ELIO D'AMATO | From Stockopedia

· Podcast Episodes
The numbers don't lie - they reveal the soul of a stock

Broadcasting live from his humble garage next to his trusty Toyota Corolla (and a clothes rack), Elio D'Amato from Stockopedia joined me to discuss share investing and the factors that identify quality companies:

These factors of quality, value and momentum, are the work of the giants of our industry. We rank the world's stocks according to the factors that have been identified. So an investor can easily search for these factors. And then we blend the factors of quality, value and momentum into what we call stock rank score, which is in essence trying to find good cheap, strong stocks, which sounds like a pretty robust strategy over time. And we've shown that it provides a smoother performance relative to the market over time.

It's always great to catch up with Elio. His bluff good humour combined with his decades of experience always make for a great chat about companies and markets.

We addressed the concerns of people approaching investment markets for the first time: Is now a good time to be in the market? Elio believes that it's not about timing, it's about the readiness of the investor. Just like merging into traffic, it's not about waiting for the ideal conditions, but rather assessing your own preparedness to navigate the market's ups and downs.

Stockopedia Shares for Beginners Special. Take advantage of our special introductory offer for listeners.

Times are always uncertain and can seem challenging for inexperienced investors. Elio emphasises the importance of knowledge and experience in understanding economic headwinds and making informed decisions. Just like a seasoned driver knows how to navigate traffic, experienced investors are better equipped to handle market fluctuations.

Are you gonna sit there and wait till there's absolutely no cars on the freeway before you actually merge into traffic? Or do you merge, take more care? Do you go straight in? You know, these other cars that you are merging in onto a freeway or with, they have their own destinations, they've got their own things to do, they don't really care about you other than they don't wanna have an accident with you. The question really isn't whether now is the right time to invest. The question is, am I ready to invest?

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Elio has had a distinguished career over two decades in the finance sector and his experience spans equities research, funds management and as a business owner. A renowned market educator and commentator both domestically and internationally, Elio is a key member of Stockopedia's Australasia Team, contributing to the research, distribution and customer fulfilment.

Beyond stocks, Elio’s other passion is Sports of all kinds, finding the drama involved as the perfect example of the natural theater for life.

Chris Batchelor and Elio D'Amato from Stockopedia

Chris Batchelor and Elio D'Amato from Stockopedia Australia

Chris Batchelor is an experienced business leader and investment expert with over 25 years experience in financial markets, focused primarily on equity investing. As part of Team Australasia, Chris contributes his expertise in working with Investment Software alongside his extensive background in educating investors. Chris is a contributor to Kaplan Professional’s CPD program and is often called upon as a contributor to mainstream media.

When Chris downs tools you’ll see him at home in the great outdoors, either packing his tent, or preparing to set sail.

Find out more about the Stockopedia methodogy with the founder of Stockopedia, Ed Croft


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Chloe (1s):

Shares for beginners. Phil Muscatello and Fin Pods are authorized Reps of Money Sherpa. The information in this podcast is general in nature and doesn't take into account your personal situation.

Elio (12s):

I see it like merging with traffic, you know, on the freeway. So are you gonna sit there and wait till there's absolutely no cars on the freeway before you actually merge into traffic? Or do you merge, take more care? Do you go straight in? You know, these other cars that you are merging in onto a freeway or with, they have their own destinations, they've got their own things to do, they don't really care about you other than they don't wanna have an accident with you. The question really isn't whether now is the right time to invest. The question is, am I ready to invest?

Phil (44s):

G'day and welcome back to Shares for Beginners. I'm Phil Muscatello. These are interesting times for investors, especially for those without much experience. Is now a good time to be in the market? How can investors look at companies while still keeping an eye out for economic headwinds? Joining me today is Elio Demato from Stockopedia. G'day. Elio,

Elio (1m 4s):

G'day Phil. Thanks very much for having me back actually, it's just wonderful here. And a big hello to all the listeners out there.

Phil (1m 12s):

And if I can just describe your background at the moment so I can see some, some clothes on a clothes rack behind you right next to your Lamborghini. Is that the Lamborghini?

Elio (1m 21s):

No, no, not quite lamb. No, no, no. That's a very good tried and true Toyota Corolla, which is withstood many a different shelling event and it still goes absolutely to a prime position. But yes, I'm currently coming to you from my garage at home. The wife has taken the head office as she's conducting a webinar herself at the moment. So I've been demoted, yeah, relegated into the garage and I'll be working here. But for now I'm just living a very humble life and enjoying the fruits of that.

Elio (2m 6s):

And it's been an absolute wonderful three years actually. And I wouldn't trade it in for anything three

Phil (2m 11s):

Years. What was the three years for

Elio (2m 13s):

When I left Lincoln Indicators.

