Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Alto Capital investment advisor Tony Locantro reveals how he went from a police uniform to a suit and tie.
Investment style
The Motley Fool: How would you describe what you do to a potential client?
Tony Locantro: I'm Tony Locantro, I've been in the financial advice industry since 1998. I'm a former New South Wales police officer. I taught myself the stock market on night shift or on my time off. I've been advising clients on speculative stocks, micro caps, since 1998.
I look after mainly mums and dads in building a portfolio of micro-cap stocks, and this involves portfolio selection, extensive research, going to conferences, webinars, and every other aspect of trying to find these stocks.
The other benefit I have for my clients is to hold their hands during extreme market volatility, help them take windfall profits, and just basically keep effective use of capital, to keep that capital moving, realising that all these small companies don't necessarily turn into big ones.
I'm also involved in the IPO [initial public offer] of small-cap mining and biotech shares. I do a lot of financial media, and I just keep heavily involved in the industry.
MF: As you say, your job does involve a bit of hand-holding of clients through volatile times. This year's a perfect example of that, isn't it?
TL: Oh God, yeah. Well, humans are wired to buy high and sell low. They are often influenced by news articles. A lot of clients have a certain threshold to the Dow Jones Industrial Average (DJX: .DJI). The Dow Jones, if it falls over a thousand, you'll have a lot more people selling, than if it falls say 900.
So they're always prone to the indices, and during times of market volatility, a lot of existing shareholders do not feel like buying. They'll back off. You have others panic sell and you get huge percentage declines.
Interestingly, this tax loss selling [last month], in my 24 years, has been the worst I've ever seen.
MF: Indeed. June was pretty ugly for Australian stocks, wasn't it?
TL: Yeah. I think you could almost cue the Benny Hill theme song to a lot of the selling. A lot of ruthless shareholders just exited and it was like lemmings off a cliff. So this had provided some of the best buying opportunities, because, as you know, every sign of market weakness with hindsight is an opportunity. Existing weakness, or future, is a threat.
MF: How do you see the state of play at the moment and where do you see the market going?
TL: I think we're definitely in a bear market for the major indices. What normally happens is that during a bear market, the bear market rallies [and] bull traps are quite powerful.
The Dow Jones did go below 30,000. It's now around 32,000, but I think that with the inflationary and interest rate environment, that both the Australian market and US major indices, I think, are going lower, but it won't be in a straight line. We will have some bad nights on both markets. I just can't see any real impetus to drive valuations higher.
I think there's enormous economic headwinds in Australia. The RBA [previously] said it was plausible no rate rises before 2024 — that's not happening. We're seeing the fastest increase in interest rates. This will decimate the east coast property market. It will lead to a significant decline in consumer confidence. And there's a decent chance we'll go into a recession or a stagflationary environment where it's an inflationary recession.
MF: Considering that outlook, even if there are bargains out there, are you advising clients to wait?
TL: No, I never wait.
I accept the fact I'm going to get beaten up in some of these stocks, but you've got to know who your enemy is.
So, there's always going to be a list of winners at the end of the year. You might have the S&P/ASX 200 Index (ASX: XJO) down 10%, but there's going to be stocks that go up 200%, 300%.
The other interesting aspect is that these mineral explorers that are quality, exploration discovery always outperforms any market and a lot of these stocks actually overshoot to the upside.
And there's pharmaceutical companies out there with billions of dollars that don't care what markets are doing. All they care about is the science. So if biotech companies can get through their trials, there's big pharmas there with big expenditure just to take them out.
So my theory is life is too short [to wait], because markets can correct from oversold levels to hideously oversold, and they can correct from high levels.
And at the moment the world's awash with negativity. There is justification for that. But as a small-cap investor, you block out all the noise — you become laser focused on each individual company, and that's where the real upside lies. And that's a model I've developed over my 24 years.
