Joys of riding short-term moves

Written by Vesna Poljak and Philip Baker – Australian Financial Review

Unlike most investors, John Corr does not want to be the next Warren Buffett, the legendary value manager who is considered the greatest of all time. Certainly Buffett’s style of long-term investing, as well as the old adages of buying good companies at the right price and the value of fully franked dividends, will always be important.

But equally, there’s money to be made every single trading session by riding the short-term moves, taking advantage of stocks that rise and fall too much, and that is where Corr does his best work.

“What we try and do in our business is a lot of short-term trades. We think a lot of the market in Australia concentrates on trying to be the next Warren Buffet and focuses very much on picking long-term earnings and waiting for share prices to reflect that,” the Aurora chief investment officer says.

So instead of waiting for shares to go up and panicking when they don’t, he concentrates on other opportunities often using derivatives and options. This style of investing is broadly known as alternatives.

“I believe there’s a lot of value in trying to pick long-term earnings and long-term investments. I don’t think there’s a lot of value in all your portfolio being in that long-only style. Some people are very good at it and you should stick with those people, but we’re not like that,” he says. “We like volatility, we like things to move around.”


Corr, who started his career as a bank teller at the Commonwealth Bank in Warrawong near Port Kembla in 1982, is an investor who looks for numbers that just don’t add up.

Working through the 1987 sharemarket crash as an advisor at AC Goode showed him how quickly markets can turn, and those lessons have always stayed with him.

For a start, there can be a greater risk reward trading in options and derivatives than just buying stocks and going long.

Rather than estimating how high a stock can go, the first question that Corr always asks is: what can possibly go wrong?

“For most parts of ’87 I thought this was the greatest thing in the world, and how good was I? Of course October ’87, as markets do teach you great humility, I went from thinking I was really rich to realising technically I was broke. The important thing about that is one of the philosophies of our fund is the markets can be much more volatile than people expect and that’s certainly a lesson from that part of my career,” he says.

“I know markets can go to irrationally high levels and markets can go to irrationally low levels … if there’s no catalyst, markets can go off on their merry way for a long, long time.”


Referencing John Maynard Keynes, “markets can be illogical much longer than I can be solvent”, he adds.

A fertile ground for Aurora has been trading around renounceable rights issues, which have been popular in 2015 amid huge capital raising efforts. The recent Westpac issue was a good example.

The bank raised $3.5 billion in a one-for-23 entitlement offering in order to strengthen its capital reserves to meet new regulatory requirements. Renounceable rights can lapse or be traded if a recipient doesn’t want to subscribe for more equity.

“Generally we look for the share price to bottom about the time that the rights trading finishes, we tend to buy a lot of the renounceable rights when they’re trading on market because they give us a limited downside.

“We were buying Santos rights when they finished trading for as low as 20¢ because they give us all the upside on the shares for the next couple of weeks with a very limited downside.”

Aurora hedges the position post the rights trading, as the share price tends to recover.


“It’s something we used to do on the retail desk at AC Goode, that’s how long it’s been happening.

“There is a supply of equity or equity exposure that comes out and it tends to come out at relatively cheap prices. When that supply dries up there’s a natural opportunity for the market to bounce.”

The September quarter was strong for Aurora amid a revival in volatility. Back when Corr was running Fortitude Capital, which he set up in 2004, the hedge fund got to $200 million from a $2 million start. A 12 per cent return in 2008 was not enough, however, as the fund-of-funds model went quickly out of favour.

Fortitude merged with Aurora, which earlier this year was acquired by Keybridge Capital. The absolute return fund offers bond-like volatility, has never had a negative year in 10½ years and delivers similar returns to equity.

Corr, who is a passionate South Sydney fan, always thought he would end up in accounting having grown up in a working class area, but financial markets deregulated at the right time, creating lots of demand for numerate people who could communicate.

“I think I was very lucky,” he says. “I just think I had a bit of a natural skill set that was needed, and was happy to work hard. There were some long hours then because there was a lot more paperwork and laborious work before things were so computerised.”

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