The Secret Broker: Research your way to a portfolio podium finish for the next 20 years
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
As you may all know by now, one of a truly great broker’s attributes is the effort taken in researching companies, their business sector and the directors who are steering the ship.
In my head, I have a big list of company directors to avoid when their name appears on a company’s corporate register, and very rarely does one ever get moved to the list of ones to follow.
No matter how great a story I am being spun, if one of those on the list appears, then no amount of persuasion will lever the wallet open. These grey hairs are a sign of wisdom learnt from past encounters.
The returns on your portfolio will always be influenced by the effort you put into your researching.
If you put in a Gold Medal Olympian amount of research effort, then your investments will constantly be on the podium for their returns.
However, if you put in a ‘lazy couch potato button pushing stock forum reading’ research of an effort, then your investments will always be pulling a hamstring in the pre race warm up.
Herculean efforts are needed to avoid both you and your portfolio having a financial coronary blockage and dropping dead, especially if you like to play in the spicy end of the market.
If you look at the three richest people in the world and you research their businesses today, you are only seeing a picture of them in 2019.
But, if you delve back in time and read the stories of when they were starting out, only then will you get to see a holistic picture of how they get to constantly stand on the on podium of World’s Richest People.
In 1995, Jeff Bezos was researching trends for the hedge fund he was working at when he discovered the early growth of the internet. This prompted him to write a list of 20 businesses that he thought would best adapt if this trend continued. Eventually he settled on books.
His research told him that, at that current time in the world, there were 1.3 million ‘live’ books compared with 200,000 ‘live’ (music) records. By ‘live’ he meant newly published or recorded and recently hitting the charts.
The book market was very fragmented, with eight major book chains calling the shots to the publishers. If a book did not sell in a bookshop, they were boxed up and sent back to the publisher for a refund. At that time around 25 per cent of all newly published books were being returned.
Later, when Amazon was really humming, he was returning just 0.25 per cent back to publishers from his warehouse, as he was ordering stock based on precise demand and not a guess of what might entice high street window shoppers.
In August this year Barnes and Noble book stores were purchased by private equity for $US638m ($932.8m), while Amazon’s valuation stood at US$904 billion.
Now, Jeff is only going to get richer because having started with 11 employees, he currently employs over 600,000 people, mainly in his vast warehouses.
Eventually those warehouse workers are going to be replaced by robots. No toilet breaks, no holidays and no early morning texts saying “sorry boss but I’ve been up all night/ate some dodgy takeaway/my Aunt Gladys died (again).” It will be just Jeff and his 24/7 robotic slaves.
Over here, robotic automation is running hot in the iron ore game. Gina and Andrew are about to get richer, as just like Jeff, their mines are starting to remove those big yellow ‘red neck $200,000 a year’ truck drivers and replace them with GPS automated machines.
These trucks can now go 24/7 and only stop to get refuelled, which takes about 15 minutes and works off a fuel stop algorithm that maximises the most efficient time in their cycle to turn off, get topped up and then return to the convoy.
A recent picture from BHP says it all. Just look at those perfect track marks in the dirt.
If you have any young ones who want to study and go to university, get them to turn off their phones and sit down and work together on a list of 20 industries which will still be around in 20 years’ time and which ones won’t.
Then get them to think about what they are good at and how that can be adapted to any industry in the top 20 and steer them towards getting an education in that field.
If you take broking for example, it should be on the list of not being around in 20 years, as automated advice and allocations will take over from personal advice. What was good for a young me in the 80s will not be good for a young me in the 2030s.
However, the automated software needed would be, as would the marketing and the apps needed to service the market.
Now look at your portfolio and see which companies you hold are on which list and then look at companies that are involved in the future top 20 industries.
Then, put on your shorts and trainers and start to get your portfolio ready and healthy for the next 20 years and go get that gold medal.
As for me, I like — and not in any order — internet of things (IoT), eWallets, artificial intelligence (AI), near-field communication (NFC), solar, clean water, nanotechnology, robotics, mobile communication, wellbeing, blockchain, sustainable mining, health and safety, pets, leisure, esports, streaming, private social media, insurance, 3D printing.
Now make sure you do a proper stretch (did I say research?) to avoid pulling a muscle as you step up to that podium to collect your gold.
Feel free to contact him with your best stock tips and ideas.