This article originally published in The Northern Daily Leader on 22 December 2012.

The end of the year is always an exciting time, no matter whether you’re young or old. It’s a time of long lunches, cold beers in the garden, the background drone of the cricket on the telly and of course a festival of gifts and giving on Christmas day. And just when you think you’re done with the eating, drinking and celebrating, along comes New Year’s eve.  When I was (much) younger, New Year’s eve was the social highlight of the year; a night which required careful planning and came with high expectations. Although I’m now considerably older and slower, the last few years I’ve surprised myself by making it well past midnight on the 31st. The difference is that it now involves holding a sleepless baby, or worse than that, one with a tummy ache. Still, watching the fireworks on the television is at least something to do while waiting for the baby to fall asleep.

If you can find some time in-between the cricket and playing with your new toys/tools/shoes that Santa brought you, the end of the year is also a good time to take stock of how your finances fared over the previous twelve months. You don’t have to lock yourself in the study with a mountain of paperwork. Just by asking yourself a few simple questions you’ll be able to give yourself a little financial check-up. Firstly, how is your super doing? Were your returns ok? Have you got the right investment exposure? If you’re still working, should you be putting more into super? Are the fees you are paying justified by the service and the returns? For many of us superannuation will be one of the largest assets we own – taking an interest in your super may mean the difference between holidays at Kempsey or holidays in Italy. Next, give some thought to your living expenses. Have you asked your bank for a reduction on the interest rate on your home loan (if you have one)? Nobody should be paying the advertised rate. Ask around and be prepared to move banks if you need to. Electricity costs seem to have the same upward trajectory as a Dave Warner six off the first ball of a Twenty20 cricket match. Try this – ring your electricity company and tell them you’ve had an offer from another company to cut 10% off your current electricity bill. The worst they can do is say no, but you may be pleasantly surprised.

This is just a small snippet of some of the questions you may want to consider when assessing your finances, but it’s enough to get started. The aim is to make a start – like putting off going shopping for Christmas presents, the longer you leave it, the more you’ll regret it. Have a merry Christmas everyone and see you in 2013.

This article originally published in The Northern Daily Leader on 8 December 2012.

Most of us have an entertaining story or two about our first job. They often involve horrible bosses; making huge mistakes; an embarrassing faux pas or something similar that you can laugh about many years later. A friend of mine for example, managed to lock himself in the paddy wagon on the first day on the job as a probationary constable. You can imagine how the rest of the police station enjoyed that one for a long time afterwards. My first job however, was a lot less important, working at a local restaurant while at university. To be honest I was an ordinary waiter. One table of customers was too many as far as I was concerned, and I spent more time in the back chatting to the kitchen staff than attending tables out front.

On one particular evening, a young couple came in for dinner and unfortunately ended up with me as their waiter. I paid them so little attention, that after ordering, eating and waiting forever for me to bring them the bill, they simply got up and left. Of course the cost of their meal had to come out of my own pocket, and as it had been a quiet night with few other customers, it turned out that I had actually paid $25 to spend four hours working at the restaurant. Given my performance that night, it was probably a fair outcome. But working (if you can call it that) for an evening and ending up poorer than when you started was clearly not a sustainable career path, so it wasn’t long before I gave up on my career as a waiter.

The issue of pay and performance is a topical one at the moment, with considerable attention focused on executive salaries. Ordinary Australians can scarcely comprehend how some company executives warrant a weekly wage of over $200,000, an amount earned by many Australian CEO’s. When the average annual salary in Australia is just over $65,000, it’s not surprising that questions are being asked whether any one individual is worth millions of dollars per year. From an investing perspective, the level of executive pay should be one of the criteria considered in any prospective investment. However, the absolute level of pay is not as important as how it’s earned – is the company resetting bonus hurdles so that poor performance is still rewarded? Do short term incentives comprise an overly large proportion of salaries?  And my personal favourite – does the CEO have a company jet? Research shows that the share prices of companies that provide their execs with a company jet exhibit worse performance than those that don’t. Of course there are no company jets at Baiocchi Griffin Private Wealth, and fortunately no tables to wait on either.

