Key takeaway: One of Australia’s richest men has the bulk of his wealth tied up in just five stocks. Today, we name them.
Count Financial founder Barry Lambert honed the art of identifying good investments in a career that saw him sell the business he founded to Commonwealth Bank of Australia for $373 million just three years ago.
Lambert’s straightforward, no-nonsense approach is astonishingly refreshing, and at the same time challenges modern portfolio theory head on (scroll to the bottom for his portfolio).
He never invests in property, he trusts his own judgement enough to have most of his wealth tied up in just five companies (see sidebar) and never measures his portfolio’s performance against the benchmark.
“I’m investing for me and I only invest for the long term, so I’m not worried about whether I’m over performing or under performing in the short term,’’ he says.
At the heart of his portfolio is an enormous exposure to Commonwealth Bank, which makes him the second largest individual owner of the bank’s shares next to ‘Aussie’ John Symond.
According to CBA’s annual report, published in mid-August, Lambert owns 1,711,854 shares valued at $138 million at current market prices.
This parcel of shares alone throws off $6.9 million in dividends before franking.
But Lambert insists this exposure, and his concentrated approach to stock picking, is a better strategy than many alternatives he has seen peddled.
“Owning four houses is not diversification, but that’s all some people are happy with,’’ he says.
“I have all my money in good businesses. It just so happens they are listed on a market, but they are different businesses, all diversified and all different in nature. I do believe in diversification through currency and I do that through equities (such as CSL and BHP).’’
Lambert says the ideal situation is to have as many people as possible “paying the rent” and contributing to profits.
“Woolworths and the Commonwealth Bank have eight, nine or 10 million clients,” he says. “Compare that to a property investment where you have one person paying the rent and you can’t increase it by any more than inflation.”
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Other pearls of wisdom includes Lambert’s aversion to trading (like Len Ainsworth he prefers to buy and hold) and an unusual strategy that sees him buying only one stock per sector.
“If I think BHP is the best resources company, then why should I want to invest in what I think is the second or third best?’’ he says.
Lambert says he believes in borrowing to invest, and leverages to the max in times of crisis.
“If I didn’t think the price was too high I would invest in any of those (top five favourite) companies any day of the week with borrowed money, but I’d much rather do it after the market has fallen 20 or 30 per cent,’’ he says.
“I paid the equivalent of 80 cents after a share split and it’s now around $60” he said.
Before parting, Lambert shares his one investment rule, the prism through which he views all potential investment opportunities.
“The essential requirement is to get the macro decisions right,” he says. “It has to be in a growing industry, have a sound and understandable business model and great management.”