Speaker 1: What I found is that the companies that perform the
Speaker 1: best in over a ten year period never with the
Speaker 1: top than any one year.
Speaker 2: The immediate volatility after the Liberation Day announcements, when is
Speaker 2: it its first day?
Speaker 3: It ended up the day up.
Speaker 1: If I look at websites of FU managers often of
Speaker 1: about a one year, three year, maybe a five year record.
Speaker 1: If I'm investing for a longer term than that, then
Speaker 1: actually that's not really relevant for me.
Speaker 3: Kyoto Koto, Welcome to shared Lunch. I'm Garth Bray. Congratulations
Speaker 3: if you've made it through the past few weeks with
Speaker 3: your nerves holding investors haven't seen this volatility for more
Speaker 3: than a decade. How are you coping and how are
Speaker 3: you looking for the positives and opportunities. Well, we're in
Speaker 3: Wellington today and helping me look for those things. We
Speaker 3: have some sparkling talent in the form of Paul of Beth,
Speaker 3: editor of the bottom Line, and Susan and Batley company
Speaker 3: director and also head of Cheesey's business arm. Before we
Speaker 3: get started, here's some important information you should always consider
Speaker 3: an investing.
Speaker 4: Investing involves the risk you might lose the money you
Speaker 4: start with. We recommend talking to a licensed financial advisor.
Speaker 4: We also recommend reading product disclosure documents before deciding to invest.
Speaker 4: Everything you're about to see and here is current at
Speaker 4: the time of recording.
Speaker 3: Welcome to both of you. Paul, you took the boldest
Speaker 3: bet I can think of in the first quarter of
Speaker 3: twenty twenty five and launched a business, so congratulations on
Speaker 3: the bottom line. Susanna, you're a director at deliver Easy
Speaker 3: as well as helping out with the business side of
Speaker 3: business here at Cheers EA's so, I mean a lot
Speaker 3: on your plate obviously. Congratulations and welcome to twenty twenty five.
Speaker 3: What are you doing for stress at the moment? How's
Speaker 3: your stress levels? I find it pretty calm.
Speaker 2: I mean we're at the bottom of the world with
Speaker 2: one hundred thousand mile mote surrounding us. It's quite easy
Speaker 2: to be in New Zealand and watch on while Rome burns.
Speaker 2: I mean, it's the last couple of weeks in this
Speaker 2: year in general have certainly thrown up a lot of
Speaker 2: things to think about. But it's the same thing. You know,
Speaker 2: New Zealand has that relativity thing right. Things are bad
Speaker 2: here at times, but when you look overseas, Yeah, you're
Speaker 2: definitely shaken.
Speaker 3: Your head about you are you waking up every morning
Speaker 3: checking the numbers and checking again.
Speaker 1: I mean, I am still checking the numbers. But what
Speaker 1: I've actually found really helpful for me is actually looking
Speaker 1: back in history and continue to look at other times
Speaker 1: where there have been a lot of volatility. The reasons
Speaker 1: have been different. But I do think that if you
Speaker 1: don't engage with history, then everything feels unprecedented. So I've
Speaker 1: found that to be quite a calming thing to think
Speaker 1: about and look at each time that's happened. That life
Speaker 1: does go on and markets do continue, So.
Speaker 3: You're looking at the cycle and trying to work out
Speaker 3: where we are there and work out what happens next,
Speaker 3: or at least take some stock from the fact that
Speaker 3: this is not unprecedented.
Speaker 1: That's right. I mean, I don't try and analyze the future.
Speaker 1: In fact, even that is a really odd phrase, because
Speaker 1: the future hasn't happened, so there really is nothing to analyze,
Speaker 1: and I have really no idea what's going to happen.
Speaker 1: And if I look back in history, history is really
Speaker 1: a series of surprises, and so it's very hard to
Speaker 1: then think about what that next surprise has got to be.
Speaker 1: But I do think it is good to focus on
Speaker 1: some of the things that we do know are likely
Speaker 1: and sort of thinking about what a good response to
Speaker 1: that might be. It is hard to continue to invest
Speaker 1: when you're seeing your portfolio go down and value and
Speaker 1: knowing that that might persist for some time and things
Speaker 1: might look worse even the next week. In fact, Howard Marx,
Speaker 1: who is someone that I really enjoy his books, and
Speaker 1: he's got a very famous memo that I think he's
Speaker 1: written since about nineteen ninety and I came across oak
Speaker 1: Tree Capital during the GFC. We're at about the last
Speaker 1: four months of the GFC. Oak Tree Capital. We're deploying
Speaker 1: about six hundred million dollars US into the market every week,
Speaker 1: and that was as a market was continuing to deteriorate,
Speaker 1: and so every week what they had purchased the week
Speaker 1: before was worth less, and then they kept doing it
Speaker 1: again and again and again. And that having that high
Speaker 1: conviction and be willing to put up with quite an
Speaker 1: extended pair of volatility is really hard psychologically, and that's
Speaker 1: why often in the past few have been able to
Speaker 1: do that. But for the people that can do that well,
Speaker 1: it's been incredibly fruitful over the long term, I guess.
