and then consulting. But, even then, back in my twenties, I always had a strong interest in the equity markets and really did a lot of reading of books and reading about the great investors.

I always had a strong interest in the equity markets. After working at a few corporates, I got a break at a broking firm as a sell-side analyst. So I did that for a few years, which was great… just learning a lot about how to analyse companies, talking to management teams, and getting good exposure.

But from the broking side, there was always a strong desire to move into the funds management side. So the big break was in 2007 when I joined a fund, CBG Asset Management, and I worked there for about nine years.

The structure was very much Australian equity, long only, deep research into companies and looking to buy and hold really high-quality businesses.

So it was a really good grounding, that 2007 to 2016 time period. There were a lot of different economic environments in that period, coming into the tail end of a bull market. Then we had the GFC, which was obviously pretty interesting, followed by a really strong period of equity market returns.

But certainly, the grounding at CBG was really useful. I got exposure to a lot of great management teams, continued to hone the investment process, and what kind of companies I look for, and just got a really good understanding of the landscape of Australian equities.

In terms of the driver to set up Glenmore in 2017, I'd always had this desire to have my own firm, and have stronger control over the investment decision-making process, so that was a big motivation.

From a position sizing point of view, a really important part of being a successful fund manager is after you've identified the stocks you want in the portfolio, just getting that position sizing right.

So having the ability to put a meaningful amount of the portfolio into the highest conviction ideas was a real attraction.

Chris: Rob, I've got a follow-up question for you. 2007, that's an awkward time to start in markets full throttle. The GFC came hot on the heels at that start. Was there any moment where you thought, "Geez, what have I signed up for here?"

Look, it was pretty interesting. Back in ‘07, economic growth was very strong. Inflation was under control. Just the general amount of bullishness and buoyancy in the markets was really high.

I can remember some pretty low-quality companies, they were performing very strongly from a stock price perspective, and ultimately, I had about six or nine months of that before we started seeing the emergence of the credit crisis in the offshore banks. So yeah, it was an interesting time, that's for sure.

Chris: Baptism of fire, no doubt. Let's talk about some of the biggest influences on your career. Who have they been?

That initial interest in becoming a fund manager really stemmed from doing a lot of reading about famous money managers in the US and offshore. So even in my mid-twenties, I started reading a lot of books about Warren Buffett, Peter Lynch, George Soros - a vast number of books - and that was really interesting, just the tales of some of their great investments.

Buffett, in particular, just his style of investing in companies that are easy to understand, long growth runways, buy and hold - that particularly resonated. So yeah, that was interesting. Some of the Masters of the Markets books, detailing the great Australian fund managers are really interesting, proving how they operate and how they've grown their funds and management business.

That was probably the biggest influence, just to get into the industry. I’ll also call out my wife as being a big supporter. I'm sure it's tough being married to a fund manager. So yeah, I definitely call her out as well.

Chris: You've talked about some of the big names there. Let's talk about your investment philosophy. How would you explain it to someone who's maybe not as familiar with markets as you are? 

The overriding philosophy is to invest in quality businesses at attractive prices.

Digging into what's a quality company, almost always, the quality company's got to have a product or a service that really resonates with the customer base.

It should have a really high-value proposition. That might help the customer save money. It might allow the customer to make more money in its business. It might bring enjoyment to a customer's life, but generally speaking, at the heart of every great investment, you're going to have a great product or service.

So the investment philosophy, that would be the first point - is to analyse the quality of the product or service that the company sells. You'd probably be looking at the addressable market. So a large addressable market is ideal, just it gives the company a long runway for growth. It also means that it can generate organic revenue growth, which is much more preferable to needing acquisitions to deliver that growth.

And then also just having the ability to deliver earnings in excess of what's priced in by the market. That's ultimately what's going to drive the stock price higher is earnings positive earnings revisions, earnings being delivered better than what's priced in.

Chris: Rob it's been a pretty successful formula so far. Your performance has been quite exceptional over an extended period of time. What do you think sets you apart from some of your contemporaries?

I think that given the success of the fund, the main factor is the amount of due diligence that I'm doing into the prospective companies. 

Really, once a company becomes on the watch list, it is really about doing as much research as you possibly can into the product, the service, the industry it operates in, its competitors, the quality of the management, and even just qualitative factors like how feasible is it for the company to win market share of its competitors.

So there are a lot of things that go into the mix, but as a general comment, it's that amount of work that you have to do first up, just to get that investment edge or extra insight into the company.

Chris: Rob, I've got to ask this question because there'll be a lot of people watching at home that would read something on Livewire, read a broker report, and then go out and make a buying decision. When you talk about your research process, how long are we talking in terms of time? There's obviously a big volume of work, but if you start looking at a company on day one, how many days later are you potentially buying that company?

At a minimum, I'd say months. But there's a lot of instances where companies have been… they might come into the portfolio that I've been monitoring for five, 10 years. But, as a general comment, there's a lot of weeks and months of research that goes into the process.

Chris: That's the difference between a fund manager and a retail investor. A fun one to finish with Rob, what's something that the audience wouldn't know about you?

I've got two young, very sporty boys, ages nine and 12. So, they play a lot of footy and cricket, and I certainly do help a lot with their sports teams – coaching, assistant coaching, team managers, and ran the local keeper at Glen Iris for three or four years. That sort of thing is a nice change up after having been in front of the computer screen all week, just to get out and do some stuff with the boys.

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