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Speaker 1: Hello and welcome to the Australians Money Puzzle Podcast. I'm

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Speaker 1: James Kirby. Welcome aboard everybody. This is the last regular

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Speaker 1: show for the year and just a little teaser about

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Speaker 1: what's coming up over the holiday season. I do have

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Speaker 1: some things lined up for you next Christmas Week. Our

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Speaker 1: special holiday edition is wait for this because it's quite different.

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Speaker 1: It's about money and movies. Okay, it's the best money movies.

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Speaker 1: And I'm sure you all of movies, and I'm sure

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Speaker 1: you all of money movies. I sure do. And I

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Speaker 1: got the Australians film critic Steven Roma to come and

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Speaker 1: do a show about the best money movies. I think

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Speaker 1: you love it. That's Christmas Week. I'm also having some

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Speaker 1: replays of our most popular shows from the year and

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Speaker 1: you'll hear them come out over the middle of the

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Speaker 1: holiday season. We're back with you then in early January,

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Speaker 1: where I imagine you will all be back like me,

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Speaker 1: ready ready to return to making successful investments now before

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Speaker 1: it's too late and I forget. I want to thank

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Speaker 1: in particular my producer Leah Samuelu, who does a great

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Speaker 1: job every week behind the scenes producing the show that

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Speaker 1: you get to here and let me tell you, folks,

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Speaker 1: you don't know about this, but things go wrong on

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Speaker 1: this show just about every week and she fixes them.

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Speaker 1: We have so many issues, as you can imagine, because

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Speaker 1: we are talking to guests from all over Australia and

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Speaker 1: they're often in different places at different times, which is

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Speaker 1: marvelous that we can do it, but it is actually

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Speaker 1: quite a chance. So thank you, Leah, and thanks also

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Speaker 1: to our guests through the year, and of course, most

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Speaker 1: importantly thanks to you listeners. I'm delighted to say that

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Speaker 1: the audience for the show has grown again this year.

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Speaker 1: And most of all, what I like about that growth

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Speaker 1: in the audience I'm getting we are getting on the

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Speaker 1: show is that it's not volatile. It's like the best investment.

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Speaker 1: It just grows reliably as we keep building out our following.

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Speaker 1: So thank you all folks very much. Indeed, okay, now

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Speaker 1: you ask what on earth is he going to do

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Speaker 1: on the show this week? We are going to look

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Speaker 1: at how you did this year, what happened this year,

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Speaker 1: and what on earth is happening just now as we

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Speaker 1: enter the final stretch where unfortunately some of the numbers

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Speaker 1: are going the wrong way to join me, is our

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Speaker 1: most regular guest I think on the show, James Girard,

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Speaker 1: How are you, James?

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Speaker 2: I'm doing great. Thanks for having me on, James and

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Speaker 2: listening to a little preamble. Next week, I hope you

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Speaker 2: cover a boiler Room, which is a classic two thousand

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Speaker 2: movie about this company that shills Penny Stocks has got

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Speaker 2: Vin Diesel and ben Ethlete.

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Speaker 3: That's one of my favorites.

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Speaker 1: Oh really, what as you like?

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Speaker 3: Oh? What was it one with Jordan Beillfort. Yeah, the

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Speaker 3: Wolf of Wall Street. Wolf of Wall Street. How you

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Speaker 3: can't go past that?

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Speaker 1: That is fabulous, isn't it? Well, folks, that's yes, Wolf

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Speaker 1: of Wall Street, boiler Room. You know what else do

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Speaker 1: we have? Well, we don't just restrict ourselves to the

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Speaker 1: narrow gen that might be the business movie. We look

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Speaker 1: at The Social Network, for instance, which is a terrific

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Speaker 1: movie about Facebook. There will be blood. We go all

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Speaker 1: the way back to the nineteen fifties with the Treasure

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Speaker 1: of Sierra Madra, directed by John Houston, which is about gold,

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Speaker 1: which happens to be their very best investment this year.

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Speaker 1: You see, so you can see how it all links. Actually, James,

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Speaker 1: let's just have a look. First of all, I think

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Speaker 1: it's interesting, and I can remember years where this happened.

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Speaker 1: If we had done this show even a month ago,

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Speaker 1: I think things would be looking a lot better than

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Speaker 1: they are. That's not to say things are looking bad,

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Speaker 1: but folks, as we wrap out the year, I think

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Speaker 1: there's a clear sign that the markets, the investment markets

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Speaker 1: are foltering in this last lap. So, just to bring

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Speaker 1: you up to date our ASX, which I suppose is

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Speaker 1: still so important to everybody, the AX two hundred is

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Speaker 1: barely straggling along at eight percent really for the year,

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Speaker 1: maybe four and a half for something on price appreciation,

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Speaker 1: in three and a half on dividends a little bit more,

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Speaker 1: but you know, eight which is actually not quite the

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Speaker 1: average that you would expect historically. So not wonderful really.

