1 00:00:05,790 --> 00:00:07,980 Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean 2 00:00:07,980 --> 00:00:10,679 Sean Aylmer: Aylmer. Last year was a cracker for the share market 3 00:00:10,679 --> 00:00:13,289 Sean Aylmer: and for super funds too. We're now officially into the 4 00:00:13,289 --> 00:00:15,809 Sean Aylmer: new financial year and plenty of investors will be hoping 5 00:00:16,020 --> 00:00:19,050 Sean Aylmer: the Good Times can continue. Subscribers to the Fear and 6 00:00:19,050 --> 00:00:21,090 Sean Aylmer: Greed newsletter would've seen a link we shared to a 7 00:00:21,090 --> 00:00:24,000 Sean Aylmer: great piece written by AMP, chief economist and head of 8 00:00:24,000 --> 00:00:27,959 Sean Aylmer: Investment Strategy, Dr. Shane Oliver. That was last Wednesday. In 9 00:00:27,960 --> 00:00:30,480 Sean Aylmer: it, Shane goes through the nine most important lessons he's 10 00:00:30,480 --> 00:00:33,929 Sean Aylmer: learnt from his 40 years in the investment world. Remember, 11 00:00:33,929 --> 00:00:36,539 Sean Aylmer: this is general information only and you should seek professional 12 00:00:36,539 --> 00:00:39,930 Sean Aylmer: advice before making investment decisions. Shane Oliver, welcome back to 13 00:00:39,930 --> 00:00:40,620 Sean Aylmer: Fear and Greed. 14 00:00:41,040 --> 00:00:42,510 Dr. Shane Oliver: Thank you, Sean. Great to be here. 15 00:00:42,870 --> 00:00:45,120 Sean Aylmer: You are way too young to have spent 40 years 16 00:00:45,120 --> 00:00:47,610 Sean Aylmer: in the investment world. You must have started very, very young. 17 00:00:47,759 --> 00:00:50,370 Dr. Shane Oliver: Well, not really. I did spend five years at university, 18 00:00:50,370 --> 00:00:53,129 Dr. Shane Oliver: so I was well into my twenties before I started. 19 00:00:53,129 --> 00:00:55,020 Dr. Shane Oliver: Maybe I just look young or something. 20 00:00:55,110 --> 00:00:59,430 Sean Aylmer: Maybe that's it. Tell me before we jump into your 21 00:00:59,430 --> 00:01:03,300 Sean Aylmer: rules or the things you've learnt about investing, just very 22 00:01:03,300 --> 00:01:06,899 Sean Aylmer: quickly, thoughts on the 2024 fiscal year? 23 00:01:07,920 --> 00:01:09,509 Dr. Shane Oliver: To be honest with you, it's been a pretty good 24 00:01:09,839 --> 00:01:13,560 Dr. Shane Oliver: financial year for investors. As always, there's been lots of 25 00:01:13,590 --> 00:01:18,630 Dr. Shane Oliver: worries, the prime amongst them, inflation interest rates, but putting 26 00:01:18,630 --> 00:01:22,200 Dr. Shane Oliver: aside all the details, the general trend in inflation has 27 00:01:22,200 --> 00:01:26,160 Dr. Shane Oliver: been down. That has led to expectations that interest rates 28 00:01:26,160 --> 00:01:30,240 Dr. Shane Oliver: will come down and in the absence of severe recession 29 00:01:30,270 --> 00:01:34,140 Dr. Shane Oliver: globally, it's been an okay environment for profits. Now of 30 00:01:34,140 --> 00:01:37,740 Dr. Shane Oliver: course there's been the added overlay of the enthusiasm regarding 31 00:01:38,190 --> 00:01:41,818 Dr. Shane Oliver: artificial intelligence, which of course has supported or boosted the 32 00:01:42,330 --> 00:01:45,238 Dr. Shane Oliver: critical US share market, but overall it's been a pretty 33 00:01:45,240 --> 00:01:49,470 Dr. Shane Oliver: good financial year. Some disappointments, obviously in Australia inflation hasn't 34 00:01:49,470 --> 00:01:51,990 Dr. Shane Oliver: come down as quickly as I would've thought. So we're 35 00:01:52,530 --> 00:01:54,300 Dr. Shane Oliver: still a fair way off from an interest rate cut 36 00:01:54,300 --> 00:01:56,730 Dr. Shane Oliver: where the risk we might get another hike. But that 37 00:01:56,730 --> 00:01:59,280 Dr. Shane Oliver: said, the overall picture I think, has been a reasonably 38 00:01:59,280 --> 00:02:03,990 