1 00:00:15,600 --> 00:00:18,680 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:18,760 --> 00:00:22,560 Speaker 1: James Kirby. Welcome to the second in our series of 3 00:00:22,720 --> 00:00:28,280 Speaker 1: three special bonus episodes. My colleague at The Australian, Julianne Spragg, 4 00:00:28,320 --> 00:00:31,640 Speaker 1: sat down this time for a chat with fund manager 5 00:00:31,920 --> 00:00:35,720 Speaker 1: Roger Montgomery. Roger, of course, is chief investment officer and 6 00:00:35,720 --> 00:00:39,960 Speaker 1: founder of Montgomery Investment Management, and in this episode he 7 00:00:40,000 --> 00:00:43,199 Speaker 1: talks about his upbringing and life lessons formed as a 8 00:00:43,240 --> 00:00:47,879 Speaker 1: young investor and how that shaped what he does today. 9 00:00:48,560 --> 00:00:50,199 Speaker 2: Roger, thanks very much for joining us. 10 00:00:50,280 --> 00:00:51,680 Speaker 3: It's a pleasure, great to be with you. 11 00:00:51,680 --> 00:00:53,800 Speaker 2: You've been investing for quite some time. 12 00:00:53,920 --> 00:00:56,600 Speaker 3: Here's three decades, a little more than three decades. 13 00:00:56,280 --> 00:00:59,480 Speaker 2: Okay, any home? Montgomery Investment Management. 14 00:00:59,320 --> 00:01:03,520 Speaker 3: That's right. We distribute in Australia a variety of funds 15 00:01:03,560 --> 00:01:08,880 Speaker 3: across private credit, small caps, large caps, both globally and domestically, 16 00:01:09,280 --> 00:01:12,400 Speaker 3: a long short fund, all managed by different teams. 17 00:01:12,720 --> 00:01:14,200 Speaker 2: What do you find. We'll get into your journey in 18 00:01:14,240 --> 00:01:16,360 Speaker 2: a second. But I am interested because I think that 19 00:01:16,400 --> 00:01:19,199 Speaker 2: there are people in markets who understand how this all works. 20 00:01:19,240 --> 00:01:20,679 Speaker 2: But from the outside in, when you sort of meet 21 00:01:20,680 --> 00:01:22,720 Speaker 2: friends or family, is there a misconception about what you 22 00:01:22,800 --> 00:01:23,160 Speaker 2: might do. 23 00:01:24,440 --> 00:01:26,800 Speaker 3: My kids asked me when they were very young what 24 00:01:26,880 --> 00:01:29,679 Speaker 3: I did for a job, and my response was, I read. 25 00:01:30,600 --> 00:01:34,319 Speaker 3: That's what I do more of than anything else, reading 26 00:01:34,440 --> 00:01:35,240 Speaker 3: and listening. 27 00:01:35,800 --> 00:01:38,560 Speaker 2: Let's talk about how you got into investing. Did you 28 00:01:38,720 --> 00:01:40,640 Speaker 2: always know that you wanted to be an. 29 00:01:40,840 --> 00:01:43,920 Speaker 3: Actually I wanted to be a fighter Parlot when I 30 00:01:44,000 --> 00:01:48,080 Speaker 3: was a teenager. The Top Gun, the first movie, had 31 00:01:48,160 --> 00:01:51,520 Speaker 3: just come out. It was transformative for most young boys, 32 00:01:51,680 --> 00:01:53,680 Speaker 3: you know, and that was what I wanted to do. 33 00:01:54,320 --> 00:01:58,120 Speaker 3: And then I don't know how, but in high school 34 00:01:58,120 --> 00:02:01,240 Speaker 3: I just did a lot of economics and subjects and 35 00:02:01,280 --> 00:02:04,960 Speaker 3: decided I preferred that I think as I was wearing glasses, 36 00:02:04,960 --> 00:02:07,440 Speaker 3: there was a problem, still a problem today. So if 37 00:02:07,480 --> 00:02:12,480 Speaker 3: you join the Air Force, you can't be reliant on glasses, 38 00:02:12,960 --> 00:02:15,760 Speaker 3: but if you require them later on in your career, 39 00:02:15,800 --> 00:02:19,120 Speaker 3: that's fine. Yeah. So, in fact, I've been in an 40 00:02:19,240 --> 00:02:24,519 Speaker 3: FA eighteen Hornet with a pilot who wears glasses. So 41 00:02:24,560 --> 00:02:28,399 Speaker 3: I was kind of annoyed that I missed out discriminated. 42 00:02:28,960 --> 00:02:32,520 Speaker 3: That's right. So apparently if you need glasses after you've 43 00:02:32,520 --> 00:02:35,400 Speaker 3: been trained, then it's too expensive for them to let 44 00:02:35,480 --> 00:02:35,799 Speaker 3: you go. 45 00:02:35,919 --> 00:02:37,600 Speaker 2: How are you in an F eighteen. How does this 46 00:02:38,520 --> 00:02:39,720 Speaker 2: just one day just walking along? 47 00:02:40,080 --> 00:02:42,000 Speaker 3: No, it's just just an invitation. 48 00:02:43,240 --> 00:02:46,440 Speaker 2: So you study economics finance. What's your first job? 49 00:02:47,320 --> 00:02:49,640 Speaker 3: So first job out of university during the recession that 50 00:02:49,680 --> 00:02:52,760 Speaker 3: we had to have, so not many graduates from Melbourne 51 00:02:52,880 --> 00:02:56,280 Speaker 3: University were in paid employment initially. I was one of 52 00:02:56,320 --> 00:02:58,799 Speaker 3: the fortunate ones that I had a job with a 53 00:02:58,919 --> 00:03:02,160 Speaker 3: stockbroking firm and mel called F. W. Holst and I 54 00:03:02,200 --> 00:03:05,000 Speaker 3: was an equities analyst there. That was the first job 55 00:03:05,600 --> 00:03:10,280 Speaker 3: I remember. My first company that I analyzed was a 56 00:03:10,280 --> 00:03:14,720 Speaker 3: company called Central Equity. They were property development firm and 57 00:03:14,840 --> 00:03:17,440 Speaker 3: what because of accounting rules at the time, they weren't 58 00:03:17,680 --> 00:03:22,519 Speaker 3: recording or they weren't disclosing sales that they'd actually made 59 00:03:23,200 --> 00:03:26,840 Speaker 3: because the accounting rules wouldn't allow them to record those sales. 60 00:03:27,280 --> 00:03:30,079 Speaker 3: I think maybe only deposits had been paid. But you 61 00:03:30,120 --> 00:03:33,440 Speaker 3: could see a very clear line of sight of revenue 62 00:03:33,520 --> 00:03:36,560 Speaker 3: for this business and that wasn't being recognized in the 63 00:03:36,560 --> 00:03:40,240 Speaker 3: share price, and so happily that one doubled. But I 64 00:03:40,280 --> 00:03:43,480 Speaker 3: was young, I was new straight out of university, so 65 00:03:43,560 --> 00:03:46,360 Speaker 3: of course none of the stockbrokers really took my research 66 00:03:46,520 --> 00:03:49,920 Speaker 3: very seriously. But I was inspired by the fact that hey, 67 00:03:49,960 --> 00:03:52,160 Speaker 3: I'd analyzed this, I'd worked it out, and the share 68 00:03:52,200 --> 00:03:52,880 Speaker 3: price doubled. 69 00:03:52,920 --> 00:03:57,360 Speaker 2: Had you invested at this point. 70 00:03:55,160 --> 00:03:58,600 Speaker 3: I trust myself at that point. Either. One of the 71 00:03:58,640 --> 00:04:01,120 Speaker 3: things that we that happened at the time, though, is 72 00:04:01,240 --> 00:04:03,880 Speaker 3: that banks were on their knees, remember the recession that 73 00:04:03,880 --> 00:04:06,200 Speaker 3: we had to have. Banks were very cheap. In fact, 74 00:04:06,240 --> 00:04:08,720 Speaker 3: you could buy a share of Westpac for two dollars 75 00:04:08,840 --> 00:04:12,480 Speaker 3: or two dollars fifty at the time. It was extraordinary. 76 00:04:12,800 --> 00:04:16,840 Speaker 3: And I think Kerry Packer was on the board at 77 00:04:16,880 --> 00:04:19,279 Speaker 3: the time, and I think there were rumors going around 78 00:04:19,279 --> 00:04:21,200 Speaker 3: that maybe he was going to make a takeover bid 79 00:04:21,640 --> 00:04:24,800 Speaker 3: for one of the banks. And I remember calling my 80 00:04:24,920 --> 00:04:26,760 Speaker 3: mum and said, Mummy, never going to be able to 81 00:04:26,760 --> 00:04:28,800 Speaker 3: buy a bank for two dollars fifty again, you know, 82 00:04:29,000 --> 00:04:31,240 Speaker 3: you've got to get some shares. But that gave me. 83 00:04:31,360 --> 00:04:33,320 Speaker 3: That was confirmation for me that I was in the 84 00:04:33,400 --> 00:04:34,599 Speaker 3: right the right industry. 