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A2 drop no shock for heavily invested adviser

An investment adviser heavily backing A2 in his clients’ portfolios says he’s not worried about a dip in share price.

Tuesday, September 25th 2018, 6:00AM 9 Comments

A2 shares fell 5% after news its chief executive Jayne Hrdlicka had sold all her shares.

She has only been in the job two months and made $4.36 million from the sale.

Christchurch-based Alistair Bean has 75% of his client assets in the stock.

He said he was not worried by the drop.

Bean said it was "a bit odd" that a new chief executive would sell all her shares so soon - although it was to pay for tax and other commitments that arose before she got the job.

"She is also incentivised to earn more than double her income with achieved results."

Bean said there were signs that the share price had room to grow further.

"Morningstar priced A2 at over $14 late last week, there is a little worry about Chinese regulation and always will be however quarterly results will be the best indicator of value in the near future.

"There are plenty of purchasers buying the dip, so many still have faith in a company that continues to build value."

He said he was not buying more shares for existing clients.

"[But] I am still certainly buying for new clients at a risk-balanced level appropriate to their individual profiles."

Tags: Alistair Bean

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Comments from our readers

On 25 September 2018 at 9:17 am greg bunkall said:
"Christchurch-based Alistair Bean has 75% of his client assets in the stock." Surely that is a typo?
On 25 September 2018 at 9:21 am R1 said:
The real concern is not the 5% drop in share price but the Governance short-comings that this event reflects. This is a question mark over the foundations on which the business is built.

Would be interested to know what level of fees Mr Bean charges his clients to warrant taking such an obviously high risk. Is it Mr Bean's get rich quick scheme for himself or his clients?
On 25 September 2018 at 12:50 pm MPT Heretic said:
Surely a more interesting question is why A2 Mgmt and Board felt it was appropriate to provide the new CEO with a $4.36m sign on bonus
On 25 September 2018 at 1:18 pm Bobby said:
This is a brilliant proposition for Mr Bean's clients. If A2 goes up in price then the clients win. If it all goes bad the clients get to sue Mr Bean for adopting such a crazy DIMS strategy. I am pretty sure that his approach would be impossible to defend in front of a judge.

Only downside I see is that you would want to be in the front of the line at the court house, because there might not be enough money to go around if it does all go bad.
On 25 September 2018 at 3:09 pm AndyB said:
I cant see how any right minded financial adviser would have 75% of his clients assets invested in the shares of one company.

Perhaps Alistair would like to look up what diversification means.
On 25 September 2018 at 4:04 pm Tash said:
Has it occurred to any of you 'commentators' that perhaps Mr Bean's clients know and specifically agree to this investment strategy?
On 25 September 2018 at 5:56 pm Pragmatic said:
I wanted to contribute to this conversation by referencing Buffett’s early portfolios, whereby he was openly comfortable about having a large portfolio exposure to a single stock (in fact: that’s where his statement around diversification and laziness originated from)... but after too many minutes on Google I lost the will to live...

Instead, it’s worth reflecting on the average NZ home owner, and their disproportionate overweight to a single asset. Look where that’s got them. It’s also worth digging into the assets of most (“most”, not all) of the wealthiest investors around the globe, and their disproportionate exposure to a single asset. It’s usually aligned with something that they’ve built or have a specialist understanding of.

...and finally, I’m not sure that the Regulator has (or wants to have) the knowledge to determine whether the individual securities of a portfolio is “fit for purpose” - moreso that the due process to determine whether the portfolio was appropriate, was followed.

I’m not defending nor criticizing Mr Bean’s portfolio construction as I’m unaware of the investor’s individual circumstances - albeit that the veil of over-diversification that many industry participants hide behind, is unlikely to deliver any meaningful risk adjusted returns when compared to a well researched significant exposure. One caveat: I’m blindly unaware of the risks/benefits of A2 Milk as an investment, although assume that Mr Bean has done (& continues to do) his homework
On 26 September 2018 at 9:51 am Kimble said:
Tash, the beautiful thing is that the clients can agree whole-heartedly with Mr Bean's single stock portfolio, and will still be able to complain if the portfolio crashes and burns!

Pragmatic, I think you will find that Buffet's professional relationship with his clients early in his career (50 years ago now?) is significantly different to the relationship at question here and now.

The quote you couldn't find was that "diversification is protection against ignorance. It makes little sense if you know what you are doing."

I am sure there are thousands (tens of thousands?) of professional investors of Buffet's cohort that shared his opinion, both on diversification and their own skill, insight, expertise & knowledge. But we can only name a handful of them, if that. I wonder what happened to the rest of them?
On 27 September 2018 at 9:47 am Steven Popodopolus said:
All of my clients know and specifically agree to their insurance changing to a new company every two years for the added benefits and cost savings.

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