Dr. Shane Oliver: positive. One question is, will that be sustained or not? Lots 39 00:02:03,990 --> 00:02:07,470 Dr. Shane Oliver: of uncertainties around politics in the US, Europe, but I 40 00:02:07,470 --> 00:02:10,470 Dr. Shane Oliver: think the broader picture on inflation and interest rates will remain 41 00:02:10,470 --> 00:02:14,160 Dr. Shane Oliver: down and ultimately we will see interest rate cuts in 42 00:02:14,160 --> 00:02:17,639 Dr. Shane Oliver: Australia within the next financial year, even though I've been 43 00:02:17,639 --> 00:02:19,139 Dr. Shane Oliver: saying that one for a while yet, but I think 44 00:02:19,139 --> 00:02:20,250 Dr. Shane Oliver: we will eventually get there. 45 00:02:20,520 --> 00:02:24,030 Sean Aylmer: Yeah. Okay. Let's jump into your nine most important lessons. 46 00:02:24,090 --> 00:02:27,089 Sean Aylmer: 1st July today, I think, as good time as any 47 00:02:27,360 --> 00:02:29,280 Sean Aylmer: to talk about these things. Number one: there's always the 48 00:02:29,280 --> 00:02:30,119 Sean Aylmer: cycle chain. 49 00:02:30,810 --> 00:02:34,530 Dr. Shane Oliver: There certainly is, and this is something that periodically we 50 00:02:34,770 --> 00:02:39,268 Dr. Shane Oliver: like to think the rules have been changed and cycle's 51 00:02:39,270 --> 00:02:42,360 Dr. Shane Oliver: not going to be returning and investors pile in thinking 52 00:02:42,360 --> 00:02:44,610 Dr. Shane Oliver: that things will be sustained forever. And then of course 53 00:02:44,610 --> 00:02:47,519 Dr. Shane Oliver: we get hit by another cycle. Many cycles of course, 54 00:02:48,210 --> 00:02:50,940 Dr. Shane Oliver: just then set the scene for the next one. For 55 00:02:50,940 --> 00:02:54,480 Dr. Shane Oliver: example, we had the tech wreck that led to low 56 00:02:54,480 --> 00:02:58,619 Dr. Shane Oliver: interest rates. Low interest rates, then set the scene for the GFC, which 57 00:02:58,619 --> 00:03:02,639 Dr. Shane Oliver: then gave the next cyclical downswing. Over the last 40 58 00:03:02,639 --> 00:03:06,480 Dr. Shane Oliver: years, I reckon I've seen some sort of crisis every 59 00:03:06,870 --> 00:03:11,550 Dr. Shane Oliver: three years. I started in 1984 bang on track with 60 00:03:11,550 --> 00:03:15,330 Dr. Shane Oliver: that average. We got the '87 crash. Years later, the S& 61 00:03:15,330 --> 00:03:18,029 Dr. Shane Oliver: L, the savings and loan crisis in the US, the 62 00:03:18,029 --> 00:03:22,500 Dr. Shane Oliver: recession in the early 1990s, Asian crisis, hedge fund problems, 63 00:03:22,950 --> 00:03:26,370 Dr. Shane Oliver: tech wreck and busts. The mining boom, of course, in 64 00:03:26,370 --> 00:03:29,879 Dr. Shane Oliver: Australia, which then again went bust after a while and the 65 00:03:30,000 --> 00:03:33,059 Dr. Shane Oliver: GFC. And of course since the GFC, we've also had 66 00:03:33,059 --> 00:03:36,990 Dr. Shane Oliver: crises with the Eurozone situation, which seems to keep popping 67 00:03:36,990 --> 00:03:40,080 Dr. Shane Oliver: up every so often with the issues in France, and 68 00:03:40,080 --> 00:03:43,890 Dr. Shane Oliver: of course the pandemic. So the beat goes on. Each 69 00:03:43,890 --> 00:03:47,189 Dr. Shane Oliver: time we had one of these crises, the tendency is 70 00:03:47,190 --> 00:03:51,690 Dr. Shane Oliver: to say, " Well, it's unparalleled, unprecedented. It's a defining event. 71 00:03:52,410 --> 00:03:54,360 Dr. Shane Oliver: The whole world has changed." And then of course we 72 00:03:54,360 --> 00:03:56,880 Dr. Shane Oliver: just see another cycle and then it all goes round 73 00:03:56,880 --> 00:04:00,000 Dr. Shane Oliver: again. We're back to a new unparalleled event. That's just 74 00:04:00,000 --> 00:04:02,700 Dr. Shane Oliver: the reality of life. The trick for investors is to 75 00:04:02,700 --> 00:04:06,089 Dr. Shane Oliver: accept that these things happen. Focus not on the cycle, 76 00:04:06,090 --> 00:04:08,280 Dr. Shane Oliver: but on the long- term trend and make sure you 77 00:04:08,280 --> 00:04:11,010 Dr. Shane Oliver: don't get blown off by cyclical swings. 