85 00:04:34,839 --> 00:04:38,320 Speaker 2: Can you recall then money discussions in your household or 86 00:04:38,360 --> 00:04:40,760 Speaker 2: can you remember sort of the feeling about money growing up? 87 00:04:40,920 --> 00:04:43,080 Speaker 3: I should say at the outset, I wouldn't swap my 88 00:04:43,160 --> 00:04:47,600 Speaker 3: childhood with anyone. I had so much fun and We 89 00:04:47,600 --> 00:04:50,719 Speaker 3: were always outdoors, and my love for the outdoors stems 90 00:04:50,720 --> 00:04:53,400 Speaker 3: from I think mum kicking us out after breakfast and 91 00:04:53,560 --> 00:04:55,880 Speaker 3: you know, saying don't come back till dinner. So I 92 00:04:55,920 --> 00:04:59,360 Speaker 3: had great childhood. But the discussions about money, there was 93 00:04:59,400 --> 00:05:02,039 Speaker 3: a phrase my mum would say repeatedly, and that was 94 00:05:02,240 --> 00:05:04,920 Speaker 3: next fortnight. By the way, I'm mentioning mum a lot, 95 00:05:04,920 --> 00:05:08,039 Speaker 3: because Dad had died when I was two, so Mum 96 00:05:08,160 --> 00:05:10,919 Speaker 3: raised my brother and I. So if we wanted something 97 00:05:11,360 --> 00:05:13,960 Speaker 3: next fortnight, yeah, that's when she'd next be paid. And 98 00:05:14,000 --> 00:05:16,520 Speaker 3: so we just had to wait, I could, you know. 99 00:05:16,600 --> 00:05:18,800 Speaker 3: I very quickly learned that we didn't have what a 100 00:05:18,839 --> 00:05:21,880 Speaker 3: lot of other people had, and that probably was a motivator. 101 00:05:22,120 --> 00:05:25,520 Speaker 3: But money discussions were really about saving. It was all 102 00:05:25,560 --> 00:05:28,440 Speaker 3: about saving and delaying satisfaction. 103 00:05:29,080 --> 00:05:30,800 Speaker 2: Do you think though, I mean at the time, is 104 00:05:30,880 --> 00:05:33,479 Speaker 2: a necessity like your mom's on her own trying to 105 00:05:33,680 --> 00:05:35,640 Speaker 2: raise the family, so there is just no spare cash, 106 00:05:35,800 --> 00:05:37,880 Speaker 2: that's right, But do you feel like that's set you 107 00:05:37,960 --> 00:05:40,920 Speaker 2: up today? Do you have those habits from stitched in? So? 108 00:05:40,960 --> 00:05:42,960 Speaker 3: I was a very good saver. I was always very 109 00:05:42,960 --> 00:05:45,159 Speaker 3: good savor. My wife would say, not such a great savior. 110 00:05:45,240 --> 00:05:47,560 Speaker 2: Now you lose a discipline. 111 00:05:47,680 --> 00:05:50,919 Speaker 3: Yeah, perhaps. I remember when I met my wife, she 112 00:05:51,000 --> 00:05:54,440 Speaker 3: had already purchased an apartment with a friend, and I'd 113 00:05:54,520 --> 00:05:57,560 Speaker 3: saved a lot of money, so, you know, by the 114 00:05:57,560 --> 00:05:59,279 Speaker 3: time I was in my mid twenties, it was a 115 00:05:59,440 --> 00:06:01,679 Speaker 3: very large amount of money. I could buy a house 116 00:06:02,160 --> 00:06:03,520 Speaker 3: with the amount of money I'd saved. 117 00:06:03,920 --> 00:06:06,320 Speaker 2: Were you saving for a particular purpose or was just I. 118 00:06:06,320 --> 00:06:10,240 Speaker 3: Was saving for security. I was saving for self preservation. 119 00:06:10,680 --> 00:06:12,560 Speaker 3: And I remember my boss at the time, who's also 120 00:06:12,640 --> 00:06:16,000 Speaker 3: passed away now, Bruce Bradshaw. He asked me how much 121 00:06:16,040 --> 00:06:17,520 Speaker 3: i'd saved. He said, what are you doing with the 122 00:06:17,520 --> 00:06:18,400 Speaker 3: bonuses we're giving? 123 00:06:18,480 --> 00:06:18,760 Speaker 2: You know? 124 00:06:18,760 --> 00:06:21,280 Speaker 3: I told him how much I'd saved, and he couldn't 125 00:06:21,279 --> 00:06:23,200 Speaker 3: believe it. He said, that's more money than I've got 126 00:06:23,200 --> 00:06:25,599 Speaker 3: in the bank, you know. And I'm sure he was joking, 127 00:06:25,640 --> 00:06:29,240 Speaker 3: but the point being that I hadn't bought anything. I 128 00:06:29,360 --> 00:06:32,720 Speaker 3: just saved. I just accumulated cash. And in fact, when 129 00:06:32,720 --> 00:06:35,880 Speaker 3: I received my first bonus, and I'll never forget it, 130 00:06:35,880 --> 00:06:38,080 Speaker 3: my first bonus was twenty thousand dollars and I was 131 00:06:38,080 --> 00:06:40,520 Speaker 3: in my early twenties, and I was so nervous about 132 00:06:40,600 --> 00:06:43,000 Speaker 3: losing it that I split it up and put it 133 00:06:43,040 --> 00:06:45,640 Speaker 3: in different banks in case any of the banks went bust. 134 00:06:45,880 --> 00:06:50,080 Speaker 3: That's how insecure I was, having grown up with very little, 135 00:06:50,480 --> 00:06:53,719 Speaker 3: you know, suddenly getting money or receiving it. I was 136 00:06:53,800 --> 00:06:55,600 Speaker 3: really concerned about losing it again. 137 00:06:56,200 --> 00:06:58,640 Speaker 2: I bet you were. Now after the break, Roger, I 138 00:06:58,680 --> 00:07:00,640 Speaker 2: want to have a chat to you about those early 139 00:07:00,720 --> 00:07:11,920 Speaker 2: lessons and how they shaped how you invest today. Welcome 140 00:07:12,000 --> 00:07:14,840 Speaker 2: back to this bonus episode of the Money Puzzle. I'm 141 00:07:14,920 --> 00:07:18,480 Speaker 2: Julianne Sprague, a wealth editor at The Australian, and I'm 142 00:07:18,560 --> 00:07:23,960 Speaker 2: chatting to Sydney fund manager Roger Montgomery. Roger, knowing what 143 00:07:24,000 --> 00:07:26,600 Speaker 2: you know now, do you look back and do you 144 00:07:26,680 --> 00:07:29,480 Speaker 2: wish you had done something different with all that money? 145 00:07:29,520 --> 00:07:32,200 Speaker 2: You stashed it? You saved it, but do you think 146 00:07:32,240 --> 00:07:33,760 Speaker 2: now you should have done something else with it? 147 00:07:34,280 --> 00:07:38,080 Speaker 3: I'm still ultra conservative. I'm still extremely conservative. You know, 148 00:07:38,120 --> 00:07:43,000 Speaker 3: if there's a safer version of a product, a financial 149 00:07:43,000 --> 00:07:48,200 Speaker 3: product that pays slightly less, I'll urge towards that. But 150 00:07:48,240 --> 00:07:53,880 Speaker 3: I'll also I'll also speculate in some things, but with 151 00:07:53,960 --> 00:07:56,120 Speaker 3: an appropriate amount of money. You know, it tends to 152 00:07:56,200 --> 00:07:57,680 Speaker 3: be a smaller amount of money. 153 00:07:58,800 --> 00:08:02,480 Speaker 2: You fly paragliders. But you're the outdoors type, could I say, Roger, 154 00:08:02,520 --> 00:08:03,880 Speaker 2: and you take risks. 155 00:08:03,560 --> 00:08:07,240 Speaker 3: They're measured risks. Yeah. So with paragliding, for example, you know, 156 00:08:07,320 --> 00:08:08,840 Speaker 3: you can choose to fly in the middle of the 157 00:08:08,920 --> 00:08:11,000 Speaker 3: day in summer when it's going to be really violent 158 00:08:11,040 --> 00:08:13,280 Speaker 3: and you're going to sometimes have a bag of washing 159 00:08:13,720 --> 00:08:15,960 Speaker 3: over your head, or you can choose to fly earlier 160 00:08:16,000 --> 00:08:17,840 Speaker 3: in the day when it's smoother, or late in the 161 00:08:17,840 --> 00:08:21,000 Speaker 3: afternoon when it's smoother, so you can adjust the risk. 162 00:08:21,320 --> 00:08:23,360 Speaker 3: It's the same with stocks. You know, not all stocks 163 00:08:23,360 --> 00:08:25,440 Speaker 3: are the same. And you know, I talk often about 164 00:08:25,520 --> 00:08:27,840 Speaker 3: private credit and people say, oh, that's risky. You know, 165 00:08:28,000 --> 00:08:30,080 Speaker 3: remember what happened in the eighties or the nineties, and 166 00:08:30,160 --> 00:08:32,280 Speaker 3: you know it's the same thing again, Well, well, no, 167 00:08:32,400 --> 00:08:36,040 Speaker 3: that's unfair because actually, if you look at the PDS's 168 00:08:36,280 --> 00:08:39,640 Speaker 3: or the ims, the information memorandums for all of these funds, 169 00:08:39,679 --> 00:08:42,880 Speaker 3: they're all different. Just as stocks have different risk profiles, 170 00:08:43,200 --> 00:08:46,000 Speaker 3: so do funds, and it's important to understand what they are. 171 00:08:46,400 --> 00:08:49,360 Speaker 3: But by just dismissing everything out of hand, it's you know, 172 00:08:49,400 --> 00:08:53,360 Speaker 3: you're missing out on opportunities. So, yes, I'm conservative, but 173 00:08:53,760 --> 00:08:55,040 Speaker 3: I'm informed can. 174 00:08:54,960 --> 00:08:57,240 Speaker 2: We chat about your very first investment? Can you remember 175 00:08:57,240 --> 00:08:57,640 Speaker 2: what it was? 176 00:08:57,760 --> 00:09:00,079 Speaker 3: I do remember what it was. A friend of mine 177 00:09:00,160 --> 00:09:05,280 Speaker 3: and I we had decided to invest in futures or 178 00:09:05,320 --> 00:09:08,840 Speaker 3: trade futures on the I think it was futures on 179 00:09:08,920 --> 00:09:11,360 Speaker 3: the Dow Jones back then it may been the S 180 00:09:11,400 --> 00:09:14,240 Speaker 3: and P five hundred. I was working at that stockbroking 181 00:09:14,240 --> 00:09:17,240 Speaker 3: firm in my first job, and we decided to put 182 00:09:17,280 --> 00:09:20,600 Speaker 3: in ten thousand dollars each. Now my friend had ten 183 00:09:20,640 --> 00:09:23,720 Speaker 3: thousand dollars. He came from a well to do family, 184 00:09:23,880 --> 00:09:28,520 Speaker 3: and I didn't have ten thousand dollars. I had to 185 00:09:28,559 --> 00:09:32,080 Speaker 3: borrow the money and Mum went Garran Taur on the 186 00:09:32,160 --> 00:09:35,680 Speaker 3: loan and we started trading futures, and we knew nothing 187 00:09:35,679 --> 00:09:36,680 Speaker 3: about what we were. 188 00:09:36,559 --> 00:09:38,280 Speaker 2: Doing and why futures. 