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.

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.

 

  •   21 July 2021
  • 7
  •      
  •   
7 Comments
ron furlonger
July 21, 2021

In theory it sounds ok but what are the results?

Scott
July 21, 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 23, 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

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.

Judith Blundell
July 23, 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

Barbara
July 24, 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.

Elisabeth
July 24, 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.

 

Leave a Comment:

banner

Most viewed in recent weeks

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Retirement spending is not one-size-fits-all

New data challenges the idea that Australians are underspending their super. The bigger issue may be helping retirees navigate complexity, make confident decisions and use their savings to support security, wellbeing and choice.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

The missing link in the CGT debate

A little-noticed consequence of Labor’s tax changes could have implications well beyond investors’ tax bills. The issue raises bigger questions about incentives, capital allocation and the drivers of long-term economic growth.

Latest Updates

SMSF strategies

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

The ageing ‘crisis’ has not and will not happen

Rising age dependency is frequently treated as a warning sign for economies. But when actual workforce participation is examined, a strikingly different picture emerges about ageing, productivity and economic sustainability.

Retirement

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Shares

Four charts that expose market concentration risk

Investors have recently been rewarded for backing market leaders, but history suggests this eventually comes at a cost. Now may be the time to review whether your portfolio is carrying unintended risks beneath the surface.

Investment strategies

The case for gearing beyond property

Most Australians gear into property but ignore shares. That may be a mistake. Used carefully, geared equity strategies can enhance long-term returns, reduce cash tied up in growth assets and support retirement income goals.

Economy

Australia's $1 trillion debt pile

The headlines exclaiming that Australian government debt has hit A$1 trillion and US government debt has hit $40 trillion has turned heads, but how serious are they really? Will Australia's mix of debt create challenges?

Economy

Has 100 years of growth made us any happier?

For decades, GDP has been the benchmark for economic success, but has it made us materially happier? If happiness does not rise in lockstep with prosperity, are we overlooking what constitutes a successful society?

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.