Forget Warren Buffett, Bill Gates, J. Pierpont Morgan or even J.D Rockefeller, the greatest investor of all time is humble old Harry Hindsight. Harry will happily tell you where your money should have been invested, when you should have sold your tech shares, why tulips were a bad investment and much, much more. The problem with Harry though, is his stock forecast will come after the event has happened and not before.

These days, Harry can be found expounding his stock analysis in any internet trading room, he probably attended your last dinner party and he's even been seen down at the local pub. Harry has agreed to cast an eye over all our past recommendations & stock charts with his thoughts on stock market investing.

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2008

Stock Analysis	Stock Chart
Our initial reason for buying AEZ was to gain some non-Australian based property exposure. We had long viewed the Aussie listed property sector as expensive and we thought European property, which was more conservatively valued, offered a relatively attractive opportunity for investors looking for yield. How wrong we were. It didn’t matter where the property was located. Rather the crucial factor was the financing of the asset. And AEZ had just as much debt as any other trust. This heavy debt burden began to bite as the credit crunch eroded the value of the trust’s properties. AEZ cut the dividend on a couple of occasions in order to conserve cash. With no sign that conditions were likely to improve any time soon, we decided to exit our position for a hefty loss. Not one of our better recommendations.
Austar was a long term holding for us and after a very rocky first 12 months or so, where we were down more than 50%, the stock turned around and never looked back. We took profits along the way, however our decision to completely exit the stock was based on a stretched valuation, and the fact that management were consistently gearing up the balance sheet. This increased the risk profile off the company so we sold our remaining exposure for a tidy profit.
In October 2006, we recommended Members take part in the T3 instalment offer. The initial $2 instalment subsequently delivered a healthy 74 percent return. However, while we don’t doubt the ability of Telstra to outperform the market in the next few years, we felt that the easy gains were behind the stock. As such, we took the opportunity to realise some of our gains to date by reducing our exposure by half.
Macarthur Coal was first included in the Fat Prophets Portfolio in 2002. More recently, the planned improvements to port and rail infrastructure on Australia’s east coast were central to our investment case, facilitating greater future sales volumes for the company. However, given the stock’s record high prices, we felt any potential weakening of coal prices or delays to infrastructure improvements represented a considerable downside risk. Although the broader market outlook remained positive, we opted to reduce our exposure by half in February 2008.
Investment Manager Hunter Hall has been a long-standing feature in the Fat Prophets Portfolio, over which time the company’s outstanding investment performance has driven strong share price growth. However, with the possibility of continued volatility in global stockmarkets we felt such strong growth was unlikely to continue in the year ahead. Accordingly, we opted to remove some profits from the table and reduce our exposure by half.
We originally recommended beverage giant Foster’s Group back in March 2004. At the time, we were attracted to the company’s duopolistic industry position and strong operating cash flows. However, management’s ill-timed expansion into wine has hampered the company’s growth and shareholder returns. Although the Australian wine division’s profitability improved considerably in the 2007 half year results, wine sales in the Americas had begun to slow. Given our bearish outlook on US consumer spending, we felt this weak demand environment would continue for some time. With no end in sight for the wine division’s sub par returns, we recommended locking in our profits and selling Foster’s Group.
We originally gained exposure to Rubicon Japan Trust through a priority allocation to the initial public offering based on our holdings in the Rubicon European Trust. At that time, we believed RJT represented a good vehicle for Australian investors to gain access to our view of a rising Japanese property market. In hindsight, this was a clear error of judgement. It subsequently became clear that RJT’s management were not of the same calibre as our alternative Japan Property Trust, Babcock & Brown Japan Property (BJT). As a result, we took the difficult decision to realise an uncomfortable loss, in order to avoid potentially greater losses in the future.
Macquarie Leisure Trust has been a standout performer since our initial buy recommendation in 2002. The strong performance is primarily due to the success of the Trust’s flagship asset, Dreamworld. However, management also drove growth through the development of other divisions such as bowling, marinas and a US expansion. However, given the Trust’s consumer discretionary nature and exposure to a slowing US economy, we felt future growth would prove far more challenging. As such, we chose to lock in our more than five-fold gains and sell the stock.
We gained exposure to EBI through our holding in Everest Babcock and Brown. EBI consists of a portfolio of hedge fund managers and is predominantly an income based investment. However, the increased market volatility from mid-2007 led to flat returns from the underlying hedge funds and the Trust subsequently cancelled the dividend for the period ending 31 December 2007. We felt that the scenario of lower returns and therefore income could persist for some time, leading EBI to continue trading below its net tangible asset backing. With better opportunities elsewhere, we recommended Members sell EBI in January 2008.
We included Biota Holdings in the Fat Prophets Portfolio to gain exposure to the company’s key influenza drug, marketed by GlaxoSmithKline as Ralenza. The product offered significant growth potential as governments around the world built stockpiles to combat potential pandemics. However, Biota were also taking legal action against Glaxo, alleging that the pharmaceutical giant had not adequately marketed the product. Biota was confident the mediation with Glaxo would ultimately prove successful, but the deteriorating stock price was telling us otherwise. As such, we recommended selling the stock and sitting on the sidelines to await further clarity.
Babcock & Brown Capital owns the Irish Telco Eircom, a dominant provider of fixed line wholesale and retail telecommunication services in Ireland. Although BCM’s capital structure was highly geared, we believed the potential rewards from Eircom more than compensated for the associated risk. We therefore recommended the stock in September 2006 (FAT 297). However, the high debt levels meant the stock’s risk profile deteriorated considerably following the global credit squeeze and we decided to remove our remaining exposure.
We recommended AV Jennings in August 2007, based on a favourable chart structure and the potential for a turnaround in the NSW housing market. However, as a turnaround story the stock carried a comparatively high degree of downside risk. As such, with the chart structure breaking down and with increased uncertainty surrounding NSW housing, we decided to cut our losses and sold the stock in January 2008.

