David Paradice is the founder of Paradice Investment Management. Paradice Investment Management began in 1999 with a single client. The firm now manages approximately $18.8 billion in equities around the world, with a team of 50 people in Australia and the USA.
We chat with David about what lead him to start his own firm at a time when boutique fund managers were the exception, not the rule.
David explains his firm's approach to stock selection and portfolio construction.
We how to find stocks with investment "moats" and whether these stocks are getting harder to find or more expensive to buy.
David is an astute judge of investment talent. We ask him what he looks for when hiring investment professionals. David also explains how he keeps his team motivated.
podcast, key takeaways, equity market, accountant, big, stressful, management, investment, period, people, money, equity, felt, started, funds, super, stocks, steel curtain, fundamentals, business
Daniel Grioli, David Paradice
Daniel Grioli 00:05
Welcome to another episode of the Foresight Active Advantage podcast series. With me today is a very special guest, David Paradice, the founder of Paradice Investment Management firm that he began in 1999. Paradise Investment Management invests in equities around the world with offices in Australia, and the United States, has a team of 50 people and approximately $19 billion in funds under management. David, welcome to the podcast.
David Paradice 00:38
Thanks very much for having me. Nice to be here.
Daniel Grioli 00:40
Thank you, my pleasure. Many of our listeners will know who you are because you're kind of Australian equity royalty in a way.
David Paradice 00:49
I wouldn't say that
Daniel Grioli 00:50
I can say that so, but for those that don't know, you tell us a little bit about yourself and how you got your start.
David Paradice 01:02
So, I grew up in Scotland and valley and then basically started this job as a I suppose I started actually, as a PMO initially, then accountant, I got to learn the basic accounting skills and and also a balance sheet. In P&L skills. I always always had an interest in got in finance and just the way businesses work can also refer to talking about people but so are them properly did my profession became qualified as accountant people if I lived by then started as a as a stockbroker for a while now with two strange console. And then I went on Spanish and then I started this business in 1999 - 2000, I got the first money on sixth of March 2000.
Daniel Grioli 02:02
So what was it like beginning during the peak, almost a peak of the tech bubble?
David Paradice 02:09
Very nerve racking. So you've got the money, the first $30 million that we've managed, that was small cap portfolio, rest, by support of warehouser, the great, great super fund, we still got the first 30 million, and I think it was the beginning of the end of the tech round. But the first three months up until around about April, May - June, June - July, the equity market had been moderating and all the technology stocks have been murdering. And it was super stressful for me because I was underperforming. And that first period is when you start to show people that you can deliver performance, and people are watching you. And the rest was awful to keep a good eye man or a consultant. I remember one day, lying in bed and thinking oh my gosh, 3% beyond benchmark, which is quite significant. And a few months, and got up, I couldn't sleep. So about four o'clock for Ron Paul and Ryan Renner checks with golf course. And I realized that I'd got my decimal points mixed up. And I was only 30 basis points. I was pretty excited about that. And so the first period first, for hypothesis was super, super, super stressful. But what happened was, we kept basing our investment decision on fundamentals. And we ended up under the tech rep coming in. And we did pretty well in that first year. And we're up quite considerably against benchmark and allowed us to, to then other people. So back here, we ended up doing quite well. But the first period was super, super difficult, especially given you know, we were I had not actually putting the money aside myself and had a mortgage. The problem was losing the actual business losing money. It's stressful, but I actually I achieved looking back in hindsight, it was lesson one, I would listen but it was a pain to get through.
Daniel Grioli 04:27
What do you think were the key takeaways that you you learned during that period?
David Paradice 04:34
Stick to fundamentals. If you believe in your ability and the ability to be able to pick stocks don't change that don't have a style group and I don't got waste, particular stocks looking at cash flows looking at present day by just looking at the businesses we mentioned management. So, you know if you continue to stick to the fundamentals, then You know, you know it'll shine through, you'll get these equity markets, which are quite speculative. But you need to be able to, I suppose evolve in your thinking, but not stray away from the fundamentals that make a good investment.
