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Padley: “The big one is coming”

And the most obvious one to me, if I was to name one stock I think is a forever stock forever, that would be Macquarie. In the US, the competition among investment banks is just vicious. Here, if you are a smart, finance-orientated, want-to-be-in-the-market graduate, where'd you go and work? Well, there's only one place. You go and work at Macquarie, you don't go and work in a very institutionalised bank. You work in a bank that has got 14,000 of the smartest financial brains in Australia with one goal in mind: make money. And I think that's a pretty good investment.
Plus of course, Macquarie once interviewed me and I didn't get the job. So they must be good. I failed their personality test, Henry passed it. I failed it because I was too aggressive and not a team player. And yes, that's pretty much right. And so they wouldn't want me fitting in their team because I'd be pushing at something. They didn't employ me – and this is a sideline – but you have a company that has consistently outperformed. Their goal is exactly what you want it to be. And they've got every single corporate deal, M & A, IPO. If you haven't got Macquarie on your beauty parade, you're an idiot in this country. They are getting a look at every decent deal in this country; that has to be a good investment. That's one of my forever stocks.

Macquarie has to be on your list. And consequently, the business does fabulously. It's got a much higher return on equity than the other banks.

It is more cyclical, it does have a much bigger element of sentiment in its share price, so it goes wrong very quickly. The moment the market falls over, Macquarie's a high beta stock, it'll fall more. We're prepared to sell our forever stock and get it lower down if the precipitous moment happens. That's just something you have to understand.

In Australia’s own little taper tantrum in 2018, when the market fell 15%, all the good stocks fell 35, 40% and got absolutely nailed for holding all the best stocks because they are high beta. There's a large element of sentiment in the share prices. You have to be very careful with them, even though they are great stocks. But if you go back and look at the forever chart 10 years later, you'll see, whatever blip it was, it was the best stock to buy at the bottom as well.
And they come back as quickly. The forever stocks, you actually end up with almost all industrials, rather than cyclical resources stocks, and you do end up mostly at the big end of town. And I have included some smaller stocks in this portfolio. And within months, they're giving me headaches. Forever stocks aren't headache stocks, and it's a fairly easy list to build. And as I say, we run the portfolio in the newsletter.