2007

Stock Analysis	Stock Chart
We first recommended Caltex back in mid-2001 at around $2.15. At the time, Caltex was deeply out of favour with investors. As often happens with our contrarian investments, the stock continued to decline following the initial recommendation. As we envisaged though, the company's fundamentals began to improve considerably and the stock price quickly moved to significantly higher levels. However, with the stock's stellar growth phase in the past, we considered the right course of action was to lock in our profits and sell.
Recommended as a way for investors to gain exposure to a private equity type investment, Babcock and Brown Capital performed very strongly up until the August 2007 credit crunch. Given its private equity type debt structure, such a response was expected. However, with most of the financing fixed, the stock quickly rebounded in the following market recovery. Given the inherent risk with highly indebted vehicles, we took advantage of the strong price rally to lock in modest profits. With the stock still representing good value, we decided to maintain some exposure.
A contrarian investment approach can be very rewarding. However, events don't always turn out as planned, as is the case for our McGuigan Simeon Wines recommendation. After battling the great Australian wine glut, the embattled wine maker faced grape undersupply and rising costs. Since reducing our exposure earlier in the year, the fundamentals continued to deteriorate, leading us to sell the remaining holding and realise an uncomfortable 42 percent loss.
We originally recommended Perth based financial services provider, IWL, in late 2004. Following the more recent trend of consolidation in the financial services industry, IWL's board recommended shareholders accept a takeover offer by Commonwealth Bank of Australia. With the stock having performed strongly since our initial recommendation and the market price in the region of the offer price, we took the opportunity to lock in a healthy return in excess of 230 percent.
After persevering with AMP through the lean years during the early part of the decade, we enjoyed the company's subsequent resurgence under the stewardship of Andrew Mohl. However, following Mr Mohl's resignation, we felt the company faced a more uncertain future and with better opportunities elsewhere, crystallised a gain in excess of 75 percent.
We initially recommended Corporate Express in May 2006 at $6, the timing of which was slightly premature as the stock subsequently fell. Nevertheless, our conviction that the falls were overdone was justified when the stock recovered all the lost ground and more. Even so, we subsequently determined that the company's organic growth potential was not as favourable as we first anticipated. In the face of competitive pressures and rising costs, we felt future growth was limited and decided to lock in a modest gain.
We first recommended Rubicon Europe Trust in August 2006, as an opportunity for Australian investors to gain exposure to undervalued elements of the European property market. However, in March 2007 Management decided to extend their activities into mortgage financing, which resulted in a sharp share price reversal as investors re-assessed the Trust's risk profile. Following consideration of the risks now associated to the Trust, we felt better opportunities lay elsewhere and removed our exposure.
We first recommended the exploration company, Bolnisi Gold, in December 2005 at $1.05. Since then, Bolnisi performed exceptionally well, appreciating more than 200 percent. However, following the takeover by North American silver heavyweight Coeur d'Alene Mines, the company's exciting exploration profile was lost. Given the circumstances, we decided to lock in our gains and sell Bolnisi Gold.
Our initial recommendation for housing construction supplier, Auspine, came in March 2001 at $2.25. However, due to the housing market downturn on Australia's East Coast, Auspine's profitability began to suffer. In fact, the stock actually began to trade below the company's net tangible assets. The announcement of a potential takeover from Gunns turned that around though, and the shares soared towards the $6.15 offer price. Given the industry economics, we considered the elevated prices more than fair value and recommended selling all remaining stock.
Hunter Hall (HHL) was included in the Fat Prophets Portfolio in March 2001. The company has been a standout performer, appreciating more than 8 times since our original recommendation. The strong performance record of the investment manager's products was key to the stock's tremendous growth. And while we don't doubt the ability of Hunter to continue delivering robust returns, given our exceptional gains since the initial recommendation, we believed it would be prudent to reduce our exposure by half.
We added ABB Grain to the Fat Prophets Portfolio in July 2005 at a price of $6.79. Our interest was piqued after fears of a prolonged drought pushed the stock's price well below our estimation of intrinsic value. This was especially so given the company's dominance of the South Australian grain market. After a lack-lustre performance, the stock made strong gains from late 2006. With much of the potential upside already accounted for in the stock, we felt the risk outweighed the potential reward and decided to sell our holding.
