The First Entry

I intend to write posts daily - we'll see how it goes.

I have decided to restructure the portfolios I manage (UK & AU) to include a quantitative segment. I am struggling to find good stock ideas in this environment and consequently am holding high levels of cash and cash-like instruments (64% UK, 79% AU). As someone tweeted me recently, this is a bet against stocks. Whilst I think that growth stocks are overvalued, I have no view on when prices will correct and do not think the broader market is particularly dear. I would like to own quality growth companies, but the valuations are prohibitive. It may be years before I get the chance to do so. Meanwhile, there are investment opportunities in other parts of the market which are attractive relative to cash. I want to take advantage of them, but also to remain focused on identifying "multibaggers". Allocating a chunk of cash to a quantitative system seems like a decent solution.


  1. Hi Matt

    I think writing your daily thoughts is a great idea. My constructive negative comment would be, are you good at different investing styles? From what I’ve read you appear as if you would be but I know I need to stick to what I’m good at. Anyway that’s Just a question to ask yourself.

    If you haven’t read the commentary in this report from qvc I thought you may find it interesting.

    “We are now at the point where several of our value-focused peers are losing funds under management. We make this observation as it helps explain why value stocks keep going down despite their apparent value. The forced selling to meet redemptions is exacerbated the further you go down the market cap spectrum. When this stops there will be some amazing returns to be harvested but for now, we preach patience.”

    Good luck and looking forward to reading your journey.


    1. Thanks for your comment Alan,

      I agree that it is better to "stick to the knitting" which is why I'm am using a quantitive approach to allocating spare cash. What I mean by "quantitative" is essentially a stock filter driven by statistical factors (quality, value, momentum etc) which have been shown to outperform over time. It is an automated system and rebalancing will be once per quarter or annually and so take minimal time.

      It is also only for when I have spare cash. My goal of allocating all capital to reasonably priced quality growth businesses remains unchanged.

  2. Hi Matt

    I'm interested in unpicking the following:

    (i) you have a view that growth stocks are overvalued
    (ii) you have no opinion on when stock prices might correct.

    I wouldn't be surprised if the prudent approach you're taking turns out to be correct. But if, in hindsight, it turns out the bull market has three more years to run, what factor(s) if any would convince you to reapportion a greater percentage of your capital to stocks?

    Looking forward to what will no doubt be an excellent daily blog.



    1. Hi Luke,

      Thanks for the question and kind words. I am allocating more capital to stocks, but clearly failed to explain this properly. My meaning of "quantitative" is simply a rules driven approach to allocating capital to equities based on statistical factors that have been shown to outperform market indices over time. I have selected factors that tend to do well during economic contractions such as low volatility, high dividend yield and high quality. The following paper explains in more detail:

      I have added my own twist to what is described in the above which will not be publicly disclosed.

      Please note that I will only be allocating capital in this way whilst short of reasonably priced quality growth ideas (which I believe is the best way to grow wealth in the stock market).

  3. Hi Matt, Finding quality companies is a challenge. But I think it is fair to say all quality growth companies will almost always appear overvalued. I think the question is, which quality companies can maintain exponential growth. If Nearmap growth accelerates from here as the US reaches its tipping point, I think it will look cheap at these levels in hindsight. If Xero can maintain +30% growth beyond 2022, it too will look cheap at these levels (the big question is where will +30% growth come from as the UK market matures). It is a tough call to identify which business will continue its exponential run. Afterpay is another exponential play, but I am skeptical as to how it can efficiently scale, given it is relatively capital heavy (needs to fund those short term 'loans'). I think the platforms RZI and CRD are worth following (DISC - I hold small, 1% positions) - yet to develop much conviction, as I am getting to know them (like the CRD founder, less so the RZI founder).

    This thread has got me thinking about testing the conviction I have in my holdings - I seek out hyper growth / exponential opportunities (I believe many analysts think linearly, creating opportunities in these companies). If I see an analyst say an company is overvalued, I get interested. I am building a list of linear thinking analysts to follow.


Post a Comment