This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 29 January 2017.
This past week I have been busy ‘renovating’ the laundry at home. I’ve put the word renovating in inverted commas as, theoretically what I have been doing is a renovation, but in practice it’s in a category all of its own. When the previous owners added on the laundry extension they stopped after putting in the framework and studs – there were no walls or ceiling and no flooring on the slab. As you can imagine, this became a haven for spiders, bugs, dust, dirt, snakes and who knows what else. I could feel my white business shirts cringe every time I took them into the laundry for a wash. Accidentally dropping a shirt on the floor was enough to make you cry.
Armed with some nails, a hammer and lacking only really a clue about what I was doing, I set about finishing off the laundry. To be honest, looking at the finished article, I wonder why I bothered. I’m not entirely sure I have made an improvement on the dirt, dust and spider heaven. It’s as though you got a builder in to do the work for you, but before he could start you got him drunk and then made him work in the dark. I now have to find a way of convincing my wife that she need not go into the laundry ever again and we’re better off just buying new clothes every time something needs a wash. An expensive solution yes, but better than letting her see my unhandiwork in the laundry.
As I stood there and reluctantly viewed my ‘renovation’ job, it occurred to me that my attempt to finish the laundry was not unlike the approach that many people adopt to looking after their finances. Just because I had the tools to tackle the laundry (the hammer and nails), didn’t mean I had the knowledge how to use those tools to do the job at hand. In the same manner, the ability exists for you to manage your own investments and finances – the tools are there, but that doesn’t mean you necessarily know how to use them. In the wrong hands, an online stockbroking account can be more dangerous than a badly wielded hammer (and I saw a lot of that during the past week, and felt it in my thumbs too). The convenient and cheaper approach of doing it yourself is not always best. Getting professional assistance may be more costly, but the outcome usually more than justifies the cost. Ask yourself if you realistically have the skills required; and if you don’t, get some help. A badly managed retirement plan is much more serious than a badly mangled renovation job.
Economic and Investment Update – September 2016
In September 2016 we provided an update to clients regarding the state of the global economy and financial markets. This included a discussion on demographics and the impact that changes in global birth rates and ageing rates is having on the global economy.
Points of Interest – Spring 2018
In this edition of our quarterly newsletter, Points of Interest, we take an in-depth look at interest rates and the relationship between changes in rates and bond yields. As part of this, we discuss the issue of the ‘inverted yield curve’, which is a financial signal which has been quite reliable in predicting a recession within 12 to 18 months.
A vegemite sandwich
This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 11 February 2017.
When it comes to lunch at work, I’m a little bit old school, preferring to bring lunch to the office from home, rather than popping out to grab a sandwich from a shop or takeaway. It’s often a healthier choice and generally much cheaper too. One day last week I was particularly looking forward to lunch – the previous night’s dinner had been an Asian-style BBQ pork salad; a refreshing mix of chargrilled pork, fresh salads, garlic, chilli and coriander. A perfect dinner during the hot summer months. There were enough leftovers to cater for lunch the next day and Liz offered to make a sandwich with the leftovers for me to take to work. So you can imagine my sense of anticipation the next day when I sat down to eat my lunch while reading the Financial Review, as is my usual habit. You can also imagine my disappointment when I opened my lunch box to find only a sad looking vegemite sandwich. To be fair, the lunchbox itself should have been a giveaway – it has been a long time since I demanded that my lunch was packaged in a Star Wars lunchbox.
As great as my disappointment was, I can only imagine how great was Jack’s surprise (at about the same time as I discovered my vegemite sandwich) at finding his lunch was a delicious Asian-style BBQ pork salad sambo. No doubt his fellow classmates in Year 1 were impressed with Jack’s sophisticated palate. While most them were most likely also having a vegemite or jam sandwich, Jack was on the cutting edge of Asian fusion style cuisine. Alas, I know for a fact that all he did was take two small bits out of the crust and politely returned the sandwich to his mum, along with the request that he never ever again be sent to school with such a disgusting lunch.
For my part, as I unenthusiastically ate my vegemite sandwich, I reflected on the fact that this experience was not unlike that of investing. When you make an investment decision, what you get is not always what you expect. You may be expecting annual returns of 10% plus, but may find that the real outcome is something entirely different. As far as investing goes, the potential for disappointment in the outcome is part of the territory. Just as there are risks in getting someone else to make your lunch for you, there are risks in investing too. Unfortunately, what you end up with may not be so much gourmet, as garbage
Make everything great again!
This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 14 January 2017.
The start of a new year is always an exciting time; an opportunity to look ahead with hope and anticipation. To push the reset button and forget about the year gone past. And what a year that was! 2016 was not the worst year we’ve ever seen – no major wars, crises or market collapses, but it still seemed to be a dramatic one. The UK decided it didn’t want to play in the European sandpit anymore; Malcolm Turnbull snuck back in the Lodge by a wafer thin margin and in the US, well, let’s just say that everything is apparently going to be great again! The truth is, every year has its ups and its downs. Humankind has an amazing ability to create new and novel ways to do both good and bad. From an investment perspective, the key to surviving any year is to make sure you have a plan. The old saying, failing to plan is planning to fail, really is true. Sure the odd major event might throw a spanner in the works (such as another global financial crisis), but having a financial plan helps to keep you pointed in the right direction, regardless of the odd bump encountered on the way.