This article originally published in The Northern Daily Leader on 23 November 2012.

Not long ago I had an excuse to do what every man enjoys – go shopping for expensive electrical goods. Our television had suddenly dropped one of the primary colours, which meant that everything on the television had a sickly shade of blue. After a few days of feeling as though we were watching television from the bottom of a swimming pool, we decided it was time to join the flat screen revolution.

As the Controller of the Remote Control (a title my wife disputes), it was my job to research and purchase the new television. Naturally I began with a search on Google, wanting an answer to the easy question of ‘what television should I buy?’. Google told me that it had found 3,690,000 results in 0.36 seconds. And Google wasn’t wrong. The options, features, models and brands seemed endless. Did I want plasma, LCD or LED? Would I prefer 800Mhz or 1000Mhz? Was I interested in a television which promised ‘anti-aliasing’? What about 1080p or HD or 3D? Must it have HDMI, DVI, or VGA D-sub support?

The reality is that, when deciding to buy a television or really any product today, we are often faced with a bewildering array of choice. Sociologists believe that having so many alternatives may be a problem – when we are faced with too many choices, we have trouble making the right decision and this can cause anxiety, unhappiness or indecision. Having too many options to choose from can lock us into a state of decision paralysis, where we try and avoid making the wrong choice by opting not to choose at all. This has important implications for how we manage our finances. There’s no exact figure, but it is estimated that there are over 10,000 managed funds in Australia competing for your business. Even your own superannuation fund probably has dozens of different investment options and configurations. Faced with this vast number of alternatives, many of us simply choose to do nothing and leave our superannuation in the default allocation or fund, often to our own detriment.

If this sounds like you, the best way to deal with decision paralysis is to take steps to limit the number of choices. Find trustworthy people to either make the decisions for you, or to simply reduce the number of options to just the few best ones. If it’s about investing or superannuation, talk to a financial adviser. But if it’s about televisions don’t ask your brother-in-law, or like me you’ll end up with a television with so many features it’s smarter than the computer out of 2001: A Space Odyssey.

This article originally published in The Northern Daily Leader on 10 November 2012.

29 43 8 7 15 2 13 were in fact the winning numbers in Tuesday’s record breaking $100 million Oz Lotto draw. You might have recognised them straight away if you were a winner, but sadly it’s almost certain that if you are reading this, you didn’t wake up $27 million richer on Wednesday morning. It seems like the luck of the lottery by-passed Tamworth this week, which is not surprising when you consider that the odds of winning the jackpot are around 1 in 45 million. Nevertheless, Tuesday’s draw attracted considerable interest as millions of Australians dreamed about what they would do with over a hundred million dollars. A friend confided to me that he would retire and live off his earnings of $10 million a year. I had to gently point out that earning $10 million on $100 million of assets was simply not possible; at least, not without taking on a potentially ruinous level of risk. Even $100 million can be lost through poor investment choices.

In reality, a more reasonable earnings assumption, whether you have $100,000 or $100 million to invest, would be around 6% per annum. If you had been the sole winner of Tuesday’s draw, that equates to $6 million per year before tax. About half of that amount goes to the ATO and the costs of managing the money, leaving you with around $3 million, some way short of $10 million. Still, at around $57,000 per week after-tax, that should be sufficient to meet the needs of most people, unless you have a weakness for private jets and small Pacific islands. Though there may be fewer zeros involved, most Australians will need to eventually make a decision regarding their own lump sum, in the form of their superannuation savings. The various options you face are not too different from those facing Tuesday’s lottery winners: do you put it all in the bank at 4%, where it’s safe and secure, but your real return after inflation is only around 1%? Is commercial or residential property the answer? If it is, how do you make sure your tenants aren’t university students with a fondness for Facebook parties, which usually involve the riot squad and an appearance on the 7:00 pm news? What about debentures, corporate and government bonds, shares or precious metals?

