STEVE JOHNSON | Forager Funds

"There's a time and a place for being aggressively contrarian and aggressively foraging through the tip. Then there are other times when most of the stuff in the tip is just rubbish." That's the point of view from my guest this week.

Steve Johnson is Forager’s Chief Investment Officer. He has a Bachelor of Commerce (Econometrics and Finance) from the University of New South Wales. He enjoys marathon running in his spare time and lives with his wife in Sydney, Australia. Steve has a monthly column in the Australian Financial Review and regularly appears on Ausbiz, the ABC and CNBC.

We spoke about:

• Steve's background at the Intelligent Investor Newsletter
• Looking for the reasons why a company is at a low price
• The informational edge
• The time and place for being a contrarian
• Time horizon arbitrage thinking like a farmer about the longer term returns
• His best clients - farmers who understand cyclicality
• Twitter as an aid to investing
• Being careful of the pumpers and dumpers on Twitter

EPISODE TRANSCRIPT FOLLOWS BELOW

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EPISODE TRANSCRIPT

Steve Johnson (5s):

I grew up on a farm. We lived through a lot of cycles and through a lot of floods and droughts and all sorts of problems. And perhaps that just wires you, I think, to handle stress in a better way, but I think most people that have worked with me would say that I generally don't get particularly stressed about financial markets. 

Phil Muscatello (25s):

G'day, and welcome back to Shares for Beginners I'm Phil Muscatello. I love chatting with finance professionals who can clearly and simply explain how they look at markets and companies so that beginners can gain insights into choosing investments for themselves. I saw my guest today speaking at the Australian Shareholders' Association Conference earlier this year and I think you'll enjoy meeting him too. Hello, Steve. 

Steve Johnson (46s):

Hi Phil, great to be here. 

Phil Muscatello (48s):

Steve Johnson is the founder and chief investment officer of Forager Firms. Tell us a little bit about your story and your background and The Intelligent Investor newsletter. 

Steve Johnson (57s):

Yeah. Thanks Phil, I had someone ask me the other day and I've effectively been working for the same business now for 18 years and I'm only in my early forties. So it's been most of my life working for this business. A school friend, and I actually bought The Intelligent Investor, which a lot of people might be familiar with. It's a share research publication out there, and that was way back in 2004. And effectively, I started Forager Funds Management underneath The Intelligent Investor umbrella in 2009, so coming out of the financial crisis. And the aim back then was, we were effectively restricted to large cap stocks in the newsletter we had between seven and 10,000 subscribers. 

Steve Johnson (1m 38s):

And if you tell 7,000 people to buy the same $20 million company, all you're going to do is push the share price through the roof and nobody's going to get any stock. So we went to that client base and said, I'm really keen on this funds management caper. How about we start a fund and we'll do this small cap investing, which we're all doing in our own portfolios through a fund rather than through the newsletter. And very fortunately we had some of the very loyal, Intelligent Investor clients back that. We only raised $10 million for that fund to start with. And it wasn't much bigger than that two years later, but what are we 12, 12 years down the track now and the business is almost $500 million of funds under management. And we now run two funds. One of them being Australian equities and the other one, a global fund, which both have very good long-term track records. 

Steve Johnson (2m 24s):

And in 2014, the funds management business was going quite well. The newsletter was still taking up a lot of my time and we decided to sell that and it ended up getting bought by Investsmart, which is an ASX listed company. And we sold that name to them and we had to come up with a new name and we decided that Forager represented a lot, what we were about; finding opportunities in unlikely places and looking for unloved and under appreciated stocks out there. 

Phil Muscatello (2m 50s):

Yeah, I like the name Forager. It's got that connotation of sort of, you know, searching through the scrub and the bushland to try and find something edible. 