189 00:09:38,400 --> 00:09:41,319 Speaker 3: Because of the leverage, you could invest a relatively small 190 00:09:41,360 --> 00:09:44,480 Speaker 3: amount of money and potentially make a lot because of 191 00:09:44,480 --> 00:09:47,600 Speaker 3: the leverage that's inherent in futures contracts. So if you 192 00:09:47,640 --> 00:09:51,160 Speaker 3: put ten thousand dollars in, you can buy potentially one 193 00:09:51,240 --> 00:09:54,440 Speaker 3: hundred thousand dollars worth of the commodity just with the 194 00:09:54,480 --> 00:09:57,520 Speaker 3: ten thousand dollars. But of course the leverage works against 195 00:09:57,520 --> 00:09:59,400 Speaker 3: you as well when prices fall. 196 00:09:59,280 --> 00:10:02,320 Speaker 2: And just initiated those who might be listening, who, what 197 00:10:02,320 --> 00:10:04,040 Speaker 2: the hell's when are you wearing this? 198 00:10:04,400 --> 00:10:08,000 Speaker 3: So, a futures contract is an agreement to purchase or 199 00:10:08,120 --> 00:10:12,240 Speaker 3: sell something that is underneath that future contract at a 200 00:10:12,280 --> 00:10:15,560 Speaker 3: future date in time, and those future contracts trade at 201 00:10:15,600 --> 00:10:19,040 Speaker 3: their own price based on what that underlying commodity or 202 00:10:19,080 --> 00:10:23,240 Speaker 3: financial instrument is doing between now and when it expires 203 00:10:23,280 --> 00:10:27,839 Speaker 3: that future contract expires. And so we were trading using 204 00:10:27,960 --> 00:10:31,400 Speaker 3: nothing else other than technical analysis or charting. Where we'd 205 00:10:31,400 --> 00:10:34,320 Speaker 3: seen a Bloomberg screen. We had access to a Bloomberg screen, 206 00:10:34,679 --> 00:10:37,720 Speaker 3: and they were the early Bloomberg screens. And I'd noticed 207 00:10:37,920 --> 00:10:40,240 Speaker 3: that when the blue line crossed the red line, the 208 00:10:40,280 --> 00:10:41,920 Speaker 3: market went up, and when the red line crossed the 209 00:10:41,960 --> 00:10:44,120 Speaker 3: blue line, the market went down. And we had about 210 00:10:44,120 --> 00:10:46,679 Speaker 3: three months of data. That's all we needed to go, 211 00:10:47,080 --> 00:10:49,440 Speaker 3: and off we went, and we started trading, and we 212 00:10:49,520 --> 00:10:52,880 Speaker 3: turned out twenty thousand dollars I think into almost forty 213 00:10:52,960 --> 00:10:56,360 Speaker 3: thousand dollars initially, and I thought, gosh, this is greater. 214 00:10:56,720 --> 00:11:00,280 Speaker 3: Probably don't need to continue going to university. This is 215 00:11:00,320 --> 00:11:03,319 Speaker 3: so easy, we can quit. But then it turned pair 216 00:11:03,360 --> 00:11:06,080 Speaker 3: shaped and we lost all our money. I ended up 217 00:11:06,120 --> 00:11:09,000 Speaker 3: working in a fish and chip shop to earn some 218 00:11:09,080 --> 00:11:12,280 Speaker 3: money to pay my mum back for the loan. 219 00:11:13,040 --> 00:11:15,200 Speaker 2: What was the conversation like with mum? 220 00:11:15,280 --> 00:11:18,640 Speaker 3: I remember getting into the car and we were listening 221 00:11:18,640 --> 00:11:20,640 Speaker 3: to three ks it at the time, which is during 222 00:11:20,640 --> 00:11:23,760 Speaker 3: the news break before the sport and the weather. There 223 00:11:23,800 --> 00:11:27,160 Speaker 3: would be a very short Gold's doing this, Oils doing this, 224 00:11:27,280 --> 00:11:29,720 Speaker 3: and the Dow Jones did that. And I remember getting 225 00:11:29,720 --> 00:11:31,960 Speaker 3: in the car and I was very quiet, and Mum 226 00:11:32,000 --> 00:11:34,360 Speaker 3: said what does that mean? And I said, I don't 227 00:11:34,360 --> 00:11:37,640 Speaker 3: think it's going to be a good day anyway. I 228 00:11:37,760 --> 00:11:40,240 Speaker 3: spoke to my friend I won't say his name, and 229 00:11:40,280 --> 00:11:41,680 Speaker 3: he said, what do you reckon we should do? Roger? 230 00:11:41,679 --> 00:11:43,920 Speaker 3: And I said, well, in the three months of data 231 00:11:43,920 --> 00:11:46,760 Speaker 3: that we've got, it's not fallen. The Dow Jones hasn't 232 00:11:46,760 --> 00:11:49,640 Speaker 3: fallen this much before, So what do you think we 233 00:11:49,679 --> 00:11:51,080 Speaker 3: should do it? Well? I think we should hold on 234 00:11:52,000 --> 00:11:54,679 Speaker 3: and because three months of data is not enough data, right, 235 00:11:54,679 --> 00:11:58,839 Speaker 3: that's not a statistically significant sample. Anyway, it fell again, 236 00:11:59,040 --> 00:12:02,800 Speaker 3: got in the car three news report, how's that going? 237 00:12:02,960 --> 00:12:05,680 Speaker 3: Roger my masks and my response was it's going to 238 00:12:05,679 --> 00:12:08,720 Speaker 3: be an even worse day. Anyway, we ended up losing 239 00:12:08,760 --> 00:12:11,240 Speaker 3: all the money that we'd made plus the money that 240 00:12:11,280 --> 00:12:13,640 Speaker 3: we'd put in, and we closed out our positions, or 241 00:12:13,640 --> 00:12:16,040 Speaker 3: they may have been closed for us. And then I 242 00:12:16,080 --> 00:12:18,920 Speaker 3: had to pay back the loan fish and chip shop, 243 00:12:18,960 --> 00:12:20,720 Speaker 3: and I've probably had a few other jobs as well, 244 00:12:20,760 --> 00:12:23,080 Speaker 3: but made that worked in a nightclub as well. It 245 00:12:23,120 --> 00:12:26,000 Speaker 3: was called the Cadillac Bar and made the money back. 246 00:12:26,080 --> 00:12:29,120 Speaker 3: But I used lived eighteen kilometers away from the nightclub, 247 00:12:29,400 --> 00:12:33,559 Speaker 3: and I distinctly remember I would walk home at six 248 00:12:33,640 --> 00:12:36,319 Speaker 3: o'clock in the morning when my shift finished at the nightclub, 249 00:12:36,640 --> 00:12:39,120 Speaker 3: and I would walk eighteen k's. It took three hours. 250 00:12:39,480 --> 00:12:41,960 Speaker 3: I would walk home to say it, because I didn't 251 00:12:41,960 --> 00:12:43,959 Speaker 3: want to buy There were no buses running at that 252 00:12:44,000 --> 00:12:46,520 Speaker 3: time of the morning or trains, so I would walk 253 00:12:46,559 --> 00:12:49,600 Speaker 3: home and I wasn't certainly wasn't going to wake mom up, 254 00:12:49,600 --> 00:12:52,400 Speaker 3: and I wasn't going to pay for taxi. So it 255 00:12:52,520 --> 00:12:54,320 Speaker 3: made some sacrifices to save money. 256 00:12:54,520 --> 00:12:56,679 Speaker 2: So what was the lesson you learned from that and 257 00:12:57,000 --> 00:12:58,199 Speaker 2: how did it shape your investing? 258 00:12:58,440 --> 00:13:02,679 Speaker 3: It fed into that conservative of disposition. Know nothing teaches 259 00:13:02,760 --> 00:13:07,000 Speaker 3: you risk like losing money. That is a really painful 260 00:13:07,600 --> 00:13:12,520 Speaker 3: way of understanding risk. It gave me some fantastic insights 261 00:13:12,559 --> 00:13:17,800 Speaker 3: into leverage, into markets, and into the sort of securities industry, 262 00:13:18,120 --> 00:13:22,840 Speaker 3: and it really helped me to evaluate relative risk amongst 263 00:13:22,880 --> 00:13:25,720 Speaker 3: capital stacks and different types of securities. 