Phil (2m 14s):

Oh, okay. Okay. Well we'll get back to it. But let's, let's go back in time. I mean, you're obviously so passionate about investing whenever we chat that really comes across that you really love looking at companies, talking about companies and running the tape measure over them. But when did you first start? When did you first start becoming interested in investing?

Elio (2m 32s):

I became interested in investing very early on actually. In fact, I, I was very fortunate to turn my passion into a career. That career started officially at Lincoln Indicators, which was my first job in the share analysis industry. I had been in finance, but I really wanted to get into shares and I had no idea that I'd be so lucky to stay there for so long, some 17 years. I started as a very green analyst with lots of enthusiasm and then through making more eye calls and wrong calls and the natural attrition that can happen in my industry, eventually I made it up the ranks to head of research, c e o and then an executive director and part owner in the business. So it was a privilege to serve the Lincoln family actually and to share the vision of helping investors by spreading the word of Dr.

Elio (3m 16s):

Merv Lincoln to everyone who would listen. And I'm very proud of the processes that we built, which actually led us to become the number one fund manager in the country number of times. So that's a great feather in my cap, but I do like to keep humble, I like to keep it real. And most importantly under my watch, we wanted to focus on our members' success. And at the end of the day, helping investors is really what floats my boat and it's what I love doing most.

Phil (3m 40s):

And so Lincoln is otherwise known as Stock Doctor, isn't it?

Elio (3m 43s):

That's correct, yeah. So Stock Doctor was the tool that we would allow investors to or DIY investors to go out and conduct their own research to identify stocks that suited their own personal investment objectives. And

Phil (3m 55s):

What was the kind of work that you were doing analyzing? Because there was a particular style, wasn't there? The of valuing companies, and I just wanna preface this, this is something that I've has become so obvious to me doing this podcast is business is really hard and the valuation of a business is really hard and people sort of are looking for certainty in this industry where it doesn't really exist. There are so many factors at play, there are so many personalities involved and it all comes back to that running a business and trying to turn it into something profitable is really hard work. Anyway, that was my preface over to you.

Elio (4m 33s):

No, look, we had a very much in line with what you just said. We had a process called the Nine Golden Rules of Successful Investing and we would analyze a stock across a number of different metrics ranging from its financial health all the way down to its size, liquidity, and use in announcements. And my job as an analyst was to ensure that a company was not only attaining the grade of a star stock, but was likely to retain that status as time progressed. Now that was through a combination of various outlook settings and pressing the flesh in regards to the leaders of these institutions, talking to industry competitors even to understand how things are going. And really short of looking into trash cans, trying to form a very learned opinion as to whether this great business could remain great into the future.

Elio (5m 22s):

And really, I know we often get caught up in the minutia of detail. I mean, I can value a stock if you like, I can do you a 600 line spreadsheet for BHP that even covers the toilet paper consumption in the Pilbara if you're that way inclined. But there's very little added value for DIY investors to engage in such finite details. Rather, our focus should be on trying to find the type of investor we are and therefore applying our particular criteria and our rules to be able to identify stocks that give us the best chance of holding that portfolio. And rather than trying to chase success of 100%, your efforts better being into identifying the perfect model for you, that gets you about 70% of your stocks, right?

Elio (6m 5s):

60 to 70% because the way the maths work with your gains are unlimited, but your losses are capped at 100%. You're going to come out in front every single time. So this is where I suppose everything started to evolve and where I started to change, where there is an A approach, which I know can lead to out performance cause I did it quite consistently for quite a number of times. But then you can also follow other methods and achieve similar performance and sometimes even better in certain cycles. So it's not for me to dictate which one's better or not, mine is just to help people no matter how they wanna go about doing it to actually achieve it in the most successful way possible.

Phil (6m 46s):

So you left Lincoln Indicators right at the start of the lockdowns. How was that? Must have been a scary time.

Elio (6m 52s):

Yes and no. Look, yes, I was leaving a well-paid role to become a smuf. Now for those who dunno, that's a self-managed unemployed fund. Now that was on the eve of the biggest correction this decade. So further, I wasn't even entitled to any government assistance. So I didn't receive any report or support. I didn't even claim any. And no, it wasn't necessarily scary because I was about to embark on something that I really wanted to do and that was just talking stocks.