Speaker 3: I mean, you know, if you compet it to house prices,
Speaker 3: Obviously there's been pandemonium if they dropped like fifteen percent
Speaker 3: since February, like was sort of seen with e SMP.
Speaker 3: But admittedly there would be people out there licking their
Speaker 3: lips and going great, finally, this is my chance to
Speaker 3: get into that market will double down or so on.
Speaker 3: And it's the same effectively with equities, right.
Speaker 1: That's right. I mean house prices, I think is an
Speaker 1: interesting one, and I think gets overlooked a bit around
Speaker 1: the impact of leverage that that has as well. So
Speaker 1: you know, when people might buy a house if they
Speaker 1: have funding it with eighty percent of a mortgage, then
Speaker 1: that leverage really amplifies the outcome. And that's great when
Speaker 1: things are going up, but that can get pretty catastrophic
Speaker 1: when things are going down. And so when we've seen
Speaker 1: house prices move down, that return on equity gets a
Speaker 1: lot more negative. It's amplified because of the effect of leverage,
Speaker 1: whereas in the equity markets, you know a lot of
Speaker 1: people investing and not using leverage to that degree. So
Speaker 1: it's interesting that house price.
Speaker 3: Analogy not since the eighties anyway, Yeah, Yeah, I want
Speaker 3: to get to did a little bit later on because
Speaker 3: obviously it's a big part of what's behind what's been
Speaker 3: going on coming out of the state, so I spots.
Speaker 3: But the reasons about sort of stress was this is
Speaker 3: probably a little bit like kind of a health check
Speaker 3: time for a lot of people with their portfolio. As
Speaker 3: would you say, Paul, Like, it's like, am I comfortable
Speaker 3: with this amount of risk?
Speaker 2: Definitely? And they should have been doing that already. Anyway,
Speaker 2: if you're looking at equities, you know you're going in
Speaker 2: with something that's volatile. There are a lot of other
Speaker 2: products out there to mitigate that. In the handy little
Speaker 2: risk profiles that we get in various disclosure statements to
Speaker 2: one to seven seven bang, you're going to have to
Speaker 2: tolerate some downs with the ups and think about it
Speaker 2: over a long period of time. I mean, I still
Speaker 2: struggle when I see these statements looking at a long
Speaker 2: term investment being five years, that's not a long term investment.
Speaker 2: You're day trading if you're thinking that's your sort of profile.
Speaker 2: If we think about Kiwi Saber forty years, this is
Speaker 2: a generational product, So you can go through these sorts
Speaker 2: of things and looking at you know, the immediate volatility
Speaker 2: after the Liberation Day announcements and ends it x first day,
Speaker 2: it ended up the day up. We were the first
Speaker 2: market to open. We eaked out in the final fifteen
Speaker 2: minutes of the match where all of the big money
Speaker 2: sort of trying to set their final prices for the day,
Speaker 2: ends up in the green, having been sort of you know,
Speaker 2: in the red for a lot of it. Then you
Speaker 2: get to a Wall Street reaction the following day slaps everyone.
Speaker 2: We finally get it on the Monday, where it comes
Speaker 2: down a bit domestically. But you'd look at those numbers
Speaker 2: and I remember I was looking back at say sort
Speaker 2: of heighter GFC, hider COVID, he to COVID. Was I
Speaker 2: mean some of that that some of those movements were nonsensical.
Speaker 2: You couldn't quite wrap your head around it, even thinking
Speaker 2: about the likes of West Texas and the media oil
Speaker 2: prices going negative for a stage mad GFC going back
Speaker 2: to you know it was it was a smaller, sort
Speaker 2: slightly bigger than the dot com bubble in the early
Speaker 2: two thousands. But over the course of it, you're sort
Speaker 2: of going, Okay, we're feeling this now because it's happening
Speaker 2: right now, but we felt like this in the past.