264 00:13:25,800 --> 00:13:27,720 Speaker 2: And the things though that you can pin back to 265 00:13:27,800 --> 00:13:31,719 Speaker 2: that moment that you've made rules for investing, that. 266 00:13:31,880 --> 00:13:36,840 Speaker 3: Those early experiences have taught me to actually quarantine that risk, 267 00:13:37,320 --> 00:13:39,520 Speaker 3: to make sure I understand that, you know, I'm using 268 00:13:39,600 --> 00:13:42,760 Speaker 3: funds that if I lose those funds, it's not such 269 00:13:42,800 --> 00:13:45,440 Speaker 3: a big deal. You know. Even today, for example, I 270 00:13:45,520 --> 00:13:48,360 Speaker 3: know what my exposure is to the equity market in total. 271 00:13:48,679 --> 00:13:51,280 Speaker 3: I know what my exposure is to private equity, which 272 00:13:51,320 --> 00:13:55,559 Speaker 3: are businesses that will one day IPO, and so knowing 273 00:13:55,640 --> 00:13:57,920 Speaker 3: what the exposure is to the market, I know what 274 00:13:57,960 --> 00:14:00,720 Speaker 3: my downside is, you know, And I'm all thinking in 275 00:14:00,840 --> 00:14:03,679 Speaker 3: terms of risk rather than in terms of, oh how 276 00:14:03,720 --> 00:14:06,200 Speaker 3: much could I make? It's not about that, it's what's 277 00:14:06,240 --> 00:14:06,960 Speaker 3: the downside? 278 00:14:07,280 --> 00:14:09,560 Speaker 2: Is there a ratio that you recommend to people? If 279 00:14:09,559 --> 00:14:11,200 Speaker 2: people come to you today advice, they say, I've got 280 00:14:11,200 --> 00:14:14,560 Speaker 2: one hundred thousand dollars to invest, what portion do you 281 00:14:14,559 --> 00:14:16,840 Speaker 2: think needs to be just you lock that one in 282 00:14:16,880 --> 00:14:18,360 Speaker 2: the like that has to stay in the bank or 283 00:14:18,440 --> 00:14:20,520 Speaker 2: savings account, like don't risk at all? Is the sense 284 00:14:20,560 --> 00:14:21,320 Speaker 2: I'm getting from you. 285 00:14:21,920 --> 00:14:24,040 Speaker 3: Well, the answer to that question is the reason why 286 00:14:24,080 --> 00:14:26,800 Speaker 3: financial planner is. I'm not a financial planner, but it's 287 00:14:26,840 --> 00:14:32,240 Speaker 3: the reason financial planners risk profile their clients. You know, 288 00:14:32,280 --> 00:14:36,520 Speaker 3: That's why you go through you answer multiple questions to 289 00:14:36,680 --> 00:14:40,200 Speaker 3: understand what your risk profile is. There's no one right 290 00:14:40,360 --> 00:14:44,320 Speaker 3: ratio because everybody has a different risk tolerance. There will 291 00:14:44,360 --> 00:14:47,640 Speaker 3: be people who will happily gamble the whole hundred thousand 292 00:14:47,640 --> 00:14:50,080 Speaker 3: dollars on something and if they lose it, oh well, 293 00:14:50,400 --> 00:14:52,560 Speaker 3: even if they don't have a lot of money elsewhere, 294 00:14:52,960 --> 00:14:55,480 Speaker 3: you know, they want to have a crack at making 295 00:14:55,480 --> 00:14:57,920 Speaker 3: a multiple of that initial one hundred thousand dollars. 296 00:14:58,200 --> 00:15:00,320 Speaker 2: You've done a lot of investing now in your early 297 00:15:00,360 --> 00:15:04,960 Speaker 2: twenties anymore. You're looking very good, very young, your old Roger, 298 00:15:05,240 --> 00:15:06,840 Speaker 2: but you've learned a lot, and I want to have 299 00:15:06,840 --> 00:15:09,000 Speaker 2: a chat to you about some of the key lessons 300 00:15:09,080 --> 00:15:12,120 Speaker 2: you've learned from investing. And some of those lessons often 301 00:15:12,160 --> 00:15:15,120 Speaker 2: come from making really big mistakes. But I wouldn't mind 302 00:15:15,120 --> 00:15:18,120 Speaker 2: exploring maybe something for more recent times where an investment 303 00:15:18,160 --> 00:15:20,560 Speaker 2: has gone wrong, And we do have a little bit 304 00:15:20,560 --> 00:15:22,360 Speaker 2: of a section. We'd like to call it the fast 305 00:15:22,360 --> 00:15:25,280 Speaker 2: five where I'll ask you a series of questions and 306 00:15:25,400 --> 00:15:27,480 Speaker 2: just see where that takes us. But we'll do that 307 00:15:27,520 --> 00:15:47,480 Speaker 2: when we come back from a breaking We ch added 308 00:15:47,480 --> 00:15:51,360 Speaker 2: about the early years investing and learning your way, investing 309 00:15:51,360 --> 00:15:54,600 Speaker 2: in futures and working out that your future. But you've 310 00:15:54,600 --> 00:15:58,240 Speaker 2: done a lot of investing over the years. When you 311 00:15:58,240 --> 00:16:00,240 Speaker 2: look back on that, if you could go back, perhaps 312 00:16:00,280 --> 00:16:01,760 Speaker 2: to your mid twenties, if you can go back in 313 00:16:01,840 --> 00:16:07,480 Speaker 2: time and maybe do something differently, or perhaps it's adopt 314 00:16:07,480 --> 00:16:10,120 Speaker 2: a financial habit, do something that you think would put 315 00:16:10,120 --> 00:16:11,720 Speaker 2: you in a better place or your investments would be 316 00:16:11,760 --> 00:16:13,440 Speaker 2: in a better place today. Do you know what that 317 00:16:13,480 --> 00:16:13,800 Speaker 2: would be? 318 00:16:14,560 --> 00:16:17,080 Speaker 3: So the best way to answer that is this way. 319 00:16:18,080 --> 00:16:23,000 Speaker 3: The biggest losses in my investing career have been the 320 00:16:23,120 --> 00:16:29,680 Speaker 3: investments I didn't make okay, and they've mostly been in property. 321 00:16:30,840 --> 00:16:33,720 Speaker 3: So my advice to my mid twenties. 322 00:16:33,360 --> 00:16:36,040 Speaker 2: Self, you're going back making a phone call by it. 323 00:16:38,000 --> 00:16:40,080 Speaker 2: So there was opportunities that came to you when you're 324 00:16:40,120 --> 00:16:42,760 Speaker 2: in your mid twenties and for whatever reasons, And. 325 00:16:43,480 --> 00:16:47,000 Speaker 3: See it's even just before COVID. There are opportunities. 326 00:16:47,480 --> 00:16:48,880 Speaker 2: Let's talk about those. Is I feel like that's a 327 00:16:48,920 --> 00:16:53,000 Speaker 2: nice little segue into mistakes if you made, And sometimes 328 00:16:53,040 --> 00:16:55,960 Speaker 2: the biggest mistake you can make is the choice you didn't. 329 00:16:56,160 --> 00:16:56,320 Speaker 3: Yeah. 330 00:16:56,360 --> 00:16:59,040 Speaker 2: Indeed, so if you had to sort of name one though, 331 00:17:00,120 --> 00:17:00,600 Speaker 2: stands out. 332 00:17:00,800 --> 00:17:03,480 Speaker 3: So there was a there was a property going to auction. 333 00:17:03,720 --> 00:17:06,720 Speaker 3: It was one hundred acres, might have been one hundred 334 00:17:06,720 --> 00:17:12,600 Speaker 3: and fifty acres. It was down on the south just 335 00:17:12,720 --> 00:17:17,840 Speaker 3: south of Cayama, on the East coast of Australia, just 336 00:17:17,920 --> 00:17:24,000 Speaker 3: south of Sydney and Wollongong, and it was for sale. 337 00:17:24,040 --> 00:17:26,679 Speaker 3: It was right on the cliff and it had beach access. 338 00:17:28,400 --> 00:17:32,280 Speaker 3: And I went down, drove down there, visited it, loved it, 339 00:17:32,760 --> 00:17:36,200 Speaker 3: thought it was absolutely spectacular. And the real estate agent 340 00:17:36,240 --> 00:17:38,800 Speaker 3: at the time down there, who was really very well 341 00:17:38,840 --> 00:17:42,760 Speaker 3: connected and new prices down there really well, he said, look, Roger, 342 00:17:42,840 --> 00:17:45,200 Speaker 3: it's going to go for between two and three million dollars. 343 00:17:46,080 --> 00:17:47,400 Speaker 3: And I remember saying that's great. 344 00:17:47,760 --> 00:17:48,760 Speaker 2: How long ago are we talking. 345 00:17:49,440 --> 00:17:52,639 Speaker 3: This would have been twenty maybe twenty fifteen, Yeah, okay, 346 00:17:52,880 --> 00:17:55,960 Speaker 3: twenty fifteen, And he said it's going to go for 347 00:17:56,040 --> 00:17:58,560 Speaker 3: between two and three million dollars and I said, that's great. 348 00:17:59,320 --> 00:18:02,920 Speaker 3: I'll come to the auction, although I'll probably attend by phone. 