Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 417

Platinum’s four guiding investment principles

There are four principles that guide our investment approach at Platinum and guide our search for mispriced stocks in the market. These principles have been consistent since the firm's founding in 1994, with past stock picks Facebook and Samsung Electronics used here as cases to illustrate the point.

Principles for finding mispricings

The first principle is the price you pay heavily influences the ultimate return you’ll make on an investment. And this is especially true when viewed over a portfolio of stocks. Over the long run, price matters.

The second principle is the truly great investment opportunities tend to carry a seed of discomfort when you're making them. If everyone thinks that an investment is a sure thing, and they're excited to be making that investment, we need to stand back and ask, why would it then be mispriced in my favour?

The third principle is you're more likely to find those mispricings and great opportunities in areas outside of the spotlight, so go and look at the orchard less picked over. So there's always been an impetus to look at industries, and countries that are just getting less attention at the moment.

And the fourth principle is the most important, because it really addresses the heart of the question: What type of situations create mispricings in markets? And the observation is the value of business is very subjective, it’s in the eye of the beholder. The reality is the stock prices are not purely set by a business's fundamentals. Instead they're heavily influenced by emotion. So it's the state of a narrative around the business, it’s the state of investor confidence around that business that is influencing its price.

Two major emotions drive mispricings 

So we look for situations around those emotional decision states that are known to repeatedly cause mispricings in stocks. They really boil down to two major buckets.

The first is what we would call ‘temporary uncertainty’. What we know is when there's a problem, humans can't help but to focus on it. This is called recency bias. And when you focus on a negative, that tends to lead to low expectations, and low expectations tend to lead to mispricings.

The second major bucket is what we would call ‘long-term change’. This comes down to the fact that investors find it difficult to accurately price in a future that looks very different to what we are used to.

These two situational buckets are common features in many of our investments, and we can bring this to life with two examples.

So a great example of temporary uncertainty that most would remember would be Facebook during the Cambridge analytic data leak. This data leak gained worldwide public and political attention at the time, and the share price fell roughly 40% as people worried about more future regulation or users deleting their Facebook accounts. Viewed with a different lens, this event actually proved the strength of the business to us. Despite very negative sentiment, both user engagement and advertisers’ willingness to spend on Facebook, continued to grow the entire time, it really never missed a beat. And this is a great example of a singular focus on a negative, created a large mispricing in the stock.


Register here to receive the Firstlinks weekly newsletter for free

An example of long-term change is Samsung Electronics, a company we have consistently held since 1998. In the 1980s, Samsung was a humble contract manufacturer of consumer electronics. So they would assemble TVs and stereos for brands like Sanyo, NEC and General Electric. The company had the classic mentality of being happy to start at the low end, learn by doing, then then always wanting to innovate and move up into higher end products. Following this mindset, by the early 1990s Samsung started making low end semiconductors. By the late 1990s, they were been beating the Japanese at the high end. And by the mid-2000s, Samsung had become one of the most dominant semiconductors and consumer electronic companies in the world.

History shows us that markets and businesses are ever changing. But we feel our investment approach and guiding principles are timeless.

Here is a video version of the four principles.

 

Clay Smolinski is Co-Chief Investment Officer and Portfolio Manager at Platinum Asset Management. This information is general commentary only. It is not intended to be, nor should it be construed as, investment advice. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and circumstances.

 

7 Comments
Elisabeth
July 25, 2021

I have a lot of money invested with Platinum Funds over the years and my experience in terms of returns beats all other ETF's in my portfolio. It matches Grahams. This year over 10 percent.

Barbara
July 25, 2021

Performance - see https://www.platinum.com.au/Investing-with-Us/Prices-Performance
The preceding conversations have focused on the Platinum company ASX share price. Clay wasn't talking about that. He was talking about how they select shares for their managed funds worldwide. Follow the link and you'll note some of our Platinum Fund favourites. We have been in their C Class funds for at least 10 years. Example returns for 10 years - C Class International Health Care 18.9% per year; C Class Platinum Asia 14.8% per year. Compound these annual returns - and the result is far better than banks and what we could do by managing our own portfolios. Hopefully less panic selling if the share market falls dramatically because C Class is managed in-house by Platinum. They have just started a mixed distribution where we have elected to receive a 4% return in cash and the rest reinvested in the fund for growth. Good for us in superannuation pension phase.

Judith Blundell
July 24, 2021

I agree with Scott - Platinum's performance has been poor, with not even preservation of capital achieved. One can stick to a conviction (value investing) for so long but if it doesn't work then time to bail out. I will give them 2 more years to improve performance. Judith

scott
July 22, 2021

With more people choosing to invest in ETF's, the days of active asset managers are numbered, along with their antiquated fee structures.

Scott
July 22, 2021

The price you pay? I paid $5.00 for PTM (Platinum Asset Management Limited ) when they IPO'd 14 yrs ago. They currently trade at $4.31 Morningstar's current Fair Value, $4.40. I need to question my biases. More people are choosing to invest in ETF's.


Regarding Mispricing, especially in the US NOW. I think alot of misprising at the moment is a mix of ideology and greed. After watching Jack Dorsey talking about the predatory nature of financial institutions that triggered the GFC and Squares drive to "decentralise financial services" and the zealotry that surrounds the reddit rebellion and crypto's, I can see their point view. The Fed was asleep at the wheel, George W Bush and his stooges were busy with a war that cost trillions $$$$ and returned nothing but pain and misery!

Graham Hand
July 24, 2021

I'm not here to defend Platinum except to highlight the difference between the share price of the company (PTM, as quoted here) and the funds to which these principles apply. Depending on which fund you look at, they have outperformed their index in most options over the last five years, and in all since inception. https://www.platinum.com.au/PlatinumSite/media/Reports/ptqtr_0621.pdf

ron furlonger
July 22, 2021

In theory it sounds ok but what are the results?

 

Leave a Comment:

     
banner

Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates

Superannuation

The 'Contrast Principle' used by super fund test failures

Rather than compare results against APRA's benchmark, large super funds which failed the YFYS performance test are using another measure such as a CPI+ target, with more favourable results to show their members.

Property

RBA switched rate priority on house prices versus jobs

RBA Governor, Philip Lowe, says that surging house prices are not as important as full employment, but a previous Governor, Glenn Stevens, had other priorities, putting the "elevated level of house prices" first.

Investment strategies

Disruptive innovation and the Tesla valuation debate

Two prominent fund managers with strongly opposing views and techniques. Cathie Wood thinks Tesla is going to US$3,000, Rob Arnott says it's already a bubble at US$750. They debate valuing growth and disruption.

Shares

4 key materials for batteries and 9 companies that will benefit

Four key materials are required for battery production as we head towards 30X the number of electric cars. It opens exciting opportunities for Australian companies as the country aims to become a regional hub.

Shares

Why valuation multiples fail in an exponential world

Estimating the value of a company based on a multiple of earnings is a common investment analysis technique, but it is often useless. Multiples do a poor job of valuing the best growth businesses, like Microsoft.

Shares

Five value chains driving the ‘transition winners’

The ability to adapt to change makes a company more likely to sustain today’s profitability. There are five value chains plus a focus on cashflow and asset growth that the 'transition winners' are adopting.

Superannuation

Halving super drawdowns helps wealthy retirees most

At the start of COVID, the Government allowed early access to super, but in a strange twist, others were permitted to leave money in tax-advantaged super for another year. It helped the wealthy and should not be repeated.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.