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Speaker 1: But of course the US has been a terrific operator

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Speaker 1: as a market through the year, and then the other things,

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Speaker 1: I think, the things gems that really pulled it up

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Speaker 1: are surprises. Tell us first of all, tell us your

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Speaker 1: impressions about that. What does it look like? Do you

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Speaker 1: think we're going to end up with a pretty average

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Speaker 1: year for the market.

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Speaker 3: Here looks that way. Yeah.

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Speaker 2: So while the US has gone up a lot, double

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Speaker 2: digits like mid teens. The Australian market has sort of

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Speaker 2: fizzled out. It's gone down five percent over the past month,

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Speaker 2: and so as you say, it looks like we'll get

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Speaker 2: a return of four ish percent on price appreciation, and

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Speaker 2: then we do get good dividends, which is fortunate, so

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Speaker 2: that does help bring the total return up. But the

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Speaker 2: issue for our market is it's really concentrated across banking

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Speaker 2: stocks in the resource sector, and the resource sector has

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Speaker 2: been mixed. You know, some companies have gone up ten

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Speaker 2: or twenty percent, but then others have come down the

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Speaker 2: same amount, and the banking sector overall has only gone

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Speaker 2: up four five percent. Having gone up quite lofty prices,

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Speaker 2: investors are realizing that, all right, well, there's mean reversion

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Speaker 2: around that price to earnings ratio thing. So as companies

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Speaker 2: get more expensive, they're eventually going to hit a point

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Speaker 2: where the future earnings don't support the current prices. And

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Speaker 2: as we're saying, the prices come back down again, and

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Speaker 2: so given the weighting of the financial stocks on the ASX,

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Speaker 2: that's led to where we are now. We're only barely

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Speaker 2: keeping up with inflation. With the gains on the share

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Speaker 2: market for this calendar year.

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Speaker 1: It's yeah, it's I think maybe, I imagine many of

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Speaker 1: our listeners. The way to look at it really perhaps

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Speaker 1: is with ETFs, because ets is very handy to use

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Speaker 1: as a big picture instruments. So if you have an ETF,

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Speaker 1: for instance, on the ASX two hundred, well that's what

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Speaker 1: you're going to get, folks. Eight percent, as we call

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Speaker 1: it today. We're to close off the markets today, which

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Speaker 1: is kind of just a little below average. It's not great.

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Speaker 1: You're depending on the dividends. Again, if you had a

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Speaker 1: US ETF an S and P FI five hundred, ETF

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Speaker 1: making seventeen per well, that market made seventeen percent, and

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Speaker 1: to get that, of course you need to have a

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Speaker 1: hedged one, wouldn't you, James. That's the thing that the

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Speaker 1: that it's one of those years where the currency did

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Speaker 1: hit us. But the point I spoose is that those

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Speaker 1: US markets, you know, seventeen percent on DAK, fifteen percent

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Speaker 1: on S and P five hundred, twice as good as

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Speaker 1: our market yet again yet another year. Should we accept

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Speaker 1: that is how it goes?

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Speaker 2: I think we have to, and I guess you have

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Speaker 2: to think about why why did our market only go

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Speaker 2: up a few percent, and why did the US markets

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Speaker 2: go up so much? And all I can put it

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Speaker 2: down to is the simplistic argument around AI and technology stocks.

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Speaker 2: The US has the biggest technology companies in the world,

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Speaker 2: and video Apple, Microsoft, Amazon, Meta, Tesla. You keep going

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Speaker 2: on from there and or they've all done pretty well

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Speaker 2: with it this year, and as this whole AI boom

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Speaker 2: is taken off, that's lead for the US markets to

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Speaker 2: just keep pushing ahead, whereas we don't have that same

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Speaker 2: AI focus on our markets. Where a mining share market,

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Speaker 2: where a banking share market. So we haven't had those

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Speaker 2: AI tel wins like overseas markets have.

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Speaker 1: No, we haven't, but then we haven't had the scares either.

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Speaker 1: So you can see that they're starting like that fifteen

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Speaker 1: percent was better a few days ago, folks, even a

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Speaker 1: week or two ago. That overall return from the US

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Speaker 1: market is falling in this last few days, and there

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Speaker 1: are some serious sell offs going on. Oracle, for instance,

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Speaker 1: Big US. Everyone knows Oracle that is seriously down because

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Speaker 1: they took a big AI bet and that is seen

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Speaker 1: to be too risky and has not convinced the market

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Speaker 1: and our own AI sector. Next TC for instance, you

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Speaker 1: know it was actually gone nowhere this year where you

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Speaker 1: would have thought it would have shot out the lights,

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Speaker 1: but it didn't. So there is that there is there

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Speaker 1: is a softness. Maybe it's just a pocket and air pocket,

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Speaker 1: or maybe it's the beginning of a rolloff. We just

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Speaker 1: don't know. We can only tell you what's happening so far.