78 00:04:11,400 --> 00:04:14,400 Sean Aylmer: Now related to that, is your second tip: the crowd 79 00:04:14,400 --> 00:04:16,200 Sean Aylmer: gets it wrong at extremes. 80 00:04:16,650 --> 00:04:19,260 Dr. Shane Oliver: Well, this one's very important and again, we often forget 81 00:04:19,260 --> 00:04:21,900 Dr. Shane Oliver: this, that the crowd is quite useful. It's often the 82 00:04:21,900 --> 00:04:24,960 Dr. Shane Oliver: crowd that pushes the market up. But once you get 83 00:04:24,960 --> 00:04:28,859 Dr. Shane Oliver: to an extreme, and this comes back to investor psychology 84 00:04:29,309 --> 00:04:32,820 Dr. Shane Oliver: that we're all impacted by, but we do have a 85 00:04:32,820 --> 00:04:35,339 Dr. Shane Oliver: tendency to project the current state of the world off 86 00:04:35,339 --> 00:04:37,919 Dr. Shane Oliver: into the future. We tend to look for evidence that 87 00:04:37,920 --> 00:04:41,790 Dr. Shane Oliver: confirms our views. We tend to be overconfident, particularly males, 88 00:04:42,389 --> 00:04:45,750 Dr. Shane Oliver: and we have a lower tolerance for losses than gains. 89 00:04:45,750 --> 00:04:48,748 Dr. Shane Oliver: So as a result of all of that, when times 90 00:04:48,750 --> 00:04:52,410 Dr. Shane Oliver: are good, people assume that it will be sustained. They 91 00:04:52,470 --> 00:04:55,050 Dr. Shane Oliver: focus more on the evidence that supports that as opposed 92 00:04:55,050 --> 00:04:58,678 Dr. Shane Oliver: to evidence that might question that. And of course they 93 00:04:58,678 --> 00:05:02,130 Dr. Shane Oliver: pile in. And then of course we go from ultimately 94 00:05:02,130 --> 00:05:05,789 Dr. Shane Oliver: in a downswing, we go from depression and people feeling 95 00:05:05,789 --> 00:05:09,990 Dr. Shane Oliver: depressed rather, to ultimately situation where we have euphoria. And 96 00:05:09,990 --> 00:05:13,140 Dr. Shane Oliver: of course when everyone is into something and you go to a 97 00:05:13,140 --> 00:05:16,260 Dr. Shane Oliver: family gathering or a barbecue and they're all talking about the 98 00:05:16,260 --> 00:05:20,010 Dr. Shane Oliver: same thing, whether it's Bitcoin or tech stocks or whatever, 99 00:05:20,309 --> 00:05:22,229 Dr. Shane Oliver: it's often a good sign that we're at the top. 100 00:05:22,589 --> 00:05:24,330 Dr. Shane Oliver: And so you've got to be a little bit skeptical 101 00:05:24,330 --> 00:05:28,440 Dr. Shane Oliver: about the crowd when it gets to an extreme. The 102 00:05:28,440 --> 00:05:30,510 Dr. Shane Oliver: old rule of thumb was if you get into a 103 00:05:30,510 --> 00:05:33,089 Dr. Shane Oliver: taxi and they start talking shares, that's a concern. If 104 00:05:33,089 --> 00:05:35,130 Dr. Shane Oliver: you get a taxi and they're not, then maybe it's okay. 105 00:05:35,790 --> 00:05:39,238 Sean Aylmer: Right. Again, three follows on from that and it's a little 106 00:05:39,240 --> 00:05:42,059 Sean Aylmer: bit self- evident but really easy to forget, what you 107 00:05:42,059 --> 00:05:44,039 Sean Aylmer: pay for an investment actually matters. 