In this month’s Investment Strategy Note, Andrew & Steven talk through Ophir’s beginnings as a start-up and the journey to becoming an established boutique investment manager.
Ophir officially opened its doors ten years ago in August 2012. It was a humble beginning in a tiny office with two desks and no air conditioning. Like every 10-year-old, we have learnt a lot along the way, a journey that has been supported by plenty of youthful enthusiasm.
To mark our anniversary, Ophir’s Head of Research, Luke McMillan, sat down with Co-Founders and Senior Portfolio Managers, Andrew Mitchell and Steven Ng, to ask them ten questions on Ophir’s 10-year history, covering our beginnings as a start-up through to becoming an established boutique investment manager.
Q1. LM: You’ve just clocked up 10 years since Ophir opened its doors. That’s a great achievement in the highly competitive funds management industry. How does it feel?
SN: When looking back now, it seems to have flown by. It’s been an amazing journey so far. There have been a lot of highs and lows, funny and painful experiences. The one thing I can say is that we’ve learnt a lot and not it’s just about stick picking.
AM: It’s great to clock up the 10 years. It’s bittersweet though as the last six months or so have obviously been a challenging period for performance. So, no real popping of the champagne bottles, although Steven and I did get a Virgin lounge sparkling white in on the anniversary day during a recent work trip. We are acutely aware there are some investors who have been with us since the get go and have had a great experience but there is always a new cohort who are expecting an experience like historical performance suggests. There are a significant number of new investors who are down on their original investment and job no.1 is to make that back.
Q2. LM: Ophir’s original fund, the Ophir Opportunities Fund has also just reached its 10-year anniversary, returning 21.9% pa and leading all Australia equity funds over that period*. Did you ever think you’d record such a result when starting the business a decade ago as a couple of mid-ish 30s investors?
SN: Our long term achievements have beaten all our expectations. Luckily, I was the first investor in this fund … Mitch was number two because he was slower with the paperwork!
AM: We just had to make it work. We were subletting a space that had been someone’s personal office. It was really only big enough for two desks. The room itself had no air conditioning. It was so hot in summer we had to open the door. But the neighbours got really upset with how much noise we made when we had success and the expletives when something went wrong. There were lots of baby steps along the way – like hiring our first employee Geoff Kneale to the investment team who is still with us and going strong. Hiring lots of others who have just enhanced the culture of Ophir along the way also stands out.
Source: FE fundinfo Australian Small Caps
Q3. LM: If anything, what do you attribute that long-term investing success to?
SN: Grit, passion and a willingness to give it a go. The first two are the key attributes (along with discipline) that you need to succeed as a stock picker. We also put everything on the line. We jumped ‘all in’. We invested nearly everything we had when starting the business, so we were 100% focused on making it work.
AM: The differentiator is really just hard work. We don’t think we are smarter than anyone else. We want to be first at our desk to get an edge. Steven and I – and many of the team – are in at 6.30am. Our first meeting of the day often starts then. It’s usually talking with an offshore company. At 7.30am we have our daily investment team meeting and often an Australian company meeting at 8-9am. Then at 9am we head off to our first out-of-office meeting.
Q4. LM: Ophir has just gone through the most challenging six-month period in its performance history wise. How has this influenced how you look back on this 10-year milestone?
SN: It’s been extremely tough. We want to deliver strong performance for our investors. But we are confident that it will likely be a blip, like other periods of underperformance have been. Like all tough times, this is another learning experience and we’ll be better managers for it.
AM: This is no doubt the most challenging period we’ve had since we started Ophir. A key motivator is that we have recent investors who are down on their original investment. We want to get them back in the black. We need to maintain flexibility and stick to what we are good at – fundamental bottom-up stock picking. But we have experienced difficult times before, such as the GFC. And history suggests this is will be a great opportunity. Businesses with sustainable business models, that can take advantage of weaker competitors, will come out better on the other side.
Q5. LM: Starting out as a two-person business in a tiny office with no air conditioning, what has surprised you most about the journey in building Ophir?