Steve Johnson (2m 58s):

Yeah, some people say the tip but we try and avoid that connotation and get you thinking about the countryside. It actually came from, it was a fascinating process, naming a business and especially an existing one where there's already a lot of client expectation about it. And one of the crazy, out-there ideas that came up was truffle because they stink, they're hard to find, but they're very, very valuable. And that was a reflection of what we're trying to find on the stock market. So it evolved out of truffle, I guess, to forager. And it is a lot of what we are about. That itself has evolved over time. I think there's a time and a place for being aggressively contrarian and aggressively looking through the tip. And there are other times when most of the stuff in the tip is just rubbish and you don't want to be there looking for things. 

Steve Johnson (3m 41s):

So I've become, I guess, a bit more balanced in my approach over time. 

Phil Muscatello (3m 46s):

So what is your investment philosophy and how do you go about deciding which stocks you're going to buy? 

Steve Johnson (3m 51s):

I would say we're all about finding unappreciated value. The term value investing has a lot of connotations now with very cheap stocks that are just low PE ratios. So I've tried to explain that with a bit more clarity around, we're looking for unappreciated value and sometimes that can be growth, sometimes it can be a management team, sometimes it can just be something that is completely unignored. But we are effectively looking for that in every single stock that we're adding to our portfolio. And it's, it is quite different to what a lot of other people do. I think when you see a lot of fund managers, they've got a checklist of 20 things that they're looking for in their ideal company. And they do that very, very well. 

Steve Johnson (4m 32s):

They're looking for the management team and the balance sheet and the growth opportunities. And if it doesn't tick these 20 boxes, then I'm not going to buy the stock. And at the end of that process, I try and value it and then I'd try and find the ones within that cohort that are trading at an attractive price for some reason or another. We actively go looking for the distress first. So before we worry about whether it ticks all of the boxes, we try and find stocks that might be cheap for some reason, there's a reason why someone else is selling you this stock for a low price. So we actively go and seek out market dislocation or different types of opportunities that we have seen work in the past. And that typically fits into either a psychological malfunction so that people are doing things on mass for a particular reason and we think that is wrong, or some informational edge where we think we understand a business better than the rest of the market understands it. 

Steve Johnson (5m 27s):

So we start with why it might be cheap. And then we do all of the work rather than doing all of the work and then trying to wait for the market to give us those opportunities. 

Phil Muscatello (5m 35s):

So you mentioned before, there's not as much of a contrarian is used to be, but that does sound a little bit of a contrarian way of thinking. 

Steve Johnson (5m 42s):

I'm absolutely as much of a contrarian as I used to be, I've just learned that there is a time and a place for it and a time and a place when you get very, very handsomely rewarded for it. And there are other times when the market is doing a mostly good job of valuing most of the stocks out there and that is a time to be patient. I think some of the things that I have got wrong in the past were being aggressively contrarian just for the sake of it, rather than trying to recognize that the times in the market where that aggressively contrarian approach is likely to pay off and then being aggressively contrarian. And, you know, that only needs to be once every four or five years for you to add extraordinary amounts of value like we've seen over the past 12 months. 

Steve Johnson (6m 28s):

Our funds have had exceptional returns out of the March 2020 sell-off and the subsequent six months when things were still very, very cheap for a long period of time. We made enough money out of that to give us out performance for five years. So I think the lesson has not been to not be contrarian. It's been to wait for the opportunity set to be right. 

Phil Muscatello (6m 50s):

Yeah. Because being contrarian can be a bit of a macho game, kind of be, you know, like you've got a view of yourself as being a macho man just holding their hand up against the tide and standing up from against everyone else in the market. It doesn't always work. 

Steve Johnson (7m 4s):

Yeah. And you tend to like being different, right. Psychologically. I think if you're going to be that type of person, that's always a bit sceptical about the world and always questioning what the crowd is doing. You're naturally wired to want to be apart from that crowd. And I think you see that in a lot of other aspects of people's lives who are good at being contrarian. I think it's all just about recognizing that in financial markets, there is a time when that works and there are other times when the market and the crowd is actually getting things pretty right. 

