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19 August 2020 | Advisor profile

Taking five with Michael Zollo

Baker Young Equity Advisor, Michael Zollo

I’ve been an advisor for nearly 13 years now, and have worked for three different advisory firms. However, I wasn’t always an investment advisor. I began my working life as a teacher, and got into shares like many others, by opening a Comsec account, and trading shares through that. I instantly became quite obsessed with share trading, and used to talk with a guy I played footy with at Old Ignatians Football Club.

He soon became sick of hearing me telling him how much I loved the sharemarket and flippantly suggested that, if I loved it so much, I should join his firm. I didn’t need to be asked twice! Within a few months I’d had a few interviews and by February 2008, I was working as a junior advisor at Taylor Collison Share Brokers.

In this industry, the best lessons are frequently the most painful.

 

Now anyone who follows markets and history would know that the worst of the GFC was Sept – Nov 2008, but it actually kicked off with the collapse of Bear Stearns in March 2008, one month after I commenced my broking career. My first year in the industry was a baptism of fire, to say the least. But, the best lessons are frequently the most painful, and I would not change anything. Starting out in this industry during the GFC was very valuable in highlighting to me how vulnerable listed companies can be to the swings and fluctuations of the global economy.

This baptism of fire helped form the foundations of what I use today as an investment process. I am particularly aware of companies with high debt and also business models that may not necessarily be sturdy enough to survive recessionary conditions.

The GFC was soon in the rearview mirror, and by 2010, the market had seemingly moved on and the China-led commodities boom had returned. It is within this backdrop that I became interested in smaller companies, particularly minerals exploration and development companies. Always seen as one of the riskiest investment categories (legitimately so), I began to identify key ways that these risks could be reduced and managed. It was clear to me that with a disciplined approach and extensive research and knowledge, this area of the market could help deliver above-average returns.

However, like all cyclical investment themes, it is highly dependent on commodity prices, and in 2013, these took a dive following the record investment in new supply that came in the years leading up to this. However, as commodities rolled off, small technology companies began to get more attention on the ASX, and I was soon transferring my discipline, strategy, and research over to new sectors. I believe this approach can be applied to any sector or theme, and thematic investing has now become my preferred method of small and micro cap investing.

So now, 13 years on, I am almost exclusively focused on researching and identifying promising new micro cap and small cap companies, from any sector which is relevant, and helping like-minded clients to do the same. I have a large base of clients who look at this space, and as such, I am generally in touch with a lot of the deal flow and success stories in this space. This greatly benefits my clients, as this is a sector of the market where it is important to have good connections and networks.

My clients get an edge when it comes to dealing in micro cap and small cap ASX listed companies.

 

I regularly speak to company CEOs and directors, I am a director myself of an unlisted BNPL company called Splitpay, and I have a large network of other brokers who I speak with about a range of topics. All of this ensures that my clients get an edge when it comes to dealing in micro cap and small cap ASX listed companies.

My favourite, current themes I am looking to invest in include: Food Security, Cashless/ digital payments, China/ India growing middle class, Med-tech innovations, and Gold/ base metals. Additionally, I believe that although Cannabis stocks are struggling and the sentiment there is poor, the sector will have another sentiment upswing once we begin to see cannabis pharmaceuticals move through the clinical trial phases and begin to get approval with regulators.

There is no doubt that with the COVID-19 pandemic still firmly in the picture and the subsequent global recession, forecasting equities markets moving forward is a tough gig. The difference between the best case and worst-case scenarios is very wide, and the major worry is that valuations are now based more on the flood of stimulus and printing by central banks and governments, as opposed to a solid earnings outlook. Subsequently, if the market loses faith in those two institutions, there could be a return to the wild volatility and swings we saw in March of this year.

There is a wall of cash on the sidelines, waiting for a chance to re-enter equities.

 

However, if they continue to deliver the regular injections of stimulus the market needs to remain satisfied, then there is no reason why equities cannot remain stable and go higher into the future. I know there is a wall of cash on the sidelines, waiting for a chance to re-enter equities, so any correction would likely be met with buying more quickly than the March correction.

When I’m not at work, I am spending time with my two daughters, friends, and family. I play as much golf as I can, and am I’m loving watching Port Power this year. I seem to be one of the few people who doesn’t want to cancel the 2020 AFL season!

You can watch Michael talk with Pan Asia Metals MD, Paul Lock, about their upcoming IPO below:

 

To contact Michael:
mzollo@bakeryoung.com.au
+61 (8) 8236 8832