Valuable financial lessons from an investor with a 37% annual return
A Newly listed investment company based on a hugely successful Australian hedge offers a chance to share in its strategies, but if you want to go it alone here are some of their ideas.
When an investor who’s delivered annual returns averaging 37 percent over the past four years wants to speak, they’re worth listening to.
Rafi Lamm, co-founder of L1 Capital, has some clear views on where good money is likely to be made in the coming years, and an impressive track record behind him.
The L1 Capital Long Short Fund, which combines investing for growth with short-selling stocks it thinks are in trouble, delivered a 30.5 percent investment return in 2017.
That followed a 29.4 percent gain in 2016 and a whopping 60.5 percent in 2015.
It has ranked among the world’s best hedge funds for three years but is not in the business of aggressively chasing huge gains in the traditional hedge fund image.
Mr Lamm said L1 relied more on modest gains from many small investments rather than a few big winners, and this was a strategy that everyday investors should use as well.
“The key is to have a well-diversified portfolio across both sectors and regions, and to not get overly influenced by the latest fads,” he said.
L1 is currently raising up to $600 million from investors to create a newly listed investment company, also called the L1 Long Short Fund, which will have an identical portfolio to its namesake.
Short-selling — which involves borrowing then selling a stock you don’t own to profit from share price falls — is a strategy used on about one-third of L1’s portfolio and has enabled it to generate gains during ASX down months.
L1 doesn’t name its shorted stocks but says some of its winning investments have included BlueScope Steel, Sydney casino owner Star Entertainment, and News Corp.
As for the outlook, there are a few ideas that sit brightly on Mr. Lamm’s radar for potential growth:
• Sectors where the Chinese government is “is exerting greater control” to prevent oversupply, such as coal, steel, aluminium and mineral sands, which could benefit Aussie stocks including Alcoa, AWC, Mineral Deposits and Iluka.
• Rare earth mining: “China provides roughly 90 percent of the world’s rare earth and around a year ago 90 percent of Chinese production was loss-making,” Mr. Lamm said. “Australian company Lynas is the only significant western world producer, and we think it will benefit.”
• Infrastructure, as big projects should mean rising profits for companies such Boral, Adelaide Brighton, CIMIC Group and Lend Lease.
• Tourists flowing in from China. “That benefits hospitality but has a tremendous flow-on benefit for Qantas. We think it’s not fully appreciated by the market,” Mr. Lamm said.
“The key is living and breathing the market, loving investing and loving researching companies. Investing is not easy and you have to be 100 percent committed.
“It’s a genuine mix of having lots of success stories but avoiding the big losses.”
Originally published as Advice from investors earning 37% a year