GEOFF WILSON | from Wilson Asset Management

In this episode I sit down with Geoff Wilson, the founder, chairman, and Chief Investment Officer of Wilson Asset Management. He has over 45 years of experience in investment markets, managing over $5.8 billion for more than 130,000 retail investors through nine listed investment companies (LICs) and two unlisted funds. We chatted about his journey from working as a “glassy” at a rough Melbourne pub to founding one of Australia's leading investment firms.

Lessons from the Market: Key Takeaways

1. Time in the Market, Not Timing the Market: Geoff emphasises the importance of staying invested rather than trying to predict market highs and lows. He cites a study showing that missing just the 20 best days in the US market over 20 years reduced returns from 8% per annum to nearly zero. His advice? Don’t try to outsmart the market—stay in it for the long haul.
2. The Power of a Process: At Wilson Asset Management, Geoff developed a disciplined investment methodology focused on four key factors: management quality, earnings per share (EPS) growth, price-to-earnings (P/E) ratio, and industry positioning. A company must score above 50 on their rating system and have a catalyst—such as an earnings surprise or industry change—to warrant investment. This approach, refined over decades, is applied across their funds, from micro-caps to large-cap companies.
3. Learn from Mistakes: Geoff candidly admits that 60% of his investments lost money, yet his funds have outperformed the market by 5-6% per annum. The secret? Cutting losses quickly and letting winners run. He stresses the importance of admitting mistakes and moving on, a philosophy instilled in his team of analysts.
4. LICs vs. ETFs: Geoff explains the difference between exchange-traded funds (ETFs) and listed investment companies (LICs). ETFs offer broad market exposure through a trust structure, distributing all income annually. LICs, which Geoff calls “the thinking person’s ETF,” use a company structure, allowing for consistent dividends and the potential to buy at a discount to net tangible assets (NTA). However, he warns against paying a premium above NTA, as it can erode returns over time.
5. Retail Investors Matter: With 130,000 retail investors, Wilson Asset Management is deeply committed to its clients. Geoff’s firm not only aims to deliver strong returns but also advocates for fair policies, such as opposing Labor’s franking credit changes in 2018-19 and current proposals to tax unrealized gains. The Future Generation funds, managed pro bono, have donated $87 million to support children at risk and youth mental health, proving that investing can align with social good.

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

Phil: G'day and welcome back to Shares for Beginners. I'm Phil Muscatello. Today I'm thrilled to be speaking with Geoff Wilson, the founder, chairman and Chief Investment Officer of Wilson Asset management. With over 45 years of experience in investment markets across Australia, the UK and the US, Geoff has built WHM into a powerhouse, managing over $5.8 billion for more than 130,000 retail investors through nine listed investment companies and two unlisted funds. G Day, Geoff, thanks for joining me today.

Geoff Wilson: I feel that was a bit of a mouthful, but thank you for getting it out.

Phil: I managed to get through it without stopping. So let's, um, go back into the dim, dark past. I remember you mentioned to me once you were a glassy, I think at the Royal Hotel in Melbourne watching, uh.

Geoff Wilson: Down at the George. The George. Okay, the George Hotel. Well, started off in the bottle shop.

Phil: Mhm.

Geoff Wilson: That's. Well, I was at uni and then made it to work in the bar. Yeah, that was when the George was. It was a pretty rough place.

Phil: Yeah. But bands like Midnight all would play there.

Geoff Wilson: Exactly those, all of them.

Phil: All days.

Geoff Wilson: Exactly. Yeah, that's right. And that was. Well, now it's probably one of my highlights, but in those days I, uh, just had to pick up the glasses. Yeah, there was Peter Garrett going crazy with, uh. But yeah, great days. Great days it was.

Phil: Yeah. You were at uni at that stage?

Geoff Wilson: Yes.

Phil: Were you invested at that stage or were you interested in investing at that stage?

Geoff Wilson: Probably, if we go back a little bit.

Phil: Yeah.

Geoff Wilson: In terms of how did I get into the market and probably go back a little further. My father was a doctor and his father was a doctor as well. And actually three back he was a butcher. But anyway'sure uh, there's any similarity there, but when my grandfather died, he owned some shares and my father had a choice, and this is back in the 50s, if he could either get cash or take the shares. And he took the shares and it was in a mining company. And it was when I was. Probably when I was a teenager. Uh, I remember dad would work very long hours, but at night he'd sit down and he'd pick up in Melbourne, grew up in Melbourne. So he tend to read the Age. So you've got a big broadsheet, he's reading through it and he'd stop at this page which had who lot numbers on, had names and numbers and tiny.

Phil: Tiny, tiny print, wasn't it?

Geoff Wilson: Tiny print, tiny print. And he'd just sit there and he'd look at, at them. And uh, uh, I remember one night I said, hey, look dad, what are you actually looking at? And he said, well, that's a list of all the shares that are listed on the Australian stock market. And I thought, okay, uh, why don't I have a look? So I looked down and I thought, let me see if I can find something I can afford to buy. So I looked down and I found one trading at $0.01. And I thought, well, yeah, I could afford that. It was a company called Cox Brothers. And then I didn't really pay much attention. And then a few months later, I think I was looking down the list and I was trading at half a cent. And then a few months later I was looking down the list and it was back to $0.01. I thought, geez, if I bought them at half a cent and they'gone to one cent, I would have made 100% of my money. And yeah, to me that was an interesting. And then a little while later, uh, I looked down the list and I couldn't find them. And I said, dad, where have they gone? He said, oh, uh, they've gone under. They've gone.

Phil: Gee, a valuable first lesson, huh?

