Here you will find interesting quotes, useful information and links to helpful articles on a wide variety of subjects.
Julie's Blog Posts
Hang in There!
There Is No Crystal Ball But That's Ok!
The biggest investment lesson for me over the past ten years, is that the fog of uncertainty in 2008 has never lifted and never will. As long as we operate in real time, without a crystal ball, we will never know what the next six months, let alone the next ten years, holds for us. And that’s fine because there is a solution.
When the history books are written, they leave out the bits that didn’t matter and line up in orderly rows what is now seen as significant, even if it was overlooked at the time. With the benefit of hindsight, it’s clear what was and what was not important. In real time, of course, it is far harder to see what is going on.
I am enjoying a podcast series at the moment on Watergate, which for obvious reasons is resonant today. What is fascinating about Slow Burn, however, is its attempt to bridge that hindsight gap. It focuses on the things that gripped America at the time but subsequently got left out of the scandal’s defining narrative, which for most of us is All the President’s Men.
The first episode tells the story of Martha Mitchell, wife of John Mitchell, the former Attorney General and head of Nixon’s re-election team in 1972. As such, she had both a front row seat as the story unfolded and a reckless desire to share what she knew in late night calls to her friends in the press. She was living dangerously and she paid a heavy price, hounded by the White House and discredited as an unstable drinker. She was right about the President and her husband, but only Watergate geeks remember her today.
There is a danger that as this Saturday’s ten-year anniversary of the collapse of Lehman Brothers approaches, we try to tie up this episode, too, into a neat morality tale. Boiled down to its essentials, it actually is a simple story but it didn’t seem so at the time when we didn’t know how it ended. And oversimplifying the financial crisis makes it all the more likely that we will not learn its lessons and will relive it.
Here is the short version that will be retold this week. In the years before 2008, banks forgot their basic business of taking deposits and making loans. Instead, they started dealing in the loans themselves, packaging them up into fancy new instruments on a false prospectus that this would make the financial system safer.
This snake oil didn’t wash for two reasons. First, because it was now unclear where the risk lay in these opaque and complex securities, now far from their originators. Second, because in order to feed the banking machine’s hunger for the profitable new products, more and more loans of lower and lower quality had to be made. An old-fashioned credit bubble lurked within a shiny new wrapper. When loans to people who should never have had them pressed on them inevitably turned sour, no-one knew where the bad smell was coming from. And a system built on the quicksand of broken promises crumbled.
To test the Martha Mitchell view of those times, what we actually thought as we lived through them ten years ago, I dug out my last column in these pages before I moved to Fidelity in March 2008. It was written in the week that Bear Stearns collapsed. Lehman was still a pillar of the financial establishment, far too big and important to fail.
Like Bob Dylan’s Mr Jones, we knew there was something going on but we didn’t know what it was. We only knew it was bad. As I wrote then: ‘for the first time since the economic anarchy of the 1970s, sensible people are seriously considering the possibility that the machine might actually grind to a halt.’
That might sound prescient but in the same breath I was clinging onto the wishful thinking that Bear Stearns was the cathartic moment that would mark the bottom. ‘The whiff of capitulation hung over some of the breath-taking share price falls yesterday’, I wrote. I was a year too early.
Too early, but not wrong. The market did recover from Lehman, and it did so surprisingly quickly. Even if you had been unlucky enough to invest in a collection of global stocks on the last trading day before the bank collapsed, you would have recovered your money within a year or so. In the ten years since Lehman imploded, the FTSE All Share has more than doubled if dividend income is included in the total return. That’s more than 8pc a year - and if anyone had offered me that as the bankers carried their boxes through Canary Wharf I would have taken it.
The biggest investment lesson for me over the past ten years, however, is that the fog of uncertainty in 2008 has never lifted and never will. As long as we operate in real time, without a crystal ball, we will never know what the next six months, let alone the next ten years, holds for us. And that’s fine because there is a solution.
Investment diversification is the free lunch that sliced-and-diced collateralised loan obligations pretended to be. In the decade since Lehman there has not been a single year in which the best-performing asset class has been the same as it was in the previous 12 months. There has also never been a year in which each of the main investment assets has fallen at the same time.
Putting your eggs in a variety of baskets is a lot less exciting as an investment philosophy than the apparent risk dispersion used to justify the weapons of mass destruction launched by the banks in the years before 2008. The difference is it works. Unlike the historians, we have to compose our investment stories out of the bits that matter and the bits that don’t. In the here and now, we cannot know which is which.
Keeping an Open Mind
One of the qualities I most admire in my own Clients, is their ability to maintain an open mind. It's a common trait with successful people. The ability to give every idea and concept a listen - evaluate the information carefully - before arriving at a conclusion that best suits them.
With all the negativity in the media - particularly in the area of finance at the moment - it can be hard for people to maintain that open mind when talking about superannuation, investments or even Financial Advisers!
Our office gets phone calls all the time from members of the public looking for help with their finances. After all, is there a more important area of your life (outside of health and family) than trying to preserve and grow your capital base (be it your superannuation, rental property, cash reserves etc)?
My best tip for folk that are wanting advice. Speak to 2 or 3 Advisers and go into each appointment with an open mind. Let each Adviser share their story, their house view on how to run client's investments and then go away and compare and contrast all that you have heard. If you walk in with a mind already closed to new ideas, you will gain nothing new.
Till next time.... Julie
The Cost of Holding On
Let’s start with a story from Jon Muth’s book “Zen Shorts:”
Two traveling monks reached a town where there was a young woman waiting to step out of her sedan chair. The rains had made deep puddles and she couldn’t step across without spoiling her silken robes. She stood there, looking very cross and impatient. She was scolding her attendants. They had nowhere to place the packages they held for her, so they couldn’t help her across the puddle.
The younger monk noticed the woman, said nothing, and walked by. The older monk quickly picked her up and put her on his back, transported her across the water, and put her down on the other side. She didn’t thank the older monk; she just shoved him out of the way and departed.
As they continued on their way, the young monk was brooding and preoccupied. After several hours, unable to hold his silence, he spoke out. “That woman back there was very selfish and rude, but you picked her up on your back and carried her! Then, she didn’t even thank you!”
“I set the woman down hours ago,” the older monk replied. “Why are you still carrying her?”
There is an actual cost to holding onto things we should let go of. It can come in the form of anger, frustration, resentment, or something even worse. The question is, can you really afford to keep paying the bill?
The faster we learn to drop our emotional dead weight, the more room we create for something better. I’m talking about everything from stewing about the guy who cut you off in traffic this morning to still refusing to forgive an old friend for an event 20 years ago.
We have only so much bandwidth. We have only so much time. We only have so much energy. Do we really want to invest any of our precious resources — financial or otherwise — into something that will return nothing but misery?
My question for you is, “What’s one thing you can set down this week?”
Go ahead and pick something. A fight with your spouse, something a politician said, your team losing the big game. Pick it, drop it, and then pause. For just a moment, simply pause and savor what it feels like to no longer carry that burden and pay that price.
Then, I want you to invest that "extra" into something more productive. If it’s extra time, go for a walk. If it’s extra peace, take five deep breaths. If it’s extra money, because you decided to just pay the stupid traffic ticket instead of letting it sit on your desk accruing late fees, then take that extra money and invest it in something that makes you happy.
Play with your kids. Take a nap. Just do something that makes you feel the opposite of how you felt before you let go. I can guarantee you, this is one investment you’ll never regret.
This column, titled The Cost of Holding On, originally appeared in The New York Times on April 25, 2016. www.behaviourgap.com
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!
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