Phil Muscatello (7m 33s):

So I was interested in your story about Jumbo Interactive, the ASX code as JIN, and the opportunities presented there. Tell us a bit about Jumbo and how your view has evolved on it. 

Steve Johnson (7m 45s):

Yeah. I always use this, I think, as an example of informational edge. So it's a sector that existed here in Australia almost before it existed anywhere else in the world. So Jumbo is a reseller of lottery tickets in Australia. So they have contracts almost exclusively with Tabcorp these days because they own all of the lotteries but it was with multiple state lotteries, to resell those tickets and they basically just add a margin. And back in the days when Tabcorp was absolutely hopeless at online, Jumbo almost had that market to itself in terms of selling lottery tickets online. And they grew that business very successfully over a long period of time. At the time when we invested in it, they had taken that Australian success and they were trying to launch a business in Germany that was losing money, they were trying to launch a business in the US that wasn't going very well either. 

Steve Johnson (8m 36s):

So all of this money that they were making here in Australia was being lost overseas. And when you looked at the cumulative total of that, it was telling you that the business wasn't making any money. But we saw this extremely valuable Australian business that was being hidden by the fact that they were losing money off shore. So that's a really good example of informational edge. We see something in this business, the market is not seeing at the moment. And we actually went and presented to the management team who were scratching their heads about why the share price was where it was, it had half of its market cap in cash and this very valuable Australian business. And we just sat down with them and said, look, people are looking at your stock and saying, it's a 25 PE because you're losing all this money overseas. You just need to stop doing that. Grow your Australian business pay dividends. 

Steve Johnson (9m 17s):

And it will be reflected in the share price. And I mean, that share price got down to 90 cents and I think it's close to $15 or something like that now. So it's been an extraordinary success story. One that we got off way, way too early. I think we sold the last of our shares at $5.50 there, that in itself being another lesson about businesses that are going better than your expectations and not being stuck to your old valuations. But we have actually used that jumbo experience to make a lot of money in our international fund because that German experience that Jumbo had, I was in a meeting with the CEO of Jumbo and he said to me, well, we're never going to be number one over there, there's another company that's already got a head start. They've done it before. They're going to be the number one player. I said, oh, that's interesting. 

Steve Johnson (9m 57s):

Who's that? And he said, oh, it's this company called Lotto24, which had just listed on the stock exchange in Germany. And it was exactly the same situation. People were underestimating it for all of the same reasons that they underestimated Jumbo here in Australia and we did exceptionally well out of that stock. And we now are in a stock called NeoGames in the US that is exactly the same playbook again. We've seen it all play out here in Australia and it's just happening the same in other countries. And you know, when you're running an international fund, you've got to think, well, we're sitting here in Sydney, Australia, what do we know that other people don't know? And I think that's a great example of being able to say, well actually, we've got an advantage as an outsider rather than being disadvantaged as an outsider. So yeah. Good examples there, I think, of what we would call informational edge. 

Steve Johnson (10m 39s):

It's a stock that I'd say is fairly priced today relative to the risks and opportunities that it's got. 

Phil Muscatello (10m 45s):

And it's interesting that the psychology works the same way across international borders. I mean, people are the same everywhere you go. 

Steve Johnson (10m 51s):

Yeah. And I I've used that, I guess, playbook of local knowledge on numerous occasions. We've done very well out of airports around the world. I actually worked at Macquarie, before I went across to Intelligent Investor, as a uni grad. And we bid for Sydney Airport was 100% of my life during the time I worked at Macquarie seven days a week. But the investment bankers and the pension funds that we worked with, they looked at that airport and they said, well, all of this depreciation, that's going through the accounting statements here, we're not spending anywhere near that much money on CapEx. So the cashflow that the asset generates is dramatically higher than its accounting profits. And we valued it based on cash flows rather than accounting profits and we bid a number that everyone thought at that point in time was way too high for Sydney Airport and it's been an outstandingly successful investment. 