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Speaker 1: But just sticking to that notion of having ETFs, well,

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Speaker 1: I mean, the great thing is that you can go

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Speaker 1: and buy things. So you could buy NASDAK, or you

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Speaker 1: can buy s and P five hundred, you can buy

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Speaker 1: emerging markets. If you had an emerging markets ETF, you'd

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Speaker 1: be up about twenty percent. So that's an excellent I

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Speaker 1: suppose the example, isn't it of diversification, which is this

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Speaker 1: thing we say on the show you need all the time,

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Speaker 1: don't you. You need to have that across and this

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Speaker 1: is a time for example it pays off. The other

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Speaker 1: one was gold Lacrosse James sixty twelve months.

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Speaker 2: WHOA, yes, do you have the equivalent in Melbourne? In

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Speaker 2: Sydney we've got Martin Place and there's one of the

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Speaker 2: larger gold companies in Martinplace, prime position, and at the

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Speaker 2: peak of the gold fever, there was lines out the

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Speaker 2: door every day, which just reinforced this fear of missing

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Speaker 2: out mentality around getting gold.

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Speaker 3: Did something similar happen in Melbourne?

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Speaker 1: I don't think there's a highly visible gold shop like that,

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Speaker 1: actually so so. But hey, we saw the stills on TV,

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Speaker 1: we saw the cues outside Martin Place, and as you say,

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Speaker 1: it paid off, didn't it. I mean, gold really paid

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Speaker 1: off this year fifty six percent. So there was a

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Speaker 1: fear of missing out on that occasion. It was actually

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Speaker 1: accurately placed because it was the trade to be in

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Speaker 1: this year. And bitcoin then, on the other hand again

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Speaker 1: and another way people will listen to the show might

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Speaker 1: get into an area would be to get it. Just

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Speaker 1: get a bitcoin ETF to sort of play in that space,

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Speaker 1: and that's been flat. So I think at least that

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Speaker 1: this year puts the debate over gold and bitcoin to rest.

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Speaker 1: That the idea that bitcoin is some sort of digital gold,

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Speaker 1: I think, personally forget it. This year shows that I

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Speaker 1: think fifty six percent today on gold minus seven percent

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Speaker 1: on bitcoin. What does that tell us, James, I think.

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Speaker 2: That tells you that investors are looking for the next

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Speaker 2: shiny thing, and for the past couple of years, it's

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Speaker 2: been bitcoin, but you look at the past month and

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Speaker 2: a bit, it's fallen by thirty percent in value, and

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Speaker 2: it's over the twelve month calendar year it's down twenty

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Speaker 2: percent or a bit over twenty percent. And why because

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Speaker 2: it's not shiny anymore. AIS come along and that's where

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Speaker 2: people are placing their bets. I can't tell the amount

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Speaker 2: of people that I speak to who have said I've

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Speaker 2: put money into Nvidia. And actually I have one client

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Speaker 2: who where transitioning his portfolio that he manages over to me,

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Speaker 2: and I'm looking at what he purchased, and he bought

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Speaker 2: two thousand dollars worth of Nvidia, which is now where.

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Speaker 3: Fifty six thousand dollars.

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Speaker 2: So yeah, people have made a decent amount of money

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Speaker 2: to chasing this new shiny ball of AI. So yeah,

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Speaker 2: I think that's why people have sold bitcoin, is to

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Speaker 2: sell bitcoin, which was previously the in a vogue thing

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Speaker 2: and move over to AI stocks.

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Speaker 1: So for the conservative investor, I mean, you're not supposed

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Speaker 1: to do this. You're not supposed to chase the new

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Speaker 1: shiny thing. You're supposed to take a diversified, steady, reliable

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Speaker 1: approach and build where steadily that is the best way

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Speaker 1: to do it. We know that, we have a million

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Speaker 1: surveys to prove that. How does it investor with that

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Speaker 1: frame of mind approach this market, which is volatile. Doesn't

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Speaker 1: really quite capture it, but it's the best word for it.

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Speaker 1: In other words, it's an unpredictable market. We talked about

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Speaker 1: the ASX two hundred been disappointing. Small caps on the

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Speaker 1: ASX are up eighteen percent, and small caps is an

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Speaker 1: area where people can lose money quite easily. But this

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Speaker 1: year has been very good. Similarly in the US, yes,

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Speaker 1: they've had a marvelous run, but it's volatile. So for instance,

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Speaker 1: and as we moved to Christmas, there's really signs of

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Speaker 1: that market folding. And you mentioned Telsla. I mean a

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Speaker 1: lot of Tesla is about what time you went in.

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Speaker 1: I mean, it's had great periods, it's had dreadful periods.

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Speaker 1: I mean you could have just got it completely wrong

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Speaker 1: on timing it. You've taught right to time you're buying

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Speaker 1: and selling in Tesla. So how does the average every

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Speaker 1: day investor approach this market?

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Speaker 2: So I'd say that firstly, it's never been a better

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Speaker 2: time to be an investor because you have so many

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Speaker 2: ETFs available to your disposal to build such a great portfolio.

