As we close the books on another calendar year, we are pleased to report yet another exceptional year of performance for the TAMIM Australia All Cap portfolio. In CY2024, the portfolio delivered a +28.93% return net of fees, following an impressive +31.25% return in CY2023. Over the past two years, the portfolio has significantly outperformed key benchmarks, with the ASX300 gaining +11.37% and the Small Ords +8.37% in 2024. Meanwhile, in the U.S., the S&P500 gained +23.0%, and the Nasdaq +24.9%, continuing the momentum from the previous year.
Since assuming portfolio management of this strategy on 1 January 2019, the portfolio has annualised +17.73% per annum net of fees, positioning it among the top-performing mid/small-cap funds in Australia over this period*.
The AI Revolution and Market Outlook
One of the dominant themes of 2024 was the continued strength of U.S. equity markets, largely led by the Magnificent 7 tech stocks. The AI revolution is accelerating at a pace comparable to or even exceeding that of the dot-com era. Unlike the late 1990s, where much of the value creation was speculative, AI is delivering tangible benefits in business productivity, automation, and technological advancements. We believe we are transitioning from the AI infrastructure phase to the application layer, where businesses will develop commercial models leveraging AI to enhance operations and drive profitability.
Additionally, we are now two years into the current bull market, which began in early 2023. Historical data suggests that bull markets reaching their second year tend to persist, with an average duration of 5.5 years. Notably, tech-driven and industrial revolutions have sustained bull markets for up to 12 years. We believe AI will be the driving force behind a long-term bull market in the coming years.
A New U.S. Administration – Policy and Market Impact
As we go to print, Donald Trump has been inaugurated as the 47th president of the United States. His administration is expected to implement pro-business policies that could lead to strong GDP growth and potentially reduce U.S. government debt. Combined with anticipated interest rate cuts, we see a positive backdrop for markets in 2025. Historically, the first year of a new U.S. presidency starts with uncertainty, but market performance tends to accelerate in the second half of the year.
Investors should remain aware that market pullbacks of 5-15% are common even in strong bull markets, presenting attractive buying opportunities.
Portfolio Positioning and Key Learnings
As we enter 2025, we are highly optimistic about our portfolio holdings and see substantial upside ahead. That said, we remain committed to continuous learning and improvement. One of the key lessons from 2024 was position sizing and knowing when to reduce exposure to stocks that remain undervalued for extended periods. While valuation remains a crucial factor, it is equally important to respect market momentum and avoid swimming against the tide for too long.
Looking ahead, we anticipate a catalyst-rich reporting season in February, followed by an expected increase in M&A activity post-results. Several holdings remain ripe for acquisition, reinforcing our conviction in the current portfolio structure.
Key ASX Stocks on Our Watchlist
Bravura Solutions (ASX: BVS)
Bravura upgraded its FY25 guidance following a successful business transformation and return to profitability. Cash EBITDA is now expected to be in the range of $33m – $36m (previously $28m – $32m), while reported EBITDA has been upgraded to $41m – $44m (previously $36m – $40m). Revenue is anticipated to be between $240m – $245m (previously $235m – $240m). Additionally, BVS intends to resume dividend payments in February 2025, supported by its improved financial performance. Since our initial investment in March 2023, BVS has delivered over 7x returns, and we believe consensus estimates remain conservative. Further upside could come from securing a large registry client for Sonata or a major digital advice contract for Midwinter.
EML Payments (ASX: EML)
EML Payments unexpectedly announced the termination of its CEO, with Chairman Anthony Hynes stepping in as Executive Chair. While abrupt CEO transitions are typically concerning, Hynes’ strong entrepreneurial background (having sold his company for AU$900m in 2021) makes this a positive development for shareholders. With no debt and a clear path to $95m EBITDA over the next three years, EML is a prime takeover candidate in 2025.
Superloop (ASX: SLC)
Superloop announced the acquisition of Uecomm Pty Ltd from Optus for $17.5 million, adding 2,000km of high-capacity fibre assets across major Australian cities. This deal strengthens SLC’s network footprint and Smart Communities ambitions, providing long-term cost and revenue synergies. Given the significant asset value compared to the acquisition cost, we see this as a highly opportunistic transaction for Superloop.