Steve Johnson (11m 39s):

And around the world, it's changed a little bit I would say in the past five years and equity investors have woken up to it. But people were making the same mistake over and over again. Look at the accounting earnings of this airport, it's trading on 50 times earnings. I don't want to buy it. And you could buy them on 10 times cashflow because there's all of these accounting charges going through that are not real cash charges. So yeah, I think that's another great example of just taking this piece. Charlie Munger, Warren Buffett's offsider, calls them mental models. I think you want to identify these things where you say I've seen that pattern before and then just get really good at pattern recognition where you say, this is the same as something that I've seen to be very successful before. 

Phil Muscatello (12m 18s):

So psychological edge, you've got a term here, time horizon arbitrage. Tell us a little bit about that. 

Steve Johnson (12m 24s):

Well, most people are really trying to predict what a share price is going to do over the next six months at the longest. And that's particularly the case in professional funds management land. A lot of people can't afford to underperform the market over a period of time. So I think a lot of my best investments have been stocks where I didn't even have an informational edge, where every investor would look at it and say, I see that this business is worth more, but they didn't see a catalyst or they didn't want to ride through a period where the stock might not perform in order to realize that value. So I think one of the advantages we have as a business is our clients think very long-term, we've tried to attract people like that. 

Steve Johnson (13m 7s):

They're mostly direct relationships with us. So people have come to us because they like what we're doing. We've said to them, it needs to be a minimum of five years. And when things are not working out for periods of time, they don't run for the exits. So I think that's one of the biggest psychological, I guess, advantages that we have is that we are genuinely able to look five years down the track and say, what is this business going to be worth? Rather than worrying about how we perform over the next six to 12 months. And it's not easy to set your business up that way. It's very important if you want to think long term that you have alignment between your clients, between your philosophy and even behind your business. I see a lot of funds management companies that are just underfunded in terms of their own cash and their own ability to ride out that period of time. 

Steve Johnson (13m 52s):

So we've worked really hard to try and align those things. You touched on earlier, I think I'm a natural contrarian so I'd say our biggest psychological edge is our ability to perform in really dysfunctional markets. You know, March of 2020, 2009, we had a mini meltdown in 2016 as well. I think you see us at our best when everyone else is running for the exits. Again, there's some structural reasons to that but I also think there's just some emotional wiring factors at play. I grew up on a farm. We lived through a lot of cycles and through a lot of floods and droughts and all sorts of problems. And perhaps that just wires you, I think, to handle stress in a better way. 

Steve Johnson (14m 33s):

But I think most people that have worked with me would say that I generally don't get particularly stressed about financial markets. I get more stressed about people and, you know, if our business is going through a difficult patch, I worry a lot about people's careers and the fact that I feel responsible for those people. But when it comes to stock price movements, I don't get that same anxiety about share prices falling. 

Phil Muscatello (14m 56s):

That's a really interesting thing about your background on farming. I guess it that ideas, you're going to have some bad years, you're going to have floods, you're going to have fires. And then there's going to be that bumper crop that's going to make up for all of those years. That's really informed the way you think, is it? 

Steve Johnson (15m 13s):

Yeah. And a lot of my best clients I think are farmers as well. I think that concept of cyclicality. It's not always right, right? I think you've seen with a lot of tech stocks over the past 10 years that people have been assuming some sort of reversion to the mean constantly and they've just kept growing and kept outperforming. So I think sometimes you need to recognize that not everything does move in a cycle. Some of these things are structural over long periods of time. But I just think that capacity to recognize that things are going to be different in 6 months time, in 12 months time. And it's usually, Jeremy Grantham has got a really, really, really good saying that I always pull out in a crisis. He says "The market never turns when there's light at the end of the tunnel. 