Geoff Wilson: Well, in theory I learned I was a retailer and maybe since then I've always thoughty retailing is a hard business. And which it is a hard business. And then because I showed a little bit of interest then, uh, probably a year or two later I was looking down the list and this was, this was probably the start of the mining boom back in the late 70s. I was at uni now and I was looking down the list and I was trying to find a cheap one. And there was a company called Tor Oil and Gas and I was trading at 10 cents. And I thought to myself, if I bought $1,000

00:05:00

Geoff Wilson: worth and it went to 12 cents, then I make 20% of my money, a couple hundred dollars. And so, uh, I said to dad, hey look, will you lend me some money to buy 1000 doll worth of Timor on and gas. So maybe it's like going to the races and winning on the first race and thinking this is the easiest thing. Uh, uh, I'll uh, do this for the rest of my life. So he lent me the thousand dollars. I bought the shares. They went up to 12 cents. I didn't really know what they did.

Phil: Obviously team no fundamental research.

Geoff Wilson: No, no fundamental. Just they were cheap and they had leverage obviously Tim were oil and gas. It was an oil and gas company but that didn't feature in my assessment. I was just looking for leverage. And so I sold half at uh, 12 cents and then they kept going up so I thought I'll keep the other half. And I sold the other half I think at 32 cents. And so you see maybe that was the bug but it actually wasn't necessarily the bug because I finished uni. I wasn't quite sure what I do after uni.

Phil: Did you do finance at uni?

Geoff Wilson: No, no, no, no. I actually did sort of pretty much the subjects. I did HSC even though HSC in Melbourne I failed English so therefore I actually failed HSC and I went to St Kevin's. I went back to repeat at Melbourne High I thought a different school. I actually had read I think when I did it the first time I not sure if I read any of my English books but when I went back to repeat it before I started I'd read all my English books and then actually I was more interested in science because I did ah, biology, HSC and maths and I was more interested in that side and then I actually got into uni because La Tryuni down there had looked at everyone's marks excluding English and because I actually passed excludinglish but in those days if you failed English you failed. So I only did uh, my first week repeating and then went to uni and ended up doing a science degree and at the end of the science degree sort of major minors, chemistry and maths, a little bit of econometrics, second year and first year economics. It was just trying to work out what will I do. And like everyone after uni you got no idea.

Phil: I droveive taxis after I left uni because at that time unemployment was huge, you know and there was no jobs.

Geoff Wilson: O we around the same time. 79 yeah, 80 around yeah 100% so I was working down the pub.

Phil: Yeah, that's.

Geoff Wilson: I was.

Phil: People don't understand. I mean I don't want to go back and say how tough we had it because obviously young people have it really tough these days. But it was. And I did a media course and there were no jobs in the media. It's not like now where you could start up a YouTube channel for eXamp.

Geoff Wilson: It was tough.

Phil: It was really to drop taxis for a couple of years.

Geoff Wilson: Yeah, yeah. And, and yeah, I'd been working at, at the pub while I was at uni just to get some extra money and then I work full time and actually it's bizarre all these sliding to moment. So I'd been working at. I'LOOKED around for jobs. I'm um, sure, like yourself, pick up the paper every Saturday, circle all the jobs, uh, that you could, you think you've got qualified for, send away here, your CVs and get an interview if you're lucky and not a job. And it took me over a year to end up getting a job and uh, I was walking down the pub and actually while I was working down there, some of these sliding door moments, the guys that ran it, Graheme Richmond and Todd Shelton, they actually end up buying another pub. I think it was actually in Richmond. Uh, of course I was down at Fitzroy Street, St Kilda and they offered me an opportunity to go and run it here. I'm in my early 20s, a sort of single one. Incredible opportunity. I don't know why I didn't take that opportunity because they'going to pay me. I think I was getting paid. I think I was getting paid 10,000 do working at the bottle shop on the bar and they were going to pay me 20,000 do and a percentage of the profits. But for some reason I didn't take it. I assume maybe my parents asked me some questions. Uh, to me, parenting, that's where parenting I think is so important because you've got to let your child think they're making the decision. And I don't know if my dad asked me a question or my mum or what it was, but for some reason why didn't I take it? I didn't. Anyway, I ended up getting a job. We won't take you through all the potential jobs I nearly got but ended up getting a job. It's got a shamick Aw. And that was an insurance company had been in the investment department and they had three people

00:10:00

Geoff Wilson: and they took you.

Phil: On without any background, educational background at.

Geoff Wilson: All, without any experience.

Phil: Yeah. Specific to the, uh.

Geoff Wilson: Exactly. Well, I suppose the good thing like you would have found when you've gone for 20 or 30 interviews and whatever degree you've done, you've found a way of explaining how it works with the interview you're going with, if you've done aiate degree and you've gone for a management role then you've got to somehow. Well, the great thing about me is.

Phil: It'S training it for this particular.

Geoff Wilson: Exactly. That's right, that's right. So obviously I did first year economics, second year metrics. I focused on that, focused on the fact that I, my mother and father bought us all some shares. Uh, I'm one of six so all the kids had a couple of shares each. So I could talk to the shares that I already owned trying to explain that I knew what was going on.

Phil: You could read that tiny print in the age with a list of the.

Geoff Wilson: But then the funny thing is, so I got the job, I was sort of as a trainee analyst. My boss sort of sat me down and said look, for the first couple of days can you just read these research reports on companies just to get yourself up to speed in terms of the companies we've invested in and what we're doing. And after the second day he sat me down and said look, I just want to understand exactly what you know in terms of investing. He said do you know what a P.E. is? Uh, a price earnings ratio. I said no. He said oh, okay. He said do you know what EPS is or earnings per share? And I said no. So they said okay. So he realized I knew nothing because.

Phil: They'Re the very basics, aren't they?

