Star stockpicker Jun Bei Liu didn’t know a word of English when she moved to Australia as a 16-year-old. It meant she got really good at reading people as she tried to figure out what was going on around her.
She would go on to get really good at reading the stockmarket too.
So good that within the space of five years she’s more than tripled the size of her active fund to $1.5bn as investors back her ability to outperform the market.
Speaking to The Australian’s The Money Puzzle podcast, Ms Liu, who co-founded Ten Cap, says if you’re interested in building wealth by investing, avoid ETFs and actively engage in the process.
“Investing is a bit like treasure hunting,” Ms Liu says.
“You go and find something before everyone else. You found it, you did the work, and you make the return.”
Ms Liu grew up “quite poor” but she was immersed in markets. Her dad would plaster the walls of their family home in China with graphs. They stretched from the living room, down the stairwell and to the walls of her bedroom.
“He was one of the earliest investors in sharemarkets and bond markets in China,” Ms Liu says.
“We didn’t have computers. He printed out all these papers and drew all the lines of where the stock is today, and then drew all these ratios and everything. And then every day he made a prediction about the stock, either going up or going down. He never got it wrong.”
While Ms Liu grew up with a chartist, the real knack to investing, she says, is being able to understand behaviour. It’s reading people and situations. She enjoyed studying behavioural finance at university.
“Many people think investing is about numbers and to get the numbers right,” Ms Liu says.
“I actually think getting the numbers right is almost a basic (skill). That’s a small component of ultimately what the share price will do. It’s actually getting your numbers right and what the share price will do. Short term is all about sentiment. Sentiment is behavioural bias. It is all about what would other people pay for those numbers that you just put together.
“So it’s actually incredibly important because if you can understand that, then you can sometimes go against the herd, then you make a lot more of a return. There’s your treasure.”
It can be hard to go against the herd.
Which bank?
The case in point is Commonwealth Bank. While it’s dropped around 8 per cent since its June peak, Australia’s biggest company is still up 37 per cent over the past year and sits on a price to earnings ratio of 31 times, significantly higher than the sector average of 19 times earnings.
“I think CBA is the best (Australian) bank, but the most expensive in the world,” Ms Liu says.
Which is why she would buy NAB instead. It is trading on 16 times earnings.
“Things look relatively cheaper. NAB still looks expensive for a bank on historical terms, but it’s a whole lot cheaper than what CBA is offering. I would hold NAB instead of CBA. But nothing will stop CBA from rallying away.”
In other words, if you own CBA shares, keep them. But if you want to buy shares, back NAB.
“You keep it (CBA). Six months ago the share price was moving higher because its earnings were doing a bit better and a buyback and all these great things. But the last three months is all because international investors want to put money in Australia.”
The bad buy
About 20 years ago, Ms Liu thought she was smart advising investors to buy Strathfield Car Radio rather than competitor JB Hi-Fi, which she believed to be too expensive.
Initially, her decision was good. And so she held her ground, even after being pushed on her decision by the then boss of JB Hi-Fi, who asked her if she’d even been to a Strathfield store.
“I was like, no, I’ve seen pictures. It looks fine,” Ms Liu recalls.
And then retail conditions soured. And so did the Strathfield share price.
She says she lost about 20 per cent to 30 per cent of the investment.
“I think I sat there for six months longer than I should. I didn’t move straight away because I thought it would get better. I should have really visited a store, really seen what was the value driver, why people walk into that store. There was no reason. That’s why when things are tough, people don’t walk in.”
Strathfield stores were dated, not in main shopping centres and heavily focused on car stereos while pushing one major mobile phone provider and carried few consumer electronic products.
Strathfield was placed into administration in 2009 (it now operates a single store in Sydney), while JB Hi-Fi would significantly expand. Today it’s worth almost $13bn.
The lesson?
“Just do the homework, right? It’s about really, truly understanding the business instead of what management tells you.”
Ms Liu has shared her investing tips on The Money Puzzle, including why she’s not a fan of ETFs.
“It is a lazy way of doing it. ETFs are fine, but you’re not really learning. If you really want to learn about investing, when we talk about understanding companies, doing all that homework (is important). That’s a big part of the treasure hunting.”
If she could invest in only one stock, having a long-term view, it would be Cochlear.
“(It’s a) great company in Australia (with) a huge amount of years of strong execution globally,” she says.”
Licensed by Copyright Agency. You must not copy this work without permission.
Events 
