TW3 – Snobs in Strathfield

Market Wrap

Markets were modestly lower this week, as weak economic data and political uncertainty soured investor sentiment. The week started off with reports that 20,000 nonfarm jobs had been added in the US, badly missing the consensus estimate of 180,000. Fears of a global slowdown were further exacerbated by reports that China’s industrial output had slowed to its lowest growth rate since 2002.

News that UK parliamentarians had rejected Theresa May’s latest Brexit deal dragged markets lower midweek, as investors tend to become more risk averse when there’s greater uncertainty regarding economic growth. The British Pound has been taken for a wild ride this month, as investors struggle to keep up with each Brexit development.

image

Source: The Wall Street Journal

In others news, Goldman Sachs has made multiple ventures into new territory. In addition to ditching its dress code, Goldman Sachs has opened up one of its most profitable divisions to outside investors. In the words of one commenter “When a broker opens up a good thing to retail investors, you can be sure the party is over! RUN!

Finance 101 – Price vs Value

If you had the choice of investing in a 3-bedroom house in Woollahra or an identical house in Wentworthville, which would you choose? Many would automatically choose the more prestigious Woollahra, without asking the most important question in investing – what price am I paying? A bargain in Wentworthville will almost always be more profitable than a splurge in Woollahra.

The same is true for investing in shares. The price you pay is often more important than what you’re buying. Although Google has become so ubiquitous that it is a verb, an investment in the US listing of Domino’s would have comfortably outperformed Google’s parent company Alphabet since the two companies IPO’d in 2004. When it comes to investing, what you pay is often more important than what you’re buying.

image

Source: Bespoke Investment Group

In the words of legendary distressed debt investor Howards Marks “No asset is so good that it can’t become a bad investment if bought at too high a price. And there are few assets so bad that they can’t be a good investment when bought cheap enough.”

Snobs in Strathfield?

But what if you had a choice to invest in Wentworthville or Woollahra in 1977? Although the answer may seem obvious to us now, back then it may not have been as clear!

In 1977, Strathfield was the most expensive suburb in Sydney, whilst houses in Engadine cost more than houses in Darlinghurst or Camperdown. During these times, a robust manufacturing industry meant that high-paying, stable jobs were abundant in the outer suburbs, whilst many trendy inner city suburbs such as Newtown and Balmain were characterised as slums. Since then, the decline in the manufacturing industry has coincided with the rise of service industries based in the city, making inner city suburbs desirable thanks to their proximity.

image

Source: Valuer General’s Department

If the next multi-decade economic trend shifts high paying jobs back to the outer suburbs, who’s to say that Strathfield can’t take back the number 1 spot!

Stanford Brown Market Insights

Do you often find yourself staring at your bedroom ceiling, unable to go to sleep because you don’t know whether Amazon’s projected earnings are sustainable? Or why Sydney’s commercial tratproperty market has been comfortably outperforming residential property? If so, Stanford Brown’s Market Insights Podcast is a can’t miss listen!

image

Brexit Blues

So why are we still talking about Brexit despite it almost being three years since the “Leave” vote? On the 29th of March 2017, the UK invoked article 50 of the Lisbon Treaty, giving British lawmakers two years to negotiate an orderly exit from the European Union. With exactly two weeks until the UK is due to exit the European Union (EU), no deal has been struck, with UK parliamentarians from both sides of the aisle resoundingly rejecting Theresa May’s proposed deals.

For now, Theresa May will have to go back to Brussels to seek an extension for the official withdrawal of the UK from the EU. If May can negotiate a deal with EU lawmakers that both conservative and progressive MPs can stomach, there will be a “soft” Brexit, whereby the UK leaves with prearranged agreements with the EU to minimise disruptions to commerce. If the deadline expires and no deal has been made, a “hard” Brexit will take place, and UK businesses will have to scramble to make new arrangements with each of the 27 remaining EU nations.

So would a disorderly Brexit hurt Australian investors? Probably not. We wrote about the impact of Brexit in our February Top 5, noting that only 2% of Australian exports go to the UK.

image

The States Aren’t Sliding!

It seems intuitive that markets sold off after reports of anaemic jobs growth, but should investors be concerned about the American economy? Only 20,000 nonfarm jobs were added in the US in February, falling well short of the consensus forecast of 180,000.

image

In some instances, a deep dive into the numbers is required to understand why a headline is misguided. In instances such as these, all that’s required is a memory of previous headlines! US nonfarm jobs beat consensus by 46,000 in December and 141,000 in January, meaning that February’s weak jobs report was likely nothing more than reversion to the mean.

image
image

Aussies Say G’day to Gloom

Although the American economy is firing on all cylinders, the Australian economy is still having issues getting out of 1st. The Westpac-Melbourne Institute Consumer Sentiment Index has dipped below 100, meaning that pessimistic consumers outnumber optimistic consumers.

Although this may seem like bad news for investors, a report by Chief Investment Officer Ashley Owen indicates that over several decades a portfolio that buys shares when consumer sentiment is low comfortably outperforms a portfolio that buys shares when consumer sentiment is high. The report testifies to the wisdom of Warren Buffett’s advice “Be fearful when others are greedy and greedy when others are fearful

image

Happy Saint Patrick’s Day!

Ever strolled through the rolling green hills of Ireland and wondered where all the snakes were? You can thank Saint Patrick for that!

We wish all of our readers with Irish heritage a happy St Patrick’s Day! May your Guinness stay cold, your accents butchered, and your stereotypes frustratingly inaccurate.

Here’s Stanford Brown’s adviser extraordinaire/resident Irishman Vincent O’Neill celebrating in style!

image

Name That Line!

Congratulations to Bev & Greg, who were able to stay awake during a monotonous roll-call in Ferris Bueller’s Day Off! If you’re having a restless evening, an app lets the economics teacher lull you to sleep with a lesson on voodoo economics!

image

But what wise words were uttered in this scene?

image

Pic of the Week

The doctor said one glass a day…

image

Video of the Week

image
View More Articles

Join the Stanford Brown Family

Subscribe to our mailing list to receive the latest news and updates from our team. You will also recieve a free copy of our whitepaper 'The Ten Golden Rules of Investing.'

Successful. Thank you for joining Stanford Brown's mailing list.