108 00:05:44,460 --> 00:05:48,870 Dr. Shane Oliver: It certainly does. Obviously there are guidelines to that. Share 109 00:05:48,870 --> 00:05:52,529 Dr. Shane Oliver: markets, we focus on PEs price to earnings ratios. The 110 00:05:52,529 --> 00:05:56,279 Dr. Shane Oliver: higher, the more expensive the investment, the lower return potential 111 00:05:56,279 --> 00:05:58,829 Dr. Shane Oliver: you'll get. And of course, the other one of course 112 00:05:58,830 --> 00:06:02,729 Dr. Shane Oliver: is rents: rental yields, dividend yields, bond yields, interest rates, 113 00:06:02,730 --> 00:06:05,070 Dr. Shane Oliver: they're all yields of some form. Obviously the higher the 114 00:06:05,070 --> 00:06:08,248 Dr. Shane Oliver: better. Right now we're at the low end of the 115 00:06:08,250 --> 00:06:10,889 Dr. Shane Oliver: range, the dividend yield on the Australian share market, if 116 00:06:10,889 --> 00:06:13,919 Dr. Shane Oliver: you look at data over the last 100 years or 117 00:06:13,919 --> 00:06:18,510 Dr. Shane Oliver: so, that does suggest lower than average returns out of the 118 00:06:18,510 --> 00:06:22,170 Dr. Shane Oliver: Australian share market going forward. It's not disastrous. It's still 119 00:06:22,170 --> 00:06:25,800 Dr. Shane Oliver: projecting okay returns, and you've got to add in the franking 120 00:06:25,800 --> 00:06:29,759 Dr. Shane Oliver: credits. But this is not 1982, couple of years before 121 00:06:29,759 --> 00:06:32,760 Dr. Shane Oliver: I started my career, when dividend yields were around 8 or 122 00:06:32,760 --> 00:06:38,609 Dr. Shane Oliver: 9%. This is 2024 and dividend yields down or just 123 00:06:38,610 --> 00:06:42,300 Dr. Shane Oliver: below 4%, and then the franking credits were around 5%. So 124 00:06:42,480 --> 00:06:45,089 Dr. Shane Oliver: that obviously means that the fuel in the tank is 125 00:06:45,089 --> 00:06:47,219 Dr. Shane Oliver: not as good as it would be if we had 126 00:06:47,219 --> 00:06:49,770 Dr. Shane Oliver: a much higher dividend yield or a much lower PE. 127 00:06:50,400 --> 00:06:52,109 Sean Aylmer: Stay with me Shane. We'll be back in a minute. 128 00:06:58,830 --> 00:07:01,529 Sean Aylmer: I'm speaking to Dr. Shane Oliver, chief economist and head 129 00:07:01,529 --> 00:07:06,959 Sean Aylmer: of investment strategy at AMP. Okay, number four, and I 130 00:07:06,960 --> 00:07:11,580 Sean Aylmer: love the quote from Kenneth Galbraith, J. K Galbraith, John 131 00:07:11,580 --> 00:07:12,871 Sean Aylmer: Kenneth Galbraith. I'm trying to remember that. 132 00:07:12,871 --> 00:07:13,560 Dr. Shane Oliver: It is Jonathan. 133 00:07:13,950 --> 00:07:17,220 Sean Aylmer: It's Jonathan Kenneth. His great phrase, which you've quoted, " There 134 00:07:17,220 --> 00:07:19,650 Sean Aylmer: are two kinds of forecasters. Those who don't know and 135 00:07:19,650 --> 00:07:23,520 Sean Aylmer: those who don't know they don't know." Basically it's hard 136 00:07:23,520 --> 00:07:24,960 Sean Aylmer: to get markets right is number four. 137 00:07:25,259 --> 00:07:27,900 Dr. Shane Oliver: It certainly is. Most economists like to pretend that they 138 00:07:27,900 --> 00:07:30,630 Dr. Shane Oliver: know and some of them don't know that they don't know, but the point about all that is, and I'm 139 00:07:30,630 --> 00:07:35,520 Dr. Shane Oliver: not meaning to disparage economists, you have a bit of 140 00:07:35,520 --> 00:07:39,120 Dr. Shane Oliver: luck here at times. There's another great quote I like 141 00:07:39,120 --> 00:07:42,720 Dr. Shane Oliver: from Roger Federer where in a recent speech he indicated 142 00:07:43,259 --> 00:07:48,300 Dr. Shane Oliver: that he won 80% of the 1, 526 singles matches in 143 00:07:48,300 --> 00:07:52,800 Dr. Shane Oliver: his career, but of the points, he only won around 54%. 144 00:07:52,800 --> 00:07:53,550 Sean Aylmer: I've seen that. Yeah, 145 00:07:53,550 --> 00:07:58,080 Dr. Shane Oliver: So almost half the time, he lost. Almost half the 146 00:07:58,080 --> 00:08:01,259 Dr. Shane Oliver: time, just a bit over that, he won. So you got 147 00:08:01,259 --> 00:08:04,350 Dr. Shane Oliver: to take from that as an economist, as an investor, 148 00:08:04,410 --> 00:08:06,179 Dr. Shane Oliver: you're going to get it wrong a lot of the 149 00:08:06,240 --> 00:08:10,140 Dr. Shane Oliver: time. You got to allow, there was another great reference 150 00:08:10,140 --> 00:08:14,070 Dr. Shane Oliver: many years ago to tennis, to amateur tennis, and investing 151 00:08:14,070 --> 00:08:15,599 Dr. Shane Oliver: is a bit like that. It's a bit like what 152 00:08:15,599 --> 00:08:18,660 Dr. Shane Oliver: they call a losers game, where the trick is not 153 00:08:18,719 --> 00:08:22,740 Dr. Shane Oliver: to play to win, but to play to avoid losing. 