Phil (7m 18s):

And so that's when you started up SpotteeTV? Oh, Spottee and TickerTV. Tell us about that. What were you doing there? Yeah,

Elio (7m 24s):

The TV show was called Spottee on Shares, which was on an online streaming network called TickerTV. Aaron Young who founded the company, and he basically is a great friend of mine. He was launching a new online streaming service and he was in need of content. So I offered my services now we ran a one hour program to talk stocks, real raw, unfiltered. We would talk stocks with everyone from Advark to Zebra, BHP to mum and dad, fish and Chip Shop if it was listed, look, we had viewers asking questions on the show. It was rolling. We developed quite a following to the point where we became the most popular show on the network. So much so that I think I was the first ever TV show that got its own specific financial services license, just so I could speak stocks.

Elio (8m 7s):

Now, just to emphasize that point, the license is actually under the name of the company. So we didn't actually go to another financial institution to get one. We actually had our own and that was solely for the purpose of being able to talk stocks. So as with all things, again, Aaron too was achieving success, especially overseas. And he was keen to grow his foreign content for a show that was, you know, look, we were talking Aussie stocks, he was focused overseas, so he got squeezed out a little bit. But I'm proud of the role that our community played in the establishment of his business. And I wish him and the team all the success in the world of course. But yeah, that was a hell of a lot of fun and I really, really enjoyed that.

Phil (8m 48s):

You mentioned getting questions from listeners or from viewers. Was there any commonality amongst the themes of what people were asking?

Elio (8m 55s):

Of course not. We'd like to think there was, but there never is. Yeah. And the minute you thought you had all your corners covered, immediately a question would come from left field. And it's one of the reasons why people like financial advisors, and dare I say it, other commentators prefer not to talk on the fly when it comes to talking stocks because the questions can be incredibly varied in sometimes incredibly complex. And our job is to take a complex theory if we actually understand it ourselves and turn it into layman speaks so that everyone else can understand. So yes, of course there were the very obvious questions. Inevitably when markets were falling, everyone only ever cared about large cap stocks because they make up the majority of their portfolio.

Elio (9m 39s):

But then when the bulls are running, everyone's looking at small cap stocks. And of course we know in recent years that includes the likes of lithium rare earth and all those other sexy industries which have captured much of the limelight. So those things, yeah, they're the kind,

Phil (9m 52s):

They're the kind of stocks that are talked about down the pub or in the cab, aren't they? Exactly.

Elio (9m 56s):

Th those, those things remain the same as always. Whilst the actors might change, the plot will remain the same. There'll always be someone that captures the imagination, particularly when the bulls are running. So that you know, and therefore that gives you a bit of a lead in. But no, the questions were very varied and I'd always try to warn my guests not to think that they're just going to get the standard questions that, you know, they would be expected. Cuz often they never got that.

Phil (10m 23s):

It's interesting you talk about that mentality though, that people go through is people's mindsets are so different between bull runs and bear markets, aren't they?

Elio (10m 31s):

Yeah, very much so that you, I mean the market itself moves from, you know, over enthusiasm to over despair. And the reality is the fair value somewhere in between to be quite frank and honest. So I mean a lot of people have often talked about on your podcast and in the various literature out there in, in regards to the need to control your emotions. And that's so important. It's not so much that you know that would help you be a better investor, it just would, it helps you stop making dumb decisions. Inevitably, anyone that makes an emotional decision inevitably comes to regret it. And that's just not in share investing either. Phil, that extends far, far, far and away Outside of that. And Phil, we were talking about the Covid crash and it's actually a good segue because history will show that 2020 and 2021 were actually my best years from investing ever, hands down, not even close.

Elio (11m 23s):

What I was doing prior, and this was pre when we were running the most successful fund in the entire country. So if I was ever going to become a SMUF, it was a perfect time to do it. And I credit that to the ability to control my emotions, to be able to block out that noise that can lead you to act irrationally, the fear, because of course the market fell quite heavily and then it rebounded incredibly quickly. And whilst V-shaped recoveries don't always happen, in fact they very rarely do. No one ever knows what's going to to happen unless you have, I've got that mental fortitude to be able to block all that stuff out. You know, you'll miss the good runs and once you do that, then that hurts so much.

Elio (12m 3s):

And it's not because I was hoping that there'd be a turnaround, it was because I had a plan and structure in place that would help me manage those situations where, look, you know what, even if I did sell, I'd still had an opportunity to get back in at some point in time. Letting go of the handle bars is not a successful strategy when the market's going down. And that definitely wasn't the time to do it. And that rebound was so aggressive, it was just money falling, falling from the sky and it wasn't just from the government.

Phil (12m 30s):

So how did stockopedia come into the picture then? So this is your, your latest venture here in Australia?

