Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the Wealth editor at the Australian. Welcome aboard everybody.
Speaker 1: It's the last regular show of the year, and while
Speaker 1: I have a chance to say it, I just want
Speaker 1: to wish all our listeners a good relaxing break over
Speaker 1: the holidays and a prosperous new year. Maybe we can
Speaker 1: help you with the chances of a prosperous twenty twenty five,
Speaker 1: So watch out on the comic weeks for some special shows.
Speaker 1: There's a terrific special episode on the fire movement, financial independence,
Speaker 1: retire early movement, which a lot of people have been
Speaker 1: interested in. I've saved a special show for you on
Speaker 1: that with Lion Lee. That'll be out on Christmas Eve,
Speaker 1: and then we'll roll out a four part special summer
Speaker 1: series on how to prepare as an investor in twenty
Speaker 1: twenty five. The first two shows will be on the
Speaker 1: share markets. They're really good, if I may say so,
Speaker 1: On the on the Outlook for markets that is all markets,
Speaker 1: the ASEX, the NASDAK, whatever you've got. I've got Mark
Speaker 1: Dokum of global X. And then there's a second show
Speaker 1: in the series, which is on share selection and share
Speaker 1: picking for you the Australian investor on the ASEX, and
Speaker 1: that's with June Belieu of ten Capital. Or later in
Speaker 1: the series we'll have some shows on property and once
Speaker 1: you've put all that together, there's a final show on
Speaker 1: managing your investment portfolio in the year ahead. So we
Speaker 1: look forward to all that, but first let's take a
Speaker 1: look at what actually happened in twenty twenty four. And
Speaker 1: I'm joined by the most regular guest of twenty twenty four,
Speaker 1: James Gerard of Financial Advisor dot com dot you. How
Speaker 1: are you?
Speaker 2: I'm doing great for this pre Christmas episode. Love to
Speaker 2: be here with you.
Speaker 1: Well, it's good that you could get the time. I
Speaker 1: presume like everything else, it's like for most people. It's
Speaker 1: actually murderous, difficult and busy the last few days because
Speaker 1: I always have to sort of accelerate to take a break,
Speaker 1: so by the time I actually take a break, I'm
Speaker 1: in much worse condition than I would be on the
Speaker 1: average weekend.
Speaker 2: Are you the same, Yeah, I'm same. I was looking
Speaker 2: at my calendar tomorrow I've got nine meetings before we
Speaker 2: have our Christmas party at five point thirty. So I'm
Speaker 2: not sure how to drink or just pass out when
Speaker 2: I get there.
Speaker 1: Oh god, oh that's bad. Yes, I've had some What
Speaker 1: can I say? I have to be very diplomatic here.
Speaker 1: I've had a surprise, some surprise requests from the editorial
Speaker 1: desk of The Australian the day before I'm supposed to finish.
Speaker 1: So what can I say? Accept, James, It's great to
Speaker 1: have experience, because I've had lots of surprises at Christmas
Speaker 1: in the past. So I was waiting. I was just waiting,
Speaker 1: and of course it came in this morning, don't you know. Okay,
Speaker 1: now let's take a look. You know, it's funny every people.
Speaker 1: Of course they do their wraps for the year too fast.
Speaker 1: I reckon, there's people doing all these wraps of the
Speaker 1: year saying the Australian share market will do sixteen looks
Speaker 1: like it's going to do sixteen percent. Eighteen percent. Thing is,
Speaker 1: believe it or not, Folks, as we speak to you
Speaker 1: on the nineteenth of December, the ASX two hundred, Well
Speaker 1: it's hey, it's good, don't you worry about that. But
Speaker 1: in fact it has waned ever so slightly in the
Speaker 1: last the last few days, and we are now looking
Speaker 1: if we rule off the books this morning, James, we're
Speaker 1: looking at about eight and a half percent for the year,
Speaker 1: plus four and a bit for dividends, so maybe we'll
Speaker 1: still be in the teens of thirteen percent share market return.
Speaker 1: And chant West this morning said for super funds, for
Speaker 1: most super funds, the average default balance fund maybe eleven percent.
Speaker 1: Either way, you've got to think double digits whatever happens
Speaker 1: in the next few days, and double digits is pretty good.
Speaker 2: Huh. Yeah, No, it's been great. So for the average
Speaker 2: super fun balance that they're looking at, I you say,
Speaker 2: double digit returns. And for retirees have had it even
Speaker 2: bitter because we've had the cash breaker up thirteen times
Speaker 2: over the past two and a half years. So for
Speaker 2: a retiree, regardless if they're in bonds or they're in shares,
Speaker 2: they're having a crack in year.
Speaker 1: Yes. Yeah. And when people come into you, if I
Speaker 1: come into you, you know, a wide eyed twenty six
Speaker 1: year old by first time sitting opposite a financial advisor
Speaker 1: and I know nothing, And I said to you, so
Speaker 1: what can I expect? You know, what should I expect
Speaker 1: on my super each year? What should I expect on
Speaker 1: my shares each year? Sort of numbers would you give then?
Speaker 1: Would they be considerably different than the numbers I've just
Speaker 1: called out.