Geoff Wilson: Very, very basics. So um, to me that was like he realised that and that was a journey of understanding and learning about the stock market and how to invest in it. And that was as you said in the intro, that was 45 years ago.

Phil: And it's just great that you were able then to get that training but on the job at the same time as well, isn't it?

Geoff Wilson: Yeah. 100% Yah, yeah, yeah.

Phil: Rather than, rather than being theoretically in an, a lecture hall learning all of this one.

Geoff Wilson: Yes, yes.

Phil: I mean you can get the hands on experience there while.

Geoff Wilson: Oh, and learning well and you learn very quickly. And what, what are the. Some of the early lessons and I know back in those days it was a bit more laissez faire in terms of how things were operated, compliance wasn't that big, etc. So I was working for a fund manager and you'allowed to buy shares and obviously you couldn't buy shares that were buying. And I remember one of my first lessons was there was a company, a gold mining company that seemed really interesting and I thought oh, I'll buy some chees in it. So I said of course they have no money. I said to dad, hey can you lend me some money to buy these shares? And I wanted to buy them because I had a view on the company and I had a view obviously on the gold price.

Phil: With a little bit more expertise under your belt.

Geoff Wilson: Presure a little bit. Not much, not much, not much. Just a little bit. Some of the early days of expertise. And then so I'MADE the decision to buy them. So then I thought oh okay, I'm going to sit on the market and I'm going to buy them at this price. Well it was my error and I never bought them. And actually the thesis was correct. The gold price did go up and they did uh, perform well. But I own no shares. So one of my very early lessons was if you decide to buy a company or buy shares in a company you had to become a part owner of that company then buy them so you can try to nickel and dime a little bit. But maybe the secret is by some so at least you have some. If you've spent all the time and the effort and the work to decide it make sense buying and then if you want to sit back and try to buy the others a bit more cheaply can then do that.

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Phil: Because that's what the one of the thesis is behind value investing that you're waiting to buy a good company at the right price but you think because you know you see some there's great companies on the ASX all the time and they never come under a value metric. I would suggest.

Geoff Wilson: Well uh, I'm m more sort of. To me that's sort of a bigger question. I more like if the company'trading at A$1 and

00:15:00

Geoff Wilson: you want to buy it because you think it's going to go to $1.50 or $2 for some reason then like don't sit there at 99 cents and m we hope it'll come to you.

Phil: Right?

Geoff Wilson: Yeah. To me it's more if you've done all the work and as you said at the very start if you just want to get a dart and throw it at companies and IH we'll buy that, buy that by that. That's one way of investing. But another way of investing is uh and how we like to invest is uh, do some research and Have a thesis of why you're buying the company and then if you've done all the work and believe that's the case, then then I should have paid 101 and bought the shares rather than tried to buy them cheaply. If I've got a lot of money in the market, if I'm committing additional money to the market over time, then of course you can be a bit more selective in terms of trying to nickel and dime on the price. But that was sort of an early lesson.

Phil: Y so within a few short years you were working on Wall Street.

Geoff Wilson: I wouldn'say few short years. One of the interesting things is in the first, my first time as a fund manager, my first couple of years and then I went from fund manager to stockbring. Because back in those days like I was uh, in my mid-20s now and uh, this is back in the early 80s and funds management was sort of a newish evolving thing. Having money managed on your behalf like that was a new thing as well. And the interesting thing is the people in fund management tended to be quite. Well we used to say back then they sor of had a personality bypass where all the I'in my early mid-20s the uh, interesting thing, all the excitement was on the stock breaking side. And anyway I ended up going from there to be an analyst analyzing companies for a stockbrokr and then eventually went to London for a few years and then back in the latter part of the 80s which I was working in New York and not actually on Wall street. We were sort of midtown. That's where the office was. But I was there during uh, an incredible time. It was the 86Cr. Yeah, 86, 87 and early 88. Yeah. Where the, when the market fell I think it was 25 odd percent on that day. It was at the N of October 987 and ended up well in Australia. It fell about that percentage that day but it kept falling for another probably three or four months. Where the Australian market fell I think from top to bottom close to 60%. Where the US market didn't fall anywhere near as much as that. And the interesting thing is the US market was back at an all time high two years later even after the 87 crash. And that was brutal. Like there was people jump committing suicide. I think there was a broker, people lost a lot of money. There was a couple of brokers, their clients had lost a lot of money. Their geared in. They didn't understand the risks they were taking in the equities. And I think a few breakers they came in and shot. But brokers like there it was a challenging period to observe, um, what was happening. Y But the great thing about what I've learned and probably from an investing perspective, uh, probably in the early days, uh, I was a big one on timing of the market and broadly. I think you can time the market, meaning when everyone think tells you the market is going to go up forever, then you're probably better off of selling a few things and holding a bit of cash. And when everyone says, look, this is a disaster and the market is never going to recover, then that's when you want to be that cash you've got. You want to be investing, you want to be investing it. What I'PRETTY much learned over that time is even though you try to do that, it's hard to do. And there was a great book that I read a year or so ago that looked at the last 20 years, I was looking at the US market and said, okay, if you invested in the US market 20 years ago and held your position for 20 years, then you've made, I think it was about 8, little over 8% per annum, uh, per annum over that 20 year period. If you missed just the one best day in the market,

00:20:00

Geoff Wilson: that's each year. So that's 20 days, that's all. You weren't on in the market for 20 days. Your return was close to zero, like virtually nothing. So we talk about trying to time the market. I think it's what I've learned. It's time in the market is important.

Phil: Do you think crashes are what they used to be? Because crashes seem to be not as protracted as they used to be in the past. And I know the.

Geoff Wilson: No, no, no. It's interesting. It's interesting you say ask me that question because it's casting my mind back. Uh, it reminds me back in the.