The TAMIM Takeaway
The strong outperformance of the fund in 2024, combined with a favourable macroeconomic backdrop, reinforces our conviction that markets remain in a long-term bull cycle. AI continues to reshape industries, and we are entering a crucial phase where commercial applications will drive the next leg of growth.
As we enter 2025, we remain cautiously optimistic, keeping an eye on interest rate cuts, M&A activity, and corporate earnings. Market pullbacks will be inevitable, but they should be viewed as buying opportunities rather than signs of distress.
*According to Morningstar website as of 31 December 2024, Category: Equity Australia Mid/Small Blend.
Disclaimer: Bravura Solutions (ASX: BVS), EML Payments (ASX: EML), and Superloop (ASX: SLC) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.
In January 2000, Howard Marks released Bubble.com, a memo that not only resonated deeply with investors but also marked a pivotal moment in understanding market cycles. It warned of the irrational exuberance driving the tech bubble at the time a prediction that was validated as the dot-com frenzy unraveled shortly thereafter. Twenty-five years later, Marks revisits the subject of bubbles, offering a thoughtful exploration of their characteristics and lessons, while reflecting on whether today’s markets exhibit similar dynamics.
Marks’ latest insights are a timely reminder of the psychological and structural risks that accompany periods of market euphoria. His memo challenges us to scrutinise today’s market environment dominated by AI innovation and concentrated gains among the “Magnificent Seven” with the benefit of historical context.
Defining a Bubble: Psychology Over Valuation
While bubbles are often associated with stretched valuations, Marks asserts that their defining characteristic lies in investor psychology. Bubbles are shaped by irrational exuberance, fueled by:
Fear of Missing Out (FOMO): A pervasive anxiety of being left behind in the market rally.
Overconfidence: A collective belief in the infallibility of certain companies or assets.
Speculative Excess: The notion that “there’s no price too high.”
Marks emphasises that bubbles thrive on sentiment rather than fundamentals. Historical examples ranging from the 17th-century tulip mania to the dot-com bubble demonstrate how a combination of optimism, herd behavior, and a disregard for risk can inflate asset prices far beyond sustainable levels.
A Historical Perspective on Market Manias
Marks revisits two landmark bubbles of recent decades:
The Dot-Com Bubble: The late 1990s saw an unprecedented rush into technology stocks, driven by the promise of internet-led transformation. Many companies went public with little more than a business plan, yet their valuations soared. When reality set in, the NASDAQ Composite lost nearly 80% of its value.
The Housing Bubble: The mid-2000s witnessed speculative excess in real estate, fueled by lax lending standards and the securitisation of subprime mortgages. The resulting collapse triggered the Global Financial Crisis.
These examples underscore the risks of conflating innovation or growth potential with immunity to downside risks. Marks observes that while history rarely repeats exactly, it often rhymes. The speculative fervor surrounding AI today bears similarities to past episodes of “newness” driving overconfidence.
The Magnificent Seven: Are We in a Bubble?
At the center of today’s market debate are the “Magnificent Seven”: Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla. These companies now account for over 32% of the S&P 500’s total market capitalisation double their share five years ago. Nvidia alone, a leading beneficiary of AI adoption, trades at a price-to-earnings (P/E) ratio in the low 30s, reflecting immense growth expectations.
Marks notes that while valuations are elevated, they are not as extreme as past bubbles like the Nifty Fifty of the 1960s or the dot-com stocks of the late 1990s. Yet, he cautions against assuming that today’s leaders are impervious to disruption. Technological innovation and competitive dynamics have historically eroded the dominance of even the most celebrated companies.
Investor Psychology and the Stages of a Bull Market
Marks’ framework for understanding bull markets remains a cornerstone of his analysis. He identifies three stages:
Skepticism: Markets recover from a downturn, but optimism remains scarce.
Acceptance: Economic and corporate fundamentals improve, and investors begin to participate.
Euphoria: Optimism reaches its peak, with investors convinced that “things can only get better.”
The current market exhibits characteristics of the third stage. The enthusiasm surrounding AI and the exceptional performance of a few dominant players have created an environment where optimism risks overshadowing discipline.
Lessons from the Past: The Nifty Fifty and Beyond
The story of the Nifty Fifty, a group of blue-chip growth stocks in the 1960s offers a cautionary tale. These companies were deemed so exceptional that investors believed “no price was too high.” However, excessive valuations led to severe losses when the bubble burst.
