Investment winners of 2009

PORTFOLIO POINT: Eureka Report’s writers and contributors were right on the money in 2009, as were investors who paid attention.

It was the year the wheat was separated from the chaff, the champions from the charlatans '¦ and at Eureka Report, the year we won't forget when the market's violent swings tested the resolve of even our most experienced experts.

But in retrospect as we look through the editions of calendar 2009 we find more than enough solid investment ideas for anyone to make the most of the turbulent conditions. From small caps to coal seam gas, from Monique Wakelin’s supremely brave call on residential property prices to Tim Treadgold’s ongoing coverage of the gold price, we’ve strived to make sure our readers always have access to best brains in the business.

This list contains just 10 of the biggest wins we’ve had this year '¦ and although there might be more, we think that’s a fairly decent number in the kind of year we’ve just had.

Small caps are beautiful

Providing they survived the downturn to begin with, the same stocks that were the hardest hit were often the quickest to bounce back. On February 2, Alan Kohler looked at the new environment for investors and concluded that, among other things, the outperformance of small companies would be a key feature of 2009. And so it has. So far this year the Small Ordinaries has returned 45.2%, outpacing the ASX 200 rise of 25.03%.

This equity strategy was augmented by regular fund manager interviews over the course of the year. One of the most popular was with David Paradice of Paradice Investment Management. While the Small Ordinaries rose another 24% from here, by this point many of the easy gains had been made. However, the outperformance of stocks he identified as bargains then was quite remarkable and included: Bradken 70%, Flight Centre 102%, IOOF 40%, Mount Gibson 77%, Premier Investments 52%, Platinum 29% and Super Cheap Auto 48.6%.

Calling the bottom

Many Eureka Report members are probably grateful that many of Gerard Minack’s worst-case scenarios didn’t pan out, but our favourite bear consistently maintained in these pages that the low for the ASX 200 would be 3000 and that any rallies in equity markets before it reached this turning point would be premature. As we now know the index hit a low of 3073 in intraday trading in early March and although it’s not exactly 3000, we think calling the bottom to within 73 points about three months out from the actual event remains pretty darn impressive. Of course, if you missed it, Gerard, who is now head of global developed market strategy at Morgan Stanley, reiterated his forecast on March 4.

Championing your rights in the super review

When a Eureka Report investigation based on Freedom of Information documents revealed that a looming review into the superannuation industry was biased against DIY fund operators, we campaigned for change. The campaign we launched on your behalf, to make sure that the interests of SMSF operators everywhere were represented, was audacious but successful. After pointing out that the board was stacked with vested interests from the world of institutionalised funds management (July 6) and that the data sample couldn’t have been less representative of the growing legions of DIY funds (June 24) we finally cut through with the appointment of SMSF expert Meg Heffron to the panel (August 5). While it’s hard to measure the impact this will have on your finances it is fair to say that this has been one of our biggest wins, not only this year, but since Eureka Report began.

The Speculator: Will 223% do you?

Since joining Eureka Report with his celebrated Speculator column in April, the doyen of small-cap experts, David Haselhurst, has sparked interest, debate and awe in our readers. In that time, the value of his notional portfolio has more than trebled – delivering a gain of 223% – against a rise in the ASX 200 of just 25%. Those that have followed David’s performance over the years will know that this in itself is not an unusual experience, having outperformed the broader market in 31 of the 36 years it’s been running.

David bypasses the tools such as price/earnings ratios and return-on-equity familiar to most analysts and instead relies on an investment radar honed over many years to sift the bulldust from the real deal. He also knows the value of a good story when he sees one and lives by the credo “Never fall in love with a stock”. That’s certainly been evident with some of the stocks he’s traded in and out of this year including Gage Roads Brewing, which shot up 200% after Woolworths took a stake; Quickstep Holdings, which soared 215% on the back of its involvement in the Joint Strike Fighter project; and the granddaddy of them all, Robust Resources, which delivered a profit of 636% after striking a world-class gold ore body.

Residential property: Monique takes the mantle

Keeping in mind that unsustainable growth in property prices was largely what got us into the global financial crisis to begin with, when Monique Wakelin called the bottom of the property market in December 3, 2008, she was very much on her own, with Alan Kohler and Gerard Minack among those openly sceptical of this call.

Still, convinced by the Reserve Bank’s haste to lower the cash rate, the shortage of housing supply and yields of 5% available on investment-grade property, Monique referred to the “beautiful set of numbers” that were creating a “once-in-a-generation opportunity”.

