Some of Australia’s top investors deliver their opinion on the big picture, the small picture and all that lies in-between. A must read for anyone looking to profit in 2021 and beyond. In this series, Richard Hemming asks 8 of Australia's top fund managers key questions on investing. These are excerpts from the first 4 of 12 questions.

Q1: What is one piece of advice you would give to a new investor on the stock market?

NICK MACLEAN
Portfolio Manager, Surrey Asset Management:

In addition to the educational experience that assists in understanding the basics of investing there are a number of traits that are important in investing.

• Focus, Focus, Focus! The markets can become distracting so it is extremely important to have a clear and determined focus on your investing process and principals.
• Develop a system of investing that suits your psychology and skill sets and follow that process.
• Have conviction in your views but never assume you have all the answers or end up suffering from cognitive bias. Have a passion for investing! It is not just a job but a way of life!
• And finally read as widely as possible.

If you are new to investing, read Under the Radar's beginners guide to investing now.

THE IDLE SPECULATOR
Portfolio Manager, Under the Radar Report:

 My advice is to read Under the Radar Report and Blue Chip Value at the very least! Initially, invest money that you can afford to lose. Then build up a portfolio of at least 7 stocks, buying both Blue Chips and Small Caps. Diversify your portfolio by sector, by financial structure and by geography. Look for dividend paying stocks and look for stocks that are primarily about growth. Keep reading Under the Radar Report and Blue Chip 

To read the full version, with each fund manager's answer to each question, access the Small Cap report! 

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Q2: What has Covid taught you as an investor? 

ANDREW BROWN
Portfolio Manager at Rothschild Australia:

Stick with quality, be patient and try and take advantage when an annuity asset with long term income gets discounted because of a “one year” event. That has to be tempered with the fact that business moves at warp speed, and industries change quickly, new ones growing out of nothing. But it’s also taught me central bankers are utter maniacs - a dull public persona but wild behind closed doors. 

KARL SIEGLING
Principal at Cadence Capital:

The more things change the more they stay the same. People experience hope, fear and greed. The more sophisticated our society gets the quicker information and ‘noise’ can be distributed and the more effective messaging is in relation to messages of hope, fear and greed. We have also seen that with all the ‘noise’ it is getting more difficult to fact check situations, whilst ironically, fact checking is more important than ever. People, who collectively make up the markets, will continue to be emotional and panic. Our process forces us to reduce exposure when markets turn and add to winning positions as markets recover. This works well during panics and recoveries

Q3: What economic data do you use to judge the current market and to anticipate the recovery to come? How are you keeping a step ahead with your stock specific investments?

ANDREW BROWN:

I keep a close tracks on non-standard inflation indicators. I’m concerned that analysts haven’t really thought about what happens in a higher interest rate environment. I’m looking to see weakness in the consumer at some stage, either through differing employment trends (lots of jobs available but they don’t pay), high debt, re-opening spend. I don’t want to be positioned for the current environment. I want to be one step ahead. 

BEN RUNDLE
Portfolio Manager, Hayborough Investment Partners:

Our process hasn’t really changed all that much based on the current economic environment. We like to focus on companies that have strong returns on capital and have options to reinvest that capital at attractive rates. If you look at most analyst reports and company presentations you will find this is rarely discussed. A lot of the time you will see talk of underlying EBITDA figures and price to earnings ratios which may not always be the best way to decide whether a company should be bought or not. A company might be growing its earnings by say buying smaller businesses, but if it is not actually creating value for shareholders, it will eventually be found out. We also like to spend a lot of time focusing on the DNA of a business to understand why it might be better than its competitors. At the heart of a lot of great businesses are great people so we try to find out what makes them great. 

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Q4: What criteria do you use for investing in companies?

CHRIS PRUNTY
Portfolio Manager, QVG Capital:

Most investors are looking for the same thing: competitively advantaged businesses with capable management teams trading at a cheap or fair price relative to your estimate of their intrinsic value. I think where we have done well is a willingness to invest earlier in a business’s life-cycle, when the competitive advantage is still being established. This means we sometimes take on more risk than others but we have been adequately compensated for this risk via higher returns. We have also been willing to back good managers even when their stocks look expensive on the assumption that they’ll allocate capital in a way that creates value or will extend the duration of their earnings growth runway via new products, services or opening new markets. 

RICHARD BAILEY
Portfolio Manager, Kuttabul Capital Management:

The list of qualitative and quantitative traits are no different to what you can read in an investment text so I won’t regurgitate it here. Rather I’d just say that it helps greatly if there is something going on, some reason why the market will ascribe a higher value to a company next year than it does today. That and it also helps greatly if the company is able to generate cash and lots of it.

Read mor about Under the Radar's own investment criteria now.

To read the full version, with each fund manager's answer to each question, access the Small Cap report! 

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Read Part 2 of our Special Fund Manager reports where we talk about:

Q5: What are your best performers in 2021 and why? Do you still own them?
Q6: What did you learn from any losing investments in 2021?
Q7: How long on average do you stay invested for?
Q8: Could you share examples of some of your big stock picking successes please.