Breaking barriers

Opportunity knocks for investors who follow proven strategies, writes Bill Harcourt

Several months back the investment adviser I was interviewing was critical of the Platinum Group of managed funds. No doubt today they are back on his recommended list. This is an example of the short-term attitude of the industry based on quarterly performance figures.

The careers of Platinum chief investment officer Kerr Neilson who runs the Platinum International Fund and Andrew Clifford, manager of the Platinum Asia Fund, since their days with BT Funds Management have been remarkable.

One should browse through Platinum publications, easily accessible via any internet search machine. As an investor I profit from them.

Some time ago Platinum International Brands Fund manager Simon Trevett mentioned a pub stock selling at a substantial discount to its asset backing per share.

Enterprise Inns runs a huge portfolio of 6000 pubs throughout the Britain and Ireland. It's listed on the London Stock Exchange. Back then it was selling at around 30 pence. At the time of writing it's selling at 103.40 pence, a rise of some 240 per cent.

The Platinum International Brands, up 26.1 per cent in the past 12 months, is well worth considering. Brand name funds are among the best defensive companies. A famous name underwrites a customer's trust and prestige. Locally we have brand names such as Blackmores (health products), ARB (automotive components) and perhaps Oroton (fashion) but few international brand names such as Billabong, now in dire straits.


Perhaps at present I would be looking at ASX-listed hearing aid multi-national Cochlear (ASX: COH). Its share price has fallen sharply from $80.00 to $69.00 recently as a result of a re-call last year. Since then it has hit $71.30.

In the words of chief executive Dr Chris Roberts: "Investors tend to look backward not forward."

Recently Kerr Neilson produced a "short framework for investing your own money" available on the Platinum Fund's website. It's an excellent read for private investors.

The fund manager argues investors should realise, despite noise from the media, that financial crises such as governments overspending and creating money are not as rare as you would imagine. "It is important to realise the system eventually sorts itself out and after five or 10 years the game will be on again".

This will mainly be achieved by the "debasement of money" - in other words inflation. According to the Reserve Bank a basket of goods and services costing $100 a decade ago would now cost $131.46.

Investors should realise that despite all this turmoil and huge swings in the past 110 years, real returns from shares have averaged 6 per cent a year in money terms and 9.2 per cent in the US.

Note - of the 9.2 per cent total return over this 110-year period, nearly half came from dividends. "Dividends play a very important part in rewarding shareholders for the risks they take".

Platinum exploits simple ideas. For example, the crowd tends to over-emphasise recent events. Thus there is a natural predisposition to make an investment decision by projecting present information into the future.

Other advice for investors includes valuation that is critical when buying shares. "If you pay too much for a share you are unlikely to make much money."

Warren Buffett, perhaps the world's most successful investor, talks of a metaphorical moat protecting his investments such as an iconic brand name like Heinz or Coca-Cola or a railway line monopoly.

Platinum refers to the "sustainability of earnings". Make sure earnings are not driven by temporary factors. One would add know the business you are buying. If you don't understand it, don't buy it.

Don't be a contrarian for the sake of it. Recall the stockmarket usually gets it right. Be patient but if facts change, change your position. The stockmarket offers you a smorgasbord of opportunities, some cheap, some expensive.

"The cheap ones in our experience give you the best money-making opportunities" as long as you understand them.

In my view the best bargains for private investors doing their own research are small stocks ignored by brokers because they are unprofitable to cover.

However, recall that the greater the reward the greater the risk.

Consolidator's earnings up

Late last month I wrote of public companies cannibalising small family businesses. Long gone are your local milkman, corner store grocer and family butcher. Going is your local funeral parlour, vet and dentist.

I referred to funeral consolidator Invocare (ASX: IVC) then priced at $9.23 and now $10.64.

Your columnist is a modest investor in Invocare that dominates the Australian and New Zealand funeral industry via dozens of suburban brand names it continues to use. However, the company has consolidated its overall operations including transport, body care, cemeteries and so on.

Early this month for the full 2012 year Invocare reported sales up 14.9 per cent to $368.7 million. EBITDA is up 13.7 per cent to $93 million. Operating earnings, after tax are up 16.7 per cent to $42.7 million. Invocare paid a final dividend of 19 cents; for the full year 34 cents. Payout was 88 per cent after tax.

Animal attraction

Back in August 2012 we recommended vet practice consolidator Greencross (ASX: GXL) then priced at $2.52 and now $3.89, as well as 1300Smiles (ASX: ONT) that takes over small dental practices - priced in August at $6.00 and now $5.78.

1300Smiles has been affected by the Federal Government's recent closure of its Chronic Disease Dental Scheme.