This article originally published in The Northern Daily Leader on 3 August 2013.

One of the reasons I enjoy winter is the comatose state of much of our garden through the cold months. It’s nice to be free of the weekly chore of mowing the lawn and maintaining the garden, if only for a short while. It’s not that I dislike gardening; I actually quite enjoy mowing the lawn, but unfortunately so does Jack, and a two-year old and a lawnmower is a recipe for trouble. Mowing the lawn becomes a convoluted affair, involving elaborate diversions to keep Jack from noticing the almighty racket coming from outside as I push the mower around the lawn. As he gets older and wiser, our plans have by necessity become more complex and at this rate may at some stage culminate in Jack having a short stay at a Swiss boarding school.

So you can imagine my consternation when I looked out the window and noticed that the recent rain and unseasonably warm weather had startled the garden into life. To make matters worse, the preceding dry weather had killed off the grass, which meant that the weeds had been the main beneficiaries of the rain. There were areas of the garden where even Bear Grylls would hesitate to venture, for fear of a nasty jab from a bindii thorn or two.

As I contemplated spending the next few weekends tackling the lawn, it occurred to me that looking after your lawn is not that different to looking after your finances. Just as your lawn needs continuous care to keep it in top shape, so should you be paying ongoing attention to your financial situation. That doesn’t mean checking the prices of the shares in your portfolio every five minutes – if anything you should avoid doing this as short-term price changes are unimportant if you have adopted the correct investment approach. What it does mean however, is that you should review your finances at least every six months, and more often if required. This may range from a quick once-over of your superannuation arrangements, debt levels and an assessment of your saving goals, to a more detailed consideration of your overall financial strategy. Just what are you aiming for and how are you going to get there? For most of us the end goal is a comfortable retirement, but it doesn’t happen on its own, you have to make it happen. And even when you get there, you need to be actively protecting your wealth. There are not too many people who relish going back to work once they’ve hung up the tools for good. Don’t wait until your finances resemble a garden where only a solid dose of defoliant will do the trick; a little work now can save a lot more effort later on.

This article originally published in The Northern Daily Leader on 20 July 2013.

Like many Australians, I spent this week watching the first Ashes cricket test against England. Watching Michael Clarke and his teammates take on England at Trent Bridge reminded me of my cricket days, and one glorious day in particular. It was the summer of 1985 and I was playing for the Under 9A team (to be fair we only had one cricket team at each age group, so making the A team usually meant you just had to meet the low qualification of owning a bat and pads). I was picked as a specialist fielder, which really meant I could neither bat nor bowl but was good at making up the numbers so we could field 11 players.

Towards the end of the match, to my utter surprise, the coach put me on to bowl. He had either had too many beers during lunch, or perhaps the match was that far gone that he figured I couldn’t do any real damage. I eagerly seized the ball and went through a few quick warm-ups. Feeling pumped, I ran towards the crease and unleashed my first delivery. Unfortunately some miscommunication between my head and my hand meant that the ball hit the pitch just in front of me and bounced seven or eight times as it slowly made its way down the pitch. Unnerved by such a devastatingly useless delivery, the batsman forgot to make a shot and the ball rolled gently against the stumps. Out! What a start! My second delivery was equally innovative. With the adrenalin flowing, I accidentally ended up throwing the ball with as much force as a Brett Lee thunderbolt. The new batsman had no choice but to dive out of the way to save his life and I had my second wicket. The rest of the over was unremarkable, until the final delivery. Some further head/hand miscommunication meant I launched the ball high into the air like a rocket-ship. It was an old-fashioned donkey drop and again the batsman had to dive out of the way to avoid being hit in the head as the ball plummeted back to earth and hit the wickets. Out! Sensing this was a life or death struggle between my bowling action and the rules of cricket, and cricket was losing, the coach took me off and I retired from bowling forever with the respectable figures of 1 over, 3 wickets, no runs.

Just like my bowling figures, it’s easy for your investing results to mask the real truth of your abilities. It’s possible to put money into something speculative and watch it double overnight. You might pat yourself on the back, thinking how clever you are, when the reality is that it was probably just luck, with very little skill involved. Being realistic about your achievements is an important step to investing wisely.

This article originally published in The Northern Daily Leader on 6 July 2013.

On a recent holiday at the coast, we were pleasantly surprised to find that the holiday home came with a wood-fired heater. An absolute necessity in Tamworth, wood heaters tend to be quite rare at the coast, even though winter night-time temperatures can drop to the low single figures. Not freezing certainly, and nothing like a cold winter morning in Walcha or Armidale, but a bit chilly nonetheless. Anyway, on seeing the wood heater, I popped down to the local petrol station to buy a bag of wood, looking forward to a few warm nights in front of the fire, with the sound of the surf in the background. Eighteen dollars (!) later, I hauled the bag of wood into the car boot and headed home.