For those who missed it, or think we are stretching the definition of the exercise by including a story from 2008, the sentiments were repeated in articles on January 28, February 4 and February 18. According to the most recent quarterly figures from RP Data, median house prices for the 12 months to September in our largest markets performed exceptionally, rising 12.6% in Melbourne and 9.2% in Sydney. Although rates are no longer at record lows and property prices have moved upward quite sharply, Monique believes the fundamentals supporting our property market will stay in place for some time.

Rights issues: Money for nothing

Deleveraging was the name of the game in 2009 and while many shareholders were appalled at the prices paid for assets at the top of the cycle, investors were able to participate in heavily discounted issues that considerably lowered their average entry price, which amounted to money for jam. Two of those issues that paid off the most for investors were the three-for-seven Wesfarmers offer priced at $13.50, and the 21-for-40 Rio Tinto offer priced at $28.29.

In two separate articles published on January 28 and June 29, Eureka Report managing editor James Kirby urged shell-shocked investors to muster the courage to participate. Those who did have recorded gains of 118.5% in the case of Wesfarmers and 148% in the case of Rio Tinto. And while it must be said that both stocks are off their respective all-time highs, of $45.73 for Wesfarmers and $156.10 for Rio Tinto, the power of dollar cost averaging and a little bit of intestinal fortitude certainly made things a little more palatable for the average investor.

JB Hi-Fi: The new king of retailing

While many retailers struggled to reach the same heights as before the crisis – even with the government cash splash – one market-darling continued to surprise on the upside. Robert Gottliebsen first brought JB Hi-Fi’s low cost model to the attention of readers in February, highlighting the strength of its core business of home entertainment products in an economic downturn that threatened to make couch potatoes of us all.

However in the latter part of the year, Roger Montgomery also championed the stock in his ValueLine column, which worked on the premise of buying only the very best stocks at only the very best prices. Roger told investors to think about businesses – not stocks – selecting JB Hi-Fi on the basis of what he saw as a business trading at considerable discount to the company’s intrinsic value. And if you’d followed Roger into JB Hi-Fi at $14.80, your return would have been in the order of 58.7% as of December 14, with the stock trading at $23.48. Three weeks later, on July 29, Roger went the whole hog and explained just how attractive the consistent returns, an expansion strategy and return on equity all added up to an irresistible investment thesis, not to mention another market beating return of 37.2%

Getting to know corporate bonds and hybrids

For investors who dutifully avoided the stupendously high yields and accompanying flashing warning signs of debt instruments offered by the likes of agricultural basket cases such as Timbercorp and Great Southern, investment-grade corporate bonds and selected hybrid instruments made great sense at a time when financial markets weren’t. Jim Stening was there to guide us those of us who had been brainwashed by the equity cult through this strange world of coupons, step up dates and preference shares. One of his most brilliant calls was the IAG’s hybrid offering (IANG), which was trading at $67 back in May. IANG is now going for $98.20 on the secondary market, a gain of 46% in seven months even before we factor in the coupon. For the more risk-averse investor, there were plenty of bank hybrids on issue too (June 24) which Stening and the FIIG Securities team (August 31) worked tirelessly on to make sure (September 11) you had the very best information at your fingertips (November 11).

Coal seam believers

In an emerging sector that is not without risk it pays to tread carefully. And so it was with our coverage of coal seam gas which first came to light in a blaze of publicity in 2008 in a series of deals with what were once second-tier energy companies, such as Origin and Santos. Our coverage of the “next generation” of coal seam gas began with an eerily prescient piece from Victor Bivell of the Eco Investor, who gave the junior coterie of coal seam gas stocks the big thumbs up back in March.

Over the course of the year others weighed at a time when there was still money to be made (June 5); and then again in May, one of the sector’s best analysts, Ivor Ries, weighed in with his thoughts on the sector (May 22). But as we keep reminding ourselves and our readers, this particular story is only in its infancy and the real payoff will occur over the medium-to-long term.

Golden timing

In mid-January Eureka Report’s commodities specialist Tim Treadgold was already hot on the tail of the gold price, spruiking a survey that had tipped a fresh all-time high for the precious metal. Back then, gold was trading at $US821.50 an ounce, and now it is sitting around $US1119.95 or a rise of 36.3%. But the figures don’t tell you everything. Tim said that regardless of whether you believed gold was just there for when everything else tumbled, or if you thought it really was set for a boom, it must form part of your portfolio.

Eureka Report readers were treated to everything from updates of how the Treadgold family bold bars were faring (January 16), to an interview of the Perth Mint treasurer (February 4) and an instructive piece that outlined the various ways investors could gain exposure to the precious metal (June 12). Tim continued the theme throughout the year, writing on a number of smaller miners that he said pointed to a new phase in gold mining (March 16) and later the gold miners that were yet to reflect the surge in the yellow metal’s price (September 18) that readers may still be able to take advantage of.