- From Fine Answers podcast – Ben Kemp & Sam Crompton
The difference between a bad quarter and a bad business
Prices fall for two very different reasons, and they look identical on a chart. Telling them apart is most of the work.
CSL spent the better part of two years issuing downgrades. Then, in Sam’s view, the share price stabilised as the market may have already reflected much of the negative information. Other factors may also have influenced the price.
Sam Crompton’s phrase for it is that the downgrades were all priced in. It is an uncomfortable idea, and a useful one: the business had not turned a corner. The market had simply finished repricing it.
In the latest quarterly market update on the Fine Answers Podcast, host Ben Kemp of Burke Britton Financial Partners talks with Sam Crompton, Senior Investment Adviser at Shaw and Partners, about oil, interest rates, property and what a market with no clear direction actually asks of a long-term investor.
By Ben Kemp, Certified Financial Planner, Burke Britton Financial Partners.
KEY IDEA: A price can fall for reasons that have nothing to do with whether a business is sound. Telling those two situations apart is most of the work — and it is slower than reacting to a headline.
Oil: two different questions wearing the same headline
The conversation opens on the Middle East, and Sam is refreshingly unwilling to call it. Short term, oil could do almost anything. Possibly longer term, supply finds its way out and prices drift down. Both can be true at once, and mistaking one for the other is how a portfolio gets rebuilt around a news cycle.
His own response is deliberately undramatic: take some money off the table in energy, and start looking at the businesses that may benefit if fuel gets cheaper. Not a call on the headline — a position on what happens after it.
Rates are uncomfortable, and that is where the opportunity comes from
Closer to home the discussion turns to inflation, interest rates and property. Neither Ben nor Sam pretends to know where the cycle peaks, and the episode is better for it.
The more useful question is what higher rates have already done — to prices, to balance sheets, and to what households will spend. Retailers, developers and utilities each feel a rate cycle differently. Stockland is Sam’s obvious example: a residential developer is about as rate-sensitive as a business gets, which cuts both ways depending on where the cycle turns.
Which is where it gets difficult. Some businesses are marked down because conditions are genuinely hard right now. Others are cheap because something has broken that will not fix itself. Price alone does not tell you which one you are looking at.
What a good business looks like when spending tightens
Sam has spent a lot of time in electronics shops lately. His fourteen-year-old son is into drones, so the trips are frequent and not especially voluntary. He raises it in the middle of a discussion about interest rates, and it is not a digression.
The range is good. Returns are handled without an argument. He keeps going back. His point about JB Hi-Fi is not the share price — it is that a genuinely good retailer keeps trading through a soft patch while weaker competitors struggle. Those are the things that hold up when households start counting.
It is an unglamorous test, and a demanding one. Plenty of businesses look fine when money is easy.
When the bad news is already in the price
Sam is blunt about how CSL got there in the first place. He describes the Vifor acquisition as “probably going down as one of the worst acquisitions an ASX company’s ever made”, in his opinion.
WiseTech Global illustrates the distinction better, because the fall was steeper and the reasons messier: governance problems at founder level, since addressed with new management, on top of a market that no longer knows how to value software businesses now AI has arrived.
Sam’s read of the underlying business is deliberately plain: “The numbers actually are OK. They’re making money.” Revenue is growing, subscriptions are growing — just more slowly than the market wanted. His own position is to wait for more evidence of traction rather than act on the story, which is a more honest place to sit than a confident call in either direction.
None of that makes any of these a good investment, and nothing here is a recommendation to buy or sell anything. The point is narrower: has the business stopped working, or has the market changed its mind about what to pay for it? One is a reason to leave. The other is the opposite.
Past performance is not a reliable indicator of future performance.
AI has made valuation harder, not easier
Underneath all of it, AI has genuinely complicated the job of valuing established software businesses. It might make them more efficient. It might reshape what they sell. It might undermine part of the model. All three arguments are live, the market has not settled on one, and anyone claiming certainty is guessing.
Sam’s position is that this is new enough to be worth learning about openly rather than pretending to have resolved. On a topic this crowded with confident opinions, that is worth something.
Questions worth keeping beside a portfolio
The episode produces no forecast. It produces something more durable — questions that keep working whatever the headlines do:
- Is this based on the next headline, or on a view three to five years out?
- What is already reflected in the price?
- Could this business handle conditions lasting longer than expected?
- Is management dealing with the problem, or avoiding it?
- Would this still make sense if the rate or energy outlook turns out differently?
None of these remove uncertainty. They move the conversation back to process and time horizon.
Looking forward without pretending to know
The strongest thread through the episode is not a view on oil or rates. It is the discipline of thinking ahead while being honest about what cannot be known.
That is harder than reacting. It is also considerably more useful.
The full quarterly update is on the Fine Answers Podcast. Markets move faster than anyone’s plans, and general commentary can only take you so far — if this raises questions about your own portfolio or timeframe, get in touch with the team for a conversation about your circumstances.
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