Daniel Grioli 05:19
Some of our viewers may not be familiar with the Australian Funds Management marketplace back in the late 90s, early 2000s, because today, we have hundreds of boutiques, and there's lots of people starting new ones. But back then there wouldn't have been too many people doing what you were doing would have been quite new, wouldn't it?
David Paradice 05:44
Yes, we were one of the first one that many that started by the end. And, in fact, the first couple of years, some of the star and some that didn't work out a lot that didn't work out. And it's about being consistent about what you do, and all that kind of stuff. So it was was largely big, big institutions, maybe part of banks like national, regional and Vbus. So part of insurance company, so insurance company had business arm. And now in easily seen universities as work some of the banks saw was a different marketplace. A lot of the state authorities simulation board, a lot of those, the new self government, pension plans big and they still be, but insurance is not so big anymore on the investment side. So there's things and I think what happened was a period of time that a lot of the individuals felt that they can branch out. Do their own thing. And if you believe in yourself and have a go, I did.
Daniel Grioli 06:52
Definately. And I think it takes a certain kind of person, a certain kind of mindset to do that. Because you know, as you brought out a lot of stress early on, you're putting a maximum skin in the game, everything sort of rests on you and your numbers. And ultimately, that can be very rewarding, but it's also tough. And I guess it's not for everybody to put themselves under that kind of pressure early on.
David Paradice 07:20
Yeah, it's not a race. It's not more of massive amounts of pressure. So when when we won our first money, and have so even to this day, because our congratulation, I said, don't quote, me, congratulate the five years, we've delivered performance, even upwards of $19- $20 billion, I still feel the same. And, you know, people say to me, Well, you know, we've got some money to manage. And I say, you know, I think the market is, it's not great, then I will encourage them not to invest even now, I think we can have, we did look at setting up a global small cap operation back in 2007, with JC was going home. And, you know, there's a lot of money around that barn, which that would be all we're going to give us. But I just felt mark was not right. So we we did do it at that particular time. And that was the right thing to do. And we waited till we felt there was movement upwards, enable the market. But there is a lot of pressure to take it on, we die because you manage people's money, positions. It's not like if you're part of a transactional thing, like if you're a stockbroker, buying selling shares and making money off that with equity management, galore responsibility you're responsible for a lot of people's superannuation and one of the pleasing things we do is that we do look outgrow another big pension plan. So like I said, rest, one of the biggest employer, but one of the biggest Ember super funds in Australia, it's great to be able to try and do well for a lot of the broader masses out there, people have been able to do that by managing money for these big super funds, which then obviously click the money. And it's stressful because you want to do the right thing by the man on the street.
Daniel Grioli 09:18
So if you look back now over your career as a as an accountant, consultant, an analyst business owner, fund manager, a philanthropist, board member was a little very wide and interesting variety of roles. What do you think have been some of the the key learnings or key takeaways for you across all of that?
David Paradice 09:46
Don't take shortcuts, you know? So, as an example, this is probably a really good example when I've was fresh out of school I was in Peat Marwick, I was making $9,000 a year. And then I used to see a whole lot of guys I went to school with the cut from the country, they were going and are being money market is back in the US with a bond market deal and making 120,000 living in pretty good life, just so tempted to get away from where I was at Peat Marwick learning about the basics of businesses industry in over the past. I didn't do that. And I think I probably could do that. When I was an analyst at broking firm, I went work for another brand to be a stock broker, like as a dealer, and when they because they got a percentage of the revolution, the road, but then my job, right? This. So I go like steel curtain wall, come back out again, straight, narrow, but not take shortcuts. It is about doing the right thing by by people and you do a lot of philanthropic stuff. And you know, one of the things I support is this thing called Primary Ethics, which is about teaching children primary schools about the difference between being right and wrong. And so I think it's really important that everybody does that. Are you passionate about what you do that you continue to do? Do what is right, I think part of the broader community and everybody around you.
Daniel Grioli 10:22
Well, I think there's some great advice there. David Paradice, Thank you very much for joining us on the Foresight Active Investment podcast. This podcast is for informational purposes only. It does not constitute financial advice or take into account that particular investment objectives, financial situations, or needs of individual listeners. Listeners should consider whether any opinions or recommendations in this podcast are suitable for their particular circumstances. And, if appropriate, seek professional advice including tax advice.