The reality is that the government, and your employer, have transferred the responsibility for your retirement on to you. Pensions for life are a thing of the past; it’s up to each of us as individuals to make critical decisions about the hard-earned assets we will have to rely on during our retirement. And remember, lottery tickets and picking the winner at Flemington is not investing, no matter how attractive the returns might seem.

This article originally published in The Northern Daily Leader on 27 October 2012.

This week was another momentous one for the Baiocchi family, with the family expanding to four following the birth of Kate on Wednesday. The day of her birth was quite an event. The best analogy I can think of is like running a marathon. The nerves and excitement before the start. The relief when it finally gets underway. The pain and tremendous exertion of energy for hours and hours on end. And being urged on by cheers and good wishes as the finish line comes into sight and is eventually crossed after one more final mammoth effort. And that was just me. Heaven knows how Liz must have felt during the day.

At times during the birth I couldn’t see very clearly through the tears brought on by Liz attempting to break my fingers, but I did notice a large number of hospital staff involved in the day’s events. I counted four different midwives, one obstetrician, two doctors and a couple of other people whose roles were not immediately apparent. I think they could have been visitors who had simply gotten lost looking for the hospital canteen. Nevertheless, it was an impressive deployment of human labour by NSW Health to ensure Kate’s safe arrival, and a great job they did too. The cost to taxpayers would have been considerable of course, and goes some way to explaining why a substantial portion of Federal and state government budgets are directed towards health care. In fact, in 2009-10 we spent nearly $122 billion on health care in Australia, equal to nearly a tenth of our economy.

Of course Australia is not alone when it comes to health care spending. I recently saw an interesting statistic which claimed that in the United States 25% of a person’s lifetime health care spending occurs in the final year of their life. This finding seems obvious in many cases, such as serious accidents or illnesses; however it also leads to the question of whether or not we can reduce spending later in life by increasing spending on improving our health earlier in life. Prevention is better than cure, as they say. This approach is not too different from how you should manage wealth accumulation. You can’t accumulate wealth late in life in a hurry, you need to start early. There is certainly no cure for having insufficient assets when you retire, by then it’s too late. But by paying attention to your finances early, you can put yourself in the best position to enjoy thirty or forty years of retirement.  Or, if you have any little ones, money just to spoil your grandkids. Something Kate will no doubt be expecting her grandparents to do.

This article originally published in The Northern Daily Leader on 29 September 2012.

It’s a commonly held view that being successful means taking risks. This view forms the origination of the well-known saying ‘nothing ventured, nothing gained’. The implication is that you simply can’t win or be an achiever without taking some risks. The self-help business books which have become popular in recent years all repeat this mantra. I recently spotted a book in this category with the inspiring title “Smart Women Take Risks: Six Steps for Conquering Your Fears and Making the Leap to Success”. According to the publishers blurb, the book would help women actualise their potential, increase their self-esteem and reach their goals. The message is that you just need to take some risks and you will succeed, whether it’s in sport, business or even in relationships.

While it’s certainly true that most actions involve taking on some form of risk, it doesn’t necessarily follow that the greater the risk the greater the reward. Investors who have lost money on the countless number of failed ideas and schemes over the years are proof of that. For a perfect example of the fact that you can be successful without taking excessive risks, you need look no further than Sir Donald Bradman. We’re all familiar with the Don’s exploits – the greatest cricketer in the history of cricket, averaging 99 runs per innings, nearly more than double his nearest rival. What is surprising about the Don’s remarkable test cricket record, is that in twenty years of test matches, he hit only 6 sixes. So despite making nearly 7,000 runs in his test cricket career, he only pulled out the big swing on six occasions. That statistic tells a remarkable story of how Bradman was able to play relatively conservative cricket, limiting his risk of being caught out hitting for the boundary, yet still be the greatest cricketer of all time.

The parallels with Bradman’s approach to batting and investing are quite clear. As with cricket, investors need not take on excessive amounts of risk in order to achieve their financial goals or to be successful investors. A prudent approach to managing your money can yield even better results than chasing the latest fad, or jumping in and out of hot stocks, hoping to double or triple your money overnight. You don’t having to be hitting sixes to increase your wealth; a measured and cautious approach can get you there just the same, but with less possibility of being caught out. Remember the Don the next time you’re considering a risky investment. A stockbroker once himself, I’m sure he’ll help you make the right decision.