Speaker 2: And that's how you try and sort of think back
Speaker 2: into your mind. Okay, if you're thinking about equities, it's
Speaker 2: a long term thing. It's it's so easy to get
Speaker 2: caught up in the ups and downs. You do want
Speaker 2: to have an idea of going into things, you know,
Speaker 2: what am I What am I comfortable with and revisit
Speaker 2: that every now and then, like, you know, let's have
Speaker 2: a look at it, maybe quarterly, maybe yearly. What do
Speaker 2: I think about my portfolio now? What do I need
Speaker 2: sort of over the next six, twelve, twenty, fourth, thirty
Speaker 2: months type thing? And it just accordingly or not.
Speaker 3: It's like a health check, as you kind of check
Speaker 3: and maybe once a year with your doctor if you
Speaker 3: can get in to see them and go, you know,
Speaker 3: how things looking. It's a chance to say, is my
Speaker 3: strategy for the long term working right now? And do
Speaker 3: I need to adjust it? Would they be right?
Speaker 1: Yeah? And I do think sometimes living through these moments
Speaker 1: are the reality check to actually go back and look
Speaker 1: and go, am I dipssified enough? Do I have enough
Speaker 1: cash on hand? Are those settings right for me? At
Speaker 1: the stage of life and for my risk appetite, I
Speaker 1: think when it comes to investing, it's really important to
Speaker 1: understand whether we are trying to maximize for the short
Speaker 1: term or optimize for the long term. And those are
Speaker 1: two very different things, and they're actually adulds with each other.
Speaker 1: So if you're optimizing for the long term most of
Speaker 1: the time, I would say by definition, that means not
Speaker 1: maximizing for the short term, and it means actually not
Speaker 1: maximizing for returns when times are good. And again psychologically
Speaker 1: that's quite hard. You know. For the last couple of years,
Speaker 1: I'm very well in Nvidio, and every time that I
Speaker 1: go and look at that stock, I go, oh, I
Speaker 1: think it's overpriced, and I will invest, and then sure
Speaker 1: enough I was wrong and the price will keep going up.
Speaker 1: And I do think there are times when things are
Speaker 1: going up where people could maximize short term returns by
Speaker 1: taking on more debt, having lower cash levels, going more
Speaker 1: into individual equities, and maybe having less di versification. But
Speaker 1: what that also does is it does make your portfolio
Speaker 1: more or less resilient to large volatility and large periers
Speaker 1: of uncertainty, and less resilient over the long term and
Speaker 1: for people that really are looking to optimize for the
Speaker 1: long term. And if we look at the formula of
Speaker 1: long term wealth, is your sort of return to the
Speaker 1: power of time. That keyword is time, like it's to
Speaker 1: the power of time. And so if you're thinking about
Speaker 1: endurance and thinking about maximizing for the long term, then
Speaker 1: sometimes that does mean holding back a bit in terms
Speaker 1: of trying to maximize over short periods of time, because
Speaker 1: actually you really want to make sure that you can
Speaker 1: survive the one and twenty year event or the one
Speaker 1: in forty year event, and that's quite different the what.
Speaker 3: If moment that we're all kind of going through.
Speaker 1: Now, that's right, and I think when we you know,
Speaker 1: what we do know so far is that over long
Speaker 1: periods of time, there's been lots of periods of volatility,
Speaker 1: but that markets overall have done well. And so that
Speaker 1: does go back to going, am I diverse wide enough?
Speaker 1: What does diversifacation look like? And is my time horizon
Speaker 1: to fuce point long enough? And I agree with five
Speaker 1: years is just not long enough in my view to
Speaker 1: be really thinking about the equity markets.
Speaker 3: You're looking more like ten or longer, yeah.
Speaker 1: Or longer? I mean, I think Warren Buffett made something like,
Speaker 1: I think something like ninety nine percent of returns are
Speaker 1: to returned sixty I think, and that's just because of
Speaker 1: that exponential, that power of time that it's all been
Speaker 1: in the the latter years.
Speaker 3: But he made some pretty smart decisions before that, I'm
Speaker 3: sure did. Coming back to the INSIDEX and you were
Speaker 3: talking about how we actually managed to perform a little
Speaker 3: bit out of step with those market moves. You know,
Speaker 3: there's obviously a lack there. I mean, has there been
Speaker 3: has it been a good guide for the volatility that's
Speaker 3: out there, the performance of that market, and are we
Speaker 3: sort of seeing it reflected or are there some local
Speaker 3: things that we need to think about there would.
Speaker 2: Definitely follow those trends. You're looking at it, and you
Speaker 2: don't tend to see the same peaks and troughs that
Speaker 2: you get on that daily basis over sort of the
Speaker 2: short period of time. I mean, that's where you saw
Speaker 2: five percent going on the NASDAK, you might get a
Speaker 2: three on the fifty.
