「I’m paying more and more attention to the FAANG stocks, Apple, Amazon and Google, because they seem like the “recession-proof-tech-defensives''」
How has Jchanko's investment experience benefited him over the years? Come and witness his story, Tiger friends
@JChanko
I’m 37, and I consult in the B2B software-as-a-service space around early stage go-to-market strategies specifically around setting up sales functions. In addition, I host and produce a weekly podcast called ‘The Median Podcast’ which provides a platform for everyday people to share their story. Prior to this, I was in a high-growth software company in business development from day one as one of its first employees in Australia where I then successfully existed six years later when the company IPO’d on NASDAQ in September of last year.
T：What is your background story? When did you first start trading?
My foray into the financial market happened back in 2006 when I landed my first job out of university at Deutsche Bank in Sydney in the credit default swap operations team. After this tenure and having moved to the equity options team towards the end, I was very fortunate to join Optiver in 2008, a global derivatives trading house in equity option market-making as a trader’s assistant/performance analyst. Looking at the markets every day with my Bloomberg terminal on the left, and my Reuters 3000 Xtra (or Refinitiv Eikon) on the monitor above, gave me the confidence to start. Of course, trading and investing are entirely different things, so it’s only been in the last six years I’ve focused on conducting my own due diligence and analysis in terms of interpreting financial statements, attending and watching earnings results announcements, and overall, paying more attention to the numbers to guide me in my investing decisions.
T：How did you hear about Tiger Trade?
I found out about Tiger Trade after reading an article in the Australian Financial Review on your entry into the Australian market.
T：What are your investing styles or strategies?
I categorise my investments by region and by type i.e. growth e.g. SaaS plays, value e.g. banks, conviction plays e.g. a company that is run very well, has high margins, has a unique/defendable position and supported by a strong thematic tailwind, defensive/recession proof e.g. utilities and infrastructure, and income e.g. REITs focused on cash-flow generative property businesses.
The above reflects my style and hence, how I think although this can change depending on my goals and the nature of the current macro and micro environment. For example, I might go a bit more aggressive if I have very strong conviction on a certain stock / strategy i.e. go after higher return if the risk doesn’t go up proportionally.
Overall, as much as I like to think long-term and to show conviction in my investing decisions, it’s not an easy activity to play, so to speak, as I know I can be prone to FOMO and emotion. At the same time, I’m conscious that I have shared five different investing styles with you so am I better off focusing? Do I even have the capability, and the skill, to really outperform the market? Hence, my investing focus going forward is about risk management e.g. smoothing out the journey between A and Z, focus e.g. do I just stick with SaaS companies because that’s what I know and lastly, do I really simplify either by utilising ETFs e.g. can I consistently beat the market like the performance of ASX 200 plus dividends, or should I just give my money to a fund manager who does this for a living.
T：How are your returns so far?
For the past few years or since COVID began, I have achieved a CAGR of 15.28%. By the simple, and perhaps lucky, belief that stocks will inevitably bounce back during the COVID lows in early 2020, coupled with the massive amounts of government and central bank stimulus we’ve had, I had cashed out a return of 84.15% for a certain percentage of my funds. Given the current environment though, I’m now down 49.11% when I also include my cryptocurrency investments. Valuation re-rating in tech stocks, the war with Ukraine and Russia, and the far-from-transient inflation threat have really rocked and battered global markets and, by extension, my portfolio.
T：What is a piece of advice you would give a beginner investor?
Before you do anything, spend substantial time preparing a game plan of what you’re hoping to achieve, why you’re hoping to achieve this and lastly, the timeframe within which you want to achieve it. As the widely shared quote by Benjamin Franklin said, “by failing to prepare, you are preparing to fail.” From there, be honest with yourself in terms of whether you can achieve this plan. Success is a combination of talent, effort, ability and let’s be honest, a degree of luck. Hence, there is a myriad of factors that come into play here. Specifically, if you’re willing to put in the effort but lack the ability, do you first need to spend time to adequately educate yourself? Do you lack effort or time, so are you better off investing in more passive instruments like ETFs or perhaps enlisting the services of a professional? Overall, being a great investor is all about staying humble as the market takes no prisoners.
T：What stocks or options are you watching right now? Why?
I’m paying more and more attention to the FAANG stocks, Apple, Amazon and Google, because they seem like the “recession-proof-tech-defensives'' that generate huge sums of free cash flow and compounding returns from their operations with extreme consistency due to their strong moat attributes. I’m watching a collection of stocks in the subscription space, particularly around enterprise SaaS software - think Freshworks, Salesforce, Twilio, Zoom, Atlassian, etc. - because the adoption of cloud software and services still has enormous room to grow despite the massive re-rating in valuations in the past few months. At the same time, I know the space very well and the financial metrics that are most important for such firms. I have stocks as part of the whole electrification tailwind we’re seeing globally in terms of the car manufacturers i.e. Tesla, Nio, BMW, Volkswagen, Mercedes Benz Group, etc. Within this realm, there are the established and junior miners with lithium, nickel or graphite operations. Such companies either have their operations in Australia, the lithium triangle in South America, North America or certain parts of Europe. My watchlist also includes stocks in the semiconductor space i.e. Nvidia, Taiwan Semiconductor, and Brainchip, as the incidence of chips in cars, computers, IOT devices, machinery, transportation, etc. are only going to grow exponentially as advancements in technology really go up another level and computing comes to the edge. Lastly, firms like Carlyle, Blackstone, and Brookfield Asset Management in terms of private equity as alternative asset management seem to be smart choices to add to one’s portfolio as world markets become more volatile and complex.