349 00:18:04,359 --> 00:18:06,520 Speaker 3: And there's a reason for attending by auctions by phone. 350 00:18:06,560 --> 00:18:08,879 Speaker 3: By the way, that's another piece of advice I can 351 00:18:08,960 --> 00:18:11,560 Speaker 3: share anyway, So that bit remind me. But yeah, yeah, 352 00:18:11,640 --> 00:18:13,600 Speaker 3: we'll talk about that later for we get time. So 353 00:18:15,720 --> 00:18:19,080 Speaker 3: the day before the auction, the agent said, look, it 354 00:18:19,200 --> 00:18:22,080 Speaker 3: now looks like it's going to go for between three 355 00:18:22,160 --> 00:18:24,880 Speaker 3: and four. There's a lot of interest in the property. 356 00:18:25,440 --> 00:18:28,240 Speaker 3: I said, okay, no problem. I'll be there, no worries 357 00:18:28,240 --> 00:18:31,399 Speaker 3: at all. The auction started. The next day. I was 358 00:18:31,480 --> 00:18:34,959 Speaker 3: there on the phone. They started the auction. There were 359 00:18:35,000 --> 00:18:37,960 Speaker 3: no bids so much for a lot of interest in 360 00:18:38,040 --> 00:18:41,320 Speaker 3: the property. So the agent has said between three and four. 361 00:18:41,400 --> 00:18:44,160 Speaker 3: That's fine, no problem. They have me on the phone. 362 00:18:44,160 --> 00:18:45,920 Speaker 3: They're asked me if I want a bid. No, I 363 00:18:46,000 --> 00:18:48,800 Speaker 3: don't want a bid. Why would I do that? So 364 00:18:49,000 --> 00:18:52,600 Speaker 3: then they put in a vendor bid of three point five. Great. 365 00:18:53,720 --> 00:18:57,760 Speaker 3: A second later I bid three point six and I thought, okay, 366 00:18:57,880 --> 00:19:00,399 Speaker 3: Well he said between three and four indoor a bit 367 00:19:00,440 --> 00:19:02,400 Speaker 3: of three and a half. I've been three point six. 368 00:19:02,720 --> 00:19:07,080 Speaker 3: It's mine, done, done and dusted. No problem anyway, he's 369 00:19:07,200 --> 00:19:08,960 Speaker 3: I'm on the phone. He says, we'll give you a 370 00:19:09,040 --> 00:19:13,680 Speaker 3: call back. I was expecting a congratulations anyway, give you 371 00:19:13,720 --> 00:19:17,920 Speaker 3: a call back. So I wait, no call. The next day, 372 00:19:18,400 --> 00:19:22,159 Speaker 3: still no call. So I've called the agent and the 373 00:19:22,200 --> 00:19:24,160 Speaker 3: agent says, oh, you're not going to believe this, Roger, 374 00:19:24,240 --> 00:19:31,200 Speaker 3: the vendor wants five what really, nobody how I'm annoyed 375 00:19:31,720 --> 00:19:34,879 Speaker 3: right now, I'm annoyed. But you know, time passed. They 376 00:19:34,960 --> 00:19:37,879 Speaker 3: continued to approach me, continue to try and get me 377 00:19:38,000 --> 00:19:40,879 Speaker 3: to five, and I was so annoyed I just said no. 378 00:19:41,720 --> 00:19:46,600 Speaker 3: In fact, my recollection is that the vendor came to well, 379 00:19:46,760 --> 00:19:49,000 Speaker 3: he didn't come to my office. He came to my 380 00:19:49,400 --> 00:19:53,560 Speaker 3: office at work and offered vendor finance for the extra 381 00:19:53,600 --> 00:19:55,680 Speaker 3: amount of money. You know, he said, look, I'll give 382 00:19:55,720 --> 00:19:58,359 Speaker 3: you more money. Yeah, I'll give you more money if 383 00:19:58,400 --> 00:20:01,359 Speaker 3: that's the issue. And I was just so annoyed. And 384 00:20:01,480 --> 00:20:05,160 Speaker 3: that property sat on the market for another twelve months. Now, 385 00:20:05,320 --> 00:20:09,320 Speaker 3: one of my peers in the industry, he ended up 386 00:20:09,400 --> 00:20:12,119 Speaker 3: buying it for one of his kids, or one of 387 00:20:12,160 --> 00:20:16,000 Speaker 3: his kids bought it. And so it's another fund manager 388 00:20:16,160 --> 00:20:19,320 Speaker 3: whose family ended up buying it. They built a great 389 00:20:19,480 --> 00:20:23,359 Speaker 3: home on the property. It would now be worth twenty 390 00:20:23,440 --> 00:20:26,840 Speaker 3: five or thirty million dollars. Same thing happened again just 391 00:20:26,960 --> 00:20:31,720 Speaker 3: before COVID in twenty eighteen at NUSA there was a 392 00:20:31,760 --> 00:20:34,280 Speaker 3: house that came up for five million dollars. This time 393 00:20:35,160 --> 00:20:38,440 Speaker 3: it was Thomas Muster's house, the tennis player, and I 394 00:20:38,560 --> 00:20:41,880 Speaker 3: was invited to purchase that property, and we just decided 395 00:20:41,920 --> 00:20:45,240 Speaker 3: that it was too much money to pay for a 396 00:20:45,280 --> 00:20:45,960 Speaker 3: holiday house. 397 00:20:46,200 --> 00:20:49,200 Speaker 2: You know, that was an extravagant It was extravagant, too extravagant. 398 00:20:49,680 --> 00:20:53,640 Speaker 3: It's not like us, so we didn't do it. And yeah, 399 00:20:53,680 --> 00:20:56,159 Speaker 3: that then COVID hit prices and NUSA went nuts. And 400 00:20:56,240 --> 00:21:00,560 Speaker 3: that's easily twenty four million dollars between twenty eighteen and now. 401 00:21:01,160 --> 00:21:04,440 Speaker 3: So you know, from five to twenty four it's arguably this, 402 00:21:04,760 --> 00:21:09,320 Speaker 3: you know, the best property price increase that's happened anywhere 403 00:21:09,320 --> 00:21:12,080 Speaker 3: in Australia at any time. You know, it's just been incredible, 404 00:21:12,119 --> 00:21:13,320 Speaker 3: the looser property prices. 405 00:21:13,560 --> 00:21:15,359 Speaker 2: Some mean, you're better at stocks than property, are you 406 00:21:15,440 --> 00:21:15,760 Speaker 2: telling me? 407 00:21:16,119 --> 00:21:18,399 Speaker 3: Like I said to you, the worst investments have been 408 00:21:18,440 --> 00:21:21,359 Speaker 3: the things I didn't buy. I'm quite content with the 409 00:21:21,440 --> 00:21:24,120 Speaker 3: investments I have made, but I'm upset about the ones 410 00:21:24,119 --> 00:21:24,720 Speaker 3: I missed out on. 411 00:21:25,040 --> 00:21:26,840 Speaker 2: This will be interesting because I think we might get 412 00:21:26,880 --> 00:21:28,800 Speaker 2: into the fast five, but the first one we can 413 00:21:28,840 --> 00:21:30,399 Speaker 2: take a little bit longer with. Because I was going 414 00:21:30,440 --> 00:21:32,280 Speaker 2: to ask you if you can only invest in one 415 00:21:32,320 --> 00:21:34,080 Speaker 2: thing for the next ten years so it shares all property. 416 00:21:34,640 --> 00:21:37,159 Speaker 3: Yeah, I think that's an unfair question to ask, because 417 00:21:37,320 --> 00:21:39,919 Speaker 3: I think both will do extremely well. If you buy 418 00:21:39,960 --> 00:21:41,520 Speaker 3: a bad property, you're going to do badly. If you 419 00:21:41,560 --> 00:21:43,440 Speaker 3: buy bad stock, you're going to do badly. You know 420 00:21:43,960 --> 00:21:47,440 Speaker 3: you've heard that aphorism. It's time in the market, not 421 00:21:47,680 --> 00:21:50,919 Speaker 3: timing the market that's important. Actually, that's not quite right. 422 00:21:51,440 --> 00:21:54,000 Speaker 3: Time is only the friend of an extraordinary business. If 423 00:21:54,040 --> 00:21:57,480 Speaker 3: you own a bad business, the longer you are invested 424 00:21:57,520 --> 00:21:59,359 Speaker 3: in it, the worse it's going to be. You know 425 00:21:59,400 --> 00:22:02,159 Speaker 3: those people who bought Telstra on the first day it listed, 426 00:22:02,600 --> 00:22:04,400 Speaker 3: You know they're still waiting to make their money back. 427 00:22:04,560 --> 00:22:06,840 Speaker 3: So being invested in a mediocre business is going to 428 00:22:06,880 --> 00:22:09,680 Speaker 3: give you a mediocre return. Being invested in a mediocre 429 00:22:09,720 --> 00:22:11,280 Speaker 3: property for a long period of time is going to 430 00:22:11,320 --> 00:22:12,160 Speaker 3: give you a bad return. 431 00:22:12,600 --> 00:22:14,280 Speaker 2: So how do you work this out? If I'm thinking 432 00:22:14,320 --> 00:22:16,119 Speaker 2: about right, Roger, I want to go and invest. 433 00:22:16,760 --> 00:22:21,399 Speaker 3: But how do I know when it comes to any asset, 434 00:22:21,560 --> 00:22:26,440 Speaker 3: or any fund or any property put quality first? Is 435 00:22:26,520 --> 00:22:31,040 Speaker 3: it high quality? And quality means different things to different people. 