Speaker 3: Might that make it a bit more of a defensive
Speaker 3: A definitely.
Speaker 2: I mean, when you're looking at the top ten, top twenty,
Speaker 2: you're looking at utilities you've got the three government controlled
Speaker 2: power companies, an airline which is government controlled, broadband provided
Speaker 2: that got out of got into businesses that it probably
Speaker 2: shouldn't have. Fisher and Pyble Healthcare is probably the most
Speaker 2: interesting one out of there and has been an astonishing success.
Speaker 2: There are always a lot of what if moments, and
Speaker 2: it does often make you wonder whether or not we've
Speaker 2: got the risk settings right. It's one thing for the
Speaker 2: market to be defensive, but the trading volumes on the
Speaker 2: nz X fifty were pretty low throughout this entire period,
Speaker 2: even though activity sort of perked up throughout it all.
Speaker 2: When you're looking back at sort of just the actual
Speaker 2: volume of shares trading, and you're looking at maybe one
Speaker 2: twenty one to thirty mili in turnover value of trading
Speaker 2: going through it on a daily basis, The rewatings of
Speaker 2: major indices a couple of weeks prior had massive volumes
Speaker 2: over that you're looking at sort of equivalent volumes going
Speaker 2: through the Breck search back in twenty sixteen around mid
Speaker 2: year like that, that seems out of step when you've
Speaker 2: got some of the biggest trading volumes going on in
Speaker 2: Wall Street over in Australia, and yes, people are sort
Speaker 2: of sitting and waiting to see what goes on. But
Speaker 2: you're just wondering, why is New Zealand not actually engaging
Speaker 2: in this? Is this just a function of the fact
Speaker 2: that a lot of our ownership is being done through
Speaker 2: passive ETFs now and these are the vehicles that people
Speaker 2: are flocking to. Has really been quite curious is to
Speaker 2: wonder have we got our risk settings right for what
Speaker 2: should be something that is there to support not only
Speaker 2: deeper capital markets for new businesses to be coming out there,
Speaker 2: but for investors to get involved in. You struggle to
Speaker 2: see the imagination getting captured by the New Zealand public
Speaker 2: at a time when more of the New Zealand public
Speaker 2: is finally getting over the finance company debacle, the eighty
Speaker 2: seven crash, You're left sort of scratching your head, going
Speaker 2: what gives.
Speaker 3: The data would suggest though, that we are getting over
Speaker 3: those things that if you look at even at the
Speaker 3: Cheeses index that Cheesy's produces quarterly, people are diving into
Speaker 3: those marks, not necessarily the nsiet x point, but they're
Speaker 3: getting amongst it, don't they.
Speaker 1: Yeah, I've been really hardened to see the response to
Speaker 1: this period of volatility, where the latest figures from the
Speaker 1: Cheesy's Index over the quarter January to March showed again
Speaker 1: continuing strong netbuying through this period, and then also a
Speaker 1: shift away from sort of more individual companies into more
Speaker 1: ETFs and diversified funds as well as into defensive individual
Speaker 1: companies as well. And I do think that reflects the
Speaker 1: fact that we are probably in for a period of
Speaker 1: continued volatility and divesification is a really important thing to
Speaker 1: make your portfolio more resilient to sort of withstand withstand
Speaker 1: that period. I also think actually even before this tariff
Speaker 1: war and these geopolitical events that we're seeing play out.
Speaker 1: You know, if I look at twenty twenty four, in
Speaker 1: the year, the S and P five hundred was up,
Speaker 1: I think about twenty five percent, but about half of
Speaker 1: those companies had losses so had a negative return for
Speaker 1: that period. And actually it's a very few number of
Speaker 1: companies that accounted for the majority of that return. And
Speaker 1: I think that is a trend that we're seeing more
Speaker 1: and more, particularly as you have large tech players with
Speaker 1: high operating leverage and you're seeing some more global companies,
Speaker 1: you are seeing that the drive to the tails and
Speaker 1: the tails that are driving for the big outcomes, and
Speaker 1: unless you can you know, really pick who those winners
Speaker 1: will be. And I mean I certainly can't. Definitely, we're
Speaker 1: not near my day job if I could do that.
Speaker 1: But you know, unless you can do that, well, then
Speaker 1: you know you're it's going to be hard to even
Speaker 1: beat the market return if you haven't got decent exposure
Speaker 1: to those very few sort of fewer and fewer stocks
Speaker 1: that are driving the big outcomes. And so I do
Speaker 1: think that moving more to that diversified approach is really
Speaker 1: helpful as we're seeing that trend even beyond you know,
Speaker 1: the volatility with off the back of the Trump saga.