154 00:08:23,190 --> 00:08:25,650 Dr. Shane Oliver: You know, boxing, after a round 15, is similar to 155 00:08:25,650 --> 00:08:27,420 Dr. Shane Oliver: that. You've just got to hang in there. You're not 156 00:08:27,420 --> 00:08:29,489 Dr. Shane Oliver: trying to get the good punches, just trying to hang 157 00:08:29,490 --> 00:08:32,939 Dr. Shane Oliver: in there longer than your opponent. And I think it's 158 00:08:32,940 --> 00:08:35,728 Dr. Shane Oliver: the same with investing. We have to be humble. We 159 00:08:35,730 --> 00:08:39,328 Dr. Shane Oliver: have to admit that at times we, like everybody else, 160 00:08:39,330 --> 00:08:42,358 Dr. Shane Oliver: get exuberant so we miss the tops and we get 161 00:08:42,359 --> 00:08:45,300 Dr. Shane Oliver: too pessimistic at the bottoms and miss the bottoms. This 162 00:08:45,300 --> 00:08:47,580 Dr. Shane Oliver: is just the way it is trying to time markets. 163 00:08:48,030 --> 00:08:49,980 Dr. Shane Oliver: You can get lucky and get it right, but a 164 00:08:49,980 --> 00:08:51,450 Dr. Shane Oliver: lot of the time you won't get it right and 165 00:08:51,450 --> 00:08:52,650 Dr. Shane Oliver: you can lose a lot of the money in the 166 00:08:52,650 --> 00:08:56,099 Dr. Shane Oliver: process. Another one on that, it reminds ... Many, many years 167 00:08:56,099 --> 00:08:58,320 Dr. Shane Oliver: ago there was a guy who had an Australian petroleum 168 00:08:58,320 --> 00:09:02,309 Dr. Shane Oliver: company. He sold it and he used the proceeds, not 169 00:09:02,309 --> 00:09:05,309 Dr. Shane Oliver: so much the proceeds, this was 1986 I think it was, 170 00:09:05,309 --> 00:09:09,120 Dr. Shane Oliver: he sold the Aussie share market short thinking it was 171 00:09:09,120 --> 00:09:12,150 Dr. Shane Oliver: overvalued. And of course the Aussie share market kept going 172 00:09:12,150 --> 00:09:17,400 Dr. Shane Oliver: higher and higher into 1987, then it crashed. Unfortunately, when 173 00:09:17,400 --> 00:09:21,000 Dr. Shane Oliver: you sell shares short, you've got a limited time period 174 00:09:21,000 --> 00:09:23,550 Dr. Shane Oliver: there and his time period was up and he lost 175 00:09:23,550 --> 00:09:27,210 Dr. Shane Oliver: his fortune because he had to buy the shares back at an inflated 176 00:09:27,210 --> 00:09:29,670 Dr. Shane Oliver: price to pay back those he borrowed the shares from, 177 00:09:29,670 --> 00:09:31,348 Dr. Shane Oliver: and lost a lot of money. So you can often 178 00:09:31,349 --> 00:09:34,679 Dr. Shane Oliver: get the basic view right. He was arguably right, shares 179 00:09:34,679 --> 00:09:36,958 Dr. Shane Oliver: were overvalued in the mid- eighties, but he got the 180 00:09:36,960 --> 00:09:39,690 Dr. Shane Oliver: timing wrong and lost anyway, so got to be really 181 00:09:39,690 --> 00:09:41,790 Dr. Shane Oliver: careful when you're trying to time markets. 