436 00:22:31,600 --> 00:22:34,080 Speaker 3: But ultimately when it comes to property, you know there's 437 00:22:34,119 --> 00:22:37,119 Speaker 3: a scarcity factor. You know, when you look at NUSA 438 00:22:37,240 --> 00:22:39,360 Speaker 3: and there are other places in Australia that are wonderful. 439 00:22:39,400 --> 00:22:41,720 Speaker 3: I'm not to you know, don't want to denigrate other places, 440 00:22:42,160 --> 00:22:45,159 Speaker 3: but at the moment, at least, you know, NUSA has 441 00:22:45,200 --> 00:22:46,840 Speaker 3: a couple of things going for it. You know, it 442 00:22:46,960 --> 00:22:50,680 Speaker 3: has great climate. There's a demographic avalanche that wants to move, 443 00:22:51,000 --> 00:22:54,160 Speaker 3: particularly from Southern States to Queensland because of that climate. 444 00:22:54,440 --> 00:22:56,480 Speaker 3: And as they get older, as the baby boomers get older, 445 00:22:56,680 --> 00:22:59,399 Speaker 3: you know, they like the cold less and so they 446 00:22:59,480 --> 00:23:02,639 Speaker 3: tend to want to move to warmer climates. Great restaurants. 447 00:23:02,680 --> 00:23:04,359 Speaker 3: You know, there's a whole bunch of things going for it. 448 00:23:04,560 --> 00:23:08,119 Speaker 3: There'll be other places in Australia as well, and so 449 00:23:08,440 --> 00:23:10,840 Speaker 3: you know, Moosa ticks a lot of boxes for people 450 00:23:11,240 --> 00:23:13,800 Speaker 3: and there's not many houses. So you've got if you 451 00:23:13,880 --> 00:23:17,320 Speaker 3: think about, you know, the great population of Australia, which 452 00:23:17,400 --> 00:23:19,560 Speaker 3: is you know, people debate this whether it's growing too 453 00:23:19,640 --> 00:23:23,280 Speaker 3: fast or not. But the population of Australia is growing quickly, 454 00:23:23,920 --> 00:23:27,160 Speaker 3: Musa is not getting bigger. When it comes to stocks, 455 00:23:27,720 --> 00:23:31,720 Speaker 3: quality is different. Quality is about businesses that have sustainable 456 00:23:31,760 --> 00:23:36,760 Speaker 3: competitive advantages. They do something that other companies find hard 457 00:23:36,840 --> 00:23:40,720 Speaker 3: to replicate or too expensive to replicate, or they're just 458 00:23:41,040 --> 00:23:44,159 Speaker 3: locked out because it's a geographical advantage. For example, you 459 00:23:44,200 --> 00:23:48,760 Speaker 3: know a Westfield shopping center has a geographical competitive advantage. 460 00:23:49,840 --> 00:23:54,000 Speaker 3: And those competitive advantages are important because they drive what's 461 00:23:54,040 --> 00:23:56,720 Speaker 3: called return on equity. And you want to own a 462 00:23:56,800 --> 00:23:59,720 Speaker 3: business that generates a high rate of return on equity 463 00:24:00,080 --> 00:24:02,600 Speaker 3: and is able to do two things. High rate of 464 00:24:02,640 --> 00:24:06,160 Speaker 3: return on equity, but is able to retain a large 465 00:24:06,240 --> 00:24:09,879 Speaker 3: portion of its profits every year and reinvest it at 466 00:24:09,920 --> 00:24:10,840 Speaker 3: a high rate of return. 467 00:24:10,920 --> 00:24:15,200 Speaker 2: Again, I want your advice for investing at different stages 468 00:24:15,240 --> 00:24:17,240 Speaker 2: of your life. Everyone's on a different financial journey and 469 00:24:17,280 --> 00:24:19,800 Speaker 2: there are different things that come at you at different stages. 470 00:24:19,880 --> 00:24:24,200 Speaker 2: But what would your advice be for someone in their thirties, 471 00:24:24,560 --> 00:24:27,200 Speaker 2: their forties, well, their fifties. 472 00:24:27,080 --> 00:24:32,840 Speaker 3: Okay, So in your thirties you're ascending. You're on the 473 00:24:32,920 --> 00:24:36,320 Speaker 3: ascendant in terms of your career, and if you're good 474 00:24:36,359 --> 00:24:39,280 Speaker 3: at what you do and people like you, then you're 475 00:24:39,560 --> 00:24:43,240 Speaker 3: going to be earning more. As time, your earning power 476 00:24:43,320 --> 00:24:46,240 Speaker 3: is going to be increasing, and so you can afford 477 00:24:46,320 --> 00:24:49,600 Speaker 3: still to take some risks. But if your preference, because 478 00:24:49,640 --> 00:24:53,920 Speaker 3: your conservative is to buy property, then my advice would 479 00:24:53,960 --> 00:24:57,000 Speaker 3: be to pay off the mortgage as quickly as possible 480 00:24:57,640 --> 00:25:03,000 Speaker 3: with that additional income that's coming in. Because let's assume 481 00:25:03,119 --> 00:25:06,760 Speaker 3: you're on a higher tax bracket. Then if you adjust 482 00:25:07,160 --> 00:25:10,760 Speaker 3: the interest rate on your mortgage for your tax rate, 483 00:25:11,560 --> 00:25:14,960 Speaker 3: then the return the interest rate is much higher. So 484 00:25:15,080 --> 00:25:17,600 Speaker 3: let's say it's let's say the interest rate is six percent, 485 00:25:18,000 --> 00:25:20,119 Speaker 3: you're on the highest tax bracket, let's round it to 486 00:25:20,200 --> 00:25:24,560 Speaker 3: fifty percent. Your pre tax return by paying off the 487 00:25:24,640 --> 00:25:28,960 Speaker 3: mortgage is nine percent. Now, there aren't many investments that 488 00:25:29,080 --> 00:25:32,800 Speaker 3: can guarantee you a nine percent return, so paying that 489 00:25:33,000 --> 00:25:39,120 Speaker 3: mortgage down is like investing in a nine percent guaranteed investment. 490 00:25:39,600 --> 00:25:42,480 Speaker 3: So my advice would be pay that down as quickly 491 00:25:42,520 --> 00:25:45,200 Speaker 3: as you can and accept that really great return. 492 00:25:46,040 --> 00:25:48,119 Speaker 2: Nine percent sounds like a great return, But the other 493 00:25:48,200 --> 00:25:49,880 Speaker 2: thing that comes at you all the time is time 494 00:25:50,040 --> 00:25:53,680 Speaker 2: in the market, and so sure, how do you get 495 00:25:53,760 --> 00:25:55,760 Speaker 2: around the idea that should all of the money be 496 00:25:55,800 --> 00:25:58,440 Speaker 2: following to get that mortgage down, or should you be 497 00:25:58,480 --> 00:26:00,639 Speaker 2: making investments at the same time, I work out some 498 00:26:00,760 --> 00:26:02,160 Speaker 2: sort of balance parallel strategy. 499 00:26:02,760 --> 00:26:06,119 Speaker 3: I actually would advise, and this is just me, but 500 00:26:06,240 --> 00:26:09,040 Speaker 3: I would be advising people to get that mortgage down 501 00:26:09,840 --> 00:26:12,640 Speaker 3: because nine percent, you know, a bird in the hand 502 00:26:12,760 --> 00:26:16,119 Speaker 3: is worth two in the bush, right, and a guaranteed 503 00:26:16,240 --> 00:26:20,480 Speaker 3: nine percent return versus a return that might be higher 504 00:26:20,520 --> 00:26:23,680 Speaker 3: than nine, but it also could be down twenty you know, 505 00:26:23,880 --> 00:26:26,200 Speaker 3: in the stock market. You know, again this is my 506 00:26:26,359 --> 00:26:30,919 Speaker 3: conservative side talking. But once you get that mortgage down to. 507 00:26:31,000 --> 00:26:33,400 Speaker 2: A level where with hit the next decade, we're into 508 00:26:33,440 --> 00:26:36,080 Speaker 2: the forties. Yeah, yeah, Okay. Let's make an assumption here 509 00:26:36,119 --> 00:26:38,560 Speaker 2: that your mortgage is you've got built up equity. 510 00:26:38,280 --> 00:26:38,560 Speaker 3: In the home. 511 00:26:38,600 --> 00:26:40,520 Speaker 2: You've built up to me, probably haven't paid off the mortgage, 512 00:26:40,560 --> 00:26:41,440 Speaker 2: but good luck to you if you have. 513 00:26:41,600 --> 00:26:43,920 Speaker 3: But if you have great or you can start thinking 514 00:26:43,960 --> 00:26:47,159 Speaker 3: about some other investments. You'll certainly be thinking about for 515 00:26:47,240 --> 00:26:49,919 Speaker 3: the first time ever, you'll probably be thinking about your 516 00:26:49,960 --> 00:26:53,040 Speaker 3: superannuation and retirement. Believe it or not. You might think, 517 00:26:53,080 --> 00:26:54,440 Speaker 3: no way, I'm not going to do that, but it 518 00:26:54,560 --> 00:26:57,640 Speaker 3: just happens. You get to forty, and you start to think. 