$Apple(AAPL)$ $Amazon.com(AMZN)$ $Alphabet(GOOG)$
T：What are the characteristics of your ideal stocks? For instance, if you had to choose right now, which U.S. stocks do you like best and why?
With what’s currently happening in the world, I don’t know yet. I need to go back to the drawing board and update my investment theses. If one can think long term, the volatility we’re seeing doesn’t really matter, so my goal is to identify those ones where I can set and forget because the business, by product or service positioning, superior management and an enviable culture, will only grow over time with strong free cash flow.
T：What do you predict will happen to global stocks in 2022?
By investing, you’re inevitably taking a view on the future, but that’s a very dangerous game to play because even seasoned professionals can get it terribly wrong. By all means, institutions have far superior risk management processes in place to manage this uncertainty but to the everyday investor, it can be a fool’s errand. Hence, for the next few months, I’ll keep it simple and say that global stocks will continue to be extremely volatile because of the continuing effects of COVID in terms of supply chain issues which have been further heightened by the war in Ukraine, the war itself in terms of the flow-on effect of sanctions and the effect on energy and food exports, and last but not least, the multiple interest rate rises needed across the world to tame rampant inflation. Long term though, as the CEO of Brookfield said in an interview, “but in the fullness of time, all geopolitical events pass. Wars, explosions, recessions - all those things, they come and go. And they’re really important at the time, but in the fullness of time, if you have good businesses in great places and keep compounding returns, you’ll earn excellent long-term returns.”
T：Are there any memorable achievements that you have made in your investing journey? What did you learn from them?
Of course, results are what ultimately matters but parking that, I have thoroughly enjoyed learning how to become a better investor over the years. Whether it be becoming more adept at interpreting financial statements, understanding the cues from management during earnings call announcements to working on my mindset in terms of keeping things as rational, objective, and simple as I can, it’s definitely been a challenging but rewarding journey. Nowadays, my setup allows me to just focus on working on my investment thesis as opposed to spending copious amounts of time on the administrative side of things. For example, I have one spreadsheet that utilises Google Finance in terms of its Sheets syntax, reads a JSON file from the ASX for end of day prices, volumes, dividends, etc., and incorporates cryptocurrency pricing, and other associated fields, via CoinMarketCap’s API that marks my portfolio to market with a click of a button. Having a single view of my portfolio holdings across multiple markets and instruments means I know exactly what’s going on. Overall, my biggest learning throughout my investing journey is that the financial markets are a very humbling experience. Yes, you can at times swing for the fences and achieve 5-10x returns or you can have your initial investment be completely wiped out. To consistently beat the market is extremely difficult so this journey has really taught me to stay humble.
T：What are some lessons you’ve learnt after making investment mistakes?
1: You need to do your own due diligence. When Nuix listed on the ASX in December 2020, I got swept up in the growth numbers and flashy margins because of my experience in SaaS. With that though, a large part of my decision to invest in Nuix was because Macquarie Bank was, and still is, a substantial shareholder of the company. Needless to say, with my bias towards authority in that Macquarie Bank never gets anything wrong, so to speak, I’m down 84% on this investment.
2: FOMO is dangerous. When I successfully exited Brainchip with about a 10x return towards the tail end of last year, the euphoria soon turned into FOMO as I thought I had sold too early as the share price kept on rising into the new year after a string of market sensitive announcements. Thinking I could be clever by taking advantage of this phenomenal surge in the share price by placing a trade to ride the next jump, I’m down 56% of this so-called clever trade.
3: You cannot control the market. Last November, I sold a bulk of my holdings as I believed that inflation would not be transitory and that markets were really getting ahead of themselves with ridiculous valuations for companies with minimal revenue. It is easy to say now that I was correct but back in November, despite a small dip, the market just kept on going up. On the other hand, there were many, many lost hours kicking myself because I thought I left money on the table.
T：What's your investment goal in 2022?
To think more like an institution in terms of implementing more risk control measures to achieve more measured returns. Who doesn’t like an investment that generates 5-10x returns in a short space of time - such investments are still achievable of course, although the last few years were more of an anomaly of sorts, but I won’t be counting on them to give me excellent returns in the long-term. From a quantifiable perspective, I know I’m not capable of achieving 20% annualised returns for the next 30-odd years for example, so as I earlier shared, I need to continue to stay humble in my approach and perhaps just leave it to the professionals who have proven that they can do it. Overall, though, I’m still not sure yet.
Thanks for following@JChanko and you can interact with him in the comments section.
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