Subscribe to our blog :

Posted on 24 Oct 2017 by Gareth Brown

Stamp Duty is Stupid

Stamp Duty is Stupid


For much of the past decade I lived in Vienna, Austria. If you own a television, a radio or even just an internet connection you pay the state about €25 a month for the privilege, to fund various national broadcasters. Think of it as Netflix, only compulsory…more expensive…not on demand…with ads…and shittier.

Of course, in Australia we also fund the national broadcasters. The particularly asinine thing about Austrian television tax is that it isn’t levied through the normal tax system. When a new household is formed, they are supposed to register with the TV tax regulator. But everyone ‘forgets’. One day years later, a representative comes knocking and signs you up – with no fine for prior non-payment.

I know people who got signed up for TV tax 6 months after moving in, and others who’ve been watching free TV for more than a decade and are still at large. They pinged us after about three years when my wife was at home on maternity leave. A large proportion of the tax raised must leak in the form of wages for enforcement employees.

This has almost nothing to do with the topic at hand. I mention TV tax only because it’s a silly tax. But not the silliest I can think of. That award quite likely belongs to stamp duty.

Stamp duty is the name for the one-off tax payable by the buyer whenever a property changes ownership. It’s the way we’ve levied property tax in Australia for decades. And it’s beyond silly. Continue reading “Stamp Duty is Stupid”

Posted on 10 Oct 2017 by Steve Johnson

The Looming Oil Shortage

The Looming Oil Shortage


Four long and mostly painful years. That’s how we feel when reflecting on for Forager’s investments in the oil slick. There have been a couple of successes, one disaster and an inordinate amount of volatility.

The glut was supposed to be over by now. In the September 2013 Quarterly Report, we wrote that, by 2015, increasing production from US shale oil would be “easily absorbed by an estimated incremental demand of 4 million barrels from non-OECD countries over the same time frame”.

While correct on demand, that forecast was about as wide of the mark as you can get. An excess of supply persisted well into 2017.

At the risk of looking even stupider, we are maintaining exposure to a higher oil price. This year the surplus has become a deficit. It’s likely that this deficit will widen over the next few years and, unless many billions of dollars are spent soon, the world is facing the prospect of a significant shortage of oil in the early years of next decade.

Continue reading “The Looming Oil Shortage”

Posted on 26 Sep 2017 by Alex Shevelev

Sifting Through Fallen Angels

Sifting Through Fallen Angels

Buying unloved stocks is part of the DNA at Forager. Most of the funds’ excess returns over almost eight years have come from buying stocks that other investors hated at the time we acquired them. Think Service Stream in 2013 or Cardno in mid-2016.

One simple way of finding these types of investments is to filter the market for stocks that others have been aggressively selling. Most value investors are regularly looking at a list of stocks trading near their 52-week lows or stocks that have fallen 40%, 50% or more from their highs. Lists like these focus our attention on stocks and sectors where others are more likely to be fearful. For us it can be time to be greedy.

Continue reading “Sifting Through Fallen Angels”

Posted on 14 Sep 2017 by Alvise Peggion

Australian Fund’s Problematic Premium

Australian Fund’s Problematic Premium


Prior to the listing of of the Forager Australian Shares Fund, I invested $200 each month via direct debit. In my mind’s eye I could see my wealth compounding over decades as my regular savings combined with the power of compound interest.

That fund is now closed to new money. Of course, I could always use additional savings to buy more units on the ASX via my broker instead. But the investment decision is muddled due to the fact that the Fund now has two important prices that can diverge. Indeed, they have diverged.

First, there’s the net asset value or NAV. This is calculated by adding up the value of all the Fund’s investments and cash, subtracting any accrued management and performance fees, then dividing it by the number of units on issue. It effectively represents the underlying value of what investors in the Fund own for each unit they hold.

We report the NAV every business day to the ASX – currently it stands at $1.73 per unit. Before listing on the ASX, my monthly investments were added to the Fund at the NAV and hence my future return matched the Fund’s future return, setting aside the impact of tax.

Since listing the Fund late last year on the ASX under the code FOR, we now have a second price, which is the market price for units. That price is set on the ASX like any other stock – by the coming together of buyers and sellers. The market price of the Fund’s units has risen substantially due to there being more demand than supply. As a result the Fund’s market price of $2.02 is approximately 17% higher than the NAV.

On such figures, there is a real chance that any additional investments I make today at the market price earns a lower return than the underlying fund. That potentially upsets my original game plan, so I’ve recently gone back to the drawing board to analyse the impact on future investment returns.

Continue reading “Australian Fund’s Problematic Premium”

Posted on 06 Sep 2017 by Kevin Rose

The Value in Blue Chips

The Value in Blue Chips


Two of the Forager International Shares Fund’s largest holdings are blue chips Alphabet (Nasdaq: GOOG) and Lloyds Banking Group (LSE: LLOY). Both of these companies are well known, many tens of billions of dollars in size and covered by almost every investment bank in the world. What are they doing in a fund where the holdings mostly consist of much smaller stocks?

We are guiltier than anyone of associating ourselves with the small cap universe. In our writing and our public comments, we often stress the advantages of investing in smaller, lesser known companies. A year ago we highlighted how the Fund would reduce its exposure to large blue chips and focus on these smaller, deep value investments. We continue to believe that compelling value is far more likely at the small end of the market cap spectrum, and this remains the core of what we do.

But as the world trudges through year eight of the current economic expansion, risk management challenges have bubbled to the surface. Most stock markets have priced in aggressive expectations. Companies failing to meet those expectations have seen their share prices hammered.

Many businesses are earning in excess of our estimates of sustainable earnings, and investors are paying high prices for those earnings streams. Many of them will likely see their results deteriorate as the long arms of competition and capital eventually close around them.

Continue reading “The Value in Blue Chips”