Julie's Blog Posts

Here you will find interesting quotes, useful information and links to helpful articles on a wide variety of subjects.
A Story of a Big Dream and a Single, Small Step

Let me tell you a little story. 

It’s the story of a consultant who had a scary idea. She wanted to publish a cookbook. She had no background in writing, publishing, cooking, blogging or anything related to that goal. 

In this tall tale, the consultant left her job to follow her dreams, as the cliché goes. And the next thing you know, the story unfolds just as you would have hoped. The universe conspires — magically! — to give her a helping hand. She finds an agent and snags a contract with a top publisher. She even gets the television personality Anthony Bourdain, a famous chef, to do the blurb on the book cover. 

Cool story, right? But we all know stories like this one don’t really happen. You need a degree from the literary starmakers at the University of Iowa Writers’ Workshop, a successful stint on “Iron Chef” or at least 10,000 Instagram followers before you can even dream of doing something like that. 

But wait! This story is actually true. The woman who made it happen is Reem Kassis, and her cookbook is “The Palestinian Table.”  

So why share the story? Not because it is so crazy but because it is so sane. The way Ms. Kassis pursued her scary thing is practical and repeatable. She did things that anyone can do, as long as you have the nerve to try to do something hard and scary in the first place. 

Ms. Kassis grew up in Jerusalem but came to the United States to pursue an undergraduate degree at the University of Pennsylvania. She eventually worked as a consultant for McKinsey & Company before leaving to have her first child. 

It was around then that she decided to give this far-fetched cookbook idea a shot. She was not dabbling in writing at the time. She didn’t have a side hustle making food at a restaurant. She didn’t have a blog or an Instagram account. All she had was a stake in the ground and a direction she wanted to go. 

Oh, and she had those roadblocks. Enough roadblocks that most people would have labeled such an idea unrealistic and given up. 

But one pattern I’ve noticed in people who do scary things is that once they see the roadblocks in their way, they take a specific kind of action to begin to break them down — a micro-action. Having figured out the big goal, they focus on the next, smallest action that will get them a bit closer to it.

Because Ms. Kassis wanted to publish this book in a traditional way, the most obvious roadblock was her lack of a publisher. To get one to take you seriously, you generally need an agent. To get an agent, you need to send what’s known as a query letter. (See how we’re moving from big, insurmountable roadblocks to smaller actions?) 

But first, you need to figure out which agents to approach. So here’s what Ms. Kassis did first: She went to the bookstore, picked up a cookbook and read the acknowledgments section. She noticed that the author thanked an agent in the acknowledgments, and she wrote down the name of the agent. 

There is more to this story, but please note how micro this action was: a trip to the bookstore. Having noted the name of one agent in one cookbook, the next smallest step was to pick up another one. She repeated these steps with every cookbook she could find until she had a list of agents. 

The next smallest step was to go home and research those agents, one at a time. That allowed her to write each of them very targeted emails. Because she was so thorough in her research, she got an almost unheard-of response rate. Eventually, she landed an agent, and now there’s a published cookbook with her name on it. 

Once you’ve identified the scary thing you want to do, don’t obsess over all the reasons you can’t do it. Get quiet and ask yourself one simple question: What is to be done next? Then look for the next smallest action you can take. Do that thing. Ask again. Repeat. 

I can’t guarantee that if you follow the Next Smallest Action Formula that you will succeed. But I can guarantee that if you don’t take any steps at all, nothing much will come of your idea.

This column, titled A Story of a Big Dream and a Single, Small Step, originally appeared in The New York Times on November 21, 2017 - by Carl Richards www.behaviourgap.com

Planting a tree, not hiring a coach

We’ve been told over and over by the traditional financial services industry to look for the best investment. In our search for the best, we often use past performance. Doing so makes sense since we rely on past performance for other decisions.

For instance, if a university needs a new basketball coach they start by reviewing a coach’s track record. Do they win more than they loses?

However, in a crazy paradox, selecting an investment manager using past performance may not be the best choice. But how is this possible? Hiring someone who performed terribly makes little sense.

Even using a disciplined process and the best data we can find, "smart" activity often creates a behavior gap. The reality is that even if you own a mediocre investment, but if you behave correctly (sometimes that means doing nothing), you’ll outperform 99% of your neighbors.