Marks highlights that only a fraction of those companies remain dominant today. Similarly, only one of the Magnificent Seven Microsoft was among the top 20 companies in the S&P 500 at the start of the millennium. Leadership in the market is rarely permanent, and assuming otherwise is a key risk for investors.
The Role of “Newness” in Driving Speculation
Bubbles are often fueled by the allure of new technologies or paradigms. From tulips to the internet, the absence of historical benchmarks allows excessive optimism to flourish. Today, AI represents the “new thing,” driving valuations of companies like Nvidia to unprecedented levels.
Marks warns that while AI’s transformative potential is undeniable, its economic impact may not materialise as quickly or as broadly as investors hope. Overestimating short-term outcomes while ignoring long-term risks is a hallmark of bubble thinking.
What This Means for Sophisticated Investors
Marks’ reflections offer critical guidance for investors navigating today’s markets:
Valuation Discipline is Paramount: Even the best companies can become risky when valuations outpace their fundamentals.
Beware of Market Consensus: Popular narratives often lead to herd behavior, creating opportunities for contrarian thinkers.
Focus on Fundamentals: Long-term success requires separating sustainable growth from speculative excess.
The TAMIM Takeaway: Staying Grounded Amid Euphoria
At TAMIM, we prioritise second-level thinking, a hallmark of Howard Marks’ approach. While many investors are swept up in the excitement surrounding AI and the Magnificent Seven, we remain focused on long-term fundamentals and valuation discipline.
Marks’ insights remind us that while markets evolve, the principles of prudent investing remain constant. Bubbles are not defined by valuations alone but by the psychology that drives them. Recognising this distinction is key to navigating periods of exuberance.
For sophisticated investors managing SMSFs or retirement portfolios, the imperative is clear: stay disciplined, avoid herd mentality, and remain grounded in the fundamentals. The allure of speculative gains may be strong, but history teaches us that patience, skepticism, and valuation discipline are the cornerstones of enduring success.
As Marks eloquently puts it, “Good investing doesn’t come from buying good things, but from buying things well.” This timeless wisdom should guide us as we assess today’s markets and the opportunities and risks that lie ahead.
Disclaimer: Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOG), Amazon (NASDAQ: AMZN) and Tesla (NASDAQ: TSLA) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.
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Is China’s market poised for a breakthrough? Robert Swift explores the potential value hidden in its stagnant stock index, pointing to growth potential with government stimulus. He highlights opportunities in retail-driven sectors, safer indirect investments like Japanese companies, and China’s strides in autos and solar panels all while stressing the need to stay ahead of market trends.
Disclaimer: TYO: 5802, TYO: 6501, NYSE: EME, TYO: 4063, NASDAQ: KLAC, SWX: UBSG, HKG: 0019 are held in TAMIM portfolios. All investing entails risk – please read disclaimer on our website for more details – www.tamim.com.au.
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Disclaimer: All investing entails risk – please read disclaimer on our website for more details – www.tamim.com.au.
Bravura upgraded its FY25 guidance following a successful business transformation and return to profitability. Cash EBITDA is now expected to be in the range of $33m – $36m (previously $28m – $32m), while reported EBITDA has been upgraded to $41m – $44m (previously $36m – $40m). Revenue is anticipated to be between $240m – $245m (previously $235m – $240m). Additionally, BVS intends to resume dividend payments in February 2025, supported by its improved financial performance. Since our initial investment in March 2023, BVS has delivered over 7x returns, and we believe consensus estimates remain conservative. Further upside could come from securing a large registry client for Sonata or a major digital advice contract for Midwinter.
EML Payments unexpectedly announced the termination of its CEO, with Chairman Anthony Hynes stepping in as Executive Chair. While abrupt CEO transitions are typically concerning, Hynes’ strong entrepreneurial background (having sold his company for AU$900m in 2021) makes this a positive development for shareholders. With no debt and a clear path to $95m EBITDA over the next three years, EML is a prime takeover candidate in 2025.
Superloop announced the acquisition of Uecomm Pty Ltd from Optus for $17.5 million, adding 2,000km of high-capacity fibre assets across major Australian cities. This deal strengthens SLC’s network footprint and Smart Communities ambitions, providing long-term cost and revenue synergies. Given the significant asset value compared to the acquisition cost, we see this as a highly opportunistic transaction for Superloop.