Phil: Early 80s and then the GFC of.

Geoff Wilson: Course, which was very attractive. But when I started in the industry learning about economic cycles and obviously a little bit at uni, but how important they are in terms of driving economic growth, driving valuations, etc. M Back in the 80s, everyone was saying, oh, economic cycles are shorter now. And to me it'we still have greed and we still have fear and so we still have greed obviously creates the extremes because everyone thinks, oh, hey, this will. The market will go up forever. They don't realize that it is cyclical because it gets pushed up by everyone's confidence and then it gets pushed down by when everyone, uh, Fearful. Yeah, gets fearful.

Phil: There just seems to be more of an evening out.

Geoff Wilson: Well, more recently. More recently, yes. I wouldn't say that's forever. Uh, it's more what happened and what we saw back in uh, in the GFC. The global financial crisis back in was 2008. 7, 8, 9. Around that period is what was learned. And this is when I mean you talk to people that were working at the US Federal Reserve at that point in time and they tell you that there was a weekend where they thought that they was looking over the abyss in terms of what would happen to the economy. It would grind to a halt when the various big companies had gone under. Uh, the big banks, you mean Drexelss big uh, insurer AIG looked as others is going to go under. Uh y so uh, the wheels of commerce were going to grind to a halt. That's what they were looking at. And what they realized is to push uh, liquidity into the system. And they did that over a year and a half and that sort of got the patient who was nearly dead got the patient standing up and running around the again.

Phil: Like a transfusion.

Geoff Wilson: Exactly. That's right. A big transfusion. And then what they learned because they learn that's what they needed to do. So then when we had the COVID situation, the same amount of whatever they were transfusing in meaning money to liquefy the system, that was done instead of over a year and a half period, it was done over a one month period. The amount of liquidity that was pumped into the system. And I know the Federal Reserve when Covid started, they went around the world to keep the world liquid and offering everyone lines of credit and they offered Australia $50 billion worth of credit. They just needed to keep the system going. So uh, it sort of brings us to inflation and it'sort of. I'm not sure if you want to go there but it sort of brings us into asset price inflation and inequality and also debasing of currencies and sort of whereyp the long termypto and bitcoin.

Phil: Sort of the long term negative effects of pumping liquidity into the system does create inflation. I mean.

Geoff Wilson: Correct.

Phil: And the inequality. I mean I've been having these discussions with some of my socialist friends about this. You know o 100% people think that it's oh, we're just going to tax the rich ``e I don't want to go into that too much that the idea is your tax are rich and redistribute it whereas there just doesn't seem to be enough publicity given to the argument that there is money gets pumped into the system, it creates inflation. People who've got money already, their asset prices go up and people are left behind.

Geoff Wilson: That's exactly right. The thing is you can't tax your way to prosperity. You actually need. And probably we don't need to go there but the whole tax system in Australia needs a big shake up.

Phil: It's rooted.

Geoff Wilson: It needs to encourageourage

00:25:00

Geoff Wilson: people working, it needs to encourage people to invest, it needs to encourage people to start up businesses. Now I know we won't get there now but one thing that I'm very disappointed about the government at the moment and which is bad policy illogical is they're talking about taxing unrealized gains which is has a very negative impact on the economy, on risk capital etc etc. But let's.

Phil: Yeah, that's a whole other podcastn't right.

Geoff Wilson: Yes. So back on investing.

Phil: Yeah back on investing now. It's just, it's just interesting to talk about that. But I just want to get back to listed investment companies.

Geoff Wilson: Yes.

Phil: Or our friend mutual friend Ian Irvine fromation now call friend of the podcast Liv's. He calls them now.

Geoff Wilson: Well I'm still, I'm still. You're either an lic. Yeah listen Investment company or an lied. Listen Investment trust. But yeah, LIV is a vehicle.

Phil: Ye, that's right, the vehicle. Ye just briefly run us through the difference between an ETF and an lic.

Geoff Wilson: Yeah, yeah. Well uh, an ETF is an exchange traded fund and it uses a trust structure. So when you buy shares in an ETF you get in at the value of all those underlying shares and uh, when you sell them you sell it that value. It's a trust structure so it distributes all its income each year and there's no board or uh, there's a company that runs it. So if you want exposure to the stock market then to me an ETF is a great way of doing it. If you don't want to do any research, you just think I want exposure to the broad market. Or you might have ah, an area of the market you want to be exposed to. Then ETF gives you that opportunity. Then I call well Ian'listed investment vehicles. Or most of them are listed investment companies. Uh, I'll yah.

Phil: Stick with that. Whatever you want.

Geoff Wilson: LIC is I call them, they are the thinking persons etf. So what is the structure? It's a company structure. So uh, the shares trade on the stock market and you buy shares off someone else so those shares can trade and the value of their assets, it uh, is called nta. And those shares should be worth, they are worth the nta. The thing is they don't trade at that all the time because the stock market's supply and demand. So a whole lot of people might think that fund manager is doing a great job and love him and pay above what the value of the assets were or are. I mean we had one of our funds which is them trading above what they're worth is as ridiculous as them trading below what they're worth. But one of our funds three years ago traded a 58% above what they're worth. So you're effectively buying a dollar of value in the fund and you're paying $1.58. Let me give you a word of advice. Try not to pay a premium to what they're worth. And then how I get caught there is then my sister asked me, she said well nine of them as you said, one of ours is looks at small companies wham, Microc cap. And my sister said look I want to buy some shares for her daughters which are uh, mid teens and I want to take a 20 year view. And I said well you probably want risk and reward and so you probably want micro cap. And she said well but that's trading a 6% premium and you've told me never pay a premium. And I say well 6% over 20 years is per annum is only 0.3% premium per annum. So all they have to do is outperform by 0.3. So I mean broadly that's a broad thing in terms of not paying premium. Try to buy them at NTA or.