Speaker 2: Similar, probably a little bit lower. So it's just looking
Speaker 2: at the long term averages over say ten or fifteen years,
Speaker 2: and so for we've got middle of the road balanced
Speaker 2: super fun which probably be a bit too conservative for
Speaker 2: this younger investor, but that's where most people end up
Speaker 2: if they don't make a choice. You're looking at a
Speaker 2: long term return of around that eight nine percent. But
Speaker 2: for that younger investor, we'd probably be steering them more
Speaker 2: towards the growth based portfolio or high growth if they
Speaker 2: have a higher risk tolerance, purely because that the investment
Speaker 2: timeframe they have is a lot longer. They can't touch
Speaker 2: their super for another thirty five forty odd years, and
Speaker 2: so the return on that type of growth or high growth,
Speaker 2: then you're sort of pushing that those double digit returns
Speaker 2: on average.
Speaker 1: Of course, they won't always do that, that's what years
Speaker 1: there won't be anything remotely like double digit. Yes, okay,
Speaker 1: And if someone came into you now and they were
Speaker 1: switching from you know, the mediocre advisor to something better
Speaker 1: and they said, listen, you know it's been pretty good.
Speaker 1: I'm quite happy with my portfolio.
Speaker 2: This year.
Speaker 1: I did twelve thirteen percent on my on my Australian shairs,
Speaker 1: and I'm expecting to do twenty to thirty percent of
Speaker 1: my overseas shares and my money is coming in at
Speaker 1: five percent in my cash and I want much much
Speaker 1: better performance next year. And I want you to guide
Speaker 1: me as an advisor. What would you say?
Speaker 2: You just have to bring people down to reality and
Speaker 2: just look at these long term averages and look at
Speaker 2: the possibility of a negative return, which on the average
Speaker 2: growth based port filio is once in every four or
Speaker 2: five years we're going to have a negative return on
Speaker 2: share markets. And so if a new client comes in
Speaker 2: the first thing I'm saying, if they have high expectations
Speaker 2: is don't expect this again next year, because it'd be
Speaker 2: great if we have it, but the history shows us
Speaker 2: we're probably not going to get another twenty percent year.
Speaker 2: And if anything, where we're transitioning clients across from one
Speaker 2: super fund or one investment account to the one that
Speaker 2: we recommend, we're holding a little bit of cash at
Speaker 2: the moment. We're not fully investing. So although they may
Speaker 2: have a strategy where say eighty percent of their money
Speaker 2: should be in share markets and twenty percent should be
Speaker 2: in bonds, we're actually going, well, let's put sixty or
Speaker 2: seventy percent into shares and keep a little bit more
Speaker 2: dry powder, because we just look at some of the
Speaker 2: metrics around share markets and we go, well, the share
Speaker 2: market is priced today at a high evaluation compared to
Speaker 2: the long term averages, and over time everything reverts back
Speaker 2: to it to mean. And so we don't know if
Speaker 2: it's going to be tomorrow or next month, but there's
Speaker 2: probably a little bit of weight there for share markets
Speaker 2: to drop, and we're s done to see that a
Speaker 2: little bit now, and so we're taking a little bit
Speaker 2: more of a conservative view. We're still investing because we
Speaker 2: don't want to miss out, but we're not fully investing
Speaker 2: in appreciating that we have had a bumper year and
Speaker 2: things do look a little bit expensive.
Speaker 1: What would be the acid areas that you would be
Speaker 1: taking some profits.
Speaker 2: Us tech basically everywhere that has growth tilts towards it
Speaker 2: has gone up a lot, whereas the value based investments,
Speaker 2: the boring ones which are sort of there where the
Speaker 2: times are good or bad, they haven't gone up as much.
Speaker 2: So we're looking at the investments that are priced today
Speaker 2: based on the growth and the revenue they're going to
Speaker 2: get tomorrow, and where things turn in an economy and
Speaker 2: where people take profits, and if there's an unexpected event
Speaker 2: that occurs with say global conflict, people sell off this
Speaker 2: high growth investments because they're the ones that have the
Speaker 2: highest risk to them. So that's where we're taking profit
Speaker 2: and where we're quote unquote underweighting at the moment.
Speaker 1: The thing is everyone's saying move into small caps, right,
Speaker 1: this is this big theme small caps. Small caps is
Speaker 1: where you going to be small captains where this market
Speaker 1: has been really good, and now the next tier is
Speaker 1: small caps. This is a surprise event. That's the first
Speaker 1: thing that's going to fall, isn't it?
Speaker 2: Oh massively? Yeah, The volatility in that sector is much
Speaker 2: more than most other segments of the markets. So it
Speaker 2: is true that the large technology companies in the US
Speaker 2: have performed really well and they're quite large, take up
Speaker 2: a large percentage of the index, and there is a
Speaker 2: lot of value in these smaller technology companies, But don't
Speaker 2: forget the risk that's are attached to them, and people
Speaker 2: have rather short memories. You don't have to go back
Speaker 2: a couple of years where we saw twenty thirty forty
Speaker 2: percent drops in a lot of US technology companies. But
Speaker 2: we've gone through this bit of a purple patch, and
Speaker 2: then people's risk appetite tends to ratchet up a little
Speaker 2: bit because they're feeling good, their portfolios up. They don't
Speaker 2: want to miss out. But you just have to sort
Speaker 2: of bring ourselves back to reality because other investors, we
Speaker 2: get a bit carried away at times with the way
Speaker 2: we invest. The emotional behavior can sometimes get the bitter
Speaker 2: of us.