I should have known something was wrong as soon as I picked up the bag of wood – it seemed too light and not nearly ‘chunky’ enough. Unfortunately the bag was not made of the usual plastic which you tend to find, but was made of the same material as a chaff bag; you had no way of knowing what was in there until you opened it. A sort of a firewood ‘lucky dip’. On this occasion, I was out of luck, as the entire bag was full of kindling, with no piece of wood any larger than an over-sized toothpick. Clearly the relaxing night in front of the fire would last no longer than an hour, about as long as it would take to burn my expensive bag of kindling.

In many ways my unfortunate experience with the firewood is no different from the experience of many people who seek the services of a financial adviser. They pay a significant amount of money upfront for advice which they won’t be able to determine the value of until long after they get home. In some cases they may have been sold a lemon, as the saying goes. Hopefully however, the advice is clear, comprehensive, accurate and appropriately priced, and the client ends up feeling as though it was money well spent. So when looking for financial advice how do you tell the bag of kindling from the bag of hardwood, so to speak? As with most things, the best way is to ask friends or family who already have an adviser. If they’re happy with the level of service (regular meetings, an appropriate investment strategy and a relatively conservative approach to making money), then you can be reasonably confident in arranging that first meeting. Don’t do as I did however, and grab the first available option without checking first; if you do, a cold night without a fire may be the least of your worries.

This article originally published in The Northern Daily Leader on 22 June 2013.

I am writing this week’s column in my hotel room in Sydney, where I am for a week, visiting clients and having meetings. Actually, most of my time is spent trapped in Sydney’s traffic, with only a small portion of my actual time in Sydney devoted to other activities such as eating, sleeping and meeting with my clients. An hour in Sydney’s traffic is a reminder of why many people choose to live outside Sydney and the other capital cities. If I have to drive anywhere, I try to beat Sydney’s rush hour by leaving the hotel at 6:00 am, only to find that at least two million other drivers have had the same idea, leaving us all sitting in the pre-dawn gloom in endless traffic jams. Trips across town have to be planned with military precision, and a single wrong turn can add ten minutes to your journey. It’s no surprise that for many visitors to Sydney, their most enjoyable drive is the one back home to the country.

Stuck in yet another traffic jam, I began to wonder about the true cost of such an existence. When economists discuss the growth rate of the economy, they do so in terms of the change in gross domestic product, or GDP as it is better known. GDP is essentially the value of all goods and services produced in a country over a given period of time. It’s a dry statistical calculation which keeps a small army of public servants in a job and gives the media something to talk about every three months. The problem with GDP however, is that it may give you an idea of how rich a country is, but it doesn’t tell you much about the quality of life. It’s entirely possible for an economy to be growing strongly, but for its citizens to be depressed and miserable due to factors such as stress, pollution and overwork. Is it better to be rich and miserable, or poorer but happier?

For an answer we can turn to the fourth Dragon King of Bhutan, Jigme Singye Wangchuck, who coined the phrase Gross National Happiness, or GNH. GNH was seen as an alternative to GDP; a subjective measure that attempted to take into account quality of life, not just the level of economic activity. Calculating GNH meant taking into account physical, mental and social wellness, in addition to the usual economic variables. Unfortunately no-one has yet worked out a gross national happiness index for regional Australia as compared to Sydney or the other major cities, but as I sat in the car thinking about the 20 minutes it was going to take me to drive just five kilometres, I was pretty sure what it might say.

This article originally published in The Northern Daily Leader on 1 June 2013.

When I was a young boy, around the age of ten, I was given a magic set as a birthday present from my parents. Most of the ‘magical’ items were relatively straightforward – a marked deck of cards, a few metal hoops that could be joined together if you knew how and some uninteresting rope puzzles. What was in the box which really grabbed my attention however, was a mysterious looking magician’s wand. I knew the rest of the magic set was really just a bunch of cheap tricks, but the wand was different. It was heavy, solid, maybe even felt a little warm and was made of some strange unidentifiable substance (ok, maybe it was just cheap plastic made in China, but I was just ten years old, an age when your imagination was as wild as a Craig Thompson work trip).

I was sure the wand was capable of REAL magic, if I just believed hard enough. I tried a few experiments to see the power of the wand. I doused the dog in fairy dust (also called talcum powder) and hit him on the head with my wand while mumbling something Latin-sounding under my breath. Disappointingly all that happened was that he sneezed a few times and then bit me on the ankle in retaliation. Undeterred, I tried to use some magic on one of my sister’s dolls, hitting it on its back with my wand while chanting more pretend Latin (for some reason I felt the magic would only work with physical contact with the wand). Again the outcome was discouraging, largely because Lauren came into the room mid-trick and in her eyes saw me beating her doll with a short black stick. Tears, a tantrum and a six-month magic ban soon followed.

