Prepare well to deal in capital gains
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".
Frequently Asked Questions about this Article…
Matthew Kidman is a former Wilson Asset Management (WAM) fund manager who worked with founder Geoff Wilson for more than 13 years. According to the article, WAM delivered returns of more than 20% a year while Kidman has since managed his own money (starting early 2012) and says he has outperformed the S&P/ASX All Ordinaries, which returned about 27% over the period mentioned.
Kidman advises would-be full-time investors to start by assessing their downside: if you can survive without making money for three years, do it; two years is a coin flip; if you can only survive one year, don't do it. He also says people should think about their skill set and where their best return will come from before going full-time.
Kidman says he invests in as few as 10 stocks and as many as 30 at any time, and that about three-quarters of his portfolio is normally invested in small market capitalisation (small-cap) stocks.
Kidman says many property companies did well after the GFC because they were trading below net asset values. With interest rates getting lower, those companies performed strongly, and when he started in early 2012 some were still trading at big discounts — creating opportunities for gains.
Kidman lists Queensland developer Sunland (SDG), estate agent and developer AV Jennings (AVJ), developer Villa World (VLW), and the office property trust RNY (previously Reckson New York) among his big wins.
Yes — the article says Kidman has been selling most recently because of nervousness about the US market, commenting that he believes the US market is 'in the last throes of a rally that started in 2009.'
Kidman argues that the best return for many people comes from what they do through their own 'sweat and toil' rather than investing; investors often lack practical skills, which creates an opportunity to provide capital to those who are skilled. He suggests people should consider whether their skill set makes them better off investing full-time or backing other skilled operators.
Based on Kidman's guidance, everyday investors should realistically assess how long they can survive without income from investing: surviving three years without making money is generally acceptable to try managing money full-time, two years is risky, and one year is insufficient. This downside assessment should be a starting point before changing career or investment approach.
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