Phil: A discount and these tables are published easily defined.

Geoff Wilson: What the uh, nta I think monthlyly monthly nta. Ye. So the good thing about the LIC is one is like an etf, whatever that's made there gets paid out because is a trust structure, the LL is a company structure. So it's a closed end pull of capital. And the reason why like the bulk of our business, uh, our alliess is go back. I started the business 27 years ago, probably 30 to 35 years ago. I read a number of research reports that talked about a closed end pol of capital in a company outperforms

00:30:00

Geoff Wilson: an open ended pool of capital and a trust. So two things came to my mind is one is it's a superior vehicle because the money that's in that company stays in that company. So you can take a uh, 1, 2, 5, 10 year view as an investor, that's as the Fund manager managing that pool of capital. You're never forced to buy at the top of the market and you're never forced to sell at the bottom of the market. Where a trust structure money comes in at the top of the market and flows out of the bottom of the market. So to me it's a superior, um, structure. And another thing is in terms of it doesn't have, it can make money and it can pay you those dividends over time. So uh, it's great for people that want dividend, consistent dividends over time where trust, you might have a great year one year, then you have a terrible year the next year. And also another thing that I think is good is there are boards of these companies. So they're boards and they're listed on the stock market so you can hold the board to account. I know there's only the annual agm, but it's surprising. And anyone listening to this effectively, that's like the whole company, that's like every shareholder making that comment. So to me the accountability is good. Uh, they trade on the stock market like, ah, and you can buy and sell them. And in theory some of them traded discounts. And then you do your research and you've got to work. That's why you've got to do a bit more work. Understand why is it a discount? Is it going to stay at a discount forever? Is it a discount because they're performing badly? The fund manager, is it just a discount? Because this seems to be a lot more selling than buying and the company, the board doing things to get it to trade at nta. So like you can do a little bit more. You're getting exposure to the market, you're getting active management and you're getting potentially, if you're buying a discount, the benefit of it, uh, getting into nta. So that's why I like it. And then the next step is if you want to do a lot more research and pick individual companies. And that's probably in the very early days I realized that when you bought a share in a company that you become a part owner of that business. And that's how you've got to think about it.

Phil: That's so basic but so important, isn't it? It's not a horse on a racetrack.

Geoff Wilson: No.

Phil: It's a living, breathing company.

Geoff Wilson: Yes.

Phil: That you can end up having this whole company working on your behalf 100%.

Geoff Wilson: So I remember one of the early companies I bought when I was working was I bought shares in cool because a, they had a discount card. They don't have it anymore. They don't do that anymore. They used to be great.

Phil: With some of these companies you could. I know I shareholder discount.

Geoff Wilson: I don't know why they don't M. Because A there was a discount card I got 2.5% discount and then B I knew that every dollar I spent in there I was getting a fraction of back. Now I was only getting a fraction but I was getting something back anyways. To me that was my naive way of doing some early research.

Phil: Y Can we go back 27 years?

Geoff Wilson: Yes.

Phil: What was it like starting your own company? Was it hard? Was it scary? And tell us about that in your first lics.

Geoff Wilson: Yeah, well it is. And my very first exposure or when I started working I was working as a fund manager for a couple of years and then the next 18 odd years or was ah. On the broing side as an analyst for a period of time and then institutional sales. Institutional sales and probably corporate. So that was sort that got me to a certain level and then the tough thing about stockbroking is I was 40, I had a daughter who was then 4 years of age and wife and stockbring. It's very competitive. So it's uh, competitive internally and externally.

Phil: And of course with online broken coming in as well. It would have.

Geoff Wilson: Yeah, online breaking wasn't that I was institutional sales. So it was really working as hard as you could to get the information to the big farm managers, the big institutions. Then they would buy and sell shares through you. So it was. We'd have a morning meeting where we'd talk about research ideas and with our research department. And um, in the early days it was at 8:30, then it became 8:00, then it was 7:30, then it was 7:00 because we wanted to be the best. So you want to be the first with the information to the farm managers. And uh, I thought like pretty much it was to describe it as like the

00:35:00

Geoff Wilson: FE line mousetrap where you're making a lot of money but it's killing you. And I just thought it was just strange that I've uh, got this beautiful daughter and my wife and I can't have breakfast with them meat morning. And I sort of went through uh There must be a better way of balancing your life. And was around that time there was a book that came out called the Empty Raincoat. I think that's what it was called. And I talked about how life's going to change. I'm not sure if it ever has but how we'have A portfolio of jobs. And I was trying to work out how to get balance in my life at the same time. And then around that time, one of my corporate clients, Tim Hughes from rie, he managed Reg Grundy's money, said to me, look, what do you really want to do? Uh, I think we're at lunch. And I said, look, I'd actually love to have a little funds management business, maybe write a book, maybe go on a couple of boards thinking of that portfolio, uh, approach and of course, so I could spend time, I could have breakfast with my family. And he said, well, I'll give you 10 million bucks to manage.

Phil: Uh, just like that.

Geoff Wilson: Yeaheah. And then it was a bit like that because then that was at lunch. Then I think a month or two later, I said, tim, could we have lunch again?

Phil: I haven't seen that, seen the T yet.