182 00:09:42,570 --> 00:09:45,330 Sean Aylmer: Number five: investment markets don't learn. Well, not for long. 183 00:09:45,870 --> 00:09:49,348 Dr. Shane Oliver: That's right. We learn from the experience of the last 184 00:09:49,349 --> 00:09:52,858 Dr. Shane Oliver: few years, but as time goes by, new investors come 185 00:09:52,859 --> 00:09:55,140 Dr. Shane Oliver: in and all the lessons are forgotten, and so the 186 00:09:55,140 --> 00:09:58,410 Dr. Shane Oliver: same mistakes are repeated over and over. The details will 187 00:09:58,410 --> 00:10:03,210 Dr. Shane Oliver: change, and this is something that Mark Twain has said 188 00:10:03,210 --> 00:10:06,480 Dr. Shane Oliver: to have said, " History doesn't repeat, but it rhymes." And 189 00:10:06,480 --> 00:10:09,449 Dr. Shane Oliver: so you can see a similar pattern in all crises. They start 190 00:10:09,450 --> 00:10:13,980 Dr. Shane Oliver: often when everyone's euphoric or very happy. Markets then have 191 00:10:13,980 --> 00:10:16,708 Dr. Shane Oliver: a fall and then they set up a new low eventually 192 00:10:16,710 --> 00:10:19,110 Dr. Shane Oliver: and then they take off again. So we go through 193 00:10:19,110 --> 00:10:21,150 Dr. Shane Oliver: that same pattern, but all the details are different, which 194 00:10:21,150 --> 00:10:24,389 Dr. Shane Oliver: is why people get so confused and thrown off. But 195 00:10:24,389 --> 00:10:26,040 Dr. Shane Oliver: there is a quote that I love from the German 196 00:10:26,040 --> 00:10:29,279 Dr. Shane Oliver: philosopher, Georg Hegel, " The one thing that we learn from history 197 00:10:29,279 --> 00:10:32,010 Dr. Shane Oliver: is that we learn nothing from history." The mistakes we've 198 00:10:32,010 --> 00:10:34,530 Dr. Shane Oliver: made in investment markets, we will see over and over. 199 00:10:34,590 --> 00:10:37,260 Dr. Shane Oliver: They will be pushed to extremes on the high side 200 00:10:37,260 --> 00:10:39,150 Dr. Shane Oliver: and the low side, and there's nothing that will change 201 00:10:39,150 --> 00:10:41,219 Dr. Shane Oliver: that. It would be very nice to think that we 202 00:10:41,219 --> 00:10:44,429 Dr. Shane Oliver: can stop the cycle, that regulators can regulate it away, 203 00:10:44,429 --> 00:10:45,480 Dr. Shane Oliver: but that's not going to happen. 204 00:10:46,199 --> 00:10:48,149 Sean Aylmer: Okay, number six, we're running out of time here, but 205 00:10:48,150 --> 00:10:50,700 Sean Aylmer: we will keep going: compound interest is key to growing 206 00:10:50,700 --> 00:10:53,520 Sean Aylmer: wealth. Again, self- evident but many people don't do it. 207 00:10:53,940 --> 00:10:57,088 Dr. Shane Oliver: That's certainly true. Don Stammer, who is a well- known 208 00:10:57,090 --> 00:10:59,789 Dr. Shane Oliver: Australian economist, used to point this out over and over. 209 00:11:00,210 --> 00:11:02,130 Dr. Shane Oliver: That if you want grow wealth, you've got to have 210 00:11:02,190 --> 00:11:05,609 Dr. Shane Oliver: good exposure to growth assets and it's like magic. Compound 211 00:11:05,609 --> 00:11:08,939 Dr. Shane Oliver: interest is where returns grow on top of returns. So $ 212 00:11:08,940 --> 00:11:14,160 Dr. Shane Oliver: 100 at a 10% return becomes $ 110. The next year, your 213 00:11:14,190 --> 00:11:16,078 Dr. Shane Oliver: dollar amount by which you go up is even bigger 214 00:11:16,078 --> 00:11:17,639 Dr. Shane Oliver: and it gets bigger and bigger through time and it 215 00:11:17,639 --> 00:11:20,309 Dr. Shane Oliver: goes exponential. So the key is to make the most 216 00:11:20,309 --> 00:11:23,640 Dr. Shane Oliver: of compound interest, not get blown off by cyclical swings. 217 00:11:24,150 --> 00:11:26,160 Sean Aylmer: Number seven: it pays to be optimistic. 218 00:11:26,730 --> 00:11:29,370 Dr. Shane Oliver: Well, this is very important. Some people have accused me 219 00:11:29,370 --> 00:11:33,660 Dr. Shane Oliver: of being perennially optimistic about things. It's partly- 220 00:11:34,500 --> 00:11:36,780 Sean Aylmer: They might have a point Shane. They might have a point. 