A healthy balance between cynicism and naivety

STAR MANAGERS SPECIAL

Spheria Asset Management
Spheria Australian Microcap Fund
Marcus Burns (Portfolio Manager), Matthew Booker (Portfolio Manager), Adam Lund (Head of Trading / Analyst)

According to the team of three law/economics, actuarial studies and accounting graduates that are the portfolio managers for the Spheria Australian Microcap Fund, who have been recognised as one of Financial Newswire’s Star Managers for 2022, funds management requires doses of cynicism and naivety – at times one more than the other.

But Marcus Burns, Matthew Booker and Adam Lund – who also all co-founded Spheria Asset Management in 2016 – have made it clear that there are no guarantees you’ll always get the mixture right.

“You don’t want to be so close-minded that you miss potentially new ideas or new opportunities,” Burns said.

“That’s the hard thing. How can you filter out the noise and the rubbish, but be open enough to take on new ideas and fresh thoughts or fresh ways of thinking about a company? You need to be cynical and challenge things, but you also need to be not so cynical that you can’t eventually buy something.

“There’s that dial of naivety and cynicism that you need to be changing and calibrating. I don’t think we’ve got it perfect… but there’s a balance, like everything in life.”

Burns, who started out as a Finance and Marketing Graduate at Procter & Gamble before joining and re-joining Schroders in 1997 and 2012, credits a book by Robert Hagstrom first published in 1994 about the investment prophet titled ‘The Warren Buffett Way’ as his calling to funds management.

“My father was an architect and he’d always thought the stock market was a gambler’s paradise… It’s all raw and volatile was my thinking,” he said.

“I read this book and thought ‘Actually, this stuff makes sense’. If you can apply some logic and discipline to it, and you don’t have to buy stocks – you choose when you buy stocks. I was so intrigued by that.

“I couldn’t put [the book] down after that and I could not put investing down.”

The Spheria team enjoy “solving the puzzles” of funds management; finding the undiscovered yet good-value opportunities and management teams is what gives them a real kick.

“We have always looked for businesses that make good cash flow and have conservative balance sheets… That means we’ll kick out a lot of companies that are more speculative in nature,” Burns said.

“The furthest we’ll look ahead is typically 12 to 18 months. If we get pitched an idea on a revolutionary DNA technology or tech payments business that will grow really fast but doesn’t make any money, we’re reluctant to buy it unless we can see it making cash flow.

“We don’t get tempted to try and think we’re smarter than we are.”