Geoff Wilson: No, no, I didn't have lunch. No, I was still working as a broker. I didn't have lunch. I said, can we have a coffee other one? And then I said, is that a real possibility? Because I've been giving it a bit of thought. And he said, yeah. And then the funny thing is that was so we 97, the latter part of 97, and I resigned from stockbring and set up Wilson Asset Management. And the logic. Why did I call it Wilson Asset Management? Because it was going to be my own little pool of capital, uh, my money, putting it with other people's money. So then I'd be seen as institution, but it would only be a small pool of capital. And I thought, hey, look, uh, I'm never going to sell it, so I'll just call it, uh, after myself. But also I thought I'd go on a couple of boards, which I did, and then also write a book, which I started writing, which I ended up writing. It's called Master of the Market. We did two editions, but that was. It's a fascinating read, but it's very old now. It was interviewing fund managers. And so then the 1st of January, we're getting up to the 1st of January, 98. So that's the day I'm starting. I said to Tim, hey, look, ready to go first of Jan. He said, how much are you putting in? And, uh, all I had in the world, I had a house, but all I had in the world was half a million dollars. And um, I said, look, I'm going to put everything I've got in half a million dollars. He said, okay, I'll put in half a mil as well. So we Started with a million dollars. Eventually they put more money in. But yeah, that's where we started with a million dollars. And in theory it was just, it was in a trust structure. We've still got the trust, it still works. I think it's done about 16% per annum for 27 years.

Phil: So it's a listed investment trust?

Geoff Wilson: No, no, it's an unlisted trust.

Phil: Unlistureah.

Geoff Wilson: Just an unlisted trust structure. And then what we did is we did our first listed investment company which is Wham Capital. And that was a mirror of the trust in theory. It was obviously strong research background. So I had a methodology of investing which we all. Anyone who's listening to this, everyone has a methodology of investing. They just mightn't have written it down. You might be a counter cyclical investor. You might want to buy when everyone's negative. You might be a momentum investor, you might be a growth investor. You're looking for growth companies. Uh, everyone's got a different way. And the good thing about because when I started I had to work out what type of investor am I and when Personally when I was managing my own money, I was a counter cyclical high risk investor. So I'd take big positions in companies that were beaten up. But then what I realized as uh, money m managing my money along with other people's money, if I can make 1 or 2% per month, then at the end of the year I've made 12 to 24%. And talking to some of the really good fund managers around that time, I remember Greg Perry was at the top of his game. I remember Greg saying look, it's really about not making mistakes, not losing money. It is incredibly important. So probably in the first six months I really spent a lot of time crafting what my investment process was that was drawn on uh, a lot of experience over a couple of decades. And I ended up putting it into a methodology

00:40:00

Geoff Wilson: because the asset consultants want to come and see you. They never gave me any money, but they came sleep. It's sort of the rating system we use. Well first of all, what I've learned is the greatest correlation between a share price and anything. Some people say it's free cash flows, some people say it's return on equity, uh, the various things. But what I've seen over uh, a long period of time is the greatest correlation between a share price and anything is earnings per share growth. So that's right, the growth in the profit on a per share basis.

Phil: Ditch the spreadsheets. Shareight is Investopedia's top tracker for DIY investors. Invest smarter, not harder. Grab four months free on an annual premium plan at sharesight.com sharesforbeginners um, and this is quite high up in the accounts, isn't it? The earnings per share?

Geoff Wilson: Well, exactly. In effectively it's the net profit divided by the number of shares on issue. The earnings per share. So that's the earnings per share. And in theory, say the companies's earning say 10 cents a share. Well, it's actually just the profit growth, assuming there's not dilution from additional shares being issued. The profit growth of the company, the share price should reflect the profit growth of the company. If the profit'declining then the share price should decline. If the profit grows, then the share price should grow. So it's, that's the greatest correlation that I've seen uh, over my period of investing. Also, what's incredibly important is management. So like when people give us money to manage, they are uh, trusting that we will manage the money well on their behalf. When you buy shares in a company, you are trusting that the CEO, uh, will do a great job managing that company on your behalf. So it's management earnings per share growth or profit growth. And then we've got valuation matrix or not ev valuation method. And that's. We come back to the things I learned at the very start on the first day, on the third day that I started in the industry. It's the pe, the price you're paying for those earnings, uh, it's the price to earnings ratio. That's the third one. And the fourth one is the industry they operate in and how they're positioned in that industry. And that's why like some of the great books, you can read. One of my favorites is the Peter Lynch'book from Fidelity years ago called, uh, One up on Wall Street. But he wrote a great second book. It was called Beating the Street. And that's where he went to high schools and talked to the kids there and realized that they could see the trends that are occurring. And if, if you followed what they were telling you, what was going toa happen, you'd do better than the professionals on Wall Street. So to me, as an investor, it's very important to observe, be curious, um, listen, read, see what's happening in the world. Because when you're buying, and again it comes back to that fundamental reason, uh, when you buy shares in a company, you're part owner of that business. So you've got to look at that business as if you're the CEO, uh, or you nearly look at the business. If you own 100% of the business, do you think they're doing a good job? Do you think they'll continue to grow? Do you think they'll continue to do a good job and grow? Etcetera, etcetera. In terms of just finishing off our rating system. So I broadly gave you the outline of sor what we look at and then I'll give it to you in numbers. So effectively we rate management. That's first. And we rate that out of 10. So okay, say I'll rate. Uh, I'll rate you. This is your business.

Phil: Y. That's right. There's a waform on the screen. Look. Okay, I'm not distorting.

Geoff Wilson: That's right. Think they very professional. Ye like all set up here.

Phil: Slip my professional slippers.

