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Charlie Munger and stock picks at the Sohn Conference

The Annual Sohn Australia Conference was held on Friday 3 December 2021, bringing together prominent Australian and international fund managers. In addition to the star of the show, Charlie Munger, each manager chose their highest conviction stock in a 10-minute pitch.

It is presented by the Hearts & Minds Group which includes the $1 billion charitable Listed Investment Company, Hearts and Minds Investments (ASX:HM1) and has donated over $30 million to Australian medical research.

Most of the fund managers are not well-known in Australia and as many of the stocks are listed overseas, they may not appeal directly to local investors. Rather than trying to pick a winner among the wide selection, when every stock sounds like an excellent company pitched by true believers, the easiest way to gain exposure is by investing in all of them via HM1. Of course, this gives diluted exposure to any one great idea but it also diversifies risk.

The Chairman of HM1 is Chris Cuffe, co-founder of Cuffelinks, the predecessor to Firstlinks. Since the LIC commenced in November 2018, it has outperformed its index, as shown below from its October 2021 Report.

The full presentations will remain online for a few more days at the 2021 Sohn Hearts & Minds Conference link. Firstlinks readers can access 20% off the virtual conference price using the code SHM-FIRSTLINKS at the checkout.

Here are brief highlights from Charlie Munger and a summary of the selected stocks. Anyone considering investing should do their own research and check the full presentation.

In case anyone thinks the market was ready to push recommended stocks higher and compromise later buying opportunities, consider Megaport (ASX:MP1). It opened trading at $21.30 (just after the presentation recommending it), rose to a day's high of $21.87, then traded to $20.825 before closing at $21. No need to panic buy. 

Charlie Munger: "even crazier than the dot.com era"

Charlie Munger is now 97-years-old and he has little interest in many of the "wildly overvalued" stock prices which are ignoring fundamentals. He called the cryptocurrency industry "self-serving" and “I wish they’d never been invented.” He hates the way people pile into crypto and would like to see it banned.

Munger praised Costco for its ability to reduce prices due to its purchasing power, and sees its future as an internet force. It is a "competitor from hell" for other retailers such as Amazon, although he is an admirer of Jeff Bezos's achievements.

Munger is a major supporter of renewable energy from wind and solar, regardless of any global warming problem. He advocated the rapid replacement of coal, petrol and diesel but suggested Australia should sell its minerals to China and build a strong relationship.

“I think Australia was very lucky to have China get so prosperous, so it’s been a huge blessing to Australia. I think Australia with its deep involvement in China can be in a constructive position, Australia can encourage the United States and China to be more reasonable.”

Two other Munger quotes:

“I think all successful investing is value investing in the sense that you’re trying to get better prospects than you’re paying for.” 

“There’s no great company that can’t be turned into a bad investment just by raising the price.”

Here are snippets from individual fund managers, with charts drawn from the Morningstar database.

1. Qiao Ma from Cooper Investors

Techtronic Industries is known as a power tool industrials company but it should be considered a technology company. It has a deep understanding of its customers needs through product innovation. It grows sales by developing quality products not cutting prices and is expanding into Europe and Asia. 


Source: Morningstar.com, as at 2 December 2021

2. Jay Kahn from Flight Deck

Bengo4 is described as "Japan’s DocuSign", and changing Japanese regulations have created a movement to electronic signatures. Its CloudSign product is in the early stages of adoption while the company has a legacy business connecting lawyers with clients.  


Source: Morningstar.com, as at 2 December 2021

3. Eleanor Swanson from Firetrail

Megaport is an Australian tech solving business connection problems with a fast and flexible telco network offered at competitive prices. Its loyal customers can scale up or down easily, supported by a sales force that will push rapid growth in adoption in coming years.


Source: Morningstar.com, as at 2 December 2021

4. Beeneet Kothari from Tekne Capital Management

Delivery group Delivery Hero is enjoying the boom in last-mile logistics of takeaway food, in a business where scale is critical. Volumes have risen significantly but while profitability is improving, losses have been huge. Kothari has a strong record at previous conferences and describes the on-demand delivery market potential as enormous across groceries, apparel and electronics. He likes the management team and its founder-led mentality.