221 00:11:37,290 --> 00:11:40,469 Dr. Shane Oliver: They may have a point, but partly genetics. I think I was born 222 00:11:41,519 --> 00:11:43,559 Dr. Shane Oliver: in a nice part of the world, northern beaches of 223 00:11:43,559 --> 00:11:47,610 Dr. Shane Oliver: Sydney, great family, stability. They loved me. They encouraged me 224 00:11:47,610 --> 00:11:50,820 Dr. Shane Oliver: to study at (inaudible) University, blah, blah, blah. But 225 00:11:50,820 --> 00:11:53,160 Dr. Shane Oliver: I think I've also learned from looking at share markets, 226 00:11:53,160 --> 00:11:55,799 Dr. Shane Oliver: historically, eight out of ten years, the Aussie share market 227 00:11:55,799 --> 00:11:58,320 Dr. Shane Oliver: goes up; seven out of 10 years, the US share market 228 00:11:58,320 --> 00:12:00,750 Dr. Shane Oliver: goes up. If you're going to get obsessed with the 229 00:12:00,750 --> 00:12:03,030 Dr. Shane Oliver: two or three years that it goes down, odds are 230 00:12:03,030 --> 00:12:04,949 Dr. Shane Oliver: you'll miss out on the seven or 10 years that it goes 231 00:12:04,950 --> 00:12:07,050 Dr. Shane Oliver: up. So pays to be optimistic. 232 00:12:08,160 --> 00:12:11,070 Sean Aylmer: Number eight, I love this, affects many, many things in 233 00:12:11,070 --> 00:12:13,979 Sean Aylmer: life: keep it simple stupid. The KISS principle. 234 00:12:14,580 --> 00:12:17,608 Dr. Shane Oliver: It certainly is important this one and unfortunately in the 235 00:12:17,609 --> 00:12:20,280 Dr. Shane Oliver: investment world, we have a habit of making things more 236 00:12:20,280 --> 00:12:23,880 Dr. Shane Oliver: and more complicated. If I think back to portfolio insurance, 237 00:12:23,880 --> 00:12:26,999 Dr. Shane Oliver: back in 1987, it was relatively simple, but by the 238 00:12:27,000 --> 00:12:31,229 Dr. Shane Oliver: GFC it had morphed into very crazy things like CDOs, 239 00:12:31,230 --> 00:12:34,618 Dr. Shane Oliver: which I'm still struggling to understand. But there's this innate 240 00:12:34,949 --> 00:12:39,120 Dr. Shane Oliver: tenancy for investment people to complicate things, and I think 241 00:12:39,120 --> 00:12:41,458 Dr. Shane Oliver: that just means that we miss the big picture. We 242 00:12:41,460 --> 00:12:44,190 Dr. Shane Oliver: end up lost in the details. Key is to keep 243 00:12:44,190 --> 00:12:47,070 Dr. Shane Oliver: it simple. If you don't understand it, I still struggle 244 00:12:47,070 --> 00:12:50,640 Dr. Shane Oliver: with Bitcoin a little bit, maybe you should stay away. 245 00:12:51,270 --> 00:12:53,129 Sean Aylmer: Number nine, I think this is a great one to 246 00:12:53,129 --> 00:12:55,170 Sean Aylmer: finish with, you'd need to know yourself. 247 00:12:55,410 --> 00:12:57,929 Dr. Shane Oliver: Well I think this is critical. A lot of people don't. They 248 00:12:58,920 --> 00:13:02,429 Dr. Shane Oliver: don't understand the way markets work. I think people need 249 00:13:02,429 --> 00:13:06,000 Dr. Shane Oliver: to ask themselves, " What would you do if the share 250 00:13:06,000 --> 00:13:10,469 Dr. Shane Oliver: market fell 20%? If your savings fell 20%?" If you 251 00:13:10,470 --> 00:13:13,530 Dr. Shane Oliver: can just say, " Okay, well this happens. I'm okay with 252 00:13:13,530 --> 00:13:16,319 Dr. Shane Oliver: it. I can sleep at night," then yeah, maybe shares it for you, 253 00:13:16,320 --> 00:13:18,358 Dr. Shane Oliver: growth strategy is for you. But if you would say, " 254 00:13:18,360 --> 00:13:21,179 Dr. Shane Oliver: Well, I'd want to get out of here," then that's 255 00:13:21,179 --> 00:13:23,700 Dr. Shane Oliver: probably a bad response and you need to find ways 256 00:13:23,700 --> 00:13:27,299 Dr. Shane Oliver: to manage that. One may be to get a financial 257 00:13:27,299 --> 00:13:31,050 Dr. Shane Oliver: advisor as a coach. Just find ways to exercise discipline. 