Speaker 1: And just on the local market, it's simply that that's
Speaker 1: even more pronounced the blue chip small cap gap and
Speaker 1: inside the market the banks driving the whole thing. Come
Speaker 1: a bank of for in one year inconceivable really, And
Speaker 1: then this notion that there's will be a switch to minors,
Speaker 1: but just interrogating that, I understand why someone would say
Speaker 1: there should be a switch to miners, but I could
Speaker 1: I can understand why filone would say they could be
Speaker 1: a switch out of banks, but I don't necessarily see
Speaker 1: the attraction of the switch to miners pera se, because
Speaker 1: the commodity outlook isn't that good, and the iron ore
Speaker 1: doesn't and the China plate doesn't quite offer the readings
Speaker 1: you'd like to see if you were switching, what do
Speaker 1: you say to people who are thinking along those lines.
Speaker 1: You know, I've done so well out of the ASX
Speaker 1: and the big banks and some of the other blue
Speaker 1: chip industrials that I should take profits now and swing
Speaker 1: it into small caps and minus. What would you say
Speaker 1: if I was planning to do that.
Speaker 2: I think it's from a valuation perspective, it makes sense
Speaker 2: to sell out of something that's gone up by forty
Speaker 2: to fifty percent. And my rule of thumb with the
Speaker 2: banks is I like to buy the banks when they're
Speaker 2: paying a ten percent grossed up dividend, whereas CBA at
Speaker 2: the moment, I think they're based dividends about three percent,
Speaker 2: so grossed up it's probably like four and a half
Speaker 2: five percent, So it's way off that very basic valuation
Speaker 2: metric I have in terms of when it's attractive time
Speaker 2: to buy the bank. Look, I probably wouldn't switch out
Speaker 2: of it all together because the banks make up a
Speaker 2: large part of the Australian share market and by selling
Speaker 2: out of your whole bank exposure. You're just creating more
Speaker 2: issues or you're providing bringing more volatility into your portfolio,
Speaker 2: is what I'm trying to say. So they're a good anchors,
Speaker 2: a good long term thing to have. But in terms
Speaker 2: of if you want to be tactical and you want
Speaker 2: to try and sell out of something that's gone up
Speaker 2: and then move it into something undervalued, well then sure, yeah,
Speaker 2: pursue that strategy. And we're confident with that as well,
Speaker 2: and we're moving a bit of money into the res
Speaker 2: all sector. But it's not an all or nothing type thing.
Speaker 2: It's a find the balance with it.
Speaker 1: Yes, okay, but it is. But there is a switch
Speaker 1: going on out of overpriced financials into what might be
Speaker 1: underpriced miners. What about gold, James.
Speaker 2: Yeah, Well, the predictions earlier in the year was that
Speaker 2: I was reading this and I was looking at my
Speaker 2: notes from January February this year that the US investment
Speaker 2: banks we were saying that gold might go up by
Speaker 2: ten percent or so. But it's gone out by much
Speaker 2: more than that. And if I'm looking at the forecast
Speaker 2: for next year, people standingly are saying there's still more
Speaker 2: to go. So I'm advising clients to take profit and
Speaker 2: sell down, not completely, but take a decent chuck of
Speaker 2: that gold profit off the table and move it into
Speaker 2: something else. Because also we have to remember that the
Speaker 2: bonds generating quite a lot of yield the moment. Property
Speaker 2: stocks are given a lot of dividends, so the alternative
Speaker 2: to gold quite attractive. Remembering that gold doesn't pay you anything.
Speaker 2: It's just a hunk of metal that you just hold
Speaker 2: in a little box somewhere, Whereas you can buy other
Speaker 2: stuff that will hopefully hold its value but also pay
Speaker 2: you an income to So in short, we're not see
Speaker 2: on it completely, but we're reducing exposure.
Speaker 1: And what are the areas if you were trimming off
Speaker 1: gold that you would look at.
Speaker 2: It depends on the profile, the risk appetite of the investor,
Speaker 2: and why they bought gold in the first place. Some
Speaker 2: people bought gold on an opportunistic basis, hoping that it
Speaker 2: would go up a lot, and it has, so for
Speaker 2: those people, it's taking the profit and moving into something
Speaker 2: else that is opportunistic. So whether that's as you mentioned,
Speaker 2: the smaller technology companies or the mining stocks that would
Speaker 2: be a good replacement for the gold exposure. Whereas for
Speaker 2: other people it's a defensive part of their portfolio they
Speaker 2: wanted as a hedge against bad times. And so where
Speaker 2: we're selling down gold exposure, we may move it into
Speaker 2: something defensive in nature, like Australian government bonds.
Speaker 1: Oh yes, I see, Okay, very good. All right now,
Speaker 1: one other thing I want to just take a look
Speaker 1: at before we take a break cash. So we've done,
Speaker 1: We've had a sort of run around through the share market,
Speaker 1: which I think the essential point listeners from James and
Speaker 1: from many other people on the show is enjoy your
Speaker 1: returns this year and do not expect them to be
Speaker 1: repeated next year. And I'd lovely it'd be delighted to
Speaker 1: be wrong about this, But the chances are that, I mean, honestly,
Speaker 1: when you see Combank going of forty five percent in
Speaker 1: a year, or NAB if you don't mind going up
Speaker 1: thirty percent in the year after doing nothing for a decade,
Speaker 1: it's the same bank, right, the same economy. I didn't.
Speaker 1: I don't see it being redrawn or spectacularly redesigned in
Speaker 1: that time. You can't. History would suggest, and the economic
Speaker 1: rationalism would suggest that it would be very unlikely that
Speaker 1: we see all that happen again in twenty twenty five.
Speaker 1: In relation to Linkedwin banks is cash and cash deposits James.
Speaker 1: So because the rate cuts never came this year, the
Speaker 1: term deposit rates remained really good. That is really good
Speaker 1: compared to what they used to be over the last decade,
Speaker 1: we say, where they were hopeless for a couple of years.