Geoff Wilson: Exactly. When I came in here, you gave me a cup of tea. I had coee or tea coffee machine. So it's all very uh. My experience so far is, uh, I would rate you highly. But say I'd rate you out of 10. But I'm a taskmaster. Uh, I actually don't know how this works as

00:45:00

Geoff Wilson: a business, so I can't assess that. So maybe I'll rate you 7 out of 10. But then to get it. The weird thing is. And then m. Uh, we multiply by two to get it out of 20. Now why do we do that? Because if you rated someone out of 20, you would have rated them differently. So. So 7 out of 10 multiplied by 2. So you're 14 out of 20. So you got 14. Then I look at the. Then the next one is the earnings per share growth. Now problem is I don't know how.

Phil: Much you earn and you don't know how any shares over my company, uh.

Geoff Wilson: Which is all owned by me. Well, but I don't know what growth Y. But let's say. Yeah, it's an.

Phil: I could give you an output of my accounts, for example.

Geoff Wilson: But. Okay, but would you your growth from last year to this year? You have you had growth?

Phil: Um, no, I haven't actually. No, it's been a bit backwards this.

Geoff Wilson: Okay. Okayk.

Phil: Okay. Just as an example.

Geoff Wilson: So. Well, therefore, let's say minus 5%. Unfortunately, we won't buy shares in you. No, no, because that's.

Phil: They're not for sale anyway.

Geoff Wilson: Because broadly to rate on our system you've got to rate 50 or above. So what it means is say you get the good management or whatever it is. Uh, you've got 14. How you get the other rating is by earnings per share growth, valuation and position in the industry. And let me finish off on those. So you can look at what the earnings per share growth of a company and you look at it over the next two years. Say it's growing at would, let's just say 10% this year and say 12% next year. So on average it's 11%. So that's 11. So we got, we've got 14, 11. And then what we do, and this is where it gets a bit trickier is we divide by the earnings growth, uh, by the pe. And so you've got to be listed on the stock market. Say you're on a PE of the average market. Pe, what's it, 18 or something? Yeah, say it's 18. Yeah.

Phil: May the Commonwealth bank at the moment it's ping it up.

Geoff Wilson: Let's say 15. We want a cheaper company. Anyway, ideally you're trying to buy the lowest PE in the highest growth, but let's say 15. So then it's 11 over 15, which is, what's that, 0.75 or something like that or 0.7.

Phil: Bit higher than point 8.

Geoff Wilson: Yeah, 8Y. Yeah, but then you multiply by 10 so it's 8. So what do we got? We've got 14, we've got 11 and we've got 8. And then the last one is the industry you're operating and how you're position industry and say if it's this. Well, so there's the podcast industry. Is it highly competitive? I'm not sure how you're positioned in it. In it. So to me that would be tough. It's a tough industry. So um, end put your position in it, you probably position well but it's a tough industry. So I'm probably only giving 6 out of 10 there. So you add them all up and if they're above 50 then it's a uh, buy. If below 50, it's not.

Phil: Is it that simple, the price process for us?

Geoff Wilson: Yeah, because what you're basically doing is buying a well managed company. This is for us that is trading on a low PE that has high growth and is well positioned in a good industry. That's sort of the summary of it. It's that simple. Then it rates a buy. We don't buy it, we don't buy it unless we can see a catalyst. It's going to change the valuation because say we've rated your business and say it was a buy, say you had earnings growth, then what's going to change the valuation? If the market looks at your business. What's going to change the market from deciding your business is worth whatever it's currently worth. What normally changes that is there's an earnings per share like there's a profit. You exceed expectations in terms of what everyone was expecting you to make in terms of profit. A profit surprise. Or there's a structural change in the industry. Or you might take over another podcast business. Oh that's going to be good. Or we might realize that podcasts are just going to grow at 100% prum forever. So to me structural change in industry earning surprise. Positive earning surprise. Now you need a catalyst that's going to change the way the market looks at that company. That's how we do iteah and it's.

Phil: The same methodology whether you're looking at the big end of the market or micro cap.

Geoff Wilson: The micro cap a lot easier m the big end of the market it's a lot harder

00:50:00

Geoff Wilson: because a less companies rate on that rating system because they're not usually growing because effectively a company's got to be growing at 1 and a 5 to 2 times its pe to rate on our system. And so therefore the larger companies and the guys that run wham leaders they can do that but they have to look at other they spend probably a lot more time looking at global uh, metrics or dynamics and what will uh, sort of flow of funds like what's happening globally and how will that impact the large companieses. So to me this is, we use this extensively in the mid and small cap area. It's just a little harder in the top hundred to do it because you don't get companies effectively no one rates.

Phil: And uh, uh all of these key points are they dynamic and how often can they change?

Geoff Wilson: Oh you're dynamic all the timee dynamic because you've got to be 100%. Well effectively management doesn't necessarily change that much because either well they could leave and a new person could come in or usually good managers are uh, good managers and they stay good managers and bad managers are bad manager. They stay bad managers but in terms of like earning surprises like something could happen or the tariffs are announced. Oh so therefore I'd expected that company's earnings are going to grow like that. Now they're not or the tariffs are going to be positive for that company. Uh, like to me it's dynamic. So you re always, you're taking in all the information and you're assessing the earnings potential of the company or what you anticipate the earnings will be.

Phil: Uh, how is the mentoring process for the analysts that you employ managing these funds, how does that operate? How do you instill this view with your teams?

Geoff Wilson: O well, that's sort of the process that we've always used and everyone knows that's the process we use in terms.

Phil: Of there any people that have to unlearn bad habits, for example, or is it?

Geoff Wilson: I think everyone's got unlearn bad habits.

Phil: It's always a good thing to do, especially in investing because there are so.