In the end, successful investing is more like planting an oak tree than hiring a basketball coach.

You never plant a tree and then pull it out every time the wind blows just to check the roots. This simple, but not easy, approach reminds me of Warren Buffett who said:

"Benign neglect, bordering on sloth, remains the hallmark of our investment process."

Based on many conversations I’ve had, this attitude feels wrong. It seems like a contradiction to the Protestant work ethic. If something isn’t painful or hard, it’s not worth doing.

But when it comes to investing, we’re dealing with a different animal.

Once we’ve made a decision based on our personal goals and plans, often the best thing we can do is practice benign neglect. Simply do nothing, even though it feels wrong.

Try it. I think you’ll find that trees grow much better when you stop looking at the roots all the time.

Time for a Rethink Bill!
Compare the pair

Labor have announced that if they get into Office, they are going to remove the imputation credit system for self funded Retirees.  

So what does this mean?  If you buy Australian shares, most large companies pay the company tax out of the dividend before they distribute to the shareholders.  So by the end of the year most shareholders have the income in their bank acount that was paid by the company AND an 'imputation credit' certificate that shows how much tax was paid, by the company, on their behalf.   At tax time, the shareholder can ask the ATO for the imputation credits back as a refund .... if they don't need them to offset tax they would otherwise have to pay.  This is very attractive for Retirees who either hold shares in superannuation in a tax free pension (so they are guaranteed to get all the tax credits returned to them) OR fall under the tax free threshold outside of super... so also get their imputation credits refunded to them.

The Labor Party intend to stop imputation credits flowing to Retirees - unless they qualify for an Age Pension. 

One of the unintended consequences of Labor doing this, is that it will prompt some self funded Retirees to spend their funds to get back onto the age pension.   Self-funded retirees are already up in arms about Turnbull's attack on superannuation, and the unfairness of an age pension system which punishes thrift and rewards those who have saved nothing towards their retirement. The general feeling among self-funded retirees now is "what's the point?". 

The cost of welfare in this county is growing at 8% per a year.  All parties should be focused on encouraging retirees to become self sufficient and get off welfare.  In my opinion, Labor's policies would do the opposite. 

I have attached an article that oulines some of this impact from the Australian Financial Review.   If you want to talk further about this matter, please don't hesitate to pick up the phone or send me an email.  Remember, it is not in force yet, there is no election being called just yet - but I think its important we all start bringing awareness of this issue out into the open now, so ALL Politicians learn the full impact of their decisions. All for now, Julie 

Quote of the Week
Investment Decisions need to be made on Facts, not Headlines!

The Dow Jones dropped 3% on Thursday on news of President Trump’s trade sanctions against China, which might seem understandable, except that there aren’t any sanctions yet and the whole thing was well-flagged anyway. The headline in the Financial Times, and just about every other news outlet said: “Trump to impose 25% tariffs on $60bn of Chinese imports”, which is obviously pretty alarming. A trade war between America and China would seem inevitable, as well as very bad indeed.  The venerable Economist even reported: “President Trump announces tariffs on Chinese goods”. Well, that’s not quite true. I’ve read all the actual material coming out of the White House and tariffs have not been announced, and there’s no mention of $60 billion. There’s no announcement of tariffs of 25% in the memorandum that trump signed either – that figure is contained in a “Fact Sheet” published later, which says: “President Trump’s Administration will propose for public comment adding 25% additional tariffs on certain products that are supported by China’s unfair industrial policy”. “Will propose for public comment” is not exactly an announcement. I presume the $60 billion number comes from the next paragraph of the Fact Sheet: “Sectors subject to the proposed tariffs will include aerospace, information communication technology, and machinery”. I suppose journalists have added up all the Chinese imports in those sectors and come up with $60 billion, but that’s not clear in any of the articles I have read on the subject. That is, all the articles quote tariffs on $50 billion or $60 billion worth of imports without saying where that number comes from. You might think I’m nitpicking and that both the reporting and the market reaction are fair enough given the gravity of what’s happening. But I reckon investment decisions need to be made on facts rather than headlines that are, after all, designed to sell newspapers and generate ratings and clicks rather than to inform. Will there be a trade war? Maybe, but we’re a long way from the US actually taking action and even further from some kind of retaliation by China. It’s worth listing what the Section 301 investigation of China (unfair trade practices) that Trump commissioned last August has actually found, since this what this week’s announcements were based on and also because it also applies to Australia. This is an edited extract from the memo that Trump signed on Thursday:

  • “First, China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities. China also uses administrative review and licensing procedures to require or pressure technology transfer…
  • “Second, China imposes substantial restrictions on, and intervenes in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms…
  • “Third, China directs and facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.
  • “Fourth, China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies. These actions provide the Chinese government with unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications, and they also support China’s strategic development goals, including its science and technology advancement, military modernization, and economic development.”