A good financial plan is one which can adapt to the world around it. Just as circumstances change, so should your planning. Unfortunately, governments have a tendency to make unanticipated decisions which can have a major financial impact. While it’s not necessarily a requirement to predict those adverse decisions in advance, it is advantageous if you are able to adapt your finances to the new regime. The issue of superannuation is a perfect example of the ability of regulatory change to cause chaos. While you would assume the government is happy for more and more of us to be financially self-reliant during retirement, that is not necessarily the case. For every dollar that we squirrel away in superannuation, the government loses a few cents in additional tax revenue. It’s a case of long term gain (fewer retirees on the Age Pension) versus short term pain (less tax revenue now). Unfortunately, few politicians have a timeframe which extends past the next election. From their perspective, a few extra cents in tax now, is better than saving a few dollars in pension payments in twenty or thirty years’ time. That will be someone else’s problem, while the current crop of pollies will be retired on their generous government pensions by then. Here’s a new year’s resolution for our political leaders – stop squabbling amongst yourselves and let’s make government great again! It can’t be that hard, can it?
Points of Interest – Winter 2018
In this edition of our quarterly newsletter, Points of Interest, we adopt a rose-tinted view of the world, highlighting reasons to be cheerful regarding financial markets and the global economic situation.
Points of Interest – Autumn 2018
In this edition of our quarterly newsletter, Points of Interest, we review the risks posed by the US-China trade war. We also discuss the impact of proposed changes to tax legislation. We conclude with a review of the market’s performance over the past quarter.
Pass the panadol
This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 31 December 2016.
As I write this, we’re nearing the end of the year. In fact, if you’re reading this in the paper, it’s New Year’s Eve and you are no doubt debating whether or not to stay up until midnight to see in the New Year. I’ve found that as we started to have children, each successive one seemed to lop an extra hour off my ability to make it to midnight. With three kids this means I’m lucky to make it to 9pm. In pre-children days that was when the party was only getting started. Now however, I know that by six in the morning I’m likely to have two, if not three, small people yelling at me and demanding to be fed and entertained. Only a man more brave (or foolish) than me would stay up until the wee hours, knowing that was the fate which awaited him.
The end of the year is of course a perfect time to look back and consider your progress and achievements, particularly in regards to your finances. There’s no need to make it too formal, or else you’re unlikely to actually do anything about it; rather, just ask yourself a few questions and be honest with yourself. Things like: did you make much progress in reducing your debts this year? Were you able to add extra money to your savings or superannuation? Were you able to control your spending this year? We all have the odd occasional unexpected expense, but spending more than you earn is a certain path to financial trouble. Are all your insurances in order and are the insured amounts appropriate? Many people vastly underestimate how much life, home and contents insurance they need. Make time to review your policies.
The end of the year is also a good time to make some plans for the year ahead. Are there ways you can save more next year? If you’re lucky enough to get a pay rise next year, why not commit right now to salary sacrificing it to superannuation, rather than taking it as extra pay? If you were living well enough without the extra money, you won’t miss it anyway. Can you pay more off your mortgage? Changing your phone or electricity company can save money – direct it to your mortgage instead. Most importantly of all, save some money for yourself. There’s no point having a fat bank account and living on bread and potatoes. Indulge yourself every now and then, but do it sensibly. Failing to keep your finances under control is a lot more serious than dealing with three toddlers on a hangover.
All in on red
This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 17 December 2016.
I read a book recently which told the story of a man who lived in Melbourne, working as a croupier at Crown Casino, and how he invested in the stock market. Spending that much time in a gambling den must have had an impact on his investment approach, which consisted solely of looking for a company with a share price close to $0.01 (a so-called ‘penny dreadful’), putting his entire life savings into the company and hoping for the best. On two occasions he managed to turn over a hundred thousand dollars into nearly a million, only to lose it all. On the third occasion (you’ve got to give him credit for being persistent) he tried the same approach, struck a winner and made nearly two million dollars in profit, enough to chuck in his croupier job and become a stay-at-home dad and fulltime investor.
Sounds great doesn’t it? A struggling everyday Joe strikes it rich through the share market and lives happily ever after. In reality however, this is the exception rather than the norm. As befitting his time spent in a casino, the hero of our rags-to-riches story was really doing nothing more than gambling. You could argue, statistically speaking at least, that he would have been better off to put his life savings on red at the roulette table and leave it there for a couple of spins. Certainly the odds of the roulette ball landing on red three times in a row are probably better than the likelihood of picking one company from the five thousand on offer on the stock market, and then watching it quadruple in value.
For most people, losing their entire life savings (twice!) is simply too much to bear, despite the allure of a potential massive payday. For every croupier-turned-millionaire there’s probably ten thousand ‘investors’ who’ve lost their shirt by mistaking the stock exchange for a casino. Undoubtedly there is a myriad of ways to make (and lose) money on the stock market. Betting your life savings on the roll of a dice may well be your thing; there’s also merger arbitrage, long/short pairs, rumourtrage, momentum investing and enhanced options trading strategies. It really is like one of those ‘Choose your own adventure’ books which made a brief appearance in the mid-nineties. For normal, sane and rational investors however, none of these methods are likely to leave you able to sleep at night. If a sound night’s sleep is important to you, an investment adviser can help; otherwise, I have a book I can lend you to help pass the hours.
Points of Interest – Summer 2018
In this edition of our quarterly newsletter, Points of Interest, we discuss the performance of the market over the past year. We also consider the geo-political risks which continue to be an issue, although in many cases worst-held fears did not eventuate. We also highlight our concerns over continuing easy monetary policy risks, particularly in regard to asset pricing.