519 00:26:57,760 --> 00:26:59,520 Speaker 2: Is that money there, what's it been doing? 520 00:27:00,080 --> 00:27:03,760 Speaker 3: Also entering what's called the sandwich generation right where you're 521 00:27:03,800 --> 00:27:07,359 Speaker 3: looking after kids, You've got school fees to pay potentially, 522 00:27:07,960 --> 00:27:10,160 Speaker 3: but you also you know you're starting to think about 523 00:27:10,240 --> 00:27:12,119 Speaker 3: your parents getting older, and you know, what are you 524 00:27:12,160 --> 00:27:13,280 Speaker 3: going to do to help them out? 525 00:27:13,320 --> 00:27:15,560 Speaker 2: I think the demands on your time increase as well 526 00:27:15,640 --> 00:27:18,760 Speaker 2: they do you're managing children, like you've mentioned your parents. 527 00:27:19,080 --> 00:27:22,240 Speaker 2: Your career is career is a peak at a pace? 528 00:27:22,320 --> 00:27:24,720 Speaker 3: Probably? Yeah, you're really going well in your career in 529 00:27:24,800 --> 00:27:27,560 Speaker 3: your forties, and so now is the time that you 530 00:27:27,600 --> 00:27:31,080 Speaker 3: can start thinking about making some investments. The simplest way 531 00:27:31,359 --> 00:27:34,600 Speaker 3: I can think about creating a portfolio or the metaphor 532 00:27:34,680 --> 00:27:37,600 Speaker 3: that we can use as a boat. Right, So you 533 00:27:37,680 --> 00:27:40,119 Speaker 3: need a hull. The boat needs a whole because it 534 00:27:40,200 --> 00:27:42,440 Speaker 3: needs to keep you afloat. So what you want to 535 00:27:42,440 --> 00:27:44,400 Speaker 3: do is you want to put the bulk of your assets, 536 00:27:44,480 --> 00:27:48,639 Speaker 3: or the bulk of your investment portfolio into investments that 537 00:27:48,720 --> 00:27:51,920 Speaker 3: are high quality. They may grow, you want them to grow, 538 00:27:52,359 --> 00:27:56,240 Speaker 3: but mostly they're high quality companies. So and a mix 539 00:27:56,320 --> 00:28:00,840 Speaker 3: of overseas and local domestic investments is fine. But just remember, 540 00:28:00,880 --> 00:28:04,159 Speaker 3: the vast majority of Australian businesses pay most of their 541 00:28:04,200 --> 00:28:07,359 Speaker 3: earnings out as a dividend. They don't retain the bulk 542 00:28:07,520 --> 00:28:10,119 Speaker 3: of their profits for growth. And that's because of our 543 00:28:10,200 --> 00:28:13,560 Speaker 3: tax system, right, we don't double tax dividends in Australia 544 00:28:13,840 --> 00:28:17,119 Speaker 3: our profits. Rather, so the franking credits that are produced 545 00:28:17,160 --> 00:28:20,000 Speaker 3: when a company generates profits in Australia, they're worth nothing 546 00:28:20,080 --> 00:28:23,720 Speaker 3: to the company and worth a lot to recipients, particularly 547 00:28:23,800 --> 00:28:25,920 Speaker 3: recipients who are on lower tax rates than the company 548 00:28:26,000 --> 00:28:29,240 Speaker 3: tax rate. And so companies tend to pay out the 549 00:28:29,320 --> 00:28:31,480 Speaker 3: bulk of their earnings in Australia as a dividend. In 550 00:28:31,960 --> 00:28:35,480 Speaker 3: the US they don't. They retain most of their profits 551 00:28:35,520 --> 00:28:38,040 Speaker 3: for growth. And so you find a lot of companies 552 00:28:38,640 --> 00:28:41,680 Speaker 3: outside of the small cap space that are still growing. 553 00:28:41,720 --> 00:28:44,440 Speaker 3: You get big companies that are growing, so they're high quality, 554 00:28:44,480 --> 00:28:47,560 Speaker 3: they're very liquid, and they're growing fast. And so some 555 00:28:47,720 --> 00:28:51,480 Speaker 3: investments in those businesses I think make sense. And then 556 00:28:52,000 --> 00:28:54,560 Speaker 3: you want an outboard engine on the boat. Otherwise you're 557 00:28:54,600 --> 00:28:57,000 Speaker 3: going to be listless, you know, and you're going to 558 00:28:57,080 --> 00:28:59,080 Speaker 3: be You're just going to go. You're not going to 559 00:28:59,120 --> 00:29:01,960 Speaker 3: go in the right direction. That outboard engine that should 560 00:29:02,000 --> 00:29:04,720 Speaker 3: be in your thirties and forties, should be a small 561 00:29:04,800 --> 00:29:07,680 Speaker 3: cap fund by a manager who's doing a really great job. 562 00:29:08,040 --> 00:29:12,200 Speaker 3: And I think small companies in Australia and overseas, that's 563 00:29:12,200 --> 00:29:14,200 Speaker 3: where you're going to find a lot of innovators. You're 564 00:29:14,200 --> 00:29:15,760 Speaker 3: going to find a lot of companies that might be 565 00:29:15,880 --> 00:29:19,080 Speaker 3: worth a billion dollars today but one hundred billion dollars 566 00:29:19,440 --> 00:29:22,400 Speaker 3: in ten years time or twenty years time, and they're 567 00:29:22,440 --> 00:29:24,560 Speaker 3: in that small cap space. So that's your outboard engine. 568 00:29:24,680 --> 00:29:26,800 Speaker 3: And if there's anything left, well, you could pop a 569 00:29:26,880 --> 00:29:29,960 Speaker 3: turbo engine on the outboard and that's a smaller amount 570 00:29:29,960 --> 00:29:33,440 Speaker 3: of money. Again, and that might be things like private equity, 571 00:29:33,920 --> 00:29:35,479 Speaker 3: you know, or you know, I don't want to say 572 00:29:35,520 --> 00:29:38,560 Speaker 3: futures trading, but you know, it could be something that's alternative. 573 00:29:39,040 --> 00:29:41,880 Speaker 2: Okay. So if you were sailing into the fifties sixties, 574 00:29:42,480 --> 00:29:44,240 Speaker 2: so in your fifties and sixties, you are in the 575 00:29:44,320 --> 00:29:45,160 Speaker 2: Sandwich generation. 576 00:29:45,280 --> 00:29:47,920 Speaker 3: And if you're a woman, particularly, you know, you're really 577 00:29:47,960 --> 00:29:52,280 Speaker 3: going to feel the pressure because you know, unfortunately husbands 578 00:29:52,360 --> 00:29:54,920 Speaker 3: die tend to die first, you know, so you might 579 00:29:54,960 --> 00:29:57,320 Speaker 3: be left alone, you might be left with you know, 580 00:29:57,840 --> 00:30:00,920 Speaker 3: the responsibility of managing money, looking after the kids, and 581 00:30:01,080 --> 00:30:06,800 Speaker 3: looking after your aging adult parents. And was rightly or 582 00:30:06,840 --> 00:30:09,760 Speaker 3: wrongly it was the husband who looked after the money matters. 583 00:30:10,120 --> 00:30:12,360 Speaker 3: And so you know, I would say, make sure you're 584 00:30:12,400 --> 00:30:17,120 Speaker 3: getting educated about financial matters, put together a group of 585 00:30:17,280 --> 00:30:20,240 Speaker 3: people who can advise you. You know, get your support 586 00:30:20,360 --> 00:30:23,880 Speaker 3: network in place. That mortgage has to be gone. Focus 587 00:30:23,960 --> 00:30:26,760 Speaker 3: on your highest interest debt and get that paid off. 588 00:30:26,760 --> 00:30:29,360 Speaker 3: If you've got credit cards, get rid of that, and 589 00:30:29,480 --> 00:30:31,680 Speaker 3: now you can start you know, now you can really 590 00:30:31,720 --> 00:30:34,720 Speaker 3: start thinking about investments that or you might want to 591 00:30:34,760 --> 00:30:37,440 Speaker 3: start thinking about investments that give you an attractive return 592 00:30:38,080 --> 00:30:40,960 Speaker 3: but don't have as much volatility in them. As I 593 00:30:41,120 --> 00:30:45,560 Speaker 3: noticed with our clients, as they age, their appetite volatility, 594 00:30:45,760 --> 00:30:49,680 Speaker 3: appetite for volatility becomes less. And so this is where 595 00:30:49,760 --> 00:30:53,680 Speaker 3: I really think, this is where private credit is really 596 00:30:53,800 --> 00:30:57,600 Speaker 3: going to play a bigger role in people's portfolios going forward. 597 00:30:57,760 --> 00:31:02,640 Speaker 3: And again, like stocks, different credit funds have different risk profiles, 598 00:31:03,040 --> 00:31:05,520 Speaker 3: so it's important you understand what those risk profiles are. 599 00:31:05,840 --> 00:31:08,480 Speaker 3: A lot of them lend money to and the reason 600 00:31:08,520 --> 00:31:11,760 Speaker 3: why there's no stock market volatility is they're not buying equities. 