Speaker 2: That's just also one of those issues that you get
Speaker 2: around the shifting around the ETFs and the such. It's
Speaker 2: hard to look at say like a QQQ, the Nasdaq
Speaker 2: ETF or the S and P five hundred and really
Speaker 2: consider either of those to be diversified given the concentration
Speaker 2: of Magnificent seven and you know, just thinking about, like
Speaker 2: you know, people on Shares's platform, this is we investors
Speaker 2: being drawn more to US stocks and they're going down
Speaker 2: this you get told to diversify your portfolio. This American
Speaker 2: market should be one that you should go into. But
Speaker 2: if you're only going into seven companies that are making
Speaker 2: up the dominance of it, you know, it's hard to
Speaker 2: wrap your head around how you're actually diversifying your investment there,
Speaker 2: or if you're just trying to ride the wave that
Speaker 2: we've all been don for what last seven eight nine
Speaker 2: years now?
Speaker 1: I mean to fourth point though. Yeah, when you look
Speaker 1: at for example one E S and P five hundred ETF,
Speaker 1: it is dominated by a very few number of stocks.
Speaker 1: And I mean I remember a time on the ins
Speaker 1: oft X fifty where I think it was fishing, Packal, Healthcare,
Speaker 1: and A two milk collectively where something like thirty percent
Speaker 1: of the index. And so unless you had for fund
Speaker 1: managers that didn't have a massive exposure to those two,
Speaker 1: they almost always underperformed index at that time. What we
Speaker 1: are also seeing because we call a lot of our
Speaker 1: keep we saving members, and we are talking to investors
Speaker 1: all the time. And another thing we're seeing is we're
Speaker 1: actually fine larging investors not disengage. They're not going I
Speaker 1: just put my head in the set end and try
Speaker 1: and just forget about this period we are seeing investors
Speaker 1: actually continue to check in with their balances, but also
Speaker 1: they're saying, actually, this is just part and parcel of
Speaker 1: being an investor. And I think that really is a
Speaker 1: shift in mentality of what we've seen in previous periods,
Speaker 1: particularly amongst retail where I'm talking to investors, I've seen
Speaker 1: a really big shift in psychology where it is much
Speaker 1: more volatility is the price of investing, and it's not
Speaker 1: a penalty, it's not for doing something wrong. It's literally
Speaker 1: the price of being in the market. And actually, when
Speaker 1: I do talk to investors, the things that they're about
Speaker 1: is not volatility in the short term, and they shouldn't
Speaker 1: be like for investors taking a long enough time horizon
Speaker 1: and advertate, volatility in itself shouldn't be the issue. The
Speaker 1: issue is, you know, can I lose some all of
Speaker 1: my money? Or am I going to get inadequate returns
Speaker 1: for the risk I'm taking on? Those are the issues
Speaker 1: that investors need to be concerned with, not that short
Speaker 1: term volatility.
Speaker 3: Yeah, I guess key. We saver is probably a huge
Speaker 3: part of that equation. Right, people are now directly invested
Speaker 3: that can sort of see a little bit about their
Speaker 3: peace of the world. And that's probably leading a lot
Speaker 3: of financial literacy as well. I guess the fact that
Speaker 3: it's locked in right that people are in there until
Speaker 3: sixty five or whatever, or until they buy their first house,
Speaker 3: if that's where they're trying to push it to. So
Speaker 3: that's got to be a big part of this.
Speaker 1: Yeah, totally. And dolo cost averaging in that is the
Speaker 1: key saver strategy. Like every month money gets deployed, whether
Speaker 1: or not people are feeling good about it and looking
Speaker 1: at the balance and obviously only investing at the top
Speaker 1: of the market is not a good strategy. So dolo
Speaker 1: cost averaging does rely on investing when markets go down
Speaker 1: and continue to deploy money during those moments, which, as
Speaker 1: we've talked about psychologically, is challenging.
Speaker 3: I mean, we do have some slightly unusual KEI we
Speaker 3: server settings here where we sort of tax it going in,
Speaker 3: whereas a lot of other countries will just say you
Speaker 3: make the money, you grow, your pie, will have it
Speaker 3: when you cash it out when you're retired. Things like
Speaker 3: is it time for us to look at that and
Speaker 3: say we need a health check on We.
Speaker 2: Should be looking at that all the time, you know.