Steve Johnson (15m 54s):

It turns when it's just a shade less dark than it was the day before." And you really need to recognize that. You're only going to get these market meltdowns at a point in time where people are extremely uncertain. You know, to sit there and say, I'm going to wait until there's clarity here around the future is just mad. Because as we've seen by the time there's clarity, then nobody's going to be selling your stocks for stupid prices. 

Phil Muscatello (16m 16s):

And that's really about the psychological edge because it's really difficult. I mean, I remember myself personally last year, I didn't take advantage of that downturn. Everyone else is panicking. It's really easy to take on that panic yourself and not take advantage of what's being offered at the time. But you seem to be able to look past that and be psychologically prepared for it. 

Steve Johnson (16m 38s):

Yeah. And I would say a lot of our clients have recognized that it's very hard to do, and if it wasn't hard to do, we wouldn't have the markets in the state that they're in, right? If everyone was just going to buy, then the share prices wouldn't be where they were, it has to be. And some of that is structural. You know, when you've got leverage in the system, you've even got people that want to do the right thing, that can't do the right thing because they're getting margin calls or they're running hedge funds that are imploding and they're having to take risk off the table at the worst possible time. So there is definitely a structural element to us, you know, we listed our Australian fund back in 2016 and it was open-ended and where people could put their money in and take it out whenever they felt like it. And we thought this issue was so important that we actually closed the fund and listed it on the stock exchange. 

Steve Johnson (17m 21s):

So now you buy and sell units from other people. And it's been trading at a discount to its net asset value for much of the past couple of years now. And that's something that I'm not happy with and we need to fix. But when I look back at March of 2020, we had every single cent in that fund invested in the market. And we were out there selling things that had held up and buying things that were cheap and the fund delivered more than a hundred percent return out of that period. And I think the structural element to us not having to worry about redemptions was really important. So you need to structure your portfolio so that you don't have leverage and never a forced seller. And then you need to have the psychological wherewithal to say, okay, this is bad and it's uncertain and there are problems, but the whole market here is down 50%. 

Steve Johnson (18m 7s):

Am I getting more than compensated for that uncertainty at today's prices? And we are pretty good at saying yes, that is the case. We're often too early, you know, we're often fully invested when the market's down 30 and it goes down 50. But stepping in the right direction in those periods of time is really important. I think for investors not stepping in the other direction is more important. You know, not going to cash in those periods of time. If you want to earn decent returns out of the stock market, you need to get yourself to the point where you're not doing something dumb at those times of high stress. You can add a lot of value if you can do the right thing, but not doing the wrong thing is probably more important. At least have the fortitude to sit on what you've got at those points in time. 

Phil Muscatello (18m 54s):

It's interesting. I just wanted to refer back to what you were saying about being a closed end fund. This is something I've just been finding out a little bit about myself over the last couple of months. The difference between an ETF, which is an open-ended fund and a fund that's closed. If you could just talk to us a little bit about what the difference is and also what it means in the ability to pick up opportunities when the markets do reverse. Because as we know, ETFs being open-ended, market goes down, so does the ETF. 

Steve Johnson (19m 25s):

Yeah. Well, I think you need to separate where it is traded from the type of vehicles that it is. So the fact that something is exchange traded just means you can buy and sell the units on the stock exchange. That doesn't necessarily mean it's closed ended or open-ended. You can have both of those structures as a listed vehicle. The closed ended and open-ended means well what happens when you buy or sell units in our fund? For a closed ended vehicle there are a fixed number of units on issue. And if you want to buy or sell them, you're buying and selling them to or from someone else. So that almost always needs to happen on an exchange. But there're also exchange traded funds where when you buy and sell the units, the underlying fund manager is actually issuing more units or taking them back and cancelling them and giving you your money as part of that. 