 My view: numbers 1 and 2 are pretty obvious and unarguable. I’m not sure there’s anything wrong with number 3 – isn’t that what everyone does? Beijing will protest most about number 4 – they have to really. IP theft is a serious charge. We all know it’s going on and it’s well organised, but this is going to be the flashpoint for the trade war. If Beijing gets outraged about being accused of IP theft but then quietly stops doing it, even for a while, then no trade war. If they get outraged and keep doing it, and the Trump Administration moves from proposing tariffs for public comment to actually imposing them … well, then all bets may be off.   The most important thing for investors in the meantime is to not mistake headlines for truth. *This blog is from Alan Kohler's 'The Constant Investor' weekly overview.  A website I'd encourage everyone to subscribe too for a good, well balanced read on all things financial. 

Don't touch our Imputation Credits Please!

Labor announced today a proposal to abolish cash refunds for excess dividend imputation credits.  The SMSF Association has today warned that the Labor policy will cut about $5,000 of income from the median SMSF retiree earning about $50,000 a year in pension income.  It also warns the proposed shake-up would affect more than one million Australians by changing rules that have been in place for nearly two decades.

Yet again, the self funded Retiree is being penalised for having their financial affairs in order.  Australia’s dividend imputation system is an extraordinarily fair and efficient means of taxing company profits. The effect of dividend imputation is that gross profits are taxed in one of three streams depending on the nature of the RECIPIENT.

Profits retained by the company are taxed at one simple rate - 30%.  Profits distributed to non-residents are also taxed at the 30% rate. The remainder - being profits distributed to Australian residents IS EFFECTIVELY TAXED AT THE PARTICULAR CIRCUMSTANCES OF THE RECIPIENT. This strikes me as exceedingly fair - the effective tax rate would range between 0% and close to 50% and is solely dependent on the treatment otherwise accorded to that taxpayer under tax laws. Labor's proposal turns all of this on its head - those persons / entities with a LOW LEVEL of other taxable income would end up paying a higher effective rate on their share of gross company profits than persons or entities with a higher level of other income - seems absurd to me!

I have attached an informative piece on this latest development - taken from The Australian and written by Robert Gottliebsen.

The Bet is Over & the Index WON!

Warren Buffett is an American business magnate, investor, & philanthropist who serves as the chairman and CEO of Berkshire Hathaway. He is one of the most successful investors in the world & has a net worth of US$87.5 billion, making him the third wealthiest person in the United States & in the world.

Every year Warren writes a letter to the shareholders of his company, Berkshire Hathaway.  The 2018 letter is linked below and is a must read - if you go to page 11 you can read about the decade long bet Warren had with active fund managers who bet $1,000,000 they could beat the index.  The results are in and in the 10 years - they beat the index once.  Its worse than that... they used several underlying managers to try and outperform & still the broader sharemarket outperformed with no input, no stock picking - just using an index fund.  A favoured approach of ES&A we were delighted to read these results.  

If you have time, Mr Buffett's letter is an interesting read.... but scroll to page 11 if you are time poor.

http://www.berkshirehathaway.com/letters/2017ltr.pdf

Reporting Season for Aussie Shares

Of the Australian companies that have reported so far, more have beaten expectations than missed, most lifted guidance for next year, and three-quarters of them increased the dividend. Telstra aside (the company has halved the interim dividend as it grapples with the NBN), the average dividend increase is about 4% – twice the average wage rise. It is fair to say that the key contradiction in the Australian economy is on display. The best thing about the economy is that after years of relying on monetary stimulus and state spending, private sector companies are flying. The worst thing about the economy is that the wages those private sector companies are paying is stuck in the mud: wages growth is 1.9%, according to this week’s report from the ABS. So those who invest in companies are doing a lot better than those who work for them.   

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