This article originally published in The Northern Daily Leader on 15 September 2012.

As a financial adviser, I often hear the comment that investing in the stock market is just too risky, that you may as well just go to the racetrack than invest your money in shares. It may surprise you to hear me agree that there is an element of truth in this statement, but it’s not what you think. You see, investing and having a bet on the horses do have a lot in common, but only with respect to the trade-off between risk and reward. In my experience investing doesn’t usually involve champagne, suits, summer dresses and fascinators. Unless of course I’ve just been working at the wrong company all these years.

At the racetrack, every gambler is faced with a fairly simple proposition: do they opt for the heavily-backed favourite, pick a horse somewhere in the middle of the pack, or choose to back the long-shot, where the risk is greatest but so are the rewards? Investors face a similar dilemma: do they opt for a reliable, profitable and established business that offers reasonable returns with appropriate risk (Woolworths might be an example here), or do they put their money into a highly-speculative mining exploration company that could be either bankrupt or worth a billion dollars within twelve months? It’s clear that long-shots exist in both horse racing and investing and have a similar allure for gamblers and investors alike.

The bad news is that human beings have a natural affinity for long-shots, both at the track and on the stockmarket. Recent research by two American academics, Snowberg and Wolfers, confirms that both investors and gamblers think the long-shot is going to pay off far more often than it really does. At the racetrack this means gamblers are prepared to accept lower odds on a three-legged horse than they should, while investors are prepared to pay more for that risky mining exploration company than they should. So not only does the long-shot turn out to be successful less often than we expected, but investors and gamblers pay more for the opportunity to lose their money than they should, once the risk and return are taken into account.

The message is fairly clear – don’t be tempted by long-shots in investing. Betting or investing in the long-shot is simply an efficient method of making dollar notes disappear into thin air.  You may get lucky and it may work once or twice, but the odds are against you in the long run. Real investing is not gambling, though speculative investments do exist to tempt your gambling urge. If you want to gamble, give your bookie a call; if you want to invest, give your adviser a call.

This article originally published in The Northern Daily Leader on 1 September 2012.

When my wife and I became parents, one of the unbudgeted items of parenthood was the purchase of a suitable car. I tried to make the case that my ute and Liz’s Nissan were fine, it was just going to be a bit of a squash with all of us in the ute’s front seat, but Liz was having none of it. Truth be told, I didn’t mind getting an updated car. My ute was old enough to legally vote and had all the reliability of a Collins Class submarine. Even though the new child-friendly car had to be an unexciting station wagon, at least it was likely to actually get me to my destination. Not long after taking delivery of the box on wheels however, it was made clear to me that the new car was to be used only for trips which included Jack’s company. There was no way I would be using the car to drive to and from work, unless I fancied Jack tearing up my office all day too. And so I was relegated to using my wife’s car as my daily driver.

It wasn’t long however before I began to tire of an 80 km/h top speed and honorary membership of Australia’s Most Boring Car Club. And so a few weeks ago I suggested to Liz that we sell her car and buy something else, preferably one with a towbar, 4×4 and a pop-top tent. Liz seemed open to the idea, until I told her what we were likely to get for selling her car – not a lot. Personally I wasn’t too concerned, I had no real attachment to her car and I was looking forward to driving something a bit more masculine. Liz was the complete opposite, adamant that her car was worth at least double what we were likely to get for it at a local car dealer.

Fortunately for Liz, I was able to explain to her why she held such a misguided opinion of the value of her car – a well-known behavioural trait known as the endowment effect. It means that we usually demand a higher price to sell something we already own, as compared to the price we would pay to purchase the item in the first place. This is a danger for investors too – it’s easy for us to overvalue investments that we own, simply because we already own it. Whether it’s a car or a share in a company, it isn’t worth anything extra just because you own it. Unless the owner happens to be pregnant, in which case forget the rules and just agree. Sometimes an old slow Nissan is the perfect car.

