Book Review > Masters of the Market - Secrets of Australia's Leading Sharemarket Investors

Australia has the highest percentage of people in any country in the world investing in the share market with more than 50% of adult Australians investing in the markets, in part a direct result of compulsory superannuation. But while we are all familiar with investors and traders like Warren Buffet, George Soros and Peter Lynch, until now little has been written about Australia's most profitable fund managers and traders? How have they achieved their success? And, more importantly, who are the masters behind our investments in superannuation funds and other high profile managed funds.

Masters of the Market covers thirteen of Australia's most prolific investors. Fund managers are the predominant focus of the book together with some large scale investors and traders.

The subjects of the book generally have a proven track record of out?manoeuvring a crowded market place to produce stellar returns and these successful characters are acknowledged as being some the best investors in Australia.

The book appears to have been inspired to some extent by the popular US Market Wizards books.

About the authors:

Anthony Hughes is the investment editor of The Sydney Morning Herald. He has also covered the finance, media, telecommunications, commercial property and construction sectors.
Matthew Kidman worked as a journalist with The Sydney Morning Herald, covering the media and telecommunications sector and editing the commercial property section, and was appointed investment editor of the paper in 1997. He now works for Wilson Asset Management.
Geoff Wilson is both a subject and co?author of the book and the Managing Director of Wilson Asset Management. He has 23 years experience in the securities industry.

Masters of the Market purports to cover:

• value investing versus growth investing
• discipline and market timing
• fundamental analysis versus technical analysis
• The psychology of investing.

While these topics are covered in a general sense throughout the text the key aspects are well hidden and an investor purchasing the book expecting a good coverage of these topics will be disappointed. In particular, the interviewers did not appear to make a serious attempt to understand the masters thinking on Technical Analysis. A typical Technical Analysis interview question was, 'Do you look at the charts'? A few in-depth questions on Technical Analysis would have provided investors with some significant insight into the use made by fund managers of Technical Analysis in investment management and market timing. A result of the superficial Technical Analysis interview process is that readers are generally unable to gauge the extent that Technical Analysis is used in the investment management process in the funds management industry.

Similarly, the Conclusion chapter, what we learnt from the interviews, does not pick up on many of the key investment gems scattered throughout the interviews.

Lessons from Masters of the Market

The focus of the book is essentially on fund managers and the principal value of the book is on knowing how fund managers operate and gaining insight into their investment strategies. The interview with Robert Maple-Brown is enjoyable reading and helps investors to understand some of the key investment processes used by Robert over his extensive investment career. The authors comment, 'There is little doubt that he started the great tradition of value investing that now dominates the Australian money management landscape'. Robert notes that they have standard investment time horizon of four to five years when they buy a company. Robert explains that they look at the management, the business the company is in and the competitors but most of the time is spent looking at the financials. The authors note that at heart, Maple-Brown is like Buffet, a value investor. He only purchases and holds stocks that represent good value. 'The trick, which Maple-Brown has turned into an art form, is working out what value really is'. Often he will buy stocks that are unfashionable.

The most entertaining and informative interview is with Peter Morgan who headed up the equities team at Perpetual until September 2002 and now runs his own funds management group 452 Capital. Peter talks about his investments in companies at Perpetual that the big brokers didn't cover. Peter explains that these smaller companies had to have a good story that was going to generate good earnings and was undervalued relative to the market. Peter comments, 'You've got to understand the business and then categorise it and find out what's going to drive the stock. Is it a turnaround? Is it a cyclical company? Is it an asset play? Is it a fast growing company? Is it a mature company? Each investment has its own dynamics as to when you buy and sell them'.

Peter raises the issue of benchmarking which many of us as investors have been very concerned about. Peter notes, 'In the funds management industry, we need to address this issue of benchmarking. When the big part of what everyone is benchmarked against is an index and what stocks you can invest in is determined by the stock size and liquidity and not investment fundamentals, it is seriously, seriously flawed'.

Peter provides a very illuminating explanation of the best time to buy cyclical companies. He notes that the best time to buy cyclical companies is when, 'the cycle is on its knees and the PEs are high not when PEs are low which tends to be towards the top of the cycle'.

Peter makes some scathing comments about the boards of big companies that have made major overseas investments. He claims that 99 per cent of those that have major failed overseas investments are run by boards that have not had their personal money on the line. He comments that he would prefer to have the likes of Gerry Harvey or Frank Lowy on his side than, 'some of the boofheads that never have any money in shares but are on the boards of these big Australian companies'.

The book also covers fascinating insights into the investment strategies of other major fund managers and investors such as Greg Perry, Geoff Wilson, Anton Tagliaferro, Tim Hughes, Sir Ron Brierly and David Paradice. It is the comments by these investors that make the book an essential read by all serious investors. But be aware that the most use will be gained by reading the whole book. It is not written in text book style but it contains investment process fundamentals on the Australian funds management industry probably never before published.

Kevin Smith is the Director of New Horizons Business Development and a member of the AIA.