Speaker 1: What's your view in the year ahead.
Speaker 2: So it's looking like that will get some rate cuts.
Speaker 2: And it was interesting that the Reserve Bank have sort
Speaker 2: of split up their board into two different boards. They
Speaker 2: brought in two new board members onto this thing called
Speaker 2: the Monitory Board. So seven existing and RBA board members
Speaker 2: have moved across to the Monetary Board. There's two new members,
Speaker 2: one a former banking CEO and the other one an
Speaker 2: economics professor. So the view is that this new Monetary Board,
Speaker 2: which is responsible for interest rate or cash rate decisions,
Speaker 2: they're not meeting in January, but there maybe around that
Speaker 2: February March April, we may see the first rate cut.
Speaker 2: If you look at the sheer marker, what they're betting
Speaker 2: on that they're betting that there's a s sixty percent
Speaker 2: chance that will see a rate cut. The first one
Speaker 2: to happen in February, and the sheer market's spending on
Speaker 2: three rate cuts, three zero point two five percent rate
Speaker 2: cuts by December twenty twenty five. So when you look
Speaker 2: at that as the what the experts quote unquote are predicting,
Speaker 2: what should you do with your term deposits? And the
Speaker 2: banks have actuaries, they're pretty smart at calculating what the
Speaker 2: cash rate's going to be into the future. So if
Speaker 2: you look at your turn deposit rate sheet and what
Speaker 2: you have on off of, you'll probably notice that the
Speaker 2: longer you go into the future, the lower the turn
Speaker 2: deposit rate will be because the banks are already figured
Speaker 2: out that, ah, yes, the Reserve Bank is going to
Speaker 2: cut the cash rate. So it doesn't really matter if
Speaker 2: you go for a six month turn deposit or a
Speaker 2: twelve month You can't really beat the cycle because the
Speaker 2: bank is already factored in what's likely to happen with
Speaker 2: the cash rates.
Speaker 1: Yes, except I suppose the further out more likely the
Speaker 1: one party will be wrong.
Speaker 2: That's that's correct. That is true if you're.
Speaker 1: Locking away for three years, if the banks don't know
Speaker 1: what the rates are going to be, they'll be a
Speaker 1: bit better on the or term like we all are.
Speaker 1: I suppose because they're able to read the tea leaves
Speaker 1: over a shorter, shorter space of time. Okay, very useful, folks.
Speaker 1: Will be back in a moment. Hello, Welcome back to
Speaker 1: The Australian's Money Puzzle podcast. James Kirby talking to James
Speaker 1: Girard on our last regular show of the year. I
Speaker 1: wanted to take a look at two other things, James,
Speaker 1: just in terms of review of the year, but also
Speaker 1: the review only on the basis of what it tells
Speaker 1: us about the coming year, or it's what it might
Speaker 1: indicate will come down the line in the coming year.
Speaker 1: We mentioned about super returns and they're looking pretty good.
Speaker 1: We're talking about eleven percent for the average default balanced fund.
Speaker 1: If you have a self managed super fund, I reckon
Speaker 1: you're going to do a lot better than eleven percent,
Speaker 1: especially if your shares are coming in at fourteen fifteen
Speaker 1: maybe in the ASEX and twice that on American markets.
Speaker 1: And if you happen to have and I bet you do,
Speaker 1: happen to have something like Calmbank or even in AB
Speaker 1: then that's going to bounce your portfolio. In fact, it
Speaker 1: was pretty hard to pick a bat. I mean, everyone
Speaker 1: can manage it. Of course, pick one bad stock.
Speaker 2: Every year.
Speaker 1: There's always one, isn't there. My one this year, by
Speaker 1: the way, for everyone, just so you know, is Ramsey Healthcare.
Speaker 1: Good God, that was the wrong call. But the rest,
Speaker 1: and I only have twelve individual stocks. The rest have
Speaker 1: been absolutely delightful, oh so good. And Combank, which I
Speaker 1: have by the way since I think two oh on
Speaker 1: the very first day I started my fund I suppose,
Speaker 1: which was around two oh six. Well, that's just been
Speaker 1: splendid it. The AI stocks have done well, but only
Speaker 1: market average really, so some of my beauties this year
Speaker 1: certainly have been Combank in any by which I did
Speaker 1: not expect them to be. But I'm so glad that
Speaker 1: there and that I held them through that. The point
Speaker 1: I'm leading to is that just that smsfs probably had
Speaker 1: much better probably most smsfs most of the time, but
Speaker 1: I have had much better trans than eleven. Would you
Speaker 1: say over the year, I'd.
Speaker 2: Agree with that. SMSF trustees tend to swing the bat
Speaker 2: a little bit harder and take a little bit more
Speaker 2: risk when it comes to things, but it goes both ways.
Speaker 2: In bad times, they tend to hold cash more and
Speaker 2: they tend to hold it for for longer. But we've
Speaker 2: had a decent period of time of upward markets and
Speaker 2: so i'd agree with you that the super funds, self
Speaker 2: managed super funds would on average have better returns because
Speaker 2: they would be more exposed to these individual stocks which
Speaker 2: have done well. They would have picked a few US
Speaker 2: direct shares in addition to some of the blue chips
Speaker 2: here that have done well.