SN: The most amazing part for me is the staff who have joined us and who are equally passionate about investing or the business. In the end, it’s people that always make the difference. When we first started out in that little office, I never thought we’d have such a great group working together.
AM: The thing that has surprised me has been the unwavering support from early investors. When things got tough, they stuck with us. We recently spoke to an ex-CEO of a number of $1-billion-market-cap companies who has been a long-time investor with us. He asked: “Are you and Steven still motivated? Is the team all motivated? Well, then, it’s ridiculous to think you have lost your ability to pick stocks.”
Q6. LM: You are not just the most senior investors at Ophir but also the business owners. What are your biggest lessons as business owners building a boutique funds management business?
SN: Don’t borrow money! In all seriousness, there’s an element of truth there. Andrew and I have maintained ownership. We have no other capital providers (including banks). That means we’ve always been able to make longer-term decisions. Usually, these come at a short-term cost, so they would have been harder to implement if we had other shareholders to consider.
AM: The market is humbling. Every time you think you have worked it out the market humbles you with a nasty surprise from a company. But you can also be lucky when you don’t deserve it. If someone gets lucky and is parading around the office, we look on that very poorly. But if someone was unlucky due to something from left field happening, we need to get around and support that team member because not all the risks we take are going to pay off.
Q7. LM: If you could jump in a DeLorean and go back 10 years, what advice would you give to your younger self just starting Ophir?
SN: Back yourself and give it a go because if you never give it a go you’ll never know. Things always take longer when you’re first starting out, but once things get going, they can accelerate quickly. Also, enjoy the journey and the unique experiences and people you’ll meet along the way – just like the trip in the DeLorean!
AM: If I had my Marty McFly moment with Doc what would I say to Steven and myself? Believe in yourself, focus on what you can control, and focus on hiring staff who are really good people you can trust and who want to be coached. We are very much a team at Ophir and while this interview is about Steven and myself, we are only as strong as the weakest link or slowest runner in the team.
Q8. LM: With 10 years under your belt now at Ophir, what do the next 10 years have in store for the business?
SN: If we’re half as lucky and successful as we have been in the last 10 years then we think we will be able to deliver a great outcome for ourselves and our clients. There’ll be further developments, but we won’t lose the core values and culture of Ophir of grit, passion, hard work and alignment.
AM: We think we’ve built a really good team of people at Ophir. There are some really great analysts in the business, and it’ll be exciting to watch them grow. Steven and I will still be leading the way, but we have the next cohort coming through who are challenging and disagreeing with this or that and it’s great. It will make us a stronger business and we can hopefully give them great opportunities to grow into Portfolio Managers.
Q9. LM: If you could share one investing lesson from your career with investors, what would it be?
SN: Buffett’s investment lessons are the ones that always seem to be true and stand the test of time, despite all the changes, trials and tribulations of the market. However, investing, as someone smarter than me said, it’s simple but not easy. So, whilst Buffett’s quotes are simple, and basic and logical, they’re not easy to consistently apply!
AM: You make your biggest money where other people are not. Our best investments have been in things the market dislikes, ignores or says are too hard. Importantly, this is not like catching a falling knife or buying deep value companies for the sake of it. The stocks we invest in need to be high-quality companies, but for some reason the market is discounting them.
Q10. LM: Finally, what gives you confidence you will be able to continue to produce attractive long-term returns for your fellow investors?
SN: The decisions we made when we started Ophir, like limiting capacity and having 100% alignment with investors, will help us to keep delivering the best outcomes. I very much believe this will be the number one difference.
AM: We never take our performance for granted. Every year you start with a clean slate and a new group of investors come in. I would never tell investors to expect the returns that we’ve made historically because the market is getting more efficient and competitive every year. But having said that, we have a terrific group of young analysts. They are great critical thinkers who are not scared to talk up and question us to help get Ophir to the truth more easily and quickly. We have a second and third tier of analysts who are still going through a huge improvement and growth stage so in three years’ time we’ll be a lot stronger than we have ever been. And that’s so exciting.