Elio (12m 35s):

Yeah, well there was still a little bit more on the spotty journey that had to occur because of course I wanted to talk stocks. I had a financial services license, which was costing me money to do and I really wasn't able to get the the voice out there and be able to do what I really love doing. So I engaged the services of my great friend and former major competitor in Chris Batchella, who was CEO of Scaffold, a research tool developed by Roger Montgomery until its sale. And oh,

Phil (13m 2s):

I didn't re, I didn't know anything about this side of the story. Tell me about that. Yeah.

Elio (13m 6s):

Oh no, just Chris and I were fierce competitors, were CEO of our respective firms and obviously Scaffold was a stock doctor's major competitor for quite some time until it got sold off and unfortunately was running to the ground under new management. But under the previous management, Chris and I would obviously know each other very well. And then ultimately after the sale he approached me and we developed a fine friendship from that. And obviously we then came together to form product we called Spotty Connect, which the first version was available for sale some 12 to 15 months ago now. And this was the first stage of our development. We wanted to develop a system where obviously we'd come from the world of investment research space, we knew it quite well.

Elio (13m 50s):

It was what we did every day for the last two decades. So why not engage in the process moving forward? So we had quite big objectives. Our first release was that Spotty Connect product, which was really a q and a service, very much taking the concept of the TV show and putting it into a PC application where you could log in and ask about any question you want and you had a qualified person responding to your query. And we achieved quite a bit of success with that and we were forming the catalyst to then develop the next service, which that's when Stockopedia came on because of course we had this few million dollars worth of development ahead of us. And Chris had a long-standing relationship with Ed Croft, the founder of Stockopedia and has been

Phil (14m 33s):

Our podcast. Yes,

Elio (14m 34s):

That's correct. Yeah, that's right. And we caught win that stockopedia was very keen for a more aggressive launch here in Australia and New Zealand as well, possibly because his wife is Australian and therefore maybe he wanted a tax deduction. I dunno, I would. But anyway, he needed research editorial and client support on the ground, plus a financial services license to operate. And I had one of those and Chris and I had research and business experience coming out of our ears. So we made effort, had an offer he couldn't refuse and 10 months later we signed on the dotted line and threw a few years of our own development in the bin. Oh well c'est la vie, but that spotty piece that we were building for all intents and purposes was going to be very similar to what Stockopedia is today.

Elio (15m 17s):

So if you can't beat 'em, join them. And we are very proud to now be the sole distributor and support and research provider for stockopedia in this region.

Phil (15m 27s):

And it kind of fits in with your fundamental view of stock valuation, doesn't it? And can you just talk a little bit about what you're looking for with fundamentals and how, and possibly segue into Stockopedia and, and the way that stocks are valued using their methodology?

Elio (15m 46s):

So in the past, I was defined obviously by the previous product and the service that I looked after, but really at the ground root of it, what I was, was a quality investor. Ultimately I had a very firm belief that if a company was good quality, that the share price would look after itself over the long run, keep being good, then the price will just do what it does. And that yielded me some very strong performance. Now the concept of quality stems from the whole world of academia and there are what we call factors that drive market performance. So you could find particular traits in stocks like stock doctor used to do, whether it's nine golden rules, you can find traits that obviously drive performance and there's periods where it does better and there's periods that they do worse, but if you identify them and can see them, one, you can invest according to them.

Elio (16m 34s):

And two, it clearly explains why things might be occurring at this stage. Now if I go back a little bit further, I'm gonna take you back to 1992 Phil, where two chaps, Eugene Farmer and Kenneth French wrote in the June edition of the Revered American Finance Journal. Now actually they wrote about 40 pages and it appeared at page 427 towards the back there, but that little paper they wrote was called the Cross Section of Expected Returns. Now it's funny because this obscure little report which appeared near the back, was actually going to turn the entire investing world on its head in one foul swoop and it completely ended three decades of previous market thinking and it also basically made my university degree worthless.

Elio (17m 15s):

What it did was it identified, well pre the previous thinking was, oh yeah, market returns, they're fixed. You can't really generate better than a market return. You do get a little bit of outperformance and underperformance based on volatility and risk, but basically your market return is set, whereas farmer and franchise,

Phil (17m 32s):

So can you just define market return? So this is how much you're gonna make out of the share price and dividends is correct. That's

Elio (17m 38s):

Right. It's over expected period of time. What sort of annual return are you likely to expect and

Phil (17m 44s):

And and is the old way of thinking about it. So I just wanna just break into this and break this down into its constituent parts. Is this because the market tends to price businesses and stocks at the value that they're, they're worth and so no one's ever gonna outperform anyone? Is that the, what's happening here?