Speaker 1: Yes, I should have had. I wish i'd had no
Speaker 1: cash at all held over the year, and my SMSF similarly,
Speaker 1: they're not listed. The unlisted assets were okay, they were
Speaker 1: all right, But I think like the shares or the
Speaker 1: shares in the US and share funds in the US
Speaker 1: and specialist share funds the US, which I have been great,
Speaker 1: But that's the advantage of an SMSF, and it's it's
Speaker 1: nimble and you have that tactical advantage. And similarly, you
Speaker 1: must always keep cash. And I'm sure you'd say that
Speaker 1: to all listeners. So even on the best of times,
Speaker 1: you've got to keep that cash because you never know
Speaker 1: what's going to happen. And even in the last few days,
Speaker 1: it's a bit of fear isn't there with the Digico
Speaker 1: floating in the local market, who is supposed to be
Speaker 1: the float of the year has been a flop. That's
Speaker 1: very disappointing because IPOs are a key indication. This was
Speaker 1: the biggest ipo of the year. The US Fed cut
Speaker 1: rates last night. That's all good, but people aren't listening
Speaker 1: to the cut. They're listening to the outlook from j. Powell,
Speaker 1: and the outlook was was pretty pretty hokish. So markets
Speaker 1: can turn on the dial, can't they?
Speaker 2: They can, And in the US Drove Power made an
Speaker 2: interesting observation in terms of he said that they gave
Speaker 2: the indication that they're only going to do two right
Speaker 2: cuts next year, rather than for which the market had expected,
Speaker 2: and so that's why we saw some substantial drop overnight.
Speaker 2: But he made an interesting comment that he said, look,
Speaker 2: what do you want me to do? He goes, this
Speaker 2: future is uncertain. We don't know what twenty twenty five
Speaker 2: is going to look like. We have a new president
Speaker 2: in place, and he use the analogy it's like at
Speaker 2: night time, if you come out of your bedroom and
Speaker 2: you're trying to find your way to the toilet, do
Speaker 2: you run down the hallway in the dark or do
Speaker 2: you sort of like slowly ease your way down the hallway.
Speaker 2: So that's what he's doing metaphorically when it comes to
Speaker 2: the US.
Speaker 1: And labor metaphor, Yeah, very much, the metaphor that a
Speaker 1: man in his late sixties would come up with that
Speaker 1: said sixties. Yes, I see, okay, we'll chake that on
Speaker 1: board from Jpower. Hey, yeah, tell me also running through
Speaker 1: the sort of acid classes, and we are running through
Speaker 1: the folks. But that's the nature of the time of
Speaker 1: the show, the time frame of the show, and what
Speaker 1: I would expect is the concentration span of the average listener.
Speaker 2: Bitcoin.
Speaker 1: Tell me where are you on that?
Speaker 2: Right?
Speaker 1: Most advisors always give the weary answer that, oh, you know,
Speaker 1: if our client since this will get it for them AMP.
Speaker 1: Of all people, AMP have broken the mold by announcing
Speaker 1: that they had put twenty seven million into bitcoin, which
Speaker 1: costs cut lots of headlines, even though, as we all know,
Speaker 1: twenty seven million for a big super is you know
Speaker 1: what they spend on tea bags in the year. But
Speaker 1: nonetheless they did it right. They've put it in a
Speaker 1: leading major opera regulated super fund. So what is your
Speaker 1: view on bitcoin and what do you say again to
Speaker 1: the client who comes in and says, I want bitcoin
Speaker 1: in my super fund, and I'm going to choose the
Speaker 1: super fund that has it, and if I can't find one,
Speaker 1: I'll find a way to do it in an SMSF.
Speaker 2: Yeah, a lot of people have had their head in
Speaker 2: the sand when it comes to cryptocurrency, and when it
Speaker 2: comes to financial advisors. We're very guilty of that because
Speaker 2: a lot do not understand it, They don't like it,
Speaker 2: that don't make money from it, So what's the point
Speaker 2: of recommending it to clients? So they generally don't. I'm
Speaker 2: supportive of it, but it comes down to that risk
Speaker 2: return metrics, and you look at what the potential range
Speaker 2: of returns from say bitcoin can be in a year.
Speaker 2: It could be positive one hundred percent or it could
Speaker 2: go down eighty or ninety percent in a year. So
Speaker 2: do you really want to have more than a few
Speaker 2: percent of your retirement assets exposed to something that has
Speaker 2: such massive swings upwards and downwards. So similar to the
Speaker 2: general view, Yeah, happy for people to have some exposure
Speaker 2: to it, but just don't forget, like what we see
Speaker 2: with sheer markets, that good times don't always carry on
Speaker 2: and particularly with cryptocurrency, where there's very pronounced upward markets,
Speaker 2: but then it falls off a cliff and goes down dramatically,
Speaker 2: And if you look at the chart, you have to go, well,
Speaker 2: we're not down the bottom. We're probably closer to the
Speaker 2: top than we are down the bottom. So be wary
Speaker 2: about putting large chunks of money into cryptocurrency now because
Speaker 2: to a large degree, some of the good return have
Speaker 2: been already made and the late money tends to be
Speaker 2: the sucker money. And as the late investors come in,
Speaker 2: that's when the early investors are cashing out their big profits.
Speaker 1: You don't have any inprinciple objection to people putting money
Speaker 1: into bitcoined or even bitcoin into their super by the
Speaker 1: sounds of it, not.
Speaker 2: In principle, And it really comes down to the masses
Speaker 2: where we're seeing the US Investment Bank start to gain
Speaker 2: exposures to it. We're seeing the amps of the world.