This article originally published in The Northern Daily Leader on 18 August 2012.

One of the most interesting forms of human behaviour is trusting your instinct or intuition in the decision-making process. We all know what it means to make decisions using our gut feeling, but it’s hard to describe how it feels and where that feeling comes from. It doesn’t seem logical to say “I’ve got a feeling in my gut that we can trust this person”, but it’s something that most of us have probably felt or said at some stage during our lives.

It’s also true however that gut feeling can be proven to be completely wrong. I’m always reminded of this when I recall a rugby test match from many years ago. Australia was playing New Zealand in the Bledisloe Cup and I was watching with a group of friends in a pub in London. During the warm-up the commentators kept talking about Joe Roff (I told you it was a while ago) and his form for the Wallabies. Feeling I knew better, I loudly proclaimed to all within earshot that Roff had no place in the Australian team, that he was nothing but a has-been and had been picked solely on reputation. Of course you won’t be surprised at what happened next during the game: there’s Has-Been scoring a try; there’s Has-Been making a try-saving tackle; look there’s Has-Been scoring another try and knocking over the conversion; oh and there’s Has-Been being awarded the man of the match award. All of this was gleefully and loudly pointed out to me by my friends during the game, an embarrassing reminder of my gut-call that Joe was past his prime.

I was reminded of my foolishness in doubting Joe Roff when I read some interesting research which stated that 32% of investors relied on their gut feeling when making investments. Rather than asking a professional for advice, doing some research or even talking to a friend or family member, more than a third of us prefer to invest on the basis of our gut feeling. That’s not to say that hunches, intuition or gut-feeling have no place in investing, it’s just that your gut-feeling should only form the basis for further research. If your gut says yes, that’s the signal to do some deeper investigation which hopefully confirms your intuition. For example, a little bit of research would have told me that Joe Roff was practically born and bred here in Northern New South Wales, and how could you ever doubt somebody with that pedigree!

This article originally published in The Northern Daily Leader on 4 August 2012

I know that it’s not everyone’s cup of tea, but I always enjoy the Olympics. I usually restrict my television sporting diet to staples such as cricket and rugby, but during the Olympics I’m prepared to watch any and every event. Every four years it’s the only chance I get to become an armchair expert on all manner of unusual sports. For two weeks I’m a know-it-all when it comes to fencing; an authority on synchronised swimming and an expert on rhythmic gymnastics. I’m happy to hold long conversations debating the relative merits of the Chinese pen grip versus the Western handshake when it comes to table tennis; of how equipment changes have impacted the shooting competition; of the most reliable stance in Greco-Roman wrestling and how to best return serve in a Badminton match. Most of my somewhat dubious Olympic expertise is directed in the direction of my wife, who seems interested but I suspect has managed to perfect the trick of sleeping with her eyes open.

The only annoying aspect of the Olympics is the behaviour of the free-to-air broadcaster (you know who they are). They seem to believe that Australians are only interested in watching Australians. If there is an event out there without any Australian competitors, then don’t expect to see much of it on TV, if at all. Now of course we want to see our Australian athletes in competition, but that doesn’t mean we’re not interested in sports or events which don’t involve Australians.

In investing parlance, the TV broadcaster’s attitude illustrates a well-known investor behavioural trait called ‘home bias’. Home bias simply means that investors concentrate almost exclusively on the investment opportunities in their own country. For example, many Australians invest only in Australian shares, despite the fact that the Australian stock market makes up less than 3% of the total value of globally listed shares. By focusing on just the Australian market you are potentially missing out on 97% of available investment opportunities. Studies have also shown that investors are even biased within their home bias – that is, investors who live in New South Wales would be more likely to invest in NSW-based companies rather than companies headquartered in WA or Victoria.

Choosing to have no international investment exposure reduces the diversity of investment portfolios, potentially leaving you worse-off on a risk-adjusted basis. The message is that, much like the TV broadcaster limits my opportunities to impress my wife with my expert opinions on synchronised swimming and other exciting events, your home bias may be limiting your investment portfolio performance.