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Speaker 2: Go back five six years ago. You can build a

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Speaker 2: basic portfolio with ETFs. But now if you want Korean

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Speaker 2: share market exposure, if you want lithium only companies, there's

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Speaker 2: so many little narrow avenues that you can buy segments

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Speaker 2: via ets it's fantastic. So coming back to well, how

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Speaker 2: do you deal with all this constant change. The way

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Speaker 2: that I think about it is that you have a

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Speaker 2: large part of your portfolio where you have long term

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Speaker 2: discipline to it. So you're buying low cost ETFs that

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Speaker 2: have exposure to the ASX two hundred, the s and

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Speaker 2: P five hundred. So they're the cornerstone, the building blocks

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Speaker 2: because you know that on average you're going to get

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Speaker 2: close to ten percent return if you just hold this

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Speaker 2: thing and ride out.

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Speaker 3: The cycles ups and downs.

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Speaker 2: But then you have a part of your portfolio where

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Speaker 2: you go, I'm happy to rotate and I'm happy to

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Speaker 2: chase themes. So that's what we call it the tactical

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Speaker 2: part of the portfolio, and that's where we're chasing the

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Speaker 2: shiny ball for you know, maybe it might allocate five

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Speaker 2: percent of the portfolio for shiny ball chasing, so it

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Speaker 2: might have gone from bigcoined over to AI and then

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Speaker 2: you may decide to overweight certain themes as well. So

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Speaker 2: you set a percentage of a portfolio to say that

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Speaker 2: this is not the core. I'm happy to move this

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Speaker 2: around it and chase the theme to try and outperform

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Speaker 2: what my base call long term portfolio is going to achieve.

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Speaker 1: That's really interesting. Just tell us a little bit more

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Speaker 1: about that and why you think that that notion of

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Speaker 1: that it's the best time to be an investor, because

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Speaker 1: obviously the point you're making is you have access to

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Speaker 1: everything where once upon a time you didn't. Where once

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Speaker 1: upon a time you would hear about spectacular companies in

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Speaker 1: Europe or the US or Japan, and you just couldn't

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Speaker 1: get them. It was extraordinarily difficult. Now you can just

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Speaker 1: say I want to put ten grand into Japan and

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Speaker 1: you can literally just buy an idio of Japan. Is

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Speaker 1: that what you're driving out.

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Speaker 2: Absolutely, there's more access, there's more number of investments, the

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Speaker 2: administrations a lot less as well. So go back twenty

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Speaker 2: years ago, when I was a junior, I was filling

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Speaker 2: out paper application forms for managed funds.

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Speaker 3: You don't need to do that anymore.

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Speaker 2: If you want to manage fun, you go buy it

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Speaker 2: on the share market, or you can set up at

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Speaker 2: a very low cost what we call platform to access

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Speaker 2: thousands of different managed funds. So yeah, it's really easy

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Speaker 2: for someone to be an investor. But I guess that's

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Speaker 2: a double edged sword as well, because it's easy to

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Speaker 2: get set up and invest, but then it's easy to

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Speaker 2: not have discipline and just chuck everything at AI, or

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Speaker 2: chuck everything at technology in Australia, or pick some little

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Speaker 2: narrow niche of investment that could go very wrong. But

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Speaker 2: also the other thing which I'd noticed, that there's so

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Speaker 2: much information out there. Like twenty years ago, there wasn't

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Speaker 2: the money puzzle podcasts around, so people had to go

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Speaker 2: to a professional advisors to go get advice, whereas today

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Speaker 2: they can listen to fantastic publications like this and learn

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Speaker 2: and educate themselves. So education plus access is there. That's

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Speaker 2: why it's a great time to be an investor.

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Speaker 1: I like that, and I think it's substantially true. You know.

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Speaker 1: I think of when I would talk to people previously,

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Speaker 1: fifteen years ago, something about markets, the people who knew

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Speaker 1: about them, or they didn't basically, and it was, you know,

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Speaker 1: it was a very significant sort of journey to really

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Speaker 1: get in and understand it all. But I've talking to

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Speaker 1: a guy actually last night at our Christmas party, young guy,

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Speaker 1: and he that's exactly what he was doing. He was

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Speaker 1: playing the market. He was he didn't know everything he

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Speaker 1: needed to know about markets, but he knew the fundamentals

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Speaker 1: and it was through ETFs, which was which is a

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Speaker 1: very interesting way to play it, certainly to have it

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Speaker 1: as your core and as you say, you can move

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Speaker 1: out from the sides. I suppose the issue is that

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Speaker 1: the ETF will will really only do moderately well or

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Speaker 1: moderately badly. So if we have a bad year, you will,

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Speaker 1: you will, it will be reflected in your ETAF for

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Speaker 1: a good year similarly. But the thing is, I suppose

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Speaker 1: you're missing when a stock comes right, it comes so right,

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Speaker 1: and this is so good when you have like anyone,

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Speaker 1: even the CBA might have rolled down a bit this year,

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Speaker 1: but anyone who has CBA for a long time will

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Speaker 1: tell you that is a stock at it at.