Speaker 2: The esteemed commentator Brian Fellow, who is very smart columnist
Speaker 2: at The Herald for many, many many years, would regularly
Speaker 2: point out a bit the horrendous change that was made
Speaker 2: when Roger Douglass was Finance Minister to change that setting
Speaker 2: around the tax you're clipping the ticket on the way
Speaker 2: through and what government wants to give up that money,
Speaker 2: which the ultimate taxpayer doesn't see. You're not aware of
Speaker 2: how much you're actually paying. Until we had the sort
Speaker 2: of it might have been the COVID crash. When you're
Speaker 2: looking at the annual key we save balances, it was
Speaker 2: almost about that time where the tax take was going
Speaker 2: to be bigger than the fees generated. Now, you know,
Speaker 2: it's kind of a moral for the government to be
Speaker 2: a bigger beneficiary of the privatizing of future savings than
Speaker 2: the people that it constantly complains about. It's a horrendous setting.
Speaker 3: I kind of imagined it's a little bit like trying
Speaker 3: to steal food out of the mouth of the animal
Speaker 3: that you're trying to feed. Rather than just saying, hey,
Speaker 3: one day we're going to you know, it's going to
Speaker 3: meet at the end and we're all going to eat.
Speaker 3: You know, it feels like they're trying to take too
Speaker 3: much too soon. But like you say, it's locked in
Speaker 3: and probably hard to reverse. But are there other changes
Speaker 3: where you trying to make well.
Speaker 2: I mean everyone's pushing for pushing for increasing contribution rates,
Speaker 2: which makes sense. I mean even if you go back
Speaker 2: to doctor Cullen when he was setting it up, the
Speaker 2: staggered rate of one, two, three, four going up one
Speaker 2: percentage point a year to minimum and then wanting, you know,
Speaker 2: wanting to be able to get for it to go
Speaker 2: up to eight.
Speaker 1: I mean, the great thing with key we save is
Speaker 1: it really does maximize for that time horizon. And I
Speaker 1: think as humans, for most people, and I said, it's
Speaker 1: for myself, compounding is not insuredive. Like if someone said
Speaker 1: to me, what's seven plus seven plus seven plus seven,
Speaker 1: I'd give them the answer. They said, what's seven times
Speaker 1: seven times seven times seven? I just say that's a
Speaker 1: really big number. I personally think compounding, the compounding formula,
Speaker 1: we're the most useful formula that my kids ever learn.
Speaker 1: And I just think that we don't. It's very hard
Speaker 1: to visualize and really understand how powerful that is. Over decades.
Speaker 3: Look, we've managed to get through this mostly without a
Speaker 3: lot of talk about Trump or tariffs or any of
Speaker 3: those things, or it's been in the background there, right,
Speaker 3: because every other day it's a new thing, right. But
Speaker 3: coming back to what we're talking about with some of
Speaker 3: those New Zealand companies, those local companies, is there any
Speaker 3: way we can work out what those likely impacts are
Speaker 3: to be on some of the market players that we've got.
Speaker 2: Here, not yet, Yeah, well ofause, I mean, your first
Speaker 2: round had so Fisher and Pugle health Care, which has
Speaker 2: significant manufacturing operations in Mexico, which were immediately slapped with
Speaker 2: tariffs before the big Donald Trump versus the World, which
Speaker 2: was then peered back to Donald Trump versus China Super Slam.
Speaker 3: We should start coming at some wrestling metaphors or something
Speaker 3: at SummerSlam.
Speaker 2: I mean, he is a WWE fan, but it's the
Speaker 2: were their immediate thing was it's not going to hit
Speaker 2: our twenty twenty five financial year because their financial year
Speaker 2: ends in March, so that gives them a bit of
Speaker 2: an out to then think about, well, gee, we need
Speaker 2: to work out what the impact is going to be,
Speaker 2: whether or not we're going to be able to pass
Speaker 2: this on to our customers, whether or not we're going
Speaker 2: to shift more manufacturing back to New Zealand. They went
Speaker 2: through this in twenty sixteen after the original when NAFTA
Speaker 2: got torn up and Trump renegotiated the free trade agreement
Speaker 2: with Canada or Mexico. Fisher and Pigal Healthcare. We're looking
Speaker 2: at their manufacturing footprint and thought this is too much
Speaker 2: of a risk. We need to find another country to
Speaker 2: build things. They ended up settling on a Chinese factory
Speaker 2: which came on stream. It might have been last year
Speaker 2: or the year before, quite remember, but this is this
Speaker 2: is how every company is going to respond. They will
Speaker 2: look at what the rules are going to be, and
Speaker 2: they will work out what will we get hit by
Speaker 2: and how can we get around it, and how else
Speaker 2: should we respond. I mean, in video promising to build
Speaker 2: half a trillion dollars worth of AI servers and there
Speaker 2: are supercomputers in America. That's exactly the sort of behavioral
Speaker 2: shift that this White House administration wants to see. Whether
Speaker 2: or not you know that the tariff regime would have
Speaker 2: forced their hand or not. Counter factual, We've got no.