Speaker 2: Commonwealth Bank had a bit of a flurry into setting
Speaker 2: up their own little exchange a few years ago. So
Speaker 2: it seems that's the direction that mainstream finance is moving
Speaker 2: is in terms of accepting cryptocurrency. And I still have
Speaker 2: an issue with it in generally that there's no intrinsic value,
Speaker 2: So unlike the Australian dollar which is backed by the
Speaker 2: Australian government and gold Reserve and those type of things,
Speaker 2: that there's no value in cryptocurrency. It's just something that
Speaker 2: someone's made up and decided I'm going to launch a
Speaker 2: coin and this is the name of it, and then
Speaker 2: other people like it and they buy it and that
Speaker 2: pushes up the price. There's no real use, there's no
Speaker 2: tangible asset there. So although it has these fundamental flaws,
Speaker 2: on the other hand, if you look at it pragmatically,
Speaker 2: it's not going away, and you just need to accept
Speaker 2: that if you invest into it, you may be one
Speaker 2: hundred percent richer or you may be ninety percent poorer
Speaker 2: in twelve months time.
Speaker 1: It's worth as much as people will pay for. Roger
Speaker 1: Montgomery did an entertaining sidebar in his piece which is
Speaker 1: his last for the year, which we'll run at the weekend,
Speaker 1: where he mentioned this Italian artist who got a write
Speaker 1: banana from the supermarket and then he put tape doctor
Speaker 1: across it and put it on the wall of a
Speaker 1: gallery and it sold for six million, which is kind
Speaker 1: of very close in some ways to some aspects of bitcoin.
Speaker 1: It's worth whatever. How much is the banana with the
Speaker 1: tape doctor, what's the intrinsic value? Thetrinsic value is probably
Speaker 1: about what ten cents and it's worth six million, So
Speaker 1: don't go try to assess its value with an intrinsic
Speaker 1: value traditional value investing estimate, because you're wasting your time.
Speaker 1: And I imagine bitcoin is very similar. But maybe as
Speaker 1: us pass people are accepting that. And there's an element
Speaker 1: of that in gold as well, isn't the gems? I mean,
Speaker 1: there's an element of that in the price of gold.
Speaker 1: Is not the accumulation of how much all the jewelry
Speaker 1: and drill bits in the world are worth. It's a
Speaker 1: different thing.
Speaker 2: That's correct. You're right, there's an element of the same
Speaker 2: type of it's worth what people are prepared to pay
Speaker 2: for it with gold as well, because what has changed
Speaker 2: with the global gold supply for it to have gone
Speaker 2: up thirty percent? Say, you know, in recent times there
Speaker 2: hasn't been thirty percent less discovery of gold or supply
Speaker 2: of gold. It comes down to people and what they're
Speaker 2: demanding and what they're wanting to sell. And at the
Speaker 2: moment people are like in cryptocurrency, and they're continuing to
Speaker 2: buy into it. So it's just a matter of question
Speaker 2: of is this time different or are we going to
Speaker 2: see what happened last couple of cycles, where invariably we
Speaker 2: get to this peak of the cycle and then we
Speaker 2: see a very sharp and dramatic fall in the value
Speaker 2: of bitcoin and other coins.
Speaker 1: Yeah, and I can hear a whole cohort of our
Speaker 1: listeners saying, you guys have forgotten one big thing, which
Speaker 1: is of course Trump. And Trump was re elected on
Speaker 1: a variety of notions, of one of them being that
Speaker 1: he would he would install crypto deep into the US system.
Speaker 1: And so he replaced the former SEC commissioner who was
Speaker 1: literally anti crypto with an SEC commissioner who's pro crypto,
Speaker 1: and they're actually talking about not just institutionalizing crypto, but
Speaker 1: you know, putting it into US strategic reserves, et cetera.
Speaker 1: So no wonder it's had to run, No wonder. But
Speaker 1: the points I think listeners that James makes that it
Speaker 1: has no intrinsic value, et cetera, and that it is
Speaker 1: highly volatile and can be rigged I think to a
Speaker 1: degree by the whales much more than other assets and
Speaker 1: that would include gold is something that you got to
Speaker 1: keep in mind, folks. We want to have some questions.
Speaker 1: I've tried to get through all your questions this year.
Speaker 1: I didn't but I came pretty close. And I have
Speaker 1: a handful of absolute beauties that I have kept. So
Speaker 1: we'll be back to those in one moment. Hello, Welcome
Speaker 1: back to The Australian's Money Puzzle podcast. James Kirby, Well,
Speaker 1: editor at The Australian, talking to James Gerard of Financial
Speaker 1: Advisor dot com dot au. Okay, would you like to
Speaker 1: read the first one from Andrew?
Speaker 2: I can? It would be great to discuss the impact
Speaker 2: of AMP recently purchasing twenty seven million dollars in bitcoin.
Speaker 2: This would be a game ranger for the Australian superannuation sector.
Speaker 1: Yes, we jumped to go on, Andrew, we did just
Speaker 1: talk about. I meant to say as part of that
Speaker 1: is that the RBA no let yes, the ultimate really
Speaker 1: power in our financial system, has said there's no place
Speaker 1: in the economy for crypto an AMP, once the greatest
Speaker 1: fund manager in Australia, is certainly the most storied, one
Speaker 1: of the oldest, somewhat battered and shrunken, but nonetheless still
Speaker 1: powerful and possibly turning the corner as an operation just
Speaker 1: put retire money into it twenty seven millions. So I
Speaker 1: think that it is a game changer, Andrew, and I
Speaker 1: think you're on the money there. And I think we'll
Speaker 1: see more of it over time, and it will become
Speaker 1: an asset class and it's no more it's no more
Speaker 1: unreliable than some of the more exotic products that we
Speaker 1: see in the market that retirement funds are also in.