Steve Johnson (20m 15s):

So the great thing about an open-ended fund is you can get your money back whenever you feel like it and you will get whatever the underlying value of those shares is at that point in time. And a plus or minus are usually a pretty small buy-sell spread. So that's the positive side of it. The negative side of that open-ended fund is if everyone is doing that redemption at the same point in time, the fund manager is then having to sell all of the stocks that they own to meet those redemptions. And it becomes a very vicious circle. And particularly in the value investing space, we saw a lot of that over the past five years. A number of our value investing funds here in Australia, the business actually got that many redemptions that they went out of business and they had to sell everything that they own. 

Steve Johnson (20m 57s):

That puts more pressure on the stock prices that were already going down. And then the investors get even more upset because the unit prices down further and you get this cycle of redemption, bad performance that leads to everyone ending up with a much worse outcome. So there's pros and cons. For us, we invest in a lot of smaller, fairly illiquid companies. And we add a lot of our value by investing well in those times of distress. So the alternate structure is a closed ended fund where you say, well, we're not going to issue any more units. We're not going to grow this fund any more in terms of people putting money in and us issuing more units to them. But we're also not going to have redemptions so nobody can get their money back from us. 

Steve Johnson (21m 39s):

They can sell their units to someone else. As you can see at the moment, you have to take a discount from the underlying value to sell those units to someone else. So that's a negative for investors in the fund. The positive is that we're not worried about redemptions in times of market distress. And we've been able to grow that net asset value in my opinion, by much more than the discount that they currently trade at. And we think it's the right sort of structure for us. And if we keep delivering the returns over time, then hopefully, you know, those units trade at a much fairer price as well. But for our investment style and our structure and for a fund that we don't want to grow too much more because of capacity constraints, i.e. it gets too big for us to invest in the types of stocks we want to invest in, we think that closed ended structure is a much better one. 

Steve Johnson (22m 24s):

And I actually think that the whole listed investment company, listed investment trust space, it's been under a lot of pressure over the past 12 months. A lot of the vehicles are trading at discounts. I do think people are forgetting about some of the benefits of this structure for long-term returns. 

Phil Muscatello (22m 39s):

Tell us about some of the interesting themes that you're looking at at the moment. I believe small FinTech lenders are in your line of sight. 

Steve Johnson (22m 46s):

Yeah. We've got a couple of new IPOs in our Australian fund. Fairly small weightings for us at the moment, but we think the space is quite interesting. Wisr being one of those new IPO. But I think the overall theme here that is interesting is that the banks are doing much, much less personal lending these days. And there are two reasons for that. One is out of the financial crisis, they changed the rules around how much capital a bank has to set aside for these riskier personal loans. And that made it a lower return on equity business for them. And then we've had the Royal commission here into banking. 

Steve Johnson (23m 28s):

A whole heap of legislation came out of that around making sure that the loan is appropriate for the client. That made it very costly to write these loans. So there's a whole market there that was dominated by the banks that these new FinTech companies, and some old FinTech companies as well, but these companies have come in and filled that void. And the banks are not really losing out. The whole structure of the industry is one where the banks are largely still funding these businesses but they've outsourced the customer acquisition process, the regulatory side of it to these FinTech lenders. And because they're typically only lending 75 to 80% of the amount through what they call warehouse facilities, the amount of capital they need to hold against that is tiny, really tiny. 

Steve Johnson (24m 17s):

So they're getting nice profits on a really small amount of equity. And the FinTech lenders are able to get out there, find the customers in a very cost efficient manner. And because of these funding structures are getting very low costs of funding. So I think that has got a long way to go in terms of the banks, almost intentionally seeding market share here, and these businesses coming along and taking it. It is still very, very much a scale game. You need a big portfolio here. The bigger you get, the lower the cost of funding for you. So people are willing to lend you money at lower rates because you've got a bigger book, you've got more track record, more history. You can then pass on some of that to your customers. 