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Speaker 3: Its most, at its best.

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Speaker 1: It's so splendid because you get this capital growth, you

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Speaker 1: get strong dividends and they do bttfs out the door.

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Speaker 1: Let's have a break and come back and talk about

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Speaker 1: shares this year and what happened and what we need

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Speaker 1: to know. Hello, Welcome back to the Australians Money Puzzle podcast.

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Speaker 1: James Kirby here with James gerard Offinancial Advisor dot com

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Speaker 1: dot au. Okay, James, Now we did talk about sort

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Speaker 1: of the big picture of the market and what's happened

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Speaker 1: and concealed. I think behind those sort of bland numbers

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Speaker 1: of maybe an eight percent for total return on the

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Speaker 1: ASX two hundred and maybe sixteen percent with their one

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Speaker 1: point three percent dividend on Wall Street, the S and

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Speaker 1: P five hundred, there is quite extraordinary divergence inside the

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Speaker 1: share market throughout the year. In our own market, I

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Speaker 1: suppose the big theme of the year, James, has been

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Speaker 1: the banks really rolled off, didn't they Combank, Macquarie Bank.

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Speaker 1: I think there was If they had held up, we

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Speaker 1: would have had one hell of a year, but they

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Speaker 1: were sought off through the year. And you said at

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Speaker 1: the start of the show, this is a local market

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Speaker 1: which is heavily based on banks, financials and miners. Why

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Speaker 1: do you think those big bank stocks were sought off

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Speaker 1: in the second half of the year.

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Speaker 3: I think there's been a lot of optimism.

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Speaker 2: We had a bit of a hiccup in share markets

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Speaker 2: around that March April period when Trump came out with

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Speaker 2: the trade tariffs, and that caused markets to drop, But

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Speaker 2: beyond that, people have been looking forward saying that we're

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Speaker 2: in a growth market. They're happy with company evaluations. They've

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Speaker 2: been buying into these growth companies, and that's meant that

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Speaker 2: the value stocks, the blue chips, which the financial sector,

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Speaker 2: the banking sector is part of, they have become out

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Speaker 2: of favor with investors as investors have chased these more

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Speaker 2: sexy technology in AI based stocks. And so we see

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Speaker 2: this with our data. So we run multiple portfolios. We

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Speaker 2: run a growth portfolio and we run a value portfolio,

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Speaker 2: and the growth portfolio has far outpaced the growth of

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Speaker 2: the value portfolio. But that said, I think that we

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Speaker 2: could be in for a bit of a change next

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Speaker 2: year because if these big companies, mainly in America, the

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Speaker 2: technology companies, don't hit their earnings forecasts very quickly, we're

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Speaker 2: going to see a big drops in those markets. That said,

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Speaker 2: you look at some of the big banks, JP Morgan,

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Speaker 2: Goldman Sachs. They're both saying that they think the S

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Speaker 2: and P five hundred is going to be ten percent

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Speaker 2: higher by end of calendar year twenty twenty six.

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Speaker 1: Yes, yes, well we have to take that seriously. We

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Speaker 1: also have to know the history that they say that

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Speaker 1: most years, because nobody knows, folks. I'd love to tell

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Speaker 1: you that we know, but we don't, and not do JP,

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Speaker 1: Morgan or anyone else to tell you whatever they may

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Speaker 1: say is going to happen next year. Well, they're just guessing.

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Speaker 1: It's an educated guess, but it's a guess. I'm just

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Speaker 1: going to take a look quick look at some winners

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Speaker 1: this year, James. Interestingly, Real twenty percent. Look at that

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Speaker 1: against the market, that's that's what did we see? Four

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Speaker 1: and a half percent? So Real one of the few

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Speaker 1: big blue chips that really pushed it out this year.

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Speaker 1: The minor some of the reeds Murvak very strong, some

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Speaker 1: traditionals like coals in the teens, so sort of really

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Speaker 1: mixed bag. There isn't there of miners, reats. What do

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Speaker 1: you think that tells us about where we're going from here?

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Speaker 2: It's a very chopping market and so that's that's one

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Speaker 2: of the benefits of buying ASX two hundred is that

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Speaker 2: you get in this blended return against some of the

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Speaker 2: outperformers that you've mentioned, against some of the underperformers. You

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Speaker 2: look at see itself down thirty five percent, and.

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Speaker 1: That's a shock, isn't it. That is a show that

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Speaker 1: was our biggest stock for a couple of years, big

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Speaker 1: bigger stock on the market. So what did you see

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Speaker 1: a thirty percent plus?