Speaker 3: Idea whether they've got the consistency coming out of the
Speaker 3: White House that these businesses can actually use to make
Speaker 3: those decisions as well, right, you know, can't we just
Speaker 3: get a deal instead?
Speaker 1: Yeah, I'm intrigued to see actually how much manufacturing will
Speaker 1: move to the US, because there is there is quite
Speaker 1: a lag in terms of that response to them going,
Speaker 1: oh we actually going to build a factory or going
Speaker 1: to set up a factory, and that that takes time,
Speaker 1: and I'm seeing various countdowns as to when Trump, you know,
Speaker 1: when his term will finish, and look, who knows what
Speaker 1: will happen at that point. But you know, if that
Speaker 1: takes time, and do you think that they will get reversed,
Speaker 1: then you do sort of whip back and go, well, actually,
Speaker 1: is that worth it or not?
Speaker 2: There are always going to be winners and losers throughout
Speaker 2: this entire sort of situation. Some people will find the
Speaker 2: opportunities and others will get burnt, which is kind of capitalism, right.
Speaker 2: I mean, you know, it's not a win win, win
Speaker 2: win win, no matter how much these sort of well
Speaker 2: manufactured press release tries to pict it is. So.
Speaker 1: Yeah, and then another interesting thing is thinking about what
Speaker 1: the long term consequences might be of all of this
Speaker 1: as well. You know, even if things are completely reversed,
Speaker 1: that doesn't necessarily take away the fact that this has happened.
Speaker 1: And then what, you know, how will global fund managers
Speaker 1: look at the US or you know, what will be
Speaker 1: certain views around the US dollar moving forward, And that's
Speaker 1: really hard to predict, you know what that might be.
Speaker 2: I was just thinking Milford, our local fund manager in
Speaker 2: New Zealand, they had already been looking at the valuations
Speaker 2: in the US and gone, it's a bit toppy. And
Speaker 2: they had been pairing back their US exposure and shifting
Speaker 2: it to Europe where things were looking like a better value.
Speaker 2: And you saw in the first sort of the first
Speaker 2: quarter up until Liberation Day which liberated US at our gains,
Speaker 2: that some of those European defense stocks have been going
Speaker 2: through the absolute roof in Europe, primarily because they couldn't
Speaker 2: trust on being able to source American product anymore. But
Speaker 2: you know, these things, these things have massive budgets coming
Speaker 2: their way as well as a result of what could
Speaker 2: possibly be the dissolving of the NATO alliance, which is
Speaker 2: crazy when you say that out loud.
Speaker 3: Yeah, I did say we were going to try and
Speaker 3: be unashamedly local. I feel like we've ranged pretty far
Speaker 3: from home now. So I'm just going to bring it back.
Speaker 3: If we're talking about the NZIX. There's something I need
Speaker 3: to ask you, Susan strategic mediocrity explain.
Speaker 1: Yeah, Strategic metirocrity was actually a term that the global
Speaker 1: asset manager used to use. I don't know if they
Speaker 1: still do, and it was really from a bond trader
Speaker 1: back in the day called Ben Trotsky. In two thousand
Speaker 1: and three, he retired with the best ten year record
Speaker 1: at the time globally. And what ben Trotsky had done
Speaker 1: is he analyzed a lot of a lot of history,
Speaker 1: a lot of data, and actually found that if he
Speaker 1: could stay within the top third of performers each year,
Speaker 1: but not higher than that, so not on the top
Speaker 1: twenty percent or the top twenty five percent, then naturally,
Speaker 1: if he did that consistently over a ten year period,
Speaker 1: he would be at the top in any competitive universe.
Speaker 1: And really what it is about is going things change
Speaker 1: all the time. Just as we're talking about things are
Speaker 1: so uncertain all the time, and so an environment that
Speaker 1: might produce sellar returns one year, if the environment changes,
Speaker 1: then that same strategy might not produce the same outcome.