Elio (18m 1s):

Not quite, no. That was the, the basic idea of this is that you can basically spend all your time trying to do valuations and all that sort of thing. And really it's not gonna matter because your share returns are pretty much already destined, pre-destined for you. And therefore yes, you'll get a little bit of better performance or under performance based on the broader volatility and risk of the market at any particular time. But your expected market returns were always going to be consistent and that was known as the capital Asset Pricing Model or capm. Whereas Farmer and French actually proved within this obscure little 40 page report with a few graphs and a couple tables and a lot of acronyms that you could actually identify certain factors which could drive performance that was actually returning different results than you would normally expect.

Elio (18m 51s):

That there wasn't a consistent broad market return that would predestine your fate, that you could actually achieve better performance by identifying key factors. Now they ended up calling it a three factor model, but since then there's been a stack of academics and professional investors alike who are, have spent their entire life in identifying what factors drive market returns in order to find that edge. And really that's what Stockopedia does by putting that or the results of that in everyone's hands.

Phil (19m 21s):

Can you talk about a couple of those factors?

Elio (19m 23s):

Yeah, sure. So the culmination of all this is that there are three key factors that drive market performance across the world that is, so this isn't just localized, that's quality, value and momentum. And I'll break them down. Quality is the quality of the business, a good return on equity, for example, return on capital employed, all those measures like financial health, even those measures that allow you to assess the quality of a business. And then you get value, which implies what you were talking about with regards to understanding the value of a business, you know, by cheap sell, expensive, those sorts of primal instincts. While those measures such as price to equity, even dividend yield, falls within their price to sales, all those measures are captured within a value factor and they can as a collective drive market performance.

Elio (20m 15s):

Now the final factor is momentum. And momentum is a combination of price momentum. So whether we like it or not, particularly here in Australia, good performance drives good performance and often prices that go up tend to keep going up. Often that's because the company's still good and improving and all those other sorts of things. And then also you look at momentum from the perspective of analyst revisions on the stock. So it's not just enough to see price going up, but is the general disposition of analysts that do the whole interviewing and the the question asking and all that sort of thing is that been actually improving over time as well? And if you combine a stock that's going up in price and has the support of the broader market and the research fraternity, then that too is a factor that drives performance.

Elio (21m 2s):

So all these factors of quality, value and momentum, are the work of the giants of our industry, basically we rank the world's stocks according to the factors that have been identified. So an investor can easily search for these factors. And then we blend the values, the, the, the factors, sorry, of quality, value and momentum into what we call stock rank score, which is in essence trying to find good cheap, strong stocks, which sounds like a pretty robust strategy over time. And we've shown that it provides a smoother market or smoother performance relative to the market over time. Of course there's periods of performance under performance and over performance, but generally without all the big zigzags in between, which is exactly the sort of thing our investors wanna look for.

Elio (21m 48s):

But we even blend some of the individual factors. So like me, myself, I don't use the stock rank per se, but I like to use what we call the quality momentum rank where I combine two of the three factors together. Quality is a bit of an ode to my past life, but also momentum, which is a new factor that I've introduced personally had done so since I became a smuf and have been quite successful at applying myself

Chloe (22m 14s):

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Phil (22m 32s):

Is there a little bit of a hint of technical analysis in momentum, studying momentum for a fundamentalist like yourself?

Elio (22m 39s):

Look, I'm a quality investor guy, right? That's what I built my career on. I followed in my past life, but as a smuf, all of a sudden my perspective on investing had to change. Now I'm living off my own capital at the moment. I no longer have a regular cash flow coming in to support my lifestyle. So I added an element of price momentum to my investing, not to gain better upside performance, but to protect my downside performance. So it's important because more, more often than not, most people tend to go to technical analysis thinking they'll achieve better performance by picking better stocks and getting on the ones that are running harder. Whereas from my perspective, I went into the technical analysis sphere because I wanted to protect my capital downside because when you had, if we can cast our mind backs to 2008 when it was the gfc, you'll remember that that was a prolonged correction some 14 months.

Elio (23m 35s):

Now at the time, as a quality investor only, I was urging people to see it as an opportunity to go out there and get aggressive in regards to the market. Of course, time proved me correct, however, the problem is that when you are in the moment, if you are the type of investor who requires to live off their own earnings that they have, they don't have a consistent cash flow coming in. They may not have the the, you know, patience or time to or inclination for that matter to wait for a recovery. I mean a correction of 50% means it has to go up a hundred percent just to make your money back. So not understanding that conundrum was something I didn't respect at the time, but all of a sudden I definitely gained a stronger respect for under my current predicament.

Elio (24m 20s):

And that meant I had to introduce an element of that. And that was incredibly supportive because it kept me in the market even when I thought that things were silly and stupid and every urge in me was telling me that things can't keep going like this. I stayed in the market until such point, I wasn't when I thought everything was okay and then everything started to trek down a little bit because the run's already been had and I've been able to protect my capital. So I said 2000 and 2021 were my best ever investing years, but to be honest, 2022 was actually more successful, not from a performance perspective on the upside, but because I was able to retain the gains that I'd made the previous two years.