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Speaker 2: Yeah, yeah, it's down massively, and a couple of others

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Speaker 2: treasury wines down similar amount as well. So if you're

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Speaker 2: an individual stock picker, great time, because there's a large

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Speaker 2: divergence there of some that have shot the lights out

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Speaker 2: and others with which haven't. But if you're more ever

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Speaker 2: a passive investor or more focused on I just want

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Speaker 2: the average return of the market. Eachs a great place

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Speaker 2: to be at the moment. And as you mentioned, the

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Speaker 2: small cap and microcap stocks that have done really well,

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Speaker 2: and I called that as being a theme earlier in

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Speaker 2: the year for newsletter, because you just see the prices

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Speaker 2: of these large caps, particularly the banks, and you think

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Speaker 2: it has to go back to a normal price, and

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Speaker 2: you look at these small caps, and they're all hovering

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Speaker 2: on very low valuations, so they had room to grow,

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Speaker 2: and I still believe they have more room to grow

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Speaker 2: as well. So overall, you know, if you say the

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Speaker 2: market's going to do a ten percent return next year,

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Speaker 2: you're probably not going to be wrong most of the times,

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Speaker 2: as you say, because that's the average return of the

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Speaker 2: share market of a long periods of time.

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Speaker 1: Taking no risks saying that, yeah, okay, I'll hold some

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Speaker 1: want to get into small caps beyond an ETF where

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Speaker 1: you know it's fine to say small caps for up

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Speaker 1: eighteen percent, that means you know, roughly two thousand little

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Speaker 1: companies where are up on average by eighteen percent, and

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Speaker 1: there will be extraordinary divergence within that. What do you think?

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Speaker 2: Now you're opening the philosophical door to passive ETF versus

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Speaker 2: active managed funds. So if you're an active small cap

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Speaker 2: fund manager, you're going to argue that small cap ETFs

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Speaker 2: always underperform. Why because the small cap ETF will buy

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Speaker 2: the whole small cap market. But once you take away

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Speaker 2: the ETF manager fee, you're going to get lower than

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Speaker 2: the market average. Whereas the ETF manager will say that

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Speaker 2: go for passive because research shows that ninety percent of

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Speaker 2: active fund managers will underperform just buying the index over

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Speaker 2: a ten year period, so it's really about having it.

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Speaker 2: In my opinion, we do a blend, almost a fifty

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Speaker 2: to fifty blend. We go, all right, we're going to

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Speaker 2: place our bets in fifty percent passive because we want

433
00:21:59,400 --> 00:22:01,879
Speaker 2: the average return, and then the other half we're going

434
00:22:01,920 --> 00:22:05,160
Speaker 2: to do research and find that top quarter manager that's

435
00:22:05,200 --> 00:22:09,240
Speaker 2: consistently outperformed the index net of their fees. And with

436
00:22:09,359 --> 00:22:12,200
Speaker 2: small cap managers in particularly, you need to be quite

437
00:22:12,240 --> 00:22:14,600
Speaker 2: conscious of the fees because not only will they charge

438
00:22:14,640 --> 00:22:17,159
Speaker 2: a base fee, which can be roughly one percent, but

439
00:22:17,680 --> 00:22:20,640
Speaker 2: they have these things called performance fees. So if they

440
00:22:20,880 --> 00:22:24,800
Speaker 2: generate a return more than they sent benchmarks, and sometimes

441
00:22:24,840 --> 00:22:26,880
Speaker 2: they get cheeky and set the benchmark as the cash rate,

442
00:22:26,920 --> 00:22:28,720
Speaker 2: so if they do better than cash, they're going to

443
00:22:28,720 --> 00:22:31,400
Speaker 2: take twenty percent of that excess return.

444
00:22:31,359 --> 00:22:33,360
Speaker 1: Which it's pretty easy to beat really at the best

445
00:22:33,359 --> 00:22:34,240
Speaker 1: of times, isn't it.

446
00:22:34,920 --> 00:22:38,040
Speaker 2: That's right, Yeah, So your total fee can end up

447
00:22:38,040 --> 00:22:41,479
Speaker 2: being two three four percent after their performance fee has

448
00:22:41,520 --> 00:22:43,960
Speaker 2: been taken into account. But hey, if they're getting you

449
00:22:44,280 --> 00:22:46,920
Speaker 2: thirty percent whereas the index got your twenty percent, you're

450
00:22:46,920 --> 00:22:48,800
Speaker 2: happy to pay them their three percent fee. But just

451
00:22:48,840 --> 00:22:51,800
Speaker 2: picking that consistent manager and maybe having a blend of

452
00:22:51,800 --> 00:22:54,320
Speaker 2: the passive versus the active would be my two cents.

453
00:22:54,520 --> 00:22:58,600
Speaker 1: Do you think the fund managers in small caps have

454
00:22:58,720 --> 00:23:03,040
Speaker 1: a better chance of performing than fund managers and large caps?

455
00:23:03,840 --> 00:23:04,520
Speaker 3: I do. Yeah.

456
00:23:04,640 --> 00:23:06,840
Speaker 2: I caught up with a fund manager recently. He was

457
00:23:06,880 --> 00:23:11,200
Speaker 2: a former Sydney Swans player turned fund manager, and less,

458
00:23:12,960 --> 00:23:13,480
Speaker 2: I wouldn't know.