601 00:31:12,280 --> 00:31:15,040 Speaker 3: They're lending money to businesses. They're doing what the banks 602 00:31:15,200 --> 00:31:18,240 Speaker 3: used to do, but because of the global financial crisis 603 00:31:18,280 --> 00:31:21,760 Speaker 3: and regulation on capital adequacy requirements of banks, they're not 604 00:31:21,880 --> 00:31:25,360 Speaker 3: lending to these small and medium sized enterprises anymore. Some 605 00:31:25,520 --> 00:31:28,280 Speaker 3: of these private credit funds are lending to property developers. 606 00:31:29,000 --> 00:31:32,400 Speaker 3: That's riskier than in lending elsewhere, and so it's important 607 00:31:32,400 --> 00:31:34,880 Speaker 3: to understand some of the risks. But Yeah, as you 608 00:31:34,920 --> 00:31:37,320 Speaker 3: get older, I think people are going to be more 609 00:31:37,360 --> 00:31:40,520 Speaker 3: and more attracted to a seven, eight or nine percent 610 00:31:40,680 --> 00:31:44,160 Speaker 3: return without stock market volatility. So you're going to start 611 00:31:44,240 --> 00:31:48,400 Speaker 3: to think more and more about rebalancing your portfolio towards 612 00:31:48,440 --> 00:31:53,600 Speaker 3: those more conservative investments rather, I should say, investments that 613 00:31:53,760 --> 00:31:55,320 Speaker 3: may have less public market risk. 614 00:31:56,440 --> 00:31:58,400 Speaker 2: I'm going to condense down a fast five to a 615 00:31:58,480 --> 00:32:03,240 Speaker 2: fast three you go. Best finance book that you could recommend. 616 00:32:04,040 --> 00:32:07,760 Speaker 3: The Making of an American Capitalist by Roger Lowenstein. It's 617 00:32:07,880 --> 00:32:10,880 Speaker 3: the story one of the early biographies of Warren Buffett. 618 00:32:11,720 --> 00:32:14,360 Speaker 3: If you're interested in the stock market and you're interested 619 00:32:14,440 --> 00:32:16,520 Speaker 3: in investing, and I suspect you are if you're listening 620 00:32:16,600 --> 00:32:18,880 Speaker 3: to this podcast, then that would be the book that 621 00:32:18,960 --> 00:32:21,320 Speaker 3: I would go out and get first. I should say 622 00:32:21,320 --> 00:32:24,240 Speaker 3: the one I wrote as well value Able. It was 623 00:32:24,280 --> 00:32:27,880 Speaker 3: a bestseller in twenty ten in the finance space, and 624 00:32:27,960 --> 00:32:30,800 Speaker 3: I wrote that for my kids, if something happened to me, 625 00:32:30,960 --> 00:32:33,080 Speaker 3: I wanted them to have a guidebook for investing in 626 00:32:33,120 --> 00:32:33,720 Speaker 3: the stock market. 627 00:32:33,800 --> 00:32:35,560 Speaker 2: Well, my next question was going to be, what's the 628 00:32:35,640 --> 00:32:37,360 Speaker 2: one thing you want your kids to learn about money 629 00:32:37,440 --> 00:32:39,520 Speaker 2: or take away from What if you could impart one 630 00:32:39,600 --> 00:32:42,640 Speaker 2: thing into your children about money, what do you want 631 00:32:42,680 --> 00:32:43,600 Speaker 2: them to hold on to? 632 00:32:43,840 --> 00:32:46,920 Speaker 3: Good with it? Do good with it, if you make it, 633 00:32:47,080 --> 00:32:50,120 Speaker 3: do good with it. It's much more fun giving it 634 00:32:50,160 --> 00:32:53,880 Speaker 3: away and sharing than it is accumulating stuff. Give it away. 635 00:32:54,360 --> 00:32:57,400 Speaker 2: Okay, so less on the material possessions and more on. 636 00:32:57,760 --> 00:33:00,920 Speaker 3: There's ecstasy in getting something new, but it aids very quickly. 637 00:33:01,480 --> 00:33:05,240 Speaker 3: You know where contentment comes from actually making other people happy. 638 00:33:05,560 --> 00:33:06,840 Speaker 3: We're built for relationships. 639 00:33:07,000 --> 00:33:09,960 Speaker 2: Well, and this is another beautiful seguey, I think, because 640 00:33:10,000 --> 00:33:13,560 Speaker 2: my final question was going to be what can't money buy. 641 00:33:14,160 --> 00:33:17,360 Speaker 3: It can't buy old friends, and it can't buy contentment. 642 00:33:17,760 --> 00:33:20,760 Speaker 3: It gives you choice, which is fantastic. As May west 643 00:33:20,840 --> 00:33:22,280 Speaker 3: One said, you know, too much of a good thing 644 00:33:22,400 --> 00:33:25,600 Speaker 3: is wonderful, but once you've got a certain level of comfort, 645 00:33:26,200 --> 00:33:29,120 Speaker 3: more money and more stuff doesn't make you happier than 646 00:33:29,160 --> 00:33:32,160 Speaker 3: you already were. Look on Sydney Harbor, you know, all 647 00:33:32,240 --> 00:33:35,440 Speaker 3: of those wonderful homes with beautiful views. The blinds are 648 00:33:35,480 --> 00:33:41,120 Speaker 3: often closed. Money buys you brief ecstasy. It bars you 649 00:33:41,200 --> 00:33:43,600 Speaker 3: that brief jolt of happiness. Wow, look at this view. 650 00:33:44,280 --> 00:33:46,200 Speaker 3: But then you get used to it, you know, and 651 00:33:46,280 --> 00:33:49,760 Speaker 3: then the blinds are closed and you Wealthy people still 652 00:33:49,840 --> 00:33:53,000 Speaker 3: have all the problems that everyone else has, except maybe 653 00:33:53,080 --> 00:33:55,920 Speaker 3: money problems. But you know, they still have divorce. They 654 00:33:56,000 --> 00:33:59,360 Speaker 3: still suffer from sadness and loneliness and insecurities and all 655 00:33:59,440 --> 00:34:02,000 Speaker 3: of those things. It doesn't buy any of those things. 656 00:34:02,440 --> 00:34:05,720 Speaker 2: You meet and deal a lot with the What makes 657 00:34:05,760 --> 00:34:07,680 Speaker 2: them the happiest if you can think about it. You 658 00:34:07,720 --> 00:34:09,080 Speaker 2: don't have to name them. But if you think about 659 00:34:09,080 --> 00:34:11,440 Speaker 2: sort of the happiest wealthiest people, you know, what is 660 00:34:11,520 --> 00:34:13,719 Speaker 2: it that is driving them? It's not sort of the 661 00:34:13,760 --> 00:34:14,360 Speaker 2: bank balance. 662 00:34:14,920 --> 00:34:18,680 Speaker 3: Yeah, they're content, they're content. They try to be content 663 00:34:18,800 --> 00:34:23,320 Speaker 3: in all circumstances. Imagine imagine being extremely wealthy, but holding 664 00:34:23,360 --> 00:34:26,360 Speaker 3: that money with an open hand and saying, if it goes, 665 00:34:27,239 --> 00:34:30,800 Speaker 3: I'm okay. If you can't say that, then you're putting 666 00:34:30,880 --> 00:34:34,040 Speaker 3: too much of your self worth and too much value 667 00:34:34,239 --> 00:34:37,479 Speaker 3: in the money and not in relationships and other things. 668 00:34:37,920 --> 00:34:39,680 Speaker 3: You know, I met. I remember going to a wedding 669 00:34:39,760 --> 00:34:43,040 Speaker 3: once at Blackwattle Bay where the souper yachts are all moored. 670 00:34:43,840 --> 00:34:47,799 Speaker 3: And the minister of that particular wedding at a church 671 00:34:47,840 --> 00:34:50,480 Speaker 3: where a lot of wealthy people attend, and he's been 672 00:34:51,520 --> 00:34:55,839 Speaker 3: at the bedside of dying wealthy people, and he said, Roger, 673 00:34:55,880 --> 00:34:58,399 Speaker 3: I can assure you that a lot of these people 674 00:34:58,920 --> 00:35:01,440 Speaker 3: would give up everything that they have, including all of 675 00:35:01,480 --> 00:35:05,480 Speaker 3: these boats, for one extra day, and that goes to 676 00:35:05,520 --> 00:35:06,640 Speaker 3: show you what it's really worth. 677 00:35:07,280 --> 00:35:10,239 Speaker 2: Oh, that's a lovely way to end. Focus on the day, 678 00:35:10,320 --> 00:35:12,680 Speaker 2: live in the now. That's not all about the money. 679 00:35:12,719 --> 00:35:14,520 Speaker 2: But it's good to make some money. Let's be honest. 680 00:35:14,920 --> 00:35:16,719 Speaker 3: As I said, it gives you choice, you know, it 681 00:35:16,840 --> 00:35:17,640 Speaker 3: does give you choice. 682 00:35:18,440 --> 00:35:21,600 Speaker 2: Thanks for joining me Julianne Sprague, Wealth editor at The 683 00:35:21,640 --> 00:35:25,600 Speaker 2: Australian for this bonus episode of the Money Puzzle. For 684 00:35:25,719 --> 00:35:28,680 Speaker 2: more insights into building wealth and knowing what the smart 685 00:35:28,719 --> 00:35:31,319 Speaker 2: money is doing, head to The Australian dot com dot 686 00:35:31,400 --> 00:35:32,800 Speaker 2: au slash Wealth