Steve Johnson (24m 58s):

So you can then get customers by offering them lower rates and keep more of the profit in the middle. And then you've got all of the regulatory and insurance and overhead costs that in my numbers, you need a loan book here have at least two to 3 billion before you've even got a profitable business. So I think there's this massive transition going on from banks to other players in the market. It's going to happen over the next 5 to 10 years. And then you're going to end up with two to three really big FinTech players here that are nicely profitable businesses. You've already seen Latitude at a $6 billion loan book is a really nicely profitable business. It's earning 30% return on equity, which is outstanding for a financial services business. 

Steve Johnson (25m 44s):

And I think that's the end model that we're looking for some of these younger but rapidly growing players to get to. 

Phil Muscatello (25m 50s):

So Latitude, it's really a traditional lender that has turned itself into almost like a FinTech start-up. 

Steve Johnson (25m 57s):

Yeah. I mean, they've largely leveraged off their relationship with Harvey Norman and these five-year interest free loans that we see plastered all over the TV. So their distribution network was largely in store historically, but it's almost exactly the same business model, I guess, in terms of what do you look like? What sort of rates do you charge on that type of product? What sort of defaults do you get? What's your cost of funding and how much are you left with as profit? I think the model is almost exactly the same as these online businesses. And you're probably familiar with the term peer to peer. When these FinTech lenders first came along, it was going to be this revolutionary mum and dad's investing and they go and find those great clients and no credit risk and it was supposed to be this revolutionary business model. 

Steve Johnson (26m 41s):

They're all now funding their entire businesses through the traditional means of warehouses and securitized bonds. They found out that that's actually much cheaper and much more efficient and the banking system is still providing 80, 90% of the funding here. So we're not actually that different from what was going on traditionally. It's just been intermediated in terms of who's doing the front end customer facing piece of work here. They're hard to compete with, right? These banks that have got AA credit ratings, massive balance sheets, their cost of funding is so low that to go out there and find all of these mum and dad investors who want to invest 5 or 10 grand each. It's very hard to compete with those established banks. 

Steve Johnson (27m 21s):

So I think you're seeing here a recognition of that in some of these new business models that we're going to use that established infrastructure here and we're going to overlay some new tools that allow us to acquire the customers much more cheaply but largely fund at the same way. 

Phil Muscatello (27m 36s):

Give us a brief overview of your fund, Steve, and how listeners can find out more about the international and Australian funds. 

Steve Johnson (27m 41s):

We've touched on the Australian one already. It's listed on the ASX under the ticker FOR, F for Freddie. And that fund is about $220 million in size. And all of the philosophical things that we've talked about today, it holds between 30 and 40 stocks at any point in time. And a combination, I guess, of some growing businesses where we think that growth is under appreciated and some turnarounds and different types of opportunity in there. The fund, because before it was listed on the stock exchange, it was an open-ended fund. It's almost 12 years old now and has returned about 14% per annum, which is about 4% per annum, better than the index. And that adds up over a really long period of time. 

Steve Johnson (28m 24s):

Our international fund is newer. It's been going eight years now though and has a similar track record of out-performance or international returns have been higher over the same period. So it's almost 15% per annum since inception from that fund. And I think particularly in that international space, we really do offer something quite different. We're out there doing what we've done here in Australia globally. And most of the companies in that international fund of ours, you would have never heard of. A lot of people enjoy reading about some of these businesses that were able to find around the world. But, you know, if you want to own Amazon and Microsoft and Apple, there are plenty of fund managers already doing that. And there are plenty of ETFs that will do it for you at a very small, very, very small management fees. 

Steve Johnson (29m 8s):

And I think those products are great. You will not get one criticism from me of people having a lot of index funds in their portfolio. I think you can now get market exposure for next to nothing. Our job is to be that little bit of your portfolio where you're getting something different and where we're out there finding some really interesting, underappreciated ideas to put into our fund that then are a small part of your portfolio. 

Phil Muscatello (29m 31s):

And how do you access the international fund? Is that traded as well? 

Steve Johnson (29m 35s):

No, that's still an unlisted open-ended fund. So if you come to our website, you can just apply directly to invest in that one. 