459
00:23:13,480 --> 00:23:16,080
Speaker 1: What it is anyway, I don't know any of our sport.

460
00:23:17,200 --> 00:23:20,320
Speaker 2: And I said, really, there's small companies like can you

461
00:23:20,320 --> 00:23:24,120
Speaker 2: add that much value? And his argument was that, well, yes,

462
00:23:24,200 --> 00:23:26,960
Speaker 2: because we're a fund manager, we're dealing with these small

463
00:23:26,960 --> 00:23:29,919
Speaker 2: cap companies. So the management open their arms to us

464
00:23:29,960 --> 00:23:32,080
Speaker 2: because they know that if they say the right things

465
00:23:32,119 --> 00:23:33,800
Speaker 2: to us and we're happy with them, we're going to

466
00:23:33,840 --> 00:23:34,280
Speaker 2: invest in them.

467
00:23:34,320 --> 00:23:35,800
Speaker 3: We could actually move their share price.

468
00:23:35,960 --> 00:23:38,120
Speaker 2: So the biggest thing with a small cap fund manager

469
00:23:38,400 --> 00:23:41,280
Speaker 2: that they say their advantage is access. They get to

470
00:23:41,320 --> 00:23:43,800
Speaker 2: meet with the management of these ASEX listed small and

471
00:23:43,880 --> 00:23:48,320
Speaker 2: microcap companies and really eyeball the CEO, CFO in upper

472
00:23:48,320 --> 00:23:51,200
Speaker 2: management and then make decisions around whether they not only

473
00:23:51,240 --> 00:23:53,960
Speaker 2: trust what they're getting through ASEX releases, but what they

474
00:23:54,359 --> 00:23:56,120
Speaker 2: get in the vibe of the meeting as a meeting

475
00:23:56,160 --> 00:23:56,960
Speaker 2: with these companies.

476
00:23:57,480 --> 00:23:59,480
Speaker 1: Yeah, and I imagine that's very true. So you take

477
00:23:59,560 --> 00:24:01,960
Speaker 1: something like PHP results, you know there's going to be

478
00:24:01,960 --> 00:24:04,920
Speaker 1: forty two analysts sitting on a conference call. They don't

479
00:24:04,960 --> 00:24:07,919
Speaker 1: know the CEO. But if you go to see a

480
00:24:08,000 --> 00:24:11,359
Speaker 1: company which has got whatever a two hundred million market

481
00:24:11,359 --> 00:24:14,000
Speaker 1: cap or a ten million market cap, you can get

482
00:24:14,000 --> 00:24:16,280
Speaker 1: in the door and you pas a manjie as you say,

483
00:24:16,280 --> 00:24:18,320
Speaker 1: you can eyeball these people who are in charge of

484
00:24:18,320 --> 00:24:21,399
Speaker 1: the company. And that is extremely important, which is not

485
00:24:21,480 --> 00:24:24,600
Speaker 1: something that most not to mention casual investors, but even

486
00:24:24,600 --> 00:24:27,600
Speaker 1: professional investors get to do. It's a really good point. Okay,

487
00:24:27,760 --> 00:24:37,439
Speaker 1: very interesting. We'll be back in a moment. Hello, Welcome

488
00:24:37,440 --> 00:24:42,320
Speaker 1: back to the Money Puzzle podcast. James Kirby with James Gerard. Now, James,

489
00:24:42,359 --> 00:24:43,600
Speaker 1: a couple of things that just want to on a

490
00:24:43,640 --> 00:24:46,200
Speaker 1: wrap of the year, and in terms of what our

491
00:24:46,240 --> 00:24:49,080
Speaker 1: investors which really mattered to them. I think it was

492
00:24:49,080 --> 00:24:51,680
Speaker 1: a couple of things that we might just quickly look at.

493
00:24:52,119 --> 00:24:55,359
Speaker 1: You talked about still some buoyancy in the share market,

494
00:24:55,840 --> 00:24:59,800
Speaker 1: some positive forecasts. Maybe the chance that the small caps

495
00:25:00,000 --> 00:25:03,600
Speaker 1: it will also outperform again next year. That's on shares again,

496
00:25:03,680 --> 00:25:07,800
Speaker 1: that the US will may well outperform the ASX. Certainly

497
00:25:07,880 --> 00:25:10,959
Speaker 1: it has done so for twenty solid years in a

498
00:25:11,119 --> 00:25:13,560
Speaker 1: row or not in a row, but on average, there

499
00:25:13,600 --> 00:25:15,440
Speaker 1: was a year I think it was twenty twenty one

500
00:25:15,440 --> 00:25:17,560
Speaker 1: where we did better than them, but it's very rare.