258 00:13:31,170 --> 00:13:34,950 Dr. Shane Oliver: Or alternatively, you've got to have a more conservative strategy 259 00:13:35,429 --> 00:13:37,920 Dr. Shane Oliver: rather than thinking that you'll be able to get out at the right 260 00:13:38,309 --> 00:13:40,320 Dr. Shane Oliver: time and get back in at the right time. Odds are 261 00:13:40,320 --> 00:13:43,199 Dr. Shane Oliver: you won't. You'll just get it wrong and your psychology 262 00:13:43,200 --> 00:13:45,599 Dr. Shane Oliver: will blow you off. So I think it's very important 263 00:13:45,599 --> 00:13:48,389 Dr. Shane Oliver: to know yourself and that will determine the type of investment 264 00:13:48,389 --> 00:13:49,770 Dr. Shane Oliver: strategy that is right for you. 265 00:13:50,340 --> 00:13:53,190 Sean Aylmer: Shane, they're your nine tips or the nine lessons you've 266 00:13:53,190 --> 00:13:55,559 Sean Aylmer: learned over 40 years in the investment world. Are you 267 00:13:55,559 --> 00:13:58,199 Sean Aylmer: looking forward to this coming financial year? 268 00:13:58,830 --> 00:14:01,890 Dr. Shane Oliver: Look, I'm always looking forward to what may come ahead. 269 00:14:02,849 --> 00:14:05,189 Dr. Shane Oliver: I must admit, sometimes after 40 years you find yourself 270 00:14:05,190 --> 00:14:09,390 Dr. Shane Oliver: going in circles. It seems like we're in groundhog days. 271 00:14:10,350 --> 00:14:12,750 Dr. Shane Oliver: Not a week goes by when the topic is not 272 00:14:12,750 --> 00:14:16,469 Dr. Shane Oliver: inflation and interest rates. And if we're not talking about that, 273 00:14:16,469 --> 00:14:20,639 Dr. Shane Oliver: we're talking about the possibility of crises in Europe or 274 00:14:20,700 --> 00:14:23,969 Dr. Shane Oliver: Trump as president of the US. So we seem to be stuck, spinning 275 00:14:23,969 --> 00:14:27,420 Dr. Shane Oliver: around talking about the same issues. Sometimes that depresses me 276 00:14:27,420 --> 00:14:29,910 Dr. Shane Oliver: a little bit. We keep going in circles, but that, as 277 00:14:29,910 --> 00:14:33,510 Dr. Shane Oliver: you say, is the cycle and not learning from history. 278 00:14:33,510 --> 00:14:36,360 Dr. Shane Oliver: But I am looking forward to the next 12 months. 279 00:14:36,509 --> 00:14:38,190 Dr. Shane Oliver: I know there's a lot of fear around. I think 280 00:14:38,190 --> 00:14:42,180 Dr. Shane Oliver: things will turn out okay. I think we are seeing 281 00:14:42,180 --> 00:14:44,010 Dr. Shane Oliver: the worst in terms of we've seen, the worst in 282 00:14:44,010 --> 00:14:46,830 Dr. Shane Oliver: terms of inflation, and that ultimately means lower interest rates. 283 00:14:46,830 --> 00:14:49,320 Dr. Shane Oliver: And if we do have a recession and risk there 284 00:14:49,320 --> 00:14:52,590 Dr. Shane Oliver: is significant, we do have one, but our base case, 285 00:14:52,590 --> 00:14:54,660 Dr. Shane Oliver: I think it will be a relatively mild one, because 286 00:14:54,660 --> 00:14:57,959 Dr. Shane Oliver: we haven't seen the sort of spending or investment firms 287 00:14:57,960 --> 00:15:02,279 Dr. Shane Oliver: that normally proceed severe recessions like we had around the 288 00:15:02,279 --> 00:15:05,550 Dr. Shane Oliver: time of the GFC in the US or in the early nineties in Australia. 289 00:15:06,240 --> 00:15:07,890 Sean Aylmer: Shane, thank you for talking to Fear and Greed. 290 00:15:08,400 --> 00:15:09,570 Dr. Shane Oliver: Thanks, Sean. It's been my pleasure. 291 00:15:09,900 --> 00:15:12,270 Sean Aylmer: That was Dr. Shane Oliver, chief economist and head of 292 00:15:12,270 --> 00:15:15,330 Sean Aylmer: Investment Strategy at AMP. This is the Fear and Greed 293 00:15:15,330 --> 00:15:18,119 Sean Aylmer: Business Interview. Remember, this is general information only and you 294 00:15:18,119 --> 00:15:21,450 Sean Aylmer: should seek professional advice before making investment decisions. Join us 295 00:15:21,450 --> 00:15:23,520 Sean Aylmer: every morning for the full episode of Fear and Greed, 296 00:15:23,520 --> 00:15:27,360 Sean Aylmer: Australia's best business podcast. I'm Sean Aylmer. Enjoy your day.