You may be surprised to hear that many investment fund managers are also keen on magic tricks, only theirs have more serious implications for your wealth. The technical term is ‘survivorship bias’, but it really is just like magic. How it works is that a fund manager might start a whole bunch of managed funds, and run them for a few years, usually with very little money invested in each fund. Each year the funds which perform badly are quietly wound up and removed from the marketing literature, until all that is left is the top performing fund. Hey presto! The fund manager can then point to his or her incredible track record of always beating the market, conveniently ignoring all of the dud funds which never made it that far. They may not use a wand, but when looking at managed fund returns it’s worth keeping an eye out for the magic in there!

This article originally published in The Northern Daily Leader on 18 May 2013.

Last week we went on our first family holiday, spending a week at the coast. Some relaxing time at the beach seemed just the tonic after a busy summer.  To our surprise, holidays have changed somewhat since the advent of children. Only distant memories remain of lazy days at the beach. Now a half-hour visit to the beach (the maximum amount of time the 6 month-old will tolerate) requires the logistical coordination skills of a German Field Marshal. And the load-bearing and bag-managing abilities of a small army of pack donkeys. Nappies, food, clothes, sleeping bags, tents, beds….all apparently required items for a quick trip to the beach. And then even the best-laid plans can still be cast awry by an unexpected baby/toddler bowel movement. It’s no surprise that a dirty nappy at the beach has few friends.

The highlight of the trip however, was the time spent with Jack in the sea. No deeper than knee-height of course, but introducing him to the thrill of the ocean was memorable. The beach we frequented however, was not particularly child-friendly, with a steep drop-off and strong cross-currents. Jack, of course, was blissfully unaware of the treacherous nature of the surf, eagerly awaiting the next dumper to crash on the shore. Completely fearless (or clueless), it was only my vice-like grip on his wrists which prevented him from being swept out to sea and an extended stay in Davy Jones’ Locker.

Jack’s attitude to the sea reminded me of the approach some investors adopt to their investments. It’s easy to make decisions which don’t fully consider the risks, or the potential outcomes. It’s easy to jump on the bandwagon, when it seems that you may be missing out on the latest fad or short-lived mania (gold, tulips, Poseidon Nickel anyone?). As with Jack’s attitude to swimming (or sinking), none of these haphazard approaches to investing promise any long-term success. Any investment decision must be balanced on the basis of risk and return. Jack’s desire to jump into the sea, without any regard for the ferocity of the surf, was the same as an investor’s decision to invest without due regard to the risks. And these risks are many, from the risk of outright loss, to illiquidity risk, duration risk, credit risk, interest rate risk, currency risk, reinvestment risk and even political and regulatory risks. Why is that we employ pest inspectors, building inspectors and pay for land title searches when considering buying a house, yet select our superannuation investment option (often worth as much as we pay for a house) almost randomly? And that’s if we can be bothered to make a selection at all. Just as Jack mistakenly thinks the bigger the wave, the greater the fun, don’t get carried away by returns without due regard for the risks.

This article originally published in The Northern Daily Leader on 4 May 2013.

How good are you at predicting the future? It’s something we all do, whether it’s deciding if we should take an umbrella with us on a cloudy day, or discussing the likely results of a cooking reality TV show. Some people even make a living out of predicting the future, ranging from the TV weatherman (or woman) each night, to the shady clairvoyant who pretends to read your palm for twenty dollars. Clairvoyants aside, some people are better at predicting the future than others.

A recent study published in the Journal of Consumer Research investigated the ability of people to predict the future. It asked a range of people to predict the outcome of a number of actual events. These included picking the winner of the 2008 Democratic presidential nomination, the winner of American Idol, as well as what the weather would be like in two days’ time. Importantly however, the people asked to make the predictions were split into two groups. The first group were those people who felt they had a high degree of trust in their feelings; people who were confident that their gut feeling usually turned out to be right. The second group of people however, were those who felt that their gut feeling was often incorrect; they didn’t have a great deal of trust in their feelings and were more disposed to using logic and reasoning in making decisions. Who do you think performed better in correctly predicting the outcome of each event? Somewhat surprisingly, the people who relied on ‘feeling’ were more accurate in predicting the outcome of every event than those people who used logic and reasoning. This is somewhat counterintuitive as it is generally thought that logic and reasoning leads to better decision-making than relying on feeling or gut instinct.

There is one caveat though. There was no difference in the accuracy of people’s predictions if it was in regards to a topic with which they were unfamiliar. For example, people who relied on gut instinct were better at predicting the weather than people who used logic or reasoning, but if they were trying to predict the weather in say, Beijing, then there was no difference in accuracy. Both groups of people were as inaccurate as each other. The message is this: when faced with a decision or prediction, go with your gut feeling, unless it’s a decision in an area where you have little knowledge or experience. In such a situation, it’s best to seek the assistance of an expert.