Elio (25m 1s):

And that was so useful and it's obviously very key when you are someone such as myself who was not yet allowed by the government to actually claim their superannuation. So,

Phil (25m 13s):

So are you particularly referring to 2022 as the year that stocks went down after the bull run that ended sort of late 2021, is that correct?

Elio (25m 21s):

That's right, yeah, spot on. So you know, obvi and the thing is that the stocks that ran the hardest that contributed to my over performance tend to be the stocks that fall the hardest. So that's where it becomes super important that you are able to protect your capital on that downside. And I use momentum factors in order to do that and I share that journey with all our members as well. So it's not like this is a dirty little secret just between loved ones. This is a well and truly known and it's only because of circumstance that I was drawn that way. And as a DIY investor where you're not managing 700 million worth of funds in an open market, that's a pleasure that you actually have. You can get in and outta stocks without causing a ripple in the market.

Elio (26m 3s):

And it's one of the great advantages we have as a DIY investor.

Phil (26m 7s):

In the introduction I mentioned the question is now a good time to be in the market? And I, I just wanna preface this because I was at the Australian Shareholder's Association annual conference last week and the opening address was from Chris Joy from Coolabah Capital, who is basically very, very pessimistic. He's saying we're, we're heading into the, the mother of all credit defaults, which means, I mean I won't go into the technicalities or you might wanna talk about the technicalities of that, but it's basically not good for the share market. So from having said that, do you think it's a good time to be in the market and do you think we're heading for an apocalypse?

Elio (26m 46s):

I think Phil, you know, by my general disposition that I, I think it's always a great time to start investing in the market. I see it like merging with traffic, you know, on the freeway. So are you gonna sit there and wait till there's absolutely no cars on the freeway before you actually merge into traffic? Or do you merge, take more care? Do you go straight in, you know, these other cars that you're merging in onto a free or with, they have their own destinations, they've got their own things to do, they don't really care about you other than they don't wanna have an accident with you. So

Phil (27m 17s):

They don't wanna, they don't wanna let you in when you're merging, emerging.

Elio (27m 21s):

Yeah, well that's, I suppose that's the, the, the push and pull of the share market isn't, it's very similar actually as a an analogy, but look, the question really isn't whether now is the right time to invest. The question is am I ready to invest? And by definition what I'm suggesting with this Phil, is have I got my strategy in place? Because in essence, we should know when we're gonna sell the stock even before we buy the thing. And if you know when you're gonna sell it, then it really doesn't matter when you buy it because you've always got yourself that elegant exit ready to go. And yes, it might cost you a little bit of burnt fingers along the way, but unless you think that downtown pit street's gonna resemble Mogadishu anytime soon, then there's always going to be an economy that's ticking over.

Elio (28m 9s):

There's always going to be businesses that are better than other businesses. So there's always going to be a great time to be invested in the market. We just need to figure out what strategy keeps us aligned to the better businesses so that we are fine and can ride out any short term macro events, which can occur because to suggest that everything's going to diminish, I mean the resilience of the Australian consumer post the whole pandemic and all these rate rises that we've seen is testing me to the fact that they're very happy to open their wallets. Living in a society where we've got plenty means that they're inclined to spend money. So I don't think that any cathartic event is going to occur just because of debt.

Elio (28m 51s):

Yes, there'll be an impact, don't get me wrong, but if we're in the right types of stocks, we got our strategy in play, you can buy a stock now knowing that you'll know when to get out in time. So I wouldn't be fearful of the market at all. I'd just go in with eyes wide open, just like merging with traffic, same thing

Phil (29m 6s):

And expecting the worst, but hoping, hoping for the best. A lot of investors want to sign up for newsletters where they're basically told what to buy, when to buy it, when to sell it, and so forth. But Stockopedia is not really like that, is it? You're providing tools, but all of the individual decisions really come down to the individual investors. That's case, isn't it?

Elio (29m 27s):

Yeah,That's right. And this really makes us a little different than a lot of the tip sheets that are out there. We are a tool, we help, we help investors fish where the fish are, we, we highlight the risks, we find opportunities. Stockopedia is not like taking a pill for weight loss. We, we give the instructions that you know what type of food you gotta eat and you know how far you have to run or do your exercise or any of that sort of thing. So we're the hammer, not the cabinet. So we allow people to build the most beautiful bit of furniture they want, but we don't actually build it for them. And our goal is to make sure that they've got the best hammer that's possibly out there to allow, we will teach them how to construct and how to build and education's at the core of what we do.

