Prepare well to deal in capital gains
Former Wilson Asset Management fund manager Matthew Kidman is making a success of managing money by himself, for himself, but he says it is something only the well-prepared should take on.
Until recently he managed money for WAM, working closely with founder Geoff Wilson for more than 13 years to deliver returns of more than 20 per cent a year. After taking some time off, he started doing it on his own in early 2012.
He says it has so far been a "success", outperforming the S&P/ASX All Ordinaries, which has returned about 27 per cent over the period.
But he has these home truths for those thinking about doing the same thing.
"The starting point is look at your downside. If you assume you can't make money for three years but can survive, do it; if you can survive for two years, it's a flip of the coin. If it's one year, don't do it."
If that doesn't give any would-be full-time investors pause for thought, think about this: "The best return in life is what you do through your own sweat and toil," Kidman says. "An investor basically can't do anything else. He has no skills to do anything practical. This creates an opportunity because he or she can give capital to people that are skilled.
"People who think it's nice to be an investor full-time should first think about what their skill set is, what their best return will come from."
He says that for many successful fund managers, the best investment they've made is in their own business, "not in their ability to pick stocks".
Kidman, who invests at any time in as few as 10 stocks and as many as 30, says three-quarters of his portfolio is normally invested in stocks with a small market capitalisation.
His biggest wins so far have been in small-cap property companies.
"Ever since the GFC, property companies have done well because they got below [net asset values]. As interest rates got lower and lower, they have performed well. When I started in early 2012, some were still trading at big discounts."
He lists as some of his big wins: Queensland-based developer Sunland (SDG), estate agent and developer AV Jennings (AVJ), developer Villa World (VLW), and the office property trust RNY, previously known as Reckson New York (RNY).
He has been selling most recently because of nervousness about the US market, saying, "the US market is in the last throes of a rally that started in 2009".