Tower New Zealand is another Fat Prophets Portfolio stalwart, with our original investment dating back to January 2002. Since then, the stock has exceeded our expectations, generating a return in excess of 200 percent. In November 2006, Tower's Australian and New Zealand operations went their separate ways. After much consideration, we concluded that Tower New Zealand no longer offered sufficient growth or yield to justify our holding. As such, we recommended selling the stock in FAT329.
Our original investment premise for McGuigan Simeon Wines was a classic contrarian play. The wine industry was in the midst of over-supply, which forced mass discounting as companies attempted to reduce their wine stockpiles. This in turn put earnings (and stock prices) under pressure. Recognising the cyclical nature of the situation, we recommended McGuigan at $3.55 in August 2005. As is an inherent risk for agricultural stocks, the pendulum swung too far and under-supply and higher costs are now the issue. Given the increased risk, we opted to reduce our exposure by half.
Everest Babcock & Brown Limited (EBB) initial incarnation in the Fat Prophets portfolio was a Company and a Trust, wrapped up in one. In August 2006, the two entities traded separately, as Everest Babcock & Brown Alternative Investment Trust (EBI) and Everest Babcock & Brown Limited (EBB). Our effective entry price for EBB was $1.38 and upon listing the stock traded around $1.60. We believed the stock was undervalued and in the next six months we saw the stock rise by over 100%. Following such strong gains we decided to lock in some profits with a sell half recommendation.
We gained exposure to Canadian gold miner IAMGOLD (IGD) through the merger with our long term holding Gallery Gold in early 2006. After performing well early in the piece, IGD's share price began to deteriorate. Then, early in 2007, the company decided to de-list from the ASX effective 30 March 2007. Management did not feel the additional expense and administration of a secondary listing justified remaining on the ASX. Although we retained our belief that IAMGOLD represented an attractive exposure to the ongoing gold bull market, for ease of portfolio management we recommended selling the stock on the market.
We first recommended Australia's largest diversified cotton group, Queensland Cotton (QCH) in March 2006, believing 'soft' commodities and cotton in particular would have the opportunity to outperform on rising global demand. Unfortunately, the share price performance was disappointing. Legislative issues in the US, combined with the continued fallout from the drought in Australia, caused the company to downgrade profits and cut the dividend. With the prospect of no income while we waited for the weather conditions to improve, we recommended selling the stock. In hindsight, this decision proved to be frustratingly premature, as a takeover offer emerged just weeks after our sale.
Babcock and Brown Japan Property Trust (BJT) has been a standout performer during its time in the Fat Prophets Portfolio, with gains of almost 100 percent since our initial recommendation. Given expectations of a continuation of the Bank of Japan's low interest rate policy, Japan's property trusts are likely to benefit from a favourable economic environment for some time. However, following the exceptional gains since our initial recommendation, the Trust traded at a significant premium to underlying assets. As a result, we believed it would be prudent to reduce our exposure by half.
Hutchison Telecommunications Australia (HTA) not one of our best recommendations. Our initial recommendation of Hutchison in July 2004 coincided with an announcement that it was teaming up with Telstra in an infrastructure sharing deal. The share price spiked, pushing our entry price up to high levels. From then on it was all down hill slowly. The company's balance sheet was fairly unusual in that debt outweighed assets, resulting in a negative equity position. While this is not generally a sign of corporate health, in Hutchison's case the funding originated from the Hong Kong parent, rather than the banks. Taking a sanguine view, we interpreted this as a low cost of capital however the heavy debt load weighed on the share price, despite significant operational progress. As a result, Hutchison was a great disappointment to us and the risk of further downward pressure on the share price prompted us to sell.
Ansell (ANN), formally Pacific Dunlop) was a solid performer following its inclusion in the Fat Prophets Portfolio in October 2001. During this time the stock increased by close to 200 percent, outperforming the broader market by a wide margin. However, increasing costs driven by the commodities boom and a softening US economy were likely to impact Ansell's future profitability. Around 50 percent of Ansell's sales are in the US, so we felt future revenue growth was at risk to a possible slowdown there. With the prospect for further gains limited, we believed the time had come to take profits and sell our remaining stake.
QBE Insurance Group (QBE) was initially included in the Fat Prophets Portfolio in September 2001. The company's acquisitive nature was the driving force behind its stellar share price performance in the last five and a half years. However, following the impressive share price appreciation, we felt the margin of safety had thinned considerably, as price and value merged. Although the upward trend remained firmly intact, and we retained our faith in the underlying business, QBE had not experienced a meaningful correction since 2002. As such, we believed it would be prudent to take some profits off the table and sold half.