slugging it out Unlike most institutional funds managers, Lanyon is not committed to being fully invested. In late July, it held 12 stocks and held 45 per cent of its assets in cash. At MMC Asset Management, Metanomski held an average of 40 per cent of his portfolio in cash. He says investors should first invest in assets providing maximum downside protection before pursuing rewards for taking risk. Lanyon competes against the ASX Accumulation Index as a benchmark – but only because it has to have a benchmark, Metanomski says. The investment industry’s obsession with relative performance is a “fiasco,” he says. Metanomski asks: if the market falls by 20 per cent, and a funds manager has delivered -10 per cent to retirees, will they telephone their client and tell them they’ve had a great year? he asks. “They’ve had a bad year. A loss is a loss. Relative [returns] don’t come into their thinking,” he says. Metanomski and Prescott are willing the onset of deleveraging in Australia – despite the business pressures it will bring – so they can once again buy good stocks cheaply. They begin each working day by looking at which stocks have fallen to their lowest prices in 52 weeks. It was a daily habit of value investing doyen Benjamin Graham. “There might not be anything worth looking at. Sometimes there might be good businesses,” Metanomski says. David Prescott says this provides many stock ideas. “I particularly like the words, ‘non-investment grade’,” he says.

This initiates Lanyon’s research, which is driven by Metanomski and Prescott, and is not based on research from brokers. Despite their efforts to develop fruitful relationships with the bosses of companies – to learn about how they  run businesses – their questions sometimes result in blunt and foulmouthed orders to immediately leave the premises. Their way of investing is neither art nor science. It’s grit. “I’m a slugger,” Metanomski says. “I’m a number cruncher. I slowly but surely get there.” durability Despite the cooling housing market, Conn is bullish on paint companies Dulux, Cabots and Selleys. These companies have long histories of profitability, strong management teams and good balance sheets. Both Investors Mutual and Legg Mason are focused on the financial services sector. Conn says Thorn Group, which includes Radio Rentals, is well-placed in the current market. It’s doubled its profit in the first three years of its life as a listed company, and will grow its earnings in the slower economy. Through its Radio Rental stores, Thorn rents household goods to consumers who cannot afford to buy them outright. Conn says the core business benefits in times of increased household stress as the potential number of customers grows at these times. Thorn’s earnings have also recently grown through buying debt collection agency NCML. This was done at an “attractive price” and it expands the range of their financial services capabilities, particularly into the commercial segment, Conn says. Livingstone says the best sectors or companies investors can be exposed to “are those that are less at the mercy of sudden changes in sentiment”.