Elio (30m 12s):

Providing insight and institutional numbers is what we do. And then putting it into plain English so someone can actually apply it themselves is something that we pride ourselves on. And if you have these tools which allow you to be in control to make confident and informed decisions that allow you to avoid potential disasters quite easily, like everything's color coded and all that sort of thing. So we make it really easy for someone to interpret and they can then invest based on their own personal risk tolerance and and their own investment objectives of course, then we know we've done our job because if a bad stock goes bad, then we could put our hand on heart and say, look, yes, there were risks and we can't say that you weren't aware of them.

Elio (30m 57s):

And at the end of the day you get that sheepish look, yeah, I saw you, but you know, I thought it was gonna work, right? All those things, you know, the hope, you know, lots of fairy tales in that share market, but not all of them have happy endings as we know. So when it comes to Stockopedia the tool, it's really at the essence of what I grew up with in providing quantitative insights. Because the numbers don't lie unless you've got a creative auditor of course, but the numbers don't lie. The numbers show you the soul of a stock and by understanding that then you know the type of business that you want to be exposed to based on the, the amount of money that you have at risk on the market.

Elio (31m 37s):

So yeah, it doesn't mean that a unhealthy stock or a bad stock can't go up in share price, of course it can, but you understand the risks you're taking, you know, intimately what it is that's driving this business at the moment, which factor be it either momentum driving it or be it either quality on the opposite side, whatever the case may be, you understand that inherently and then you can make informed decision. Being in control and keeping your hands on the wheel and saving you time is an incredibly valuable asset that I think we discount as investors. Generally.

Phil (32m 10s):

For someone who's just starting out in the market, what is, how long is the education process and what is it like with Stockopedia? How many months, years do you think it would take to at least build up a bit more confidence in the decisions that you're making?

Elio (32m 25s):

Well, unless your colorblind, you can pretty much pick it up instantly because obviously we make it pretty simple to identify the factors that are driving stocks at the moment. And we have all our lists prepared to help people fish where the fish are and if they've got a stock that they've heard from the taxi driver or one of those tip sheets, they can do an audit on it in Stockopedia quite easily. But of course, as with most tools, that's the top level, that's the entry level. You can then go down further and go deeper and deeper into the service and get a lot more, I think

Phil (32m 57s):

There's many, there's many levels that you can go through to find out more as your interest becomes more peaked.

Elio (33m 3s):

Absolutely. The the value though is always up the top, which is the good bit. So you get the most value at the start and then as you go deeper down, yes you still get value, immense, immense value actually, but the immediate benefit starts to diminish a little bit relative to what you got, just having the tool in the first place. So, and understanding what it is that's driving your stock at the moment. So understanding that stocks like Wise Tech for example, would be the most expensive stock on the stock exchange. I mean we sort of have a, an assumption that that's the case. Promedicus was once that stock, but it's not anymore and has been coming back a little bit in regards to that. So understanding these sorts of factors puts you in immense control, allows you to talk just like one of the experts that appear on the podcast, Phil.

Elio (33m 52s):

And then once you become very familiar and confident, then all the other tools start to make sense. Yes, if you go into the tools first and then try to work with them, it ma it's a, it's quite a difficult process, but if you understand the basic fundamental blocks of, you know, good, cheap, strong stocks, so quality, value, momentum, if you understand the basics of that, then the rest of it becomes quite easy. You asked me for a timeframe, I would say within three months someone would be incredibly ofay with Stockopedia if they were using it on a weekly basis. But the good news is that you're getting the vast majority of the value right from signup and it's really easy for someone to apply

Phil (34m 31s):

What sort of wait is given to dividends and are people really interested in dividend investing as well as the, the capital gains that come from being in the market?

Elio (34m 41s):

Interesting. I suppose with dividends in a past life they were, with regards to what I was dealing with, we do consider dividend yield that's captured within our value metrics. So it's one of the factors, well part of one of the factors that drive market returns in regards to stocks, of course you can identify various stocks that pay good yields, but of course we're in a rate rising cycle and all of a sudden, and we heard it from the banks themselves that just reported recently, that they're gonna have to see their net interest margin start to diminish as they start to increase their interest rate that they give out to those that are depositors. And I think when you get that risk reward relationship between money and the bank, which is paying an X amount percent versus money that's in the market, which is subject to volatility, you start to see that risk reward relationship change and therefore, you know, the market benefited over many years from term deposit refugees going from, you know, term deposits and moving over the market because they needed a better yield.