Geoff Wilson: Many of them and of one of the things we've got is this is just, uh, accept your mistakes. That's a big philosophical thing that we've got, uh, at our place. Like when you make a mistake, apologise to everyone else. We always make mistakes. The incredible thing is I remember seeing a study, it was in one of the papers about just showing over time how this fund manager had outperformed by, I think a couple of percent prum. But he said that he had outperformed by a couple of percent prum but 40% of his investments he lost money on. Then this is a number of years back, I remember reading that and thinking, wow, I wonder how we've gone. And so since we've been operating, I think we've outperformed by 5 or 6% prum. So really, really good outperformance. And you'd think, well, you've obviously got most of you calls right back. This is, uh, probably six, seven years ago when we did it, 60% of our investments we lost money on and 40% we made money on. And this probably comes back to another thing you learn is when you make a mistake, you've got tomit it and cut your losses. And we found with our profitable investment decisions, we ended up making a multiple on our money, 100% or 200%. So in theory, if you want to manage your own money, then you've got to spend the time and the effort and pay attention.

Phil: Which is, uh, before we started. That's what I say. I just want to make the point in this podcast that people get this idea that they can suddenly become a stock picker because they've heard about a company, they're the only person in the world that's heard about it.

Geoff Wilson: Yeah, I mean I'm one of the.

Phil: Good'So much work, isn't it? There is a methodology.

Geoff Wilson: Yeses. I mean, one of the good things is the odds are, uh, you'll do reasonably well because the market goes up over time. The thing is, what you've got to do is also Work against your emotions. That's what the good investors are y do work against your emotions because when you're scared like the weird thing is from my perspective is when the market's falling you, when there's real carnage uh on Wall Street I sort of wake up in the middle of the night and watch it for an hour because I'm excited Now while I always like that I think that's uh, sort of a more

00:55:00

Geoff Wilson: al learnt response because you know that when everyone is scared then the opportunities are going to present themselvesah. We saw that recently with the tariff crash. Yeah the tariff crash or the Trump tariff tantrum or with the market we do a 12 month road show to made capital cities and we actually did it over that two week period so everyone was very nervous and my big, the big message was it's time in the market rather than timing of the market and taking them through that in a year's time the market will be higher. So even though it feels painful at the moment and you don't want to invest, now's the time you should be investing but it's hard to do when it's happening. Yeah.

Phil: And is there a methodology for managing when you do get something wrong?

Geoff Wilson: I just got to sell.

Phil: But how do you. What is it that what's wrong? What'it uh to me what are the reasons for selling?

Geoff Wilson: For example for us is there's multactorial one is the catalyst occurs like effectively we're trying to buy an undervalued growth company and bye. When a uh catalyst we think we can see a catalyst going to change the valuation. So if that occurs like if come out if we think Jesz this company should be doing really well and if it comes out with an earning surprise, a positive earning surprise and we don't think it's going to there's going to be another positivening surprise then we'll sell. If there's any negative things to me is that you've got to assess say if something happens, say the tariffs say if that's announced. Well I mean the thing is from our perspective is everyone knew tariffs were coming. They didn't know how they were going to come but they all knew they were coming.

Phil: I think a lot of people were in denial.

Geoff Wilson: Well it was just how he did it. I think that was the crazy part. Uh, so pretty much all our investment guys they had set their portfolios so they didn't have companies that would be negatively impacted by the tariffs. The fact is how he delivered the tariffs was horrendous and crowd all the uncertainty. And he thought it was, you know, the big sort of show day ended up being a disaster and he had to back trackck in effectively. The stock market smacked Trump over the head and he had to reverse everything he had decided he was going to deliver on that day or most of it. And like if you're expecting a company to do something and it doesn't do it, to me the, that's the thing that's probably the big negative in terms of, oh well, I say, hey, I'm invested in coals. I thought were, uh, I thought retail sales, I know they're tough but I thought they're doing well. All of a sudden the result comes out, oh, whoops, they're not doing well at all. Well to me the tough thing is we're closer to the market. If you're a retailer, be star, uh, you've got to take more of a medium term view. We're trying to maximize every opportunity so it's a bit different for us.

Phil: How important are retail investors to you?

Geoff Wilson: Oh, for us, that's our business. Like the 130,000 shareholders are our retail investors. So when I set the business up, the whole idea was to make a difference and that was to make a difference for myself in terms of the money that I had in the fund and anyone else who put the money in the fund. When we flo to Wham Capital and then we grew other listed investment companies, then all of a sudden we got a lot of retail investors and now 130,000 plus. And for us it's important to make a difference in terms of investing also make a difference in terms of standing up for what we believe is right and standing up on their behalf. And we did that back in 2018, 2019 when very publicly when Labour was definitely going to win the election. Back then they were odds on favourite and they sort of lost the unlosable election. And one of those reasons was because they had a really illogical policy on franking where you could have four people that had the same amount of money and were all retired and all got different fully frank dividend results. So we stood up against that and at the moment we're standing up against taxing unrealised gains. So yeah, to me, for us it's important to make a difference and to give back. Like we've created a couple of listed investment companies, uh, future generation entities where we've got all the managers to manage the money pro bono for free, which allows us to give 1%

01:00:00

Geoff Wilson: of the assets to Children at Risk and youth mental health, which is. Is really, to me, from my perspective, it's great. We're seeing the financial industry give back, and since we've been operating them over the last 10 years, about $87 million has gone to Children at Risk and use mental health. And you're getting exposure to the best fund managers, and it's actually a cracking deal for investors because they're getting exposure to the best farm managers. And normally you'd pay more than a percent for them to manage your money because they've all got performance fees. So the investors is actually getting a slightly better deal than investing with those managers. Yeah. So they're great structures.

Phil: Fantastic. Geoff Wilson, thank you very much for coming and joining me today.

Geoff Wilson: No, uh, thank you, Phil. Thanks for your time.

Chloe: Thanks for listening to Shares for Beginners. You can find more at chesforbeginners.com. if you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

01:01:01

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