TW3 – Corona Concerns Won’t Impact Returns

Stanford Brown Seminar

We recently advised readers to avoid financial forecasts as they are full of unoriginal platitudes – you can’t do the exact same thing as the average investor and expect to achieve above average results. There are many words you could use to describe our Chief Investment Officer Ashley Owen – unoriginal is certainly not one of them!

Join us at the Kirribilli Club on the 20th of February as Ashley shares his views on the state of global markets and how he has positioned portfolios for the months ahead! You can RSVP here or email [email protected].

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Stanford Brown Quarterly

If you can’t wait until the 20th to get your fix of portfolio management, you can sink your teeth into our latest Quarterly Review of Investment Markets and Portfolio Settings!

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Market Wrap

The coronavirus has dominated markets over the past fortnight, with investors (if you could call them that) buying and selling shares with each and every new development out of China. This is another example of what differentiates investors and speculators – the coronavirus is going to have a negligible impact on the value of your portfolio in 5 years’, 10 years’, or 30 years’ time. Unless you think that the coronavirus is going to send the world into Mad Max times and you need some additional funds to add some modifications to your car, no portfolio changes are required!

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In local news, the RBA kept interest rates steady this week, with RBA Governor Phillip Lowe painting an upbeat picture for the Australian economy in 2020. Some of the major banks expect the economy to shrink in the first quarter of 2020 as a result of the bushfires and coronavirus weighing down on consumer confidence, however the RBA is confident that barring a major virus outbreak the economy will do just fine this year!

Finance 101 – Putting Theory Into Practice

Nic recently celebrated the Lunar New Year with his girlfriend’s family, and shortly after receiving a few lucky red envelopes indulged in some traditional Vietnamese gamblingIt’s a pretty simple game – the faces of three dice show 6 different pictures (seen below), and you bet money on a picture (e.g. crab) and hope that when the dice are rolled one of them shows a crab!

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Unsurprisingly, Nic was soon down a whopping $10 – next year he won’t bet on crab. He was faced with a dilemma: does he cut his losses? Or does he chase them? Cooler heads prevailed, and Nic walked away with almost all of his lucky red envelope money.

It’s easy to be sensible with money when the stakes are small – it’s when the stakes are large that our reptilian brains go into overdrive. What if Nic had lost $100,000 instead of $10? That’s a tougher pill to swallow, and many people wouldn’t be able to cut that loss, choosing instead to chase it and almost always losing more money. Even worse – what if Nic had won $100,000? It takes quite a lot of discipline to take your money off the table when it feels like you have the Midas touch.

The legendary investor Peter Lynch once said that everyone has the brainpower to make money in stocks, but not everyone has the stomach. You could read every Finance 101 we’ve ever written (an excellent Valentine’s Day gift if you’re stuck for ideas), and all that wisdom would be for naught if at the first sign of financial trouble you follow your gut rather instead of your brain. We’ve said it once and we’ll say it again – the primary role of an adviser isn’t to deliver sky-high returns, but to help their clients avoid making major mistakes that are easy to understand in theory and difficult to avoid in practice.

How Do The Markets Affect You?

You may have noticed that petrol is cheaper than it was earlier in the year. This is because prices are a result of supply and demand. At the beginning of the year the price of oil spiked after the US-Iran flare up – fighting a war may get in the way of Iran supplying four million barrels of oil to the world each day! Now petrol prices are lower thanks to the coronavirus outbreak. Fears of contagion are resulting in cancelled travel plans. Fewer people travelling means fewer planes in the sky. Fewer planes in the sky means fewer refuels. Fewer refuels means lower demand for fuel, meaning lower petrol prices for you and I!

Aside from impacting the values of our portfolios, what happens overseas affect just about every transaction we make – whether it’s our morning coffee made with beans from Brazil or the computer you’re reading this article on, which was likely made in China and runs on American software. This is a good thing – Australia is not particularly good at producing coffee beans, computers, or software, so it’s better for us to focus on our strengths (digging up rocks and providing international education) and letting the other countries do what they’re good at.

Global trade also happens to be one of the best ways to foster peace in the world. The main reason why China and America haven’t gone to war with each other is that America wants to buy a bunch of cheap goods and China wants to sell a bunch of cheap goods – fighting a war would compromise this neat arrangement!

Property Nearing Peak

The property party is still going strong in 2020, with prices in Sydney and Melbourne continuing their recent surge. Melbourne’s market is now only 1.2% below its late 2017 peak, while Sydney has to rise a further 5.4% to match its previous highs.

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Source: Corelogic

Cleaning Up The Industry

The financial behemoth Citigroup has a rich history of mischief – helping Enron cook the books, laundering money for Mexican drug lords – they even used some of their government bailout money in the GFC to pay out million dollar bonuses!

That was the old Citigroup, the new Citigroup is committed to integrity, justice, and being an upstanding corporate citizen. They are pulling no punches in their quest of becoming a force for good in the world:

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Trailblazers. A beacon of hope in a dreary world. We salute Citigroup’s courage – the world is now a better place. Someplace, somewhere, John Lennon is smiling – this is the world he dreamed of when he wrote Imagine!

Tweet of the Week

A little 80’s throwback!

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Video of the Week

Nic has been mourning the untimely passing of basketball legend Kobe Bryant over the past fortnight. Kobe wasn’t just a champion on the court, winning an Oscar in 2018 for his short film “Dear Basketball”.

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