Elio (35m 43s):

But that balance is now starting to move on. I even see introductory rates at the moment of sub upwards of four and a bit percent, well four and a bit percent with no risk at market is actually a pretty attractive return relative to having your money in a property trust. Where of course we, you know, as you heard from the ASA, is potentially at risk relative to the level of gearing that's being applied across the broader sector. So investing's never in isolation. There's always little bits and I think that's a big challenge for income investors. They often see income as being the sole objective, but income isn't the sole objective, it's never income at all costs.

Elio (36m 26s):

Ultimately income comes from cash flows, a company needs to be lifting its cash flows over time in order to increase that dividend. And if you get in early enough and you find a good quality business or a stock that's got solid momentum behind them and it's able to, you know, keep paying a dividend over time and keep growing, then that dividend yield will continue to grow as well. And then the value metrics may very well improve. And that's the sort of insight that we provide to allow people to, you know, make more holistic stock decisions rather than just chasing yield at all costs. Because of course, I don't have to go too far back, we all know the disaster that Telstra was for many, many years that now have turned around, but of course the dividends been smashed relative to what it was and so many people hung on for far too long based on that solely.

Elio (37m 14s):

Whereas if you consider it as a part of the entire kit bag, you could have avoided it a lot sooner.

Phil (37m 20s):

So Stockopedia is the baby of Ed Croft and we'll put a link to the episode that Ed appeared on, on shares for beginners as well. So he's given us a lot of explanation about Stockopedia, but what was it about ED and Stockopedia that led you to want to work together?

Elio (37m 37s):

Yeah, other than the fact that they're cracking lads and ladies and it's an in, it's wonderful to be part of a team with a, with a purpose and a mission, it was very much closely aligned to what we were developing anyway. And it was this idea that we can use numbers to derive unique insights. And the beautiful thing is that they could be published in easy to accept and understand ways and their goal of wanting to help investors identify that increased clarity, increased confidence, fish where the fish are, was something that resonated incredibly strongly with us and their support of our business and our endeavors and our dreams of wanting to help this become, you know, a tool in the kit bag of every serious DIY investor is something that we're very much, you know, emboldened by.

Elio (38m 27s):

And really that's ultimately what we want to do because we're not dogmatic. You know, there are plenty faiths in this church we call investing and it's not not for me to stand on the pulpits to pontificate, which is best. Rather I just want to help every investor be successful no matter how they want to go about investing based on the way that they feel comfortable. We wanna be the go-to place for investors who start learning seriously about investing. It's what Ed wanted to do after he lost his money and then wanted to figure out what makes market work. And that was the genesis of what is Stockopedia today? While we want to help investors avoid having to go through that experience themselves and actually get off on the right footing, because if you can avoid those serious big drawdowns based on mistakes, you'll be much more fruitful moving forward.

Elio (39m 15s):

And as the old adage goes, the market is always very generous in teaching us lessons. It's our inability to listen to them, which often causes us the biggest worry. So hopefully through Stockopedia, through the tool and through our primary mission, which is to help DIY investors, we help solve that problem for everyone.

Phil (39m 34s):

So if listeners wanna find out more about Stockopedia, where can they go?

Elio (39m 37s):

stockopedia.com au. One thing to note though, folks, it still very much looks like a UK website. Trust me, Chris and I are very much there. And if you do so, subscribe and join us for a free 14 day trial and you ask a question, you'll have the Aussie twang responding to well in type form that is, and possibly even our little warped sense of humor. So we're definitely there, you'll see that evolve over time as we embed ourselves a little bit more in their entire process. But yeah, stockopedia.com.au you'll also learn a lot about the background science that drives what it is that we do, and you'll also get a strong sense, sense of our corporate mission, which you know, is really driving us every single day.

Elio (40m 22s):

And, and of course that's what's important because it's not so when you, when you understand why someone built something, you'll get a long way to understanding what it is that you're gonna get from it in the first place. So, and you'll get that story in spades on our website.

Phil (40m 37s):

Ellio Demato, thank you very much for joining me today.

Elio (40m 39s):

Pleasure, Phil. Thank you very much.

Chloe (40m 41s):

Stockopedia Ltd, is an Authorised Representative of Daylight Financial Group Pty Ltd AFSL No. 521404. Past performance is no indicator of future performance. This information in not intended to constitute advice. It is for general information only and does not take into account your individual objectives, financial situation or needs. Read the Financial Services Guide at Stockopedia.com for more detail.

Any advice in this blog post is general financial advice only and does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs before acting on the information. If you do choose to buy a financial product read the PDS and TMD and obtain appropriate financial advice tailored to your needs. Finpods Pty Ltd & Philip Muscatello are authorised representatives of MoneySherpa Pty Ltd which holds financial services licence 451289. Here's a link to our Financial Services Guide.