501
00:25:17,800 --> 00:25:19,520
Speaker 1: So you got those two things and we can put

502
00:25:19,520 --> 00:25:23,440
Speaker 1: them on the table. Then in our local economy as such,

503
00:25:23,520 --> 00:25:25,159
Speaker 1: I think the big surprise of the year was the

504
00:25:25,280 --> 00:25:27,440
Speaker 1: change of direction of interest rates, right, so we thought

505
00:25:27,480 --> 00:25:30,040
Speaker 1: there was more cuts coming. I think that's over now,

506
00:25:30,359 --> 00:25:33,600
Speaker 1: so we're going to have potential rate rises. How would

507
00:25:33,600 --> 00:25:39,280
Speaker 1: that play out for investors in markets? In investment markets locally.

508
00:25:40,000 --> 00:25:43,280
Speaker 2: It would be definitely a negative for a couple of reasons.

509
00:25:43,520 --> 00:25:47,040
Speaker 2: The basic economics of rising cash right, is that it's

510
00:25:47,080 --> 00:25:50,480
Speaker 2: more expensive for companies to leverage their balance sheet, so

511
00:25:50,520 --> 00:25:52,960
Speaker 2: more expensive for them to access capital to expand and

512
00:25:53,000 --> 00:25:56,320
Speaker 2: acquire other companies, so that hurts the profitability of share

513
00:25:56,320 --> 00:25:57,200
Speaker 2: market companies.

514
00:25:57,520 --> 00:25:59,800
Speaker 3: The other aspect is around.

515
00:25:59,440 --> 00:26:02,439
Speaker 2: The effect to the economy when interest rates go up,

516
00:26:02,480 --> 00:26:06,200
Speaker 2: people spend less on discretionary things that go on holidays. Less,

517
00:26:06,240 --> 00:26:09,640
Speaker 2: they don't upgrade their cars, don't upgrade their TVs as much,

518
00:26:09,640 --> 00:26:13,240
Speaker 2: and so GDP comes down, the activity in the economy

519
00:26:13,320 --> 00:26:16,200
Speaker 2: comes down, so again that that's bad for share markets.

520
00:26:16,560 --> 00:26:19,040
Speaker 2: So I think that the Reserve Bank will be somewhat

521
00:26:19,040 --> 00:26:22,240
Speaker 2: cautious given that we were expecting more rate cuts to happen.

522
00:26:22,280 --> 00:26:24,639
Speaker 2: But now if that inflation bumping back up, I think

523
00:26:24,640 --> 00:26:26,920
Speaker 2: they're going to sit on rates and hopefully it will

524
00:26:26,960 --> 00:26:29,200
Speaker 2: just remain flat next year, That's what I think, which

525
00:26:29,359 --> 00:26:31,960
Speaker 2: will then sort of negate any positive or negative impact

526
00:26:32,000 --> 00:26:33,000
Speaker 2: of share markets.

527
00:26:33,920 --> 00:26:36,639
Speaker 1: Okay, all right, I think we might just leave it

528
00:26:36,760 --> 00:26:40,120
Speaker 1: right there, because I think it's kind of poised perfectly, James,

529
00:26:40,560 --> 00:26:44,160
Speaker 1: as you see a lot of attention about this changing

530
00:26:44,240 --> 00:26:46,920
Speaker 1: direction in industry as folks, and a lot of attention

531
00:26:47,040 --> 00:26:49,080
Speaker 1: to the fact that the money markets and some analysts

532
00:26:49,119 --> 00:26:51,440
Speaker 1: are saying that there will be a rate to increase.

533
00:26:52,240 --> 00:26:54,480
Speaker 1: Perhaps there will be, but maybe we could work on

534
00:26:54,520 --> 00:26:57,800
Speaker 1: the basis that it's going to be unchanged. That's certainly

535
00:26:57,800 --> 00:26:59,600
Speaker 1: going to be unchanged till you come back from your

536
00:26:59,640 --> 00:27:01,840
Speaker 1: holiday break and I come back for our holiday break.

537
00:27:02,119 --> 00:27:06,440
Speaker 1: So I think on that mildly positive note. We may

538
00:27:06,680 --> 00:27:09,960
Speaker 1: just draw a line. Hey, Thank you very much, James Gerard.

539
00:27:09,720 --> 00:27:10,280
Speaker 3: My pleasure.

540
00:27:10,359 --> 00:27:12,119
Speaker 2: Thank you for another year of having me on. I

541
00:27:12,160 --> 00:27:14,720
Speaker 2: look forward to more appearances in twenty twenty six. We

542
00:27:14,800 --> 00:27:16,840
Speaker 2: will have you back early. We will have you back

543
00:27:16,880 --> 00:27:19,760
Speaker 2: early in twenty twenty six. I have plans for you, James. Okay,

544
00:27:20,000 --> 00:27:22,320
Speaker 2: very good, folks. Thank you for everything across the year.

545
00:27:22,440 --> 00:27:23,720
Speaker 2: Keep the correspondence coming.

546
00:27:23,760 --> 00:27:26,040
Speaker 1: I love to see it coming in on any issue

547
00:27:26,080 --> 00:27:29,560
Speaker 1: that you like, the money puzzle at the Australian dot

548
00:27:29,560 --> 00:27:31,840
Speaker 1: com dot au. Talk to you soon,