There is one big advantage to working in the finance sector.
What is it?
Grey hairs are good!
Yep — the older you are, the more market cycles you’ve seen.
It’s one of the few industries that venerates the wisdom of time that only older investors can accumulate.
That’s because you see so many similar things go around, time after time.
Now, I’m not saying the enthusiasm and hungry nature of the next generation has no place.
Their instinctive grasp of the latest tech is a big advantage. They keep everyone on their toes too.
But experience counts.
That’s why this week I jumped on a Zoom call with Matthew Kidman to record a chat for Fat Tail Investment Research subscribers.
Matthew is a fund manager with over 25 years of experience.
Today, he is the co-founder of Centennial Asset Management. They have about $220 million under management.
Matthew and I were on the call to talk markets, small caps — and more!
I have the biggest takeaway for you today…
Around late last year I did my best to encourage you and everyone else to buy up shares while they were depressed.
I did that as part of a multiyear gameplan.
It’s one I adopted from an old stock market book. This was the one…
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I doubt you’ve heard of it. It came out 16 years ago.
See? True investing wisdom is timeless.
The author of that book, Colin Nicholson, defined the first stage of a new bull market as ‘increasing confidence’.
This is where the issues that led to the preceding bear market fade and the market sees the recovery.
The best bit? We get an exciting move to the upside.
That’s what we’ve mostly seen since November.
Look at the chart here to see that in action…
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| Source: Optuma |
This type of ripping move can’t last forever, of course.
Indeed, as Matthew Kidman told me on Monday, it usually lasts for about six months — and is likely over now.
What happens next?
This is where we enter ‘Stage 2’ of a bull market.
There’s good news here, especially if you missed that first move…
Stage 2 is usually the longest and least volatile part of a bull market.
What happens?
Stage 2 is defined by ‘increasing earnings’
Matthew Kidman agreed with me that this is exactly where we at in the Aussie market cycle.
He ought to know too…Matthew’s seen more than most!
Neither he nor I are saying it’s without risk. We can’t promise you that. There’s always risk!
Indeed, Matthew told me that his job is primarily to ‘manage risk’.
I couldn’t agree more.
But you can see how a basic framework of how a bull market unfolds can give you confidence to allocate your wealth.
Matthew and I aren’t alone here on expecting earnings to drive select stocks higher.
The team at Ausbil Investment Management just put out their latest update.
What did they say?
‘In this environment, we believe earnings growth will recover more than the market expects, broadening across sectors, and moving down the market cap spectrum.
‘We think that with a downward bias in rates, cyclicality will return to the market, with more relief for the consumer, supporting housing, consumer, select real estate and other cyclical businesses.
‘Decarbonisation and the energy transition remain significant themes that will drive value across resources, energy, utilities and the mining services sector with respect to critical commodities.
‘We are also seeing structural earnings growth in technological transformation, the rise of artificial intelligence (AI), and the enablers and businesses that increasingly operate in the digital environment, including communications companies.’
What does it mean when it comes to choosing shares?
The market will now be prepared to pay up for — and chase — companies that can grow faster than the general economy.
Big revenues, big cashflows, big earnings — that’s what we want to find. This is where you can look to ride a company’s growth for the long stretch.
Don’t ask about today.
Ask where they might in 2026 or 2027…and even beyond.
Where to look for these potential stock stars?
Here’s another very interesting fact I picked up from Matthew Kidman and Centennial Asset Management.
80% of his funds under management are allocated to the small cap sector.
Why does this stand out?
Most funds allocate to one sector only. They are either a ‘large cap fund’, a ‘mid cap’ fund, a ‘small cap’ fund or a ‘resource fund’.
You get the point.
Centennial is different. They give themselves room to roam the whole market. They can go to large caps, resources, small caps, to cash — whatever Matthew and the team think is best.
I like that.
Clearly, by their positioning, Centennial see the one of the best opportunities to take advantage of the Stage 2 ASX bull run is in the small cap sector.
So do I.
Perhaps you missed the Stage 1 move. That’s OK. It’s not too late.
We’re into Stage 2 now. There should be, if history repeats, another bull stage after that too.
This is experienced insight at work. You can take advantage of it in your portfolio by clicking here, I’ve got five ideas to get you started.
Best,
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Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator
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