I haven’t heard the term ‘time horizon arbitrage’ coined before, but it makes perfect sense. Tim Carleton, Auscap Asset Management CIO talks about their approach to investing on ‘The Rules of Investing’ (Episode 170, 28th July, 2023).

Tim talks about looking past the 6 month horizon the market tends to focus on, and viewing businesses with a much longer time horizon.

In response to the final question, ‘Which stock would you own if the market closed today and didn’t open again for 5 years’, Tim’s choice was Nick Scali. He backed his conviction with the following reasons:

1. A founder run business
2. A long track record of high ROE, an average of c. 50%
3. Mostly ungeared, holding net cash 9 years out of 10
4. A very long runway of organic growth, with opportunity to double the store network over the next decade.
5. Recently acquired Plush where they have been improving the product, lowering costs to the consumer, while improving their own margins
6. Valuation is very attractive on a 5 year horizon. Tim said the biggest driver for furniture sales is housing turnover which is currently the lowest it has been in 20years

It’s an interesting podcast. He also talks about JBH, MIN, PLS, REH and REA, including some of their investing mistakes - both missed opportunities and acquired businesses going wrong.

He says they are long term investors, but talks about the reasons why they would sell a stock, with some real life examples.

Disc: Held IRL (8%), SM (15.6%)