Speaker 1: And I would say one other thing about the whole
Speaker 1: thing in relation to bitcoin is that it can remain
Speaker 1: an asset class, but it will always just be on
Speaker 1: the speculative side. I think maybe the changes in behind them,
Speaker 1: blockchain and everything else will be relevant. But also, James,
Speaker 1: it's correlated. Now it's just another ascid class and it's correlated. Right,
Speaker 1: So strong markets means strong bitcoin. Week markets mean weak bitcoin.
Speaker 1: I mean it's not half as interesting from an investor
Speaker 1: point of view as it might have been if it
Speaker 1: was non correlated. I think, what do you think you know.
Speaker 2: That that's true. It's like a magnified exposure or a
Speaker 2: geed exposure to shared markets by buying cryptocurrency's. The only
Speaker 2: other thing I'd say is that it's still a little
Speaker 2: bit of the wild West. We don't have full regulations
Speaker 2: in place. So for example, in the US, there's this
Speaker 2: influencer who is Lady became really famous by in this
Speaker 2: viral ten second clip, and so she started her own podcast.
Speaker 2: She's doing all this advertising, making money through products and
Speaker 2: things like that, and she started her own meme coin recently.
Speaker 2: And this is very similar to the share market. How
Speaker 2: back in the nineties, there were a few people who
Speaker 2: had investment newsletters and they'd build this big database of
Speaker 2: people that would listen to their newsletter that would come out,
Speaker 2: but the a person writing the newsletter would buy the
Speaker 2: stock before he wrote the newsletter, so it being these
Speaker 2: microcap stocks. He's very similar where somebody will come out
Speaker 2: with their own coin, but they'll hold like ninety percent
Speaker 2: of the supply of the coin, and when it comes
Speaker 2: out to the public, the public buys it, but then
Speaker 2: the person who's started the coin, they just pull their
Speaker 2: eighty percent out and the price of the coin goes
Speaker 2: through the floor. So this coin went down like ninety
Speaker 2: percent in space for a few hours. His influencer made
Speaker 2: tens of millions of dollars, but upset a lot of
Speaker 2: people along the way. But the thing is it's legal
Speaker 2: to do because there's no regulations around it at the moment.
Speaker 1: Yeah, yeah, buyer beware. Okay, buyer beware. You've heard. Can
Speaker 1: we say it more clearly?
Speaker 2: All right?
Speaker 1: Stewart Stuort. In relation to Macpherson's, this is an interesting question,
Speaker 1: not so much about macperson's, but what happened to Stuart
Speaker 1: in his Macpherson's investments. That's the share of Macpherson's and folks,
Speaker 1: this is never advice. It's on the information. He cites
Speaker 1: a letter that he's sent into a correspondence that he's
Speaker 1: sent in. You're on marketable parcels share facility announced to
Speaker 1: the ESX earlier in December is disgraceful. It makes my
Speaker 1: blood boil. It's one thing to offer the facility and
Speaker 1: an entirely another thing to compulsively acquire your investors' shares
Speaker 1: without their explicit consent. Furthermore, the reason many people have
Speaker 1: unmarketable parcels of shares is because of the appalling performance
Speaker 1: of the company.
Speaker 2: I get it stured.
Speaker 1: It's bloody awful to get caught in that situation, So
Speaker 1: you buy shares in the company, the company is so
Speaker 1: bad that it shrinks and shrinks to the point that
Speaker 1: you can't even sell the shares anymore, and you're left
Speaker 1: with an unmarketable parcel. And then guess what they do
Speaker 1: some sort of special arrangement where they share sale facility.
Speaker 1: Thank you very much, you'd say, this is not so
Speaker 1: much about McPherson's it's about that process. We don't hear
Speaker 1: much about that process right now because these are good times,
Speaker 1: this share market that's going up in double digits. We've
Speaker 1: had three years of good times, folks. When you have
Speaker 1: bive times, this sort of stuff goes on all the time.
Speaker 1: People are forever complaining about being caught in in nonmarketable facilities,
Speaker 1: or share reconstructions and share consolidations. These are all the
Speaker 1: damn all of the things you get downtime in markets.
Speaker 1: And I think it's very interesting, isn't it, Jage just
Speaker 1: to remind people that what is now a rarity where
Speaker 1: the share market goes against you and where there is
Speaker 1: distinct advantages of being an institution over a retail investor.
Speaker 1: They come into play when things go down and we
Speaker 1: don't see much of it right now.
Speaker 2: That's right now. I agree with that. And we were
Speaker 2: mentioned talking about this the other day. Remember that guy
Speaker 2: who used to send letters out used to get the
Speaker 2: share registers a certain companies, and he sort of acted
Speaker 2: very official and it seemed like that he was the
Speaker 2: shared register or the company. But it's actually just this
Speaker 2: guy in his living room sending off letters to people
Speaker 2: offering them to buy their unmarketable parcels of shares, but
Speaker 2: I'm not sure exactly the details, but offering them a
Speaker 2: lot less than what the actual value was. So he
Speaker 2: must be on a holiday at the moment because times
Speaker 2: are pretty good, as you just saying, has not a
Speaker 2: lot of opportunities.
