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Cuffelinks Firstlinks Edition 305

Our recent interviews with fund managers have been highly popular, so we have collected them with others in a new 'Interview Series'. It includes my chats with Nobel Laureate, Harry Markowitz; leading UK CEO and CIO, Sir Michael Hintze; global bestselling author, Burton Malkiel; global pension expert, Keith Ambachtsheer; US financial advice expert, Michael Kitces; Cambridge Finance Professor, Elroy Dimson; and another Nobel Laureate, Robert Merton. That's august company for our local fundies.

This week, Joe Magyer explains how a focus on small companies, fascinations, pricing power, customer loyalty and networks led him to invest in Altium, Afterpay and Audinate.

The legends of Buffett, Munger and Lynch

Warren Buffett and Charlie Munger held the Berkshire Hathaway meeting last weekend, and allowed the two men who will probably succeed them to speak for the first time. Buffett explained why he took time to invest in Amazon and Apple and missed out on Microsoft. Wilbur Li has selected 10 short quotes from the meeting that show why Berkshire Hathaway is in good hands.

One of my first books on investing was Peter Lynch's 'Beating the Street'. Lynch was probably the greatest 'mutual fund' (what we call managed fund) manager of all time, with his Fidelity Magellan Fund returning 29% per annum against the S&P500 16% in 13 years to 1990. Lynch's main way to find new investment ideas was to watch what people (including his wife and three daughters) were buying and follow the company:

"As an investment strategy, hanging out at the mall is far superior to taking a stockbroker's advice on faith or combing the financial press for the latest tips ... I don't think of it as browsing. I think of it as fundamental analysis. Here are more prospects than you could uncover in a month of investment conferences." 

Of course, times have changed, and the great investments since Lynch retired are not in retailing but technology. Lynch had a favourite saying: "If you like the store, chances are you'll love the stock", which was not great advice for investors in Dick Smith, Myer, Toys 'R' Us, Roger David, Sears, Payless, Diesel and countless other retailers.

But Lynch's advice to buy the company if you love the product must apply to Microsoft. I have spent most days of my career using Word, Excel and PowerPoint, and while we wax lyrically about the wonders of the FAANGs (Facebook, Apple, Amazon, Netflix, Google), we don't give Microsoft the same credit. Today, it is once again the largest company in the world, and not one other company from the Top 10 in 2000 remains on the list. Business additions include LinkedInand Skype, while its Azure cloud service is growing rapidly.

More investing insights in this edition

Roger Montgomery writes an interesting perspective on Uber on the eve of its IPO. It's one of those companies that divides opinion and the path to profit has many hurdles.

While the US and Australia continue to defy expectations of a recession, Matthew Tufanoupdates the economic outlook, and provides a fascinating chart on what happens to investors who attempt to time the market after rises and falls.

Many people responded to the introduction of the $1.6 million cap on pension assets by opening a second SMSF, and Monica Rule looks at when it is a worthwhile strategy.

Final Leaders' Debate focusses on superannuation and franking credits

We had proof of the importance of superannuation in this election in the final Leaders' Debate last night. Scott Morrison's first question directly to Bill Shorten was on Labor's policy on tax deductions for super contributions. Noel Whittaker questions the proposed change.

In the debate, franking credits were again prominent. The Prime Minister called Labor's policy:

"a heinous tax on Australians who have worked hard all their lives ... I think to treat self-funded retirees who have put themselves in that situation, to say they're no longer independent and a recipient of some special largesse from the Government, is very offensive to them."

Bill Shorten replied:

"If you get an income tax refund and you haven't paid income tax in that year, it is not a refund. It's a gift. It's not illegal. It's not immoral. It's the law, but it's not sustainable."

For those who think we have covered this subject too much, it's still a leading issue. In the absence of an article written for us by an authority defending Labor's policy, we have collected comments which are favourable to the proposal. Then Justin McCarthy shows how different types of bonds and hybrids may be one solution to the need for income.

Finally, this week's White Paper from AMP Capital's Shane Oliver examines the seasonality of share prices and asks: "Should you sell in May and go away?"

Graham Hand, Managing Editor

(A reminder that the interviews in our Interview Series provide many insights into how to manage portfolios and risk, including from some of the world's leading authorities).


For a PDF version of this week’s newsletter articles, click here.



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