Source: Morningstar.com, as at 2 December 2021

5. Hamish Corlett from TDM Growth Partners

Spotify is the future of audio given its dominant market position and potential to become one of the world's leading tech businesses. Its valuation is lagging in the same way the FAANGs once did. Spotify has 400 million users and Corlett expects it to reach over a billion users in five years. There are risks, however, in relationships with music creators.


Source: Morningstar.com, as at 2 December 2021

6. Babak Poushanchi from Cota Capital

US tax software business Avalara has increased revenues at 40% a year over the last 10 years and now boasts 70,000 customers, yet it's market share is small. Revenues are strongly recurring with big product margins on a modern, scalable platform. The company is solving a major problem for businesses that still manage tax compliance in complicated and error-prone ways and tax complexities are rapidly increasing.


Source: Morningstar.com, as at 2 December 2021

7. Phil King of Regal

Flight Centre is a short (sell) as its price recovery is based on the economy reopening but the company has rapidly reduced its store numbers to manage costs and it will never return to its past glories. Airlines will pay fewer kick-backs, a major source of past revenues, and it will face far more competition from digital rivals. Recovery will be "a bumpy road out of lockdown” and Flight Centre will no longer be a market favourite as investors focus on the weakness of its financials.


Source: Morningstar.com, as at 2 December 2021

8. Nick Griffin of Munro Partners

NASDAQ-listed Onsemi specialises in the semiconductors that will power many of the major technical shifts to electric vehicles, transitions from fossil fuels, renewable energy, recycling and waste disposal. An autonomous electric vehicle will require up to US$1,600 of semiconductors versus only US$375 in an internal combustion engine. Onsemi has quality management and is priced at only 20 times earnings, more like an industrial than tech company.


Source: Morningstar.com, as at 2 December 2021

9. Joyce Meng of FACT Capital

Also listed on NASDAQ, Beauty Health knows people want to look great on Zoom calls and Instagram posts. The core asset is a skin treatment called Hydrafacial which is popular with beauty spas and on social media, although a treatment costs about $200. The product is a combination of a product, like a razor, and a consumable, like razor blades. The major risk is that treatment requires people to visit spas which are subject to COVID restrictions.


Source: Morningstar.com, as at 2 December 2021

10. Gavin Baker of Atreides Management

Coinbase Global is a cryptocurrency exchange tapping into global growth using Coinbase Cloud, the AWS of crypto. It is a web 3.0 application development on blockchain which will be disruptive technology for coming decades. Baker says that many related processes are easy for young cryptocurrency natives to appreciate but hundreds of millions of older people will eventually join the party. The programmable nature of cryptocurrency allows Coinbase to generate new revenue streams beyond those available to traditional brokers using fiat currencies.


Source: Morningstar.com, as at 2 December 2021

11. Yen Liow of Aravt Global

Gitlab is another NASDAQ-listed software development company which operates a platform for the 'DevOps' industry of software developers. It allows developers to go through the DevOps process using an emergent standard, much like Atlassian created a core part of the DevOps stack relating to planning. Gitlab focuses on the next phases.


Source: Morningstar.com, as at 2 December 2021

12. David Allingham of Eley Griffiths 

Pinnacle Investment Management owns a share of 16 underlying fund managers, which gives exposure to different asset classes, styles and strategies with no key man risk. It is a highly-scalable business with layers of growth including flows to existing managers, seeding and establishing new managers and acquiring existing managers. The process can be exported to markets offshore although there is exposure to downside in equity markets.


Source: Morningstar.com, as at 2 December 2021

13. Markus Bihler of Builders Union

London-listed Wise allows money transfers across borders with a superior customer service on price, speed, convenience and transparency. In a world where traditional banks take massive margins from retail FX, it is tapping the expenditure of young consumers shifting consumer behaviours. Its strong net promoter score (NPS) is far superior to other financial services companies. Risks include fee compression, the ability to execute ambitious expansion plans and competition from cryptocurrencies.


Source: Morningstar.com, as at 2 December 2021

 

These stock selections do not consider the circumstances of any investor. Note the different time periods for a few of the price charts.

 

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