Phil Muscatello (29m 43s):

And what's the website address? 

Steve Johnson (29m 45s):

Foragerfunds.com. It's a Fundhost fund as well so you can also start your application on the Fundhost website. But I'd say the easiest thing is to come to foragerfunds.com. I'm up on Twitter as well, foragersteve. Another of our analysts, Gareth, is under foragergareth and we're pretty active up there discussing financing the world. And I find it a really useful tool for finding ideas and talking about portfolio stuff as well. 

Phil Muscatello (30m 10s):

It is great. Isn't it? FinTwit is a fantastic place. I know people think that Twitter's toxic, but I'm in the FinTwit space, I find it's, well, financial Twitter I should say, there's a lot of good-will and quite robust, but humorous conversations between people. 

Steve Johnson (30m 25s):

I think that's right. It's been our little bubble on Twitter. FinTwit, as you call it, has been infected by COVID I think. We've been exposed to a lot of the ugliness, I think, of Twitter and people arguing with each other and not being willing to change their minds. But yeah, I'd say up until 18 months ago, it was a very, I think encouraging, sharing place for people to share ideas. And I loved it. And even with our client base, I think one of the things that we really try and do is let people know what they own and let them have a relationship with us as people. And I have a lot of back and forth with my clients on Twitter. 

Steve Johnson (31m 5s):

And I think they just like asking questions and being a part of it. So it's a really useful tool for us as a business as well. 

Phil Muscatello (31m 11s):

And especially when you're talking about international stocks, there are so many, I mean, it's very difficult to actually find out about all these different companies that are out of the major indices around the world. That're still doing some great things and are great investment opportunities. 

Steve Johnson (31m 26s):

Yeah, absolutely. There's a great example. We have a senior analyst, Chloe Stokes, who works for us, who's in her early thirties. And when she started working, coming up to four years ago now for Forager, she'd come from an accounting firm and she really wanted to get into funds management as an industry. And she was completely overwhelmed by the number of stocks that are out there. I just said to her, tell me what you're interested in. What do you do on the weekends? And she said, well, fashion and beauty and travel. I said, great, let's start there. Let's narrow the universe down to stocks that you are interested in as a starting point. And the great thing about global markets is that can still be a universe that's got 200 or 300 stocks in it. So, you know, here in Australia, if you take out mining and say, you don't necessarily have an edge with that. 

Steve Johnson (32m 10s):

And then for us, if we take out all of the companies that are less than a couple of hundred million market cap, because they're too small for us to invest in, you're down to 300 stocks pretty quickly, and that's across a whole bunch of different sectors. Chloe has been able to really narrow her focus down to stuff that she loves researching and is interested in. And she's still got a nice big universe. So I do think that's one of the great things about international. One, I guess, warning about Twitter, and I think it's become more prevalent over the past six to 12 months, but there are a lot of people. These things have been around decades, the old pump and dump schemes where people pretend like something's the greatest stock investment in the world. And then they're the ones behind the scenes that are selling you the stock at a much higher price. It's become pretty rife on Twitter. 

Steve Johnson (32m 51s):

And I just want people to be careful about that when they're reading these amazing sounding investing ideas, where someone's giving up a whole heap of their time on Twitter. I just every now and then question the motives behind that as well. 

Phil Muscatello (33m 3s):

Yeah. Avoid the rocket emojis. 

Steve Johnson (33m 5s):

Exactly. 

Phil Muscatello (33m 6s):

Steve Johnson. Thank you so much for chatting with me today. It's been a real pleasure meeting you. 

Steve Johnson (33m 10s):

Thanks Phil, appreciate it.

Shares for Beginners is for information and educational purposes only. It isn’t financial advice, and you shouldn’t buy or sell any investments based on what you’ve heard here. Any opinion or commentary is the view of the speaker only not Shares for Beginners. This podcast doesn’t replace professional advice regarding your personal financial needs, circumstances or current situation