Speaker 1: McPherson is perhaps, yes, that process where it exploited. Often
Speaker 1: people would be so happy to get an offer of
Speaker 1: any description. And this is the thing you must watch, folks,
Speaker 1: on all marketable securities and listed securities. Just keep in
Speaker 1: mind that the market can, as we said earlier in
Speaker 1: the show, can turn on the dial, and issues which
Speaker 1: we rarely hear about, like share reconstructions, consolidation of capital,
Speaker 1: et cetera, compulstory, acquisition facilities. These are all the downside
Speaker 1: and the challenge you will have as a share investor,
Speaker 1: and they will return. I hope they don't return in
Speaker 1: twenty twenty five, but who says that they won't. All right,
Speaker 1: what's the question from Lisa there, if you'd like to
Speaker 1: read it.
Speaker 2: Lisa writes, thank you for airing my recent question on
Speaker 2: this week's show regarding how to invest outside my super account.
Speaker 2: Until twenty twenty seven with Tim McKay, you had said
Speaker 2: that you would like to know where you can get
Speaker 2: the four point eighty five percent on savings with no
Speaker 2: terms and no conditions, which I, as in Lisa, had mentioned.
Speaker 2: So the right is available through Bank of Queensland my
Speaker 2: BOQ Simple Savor account, which is only available through their
Speaker 2: app online.
Speaker 1: Okay, all right, well, thank you very much, Lisa focus.
Speaker 1: This is not an advert or indeed a promotion of that.
Speaker 1: I haven't looked at it. I find it still amazing, Lisa,
Speaker 1: that there are no terms and conditions on it, but
Speaker 1: if you say so, we will take that on notice.
Speaker 1: And just good to note that there are offerings out
Speaker 1: there that give a deposit rate without all the strings attached,
Speaker 1: which have become so notorious. It's one of the bug
Speaker 1: bears for me at least in the market. So thank
Speaker 1: you Lisa for the correspondent. All right, the final question
Speaker 1: is from Andrew and it's called It's about black swans,
Speaker 1: which shall love this question. What is the origin of
Speaker 1: the term black swan event? I always assumed it meant
Speaker 1: an event which was extremely rare, being in Australia. The
Speaker 1: only color of swans I see are black. It's even
Speaker 1: on the flag for Western Australia. Well, thank you, I
Speaker 1: didn't know that. Two things here. Historically black swans, all right,
Speaker 1: The term came from historically, way way back seventeenth century.
Speaker 1: Everyone in Europe was of the opinion that swans were white,
Speaker 1: and when some European voyagers I think they were Dutch
Speaker 1: Camp two the Australian region, they saw black swans and
Speaker 1: so this was seen as an unexpected event. Now in
Speaker 1: economics and in finance more recently, it became popularized Nicholas
Speaker 1: nas Seem Teleb with his book which very usefully came
Speaker 1: out during and after during the GFC, whereverybody was wondering
Speaker 1: what on earth happened, And his book was perfectly timed
Speaker 1: because it was all about the black swan events. In finance,
Speaker 1: it's the thing you don't see coming, and that is
Speaker 1: what gets all investors, no matter how highly trained or
Speaker 1: highly paid they are. The origin of the black swan event,
Speaker 1: as I say, historically, is actually about swans, and your
Speaker 1: black swans in West Australia are pretty special and wonderful,
Speaker 1: but that's the historical sort of surprise aspect of them
Speaker 1: that they existed and they were black. More pointedly, it's
Speaker 1: about the unexpected in financial markets. So James and I,
Speaker 1: like many others around the world at every level, would say, oh,
Speaker 1: what's going to happen next year? This is going to happen,
Speaker 1: That's going to happen. But the thing that's going to
Speaker 1: rock markets is the thing Unfortunately we can't tell you
Speaker 1: because it is a black swan. Any black Swan suggestions.
Speaker 2: James, No, nothing comes to mind.
Speaker 1: Because cleverly dodged there. Why would you walk into that.
Speaker 1: I don't blame you, Yes, and I have no black
Speaker 1: swan suggestions because by nature, Andrew, we don't know what
Speaker 1: they are. And I think that just be the perfect
Speaker 1: way to leave us and leave the show for the year. Folks,
Speaker 1: we don't know what's ahead. We've given you every chance
Speaker 1: to understand the context of what's ahead and how to
Speaker 1: deal with what's ahead, regardless of what it is, and
Speaker 1: let the black Swan come.
Speaker 2: We'll be ready.
Speaker 1: We'll be ready, and we'll be able for it, and
Speaker 1: this show will guide you through. Hey, thank you very
Speaker 1: much James for all your help this year and particularly
Speaker 1: obviously on today's show. Really good to have you on
Speaker 1: as always.
Speaker 2: That's my pleasure. And I leave our listeners. If you
Speaker 2: need to wake up in the middle of the night
Speaker 2: and go to the toilet, according to Jerome Powell, walk
Speaker 2: down the hallway, do not run because you may hit
Speaker 2: your head on a wall. Right.
Speaker 1: Oh well, thank you, Thank you very much mister Powell
Speaker 1: for that very sensible piece of advice. I wanted to
Speaker 1: do one or two other things. Thank you very much,
Speaker 1: say one or two other things. Thank you very much
Speaker 1: for listening to in the year. I really have been
Speaker 1: delighted with everything, Delighted with the lifting audience that we
Speaker 1: got of course through the year, and particularly the response
Speaker 1: to the second weekly show that was really good. If
Speaker 1: you want to give us a Christmas present, mentioned that
Speaker 1: you'd like to show to one other person over the
Speaker 1: Christmas break. I keep the emails coming we'd have to
Speaker 1: collect them for the new Year. The Money Puzzle at
Speaker 1: the Australian dot Com dot U. Thanks James, thanks everybody.
Speaker 1: Talk to you soon.