Speaker 1: In fact, it's unlikely to so if the strategy is
Speaker 1: more about thinking about a really resilient and robust approach
Speaker 1: that will work in a variety of different environments. If
Speaker 1: you apply that consistently each year, then actually over a
Speaker 1: longer period of time, say a ten year period, then
Speaker 1: that should produce really good outcomes. And I actually looked
Speaker 1: at this on with instx data, and it was really
Speaker 1: fascinating to see over I looked at a range of
Speaker 1: different decades, and what I found is that the companies
Speaker 1: that perform the best over a ten year period never
Speaker 1: with the top than any one year. And I think, again,
Speaker 1: it's that optimizing over the longer term versus maximizing over
Speaker 1: the shorter term. And I don't think we talk about
Speaker 1: this enough. If I look at websites or fund managers,
Speaker 1: they often talk about a one year or three year,
Speaker 1: maybe a five year record. If I'm investing for a
Speaker 1: longer term than that, then actually that's not really relevant
Speaker 1: for me. I need to be looking at what that
Speaker 1: track record looks like over a much longer time frame.
Speaker 1: And it was interesting seeing some of the top formers
Speaker 1: on the insiet X. I mean, Chorus was one that
Speaker 1: has produced some stellar returns over a ten year period,
Speaker 1: and in fact, if you account for the sort of
Speaker 1: risk control as well, it's probably even better. So, you know,
Speaker 1: I think it's interesting too. Over the last few years
Speaker 1: we've seen quite a bag shift away from the injetex
Speaker 1: into the US markets. But I did look at a
Speaker 1: range of Intertex companies and actually, if we take a
Speaker 1: much longer time horizon, there's been some really really strong
Speaker 1: consistent returns on some of these companies over a decade plus.
Speaker 3: All are there hidden treasures in there in the insiet.
Speaker 2: X They're always hidden treasures, but I mean it's part
Speaker 2: of the problem around crystallizing value out of them as
Speaker 2: the lack of liquidity throughout the entire market. People won't
Speaker 2: touch anything outside of those top twenty companies. And when
Speaker 2: you're looking at sort of those mid and small cap companies,
Speaker 2: and these are why they're so often how to takeover
Speaker 2: targets because they're trading possibly even below the net tangible
Speaker 2: assets that you know, if you were to liquidate the
Speaker 2: matter point in time, you would get more money than
Speaker 2: what you could do buying them all on market at
Speaker 2: that price. There are a lot of companies in that
Speaker 2: sort of space, and part of it is just because
Speaker 2: they've fallen out of favor. Part of it is that
Speaker 2: their owners, the shareholders, don't want to sell at the
Speaker 2: prices that someone else is out there trying to do so.
Speaker 2: But it's just really difficult to drive that activity to
Speaker 2: get a real, a transparent price, which is what a
Speaker 2: stock market, a forum for people to buy and sell,
Speaker 2: is all about. Why didn't Rocket Lab get a secondary
Speaker 2: listing when it went to the Nasdaq? What are we
Speaker 2: doing in New Zealand that's not encouraging those companies that
Speaker 2: are imagining to get from small to medium to big,
Speaker 2: or those hugely ambitious companies to think domestic, even if
Speaker 2: that's only just a component of it. Why are they
Speaker 2: completely assuring us? And it's very easy to take a
Speaker 2: crack at the stock exchange operator and say, well, you're
Speaker 2: not sticking to your knitting, you're too busy off and
Speaker 2: funds management, wealth administration. Well that's unfair. They're just one
Speaker 2: component to the entire thing. Is it the fifteen years
Speaker 2: of the conduct legislation that we've been operating under, did
Speaker 2: that get it right? Maybe it's time to have we
Speaker 2: think about that. I mean, Cheersy's has been a magnificent
Speaker 2: introduction into the market to at least inject, if not necessarily,
Speaker 2: the value of trading that you see from the big houses,
Speaker 2: the volume of it. Retail investors are getting engaged through
Speaker 2: it and doing so, but more it just seems to
Speaker 2: be like we've left something on the table, and if
Speaker 2: I knew what it was, I'd probably be sitting in
Speaker 2: the top floor of PWC's our own commercial bank. The
Speaker 2: what if moment out of all of this and the
Speaker 2: peaks and troughs of the SMP five hundred is we
Speaker 2: need to look a little bit local and fix our
Speaker 2: own house as well and fix some of these things.
Speaker 2: Thank you so much for your insights, for your experience.
Speaker 2: Do you come stay calm people, honestly and as you say,
Speaker 2: just just check in when you need to and you know,
Speaker 2: back the long game.
Speaker 3: Thank you very much, Paul, Thank you very much. Susanna,
Speaker 3: Thank you very much as well for listening and for
Speaker 3: watching YouTube Spotify, Apple iHeart straight off the shares exap.
Speaker 3: If that's where you're getting it from, Thanks very much.
Speaker 3: Let us know what you thought, let us know what
Speaker 3: you'd like to hear about, Kumitu. That's us for now.