Ask A Fund Manager
The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. Yesterday, Leithner & Co joint managing director Chris Leithner told how he created his investment company to be an Australian version of Berkshire Hathaway. Now he reveals the 3 ASX shares that are its biggest holdings.
MF: What are your two biggest holdings?
CL: On 30 September, the two biggest were Origin Energy Ltd (ASX: ORG) and Perpetual Limited (ASX: PPT). Today, Platinum Asset Management Ltd (ASX: PTM) is the biggest, followed by Perpetual.
We've usually owned what by mainstream standards is a concentrated portfolio. At any given point in time, we've typically held 10 to 15 investments — currently 12.
Three themes describe Leithner & Company's portfolios over the years. First, well-established and leading enterprises have been heavily over-represented. Of our current holdings, several — like Perpetual — trace their roots to the 19th century. Others — like Origin — originated in the mid-20th century. Only Platinum, which was established in the 1990s, is a comparative newcomer.
We need to be able to make a conservative estimate of what a business, hence its securities, are worth. With startups, small caps and the like, it's not generally possible for us to ascertain what the business is worth, so we just avoid them and tend to stick with major businesses with long and solid operating histories.
Having said that, Perpetual would be in the S&P/ASX Small Ordinaries Index (ASX: XSO). Platinum, I think, is in the Small Ords.
Second, considered as a whole, these major companies develop, own and operate critical, long-life and world-class infrastructure. They also provide essential goods and services.
As a third theme, the companies in our portfolios have possessed mostly solid operating histories in the years and decades before we purchased their shares. More recently, they've encountered various difficulties. These problems, which our independent and comprehensive research led us to conclude were surmountable or ephemeral, depressed the prices of these companies' shares below our conservative assessment of their long-term value.
We intend to hold for 5 years plus. In the meantime, we collect our dividends. Most of the time these things go reasonably well.
The vast majority of time, if we bought something and then a year or 2 later the price is lower than it was when we bought it, typically, what we do is buy more of it rather than sell it. That's to say, it's quite infrequent that our initial analysis is dead set.
Speculators, the mainstream and social media typically exaggerate and extrapolate into the indefinite, future short-term adverse developments. They can also discount long-term prospects and virtually always ignore regression to the mean.
As a result, their "recency bias" occasionally reduces to attractive levels the prices of sound enterprises' shares. During crises, the crowd panics – and, in rare instances — depresses the securities of sound companies to extremely low levels.
We currently possess and continue to accumulate a portfolio of resilient businesses whose securities, depressed by what we regard as significant but impermanent difficulties, we've acquired at sensible or even bargain prices.
In short, over more than 2 decades we've regularly purchased from pessimists and occasionally sold to optimists.
