Roskow Newsletter Archive

Colonial First State: giving us MORE, or treating us like MORE-ONS?

Tue, 02 Feb 2010 23:21:00 GMT

Colonial First State have released a new television commercial, promising to deliver you more...but in our opinion more of the wrong things.

If you've watched a bit of TV lately, you may have seen Colonial First State's new commercial (if not, click here to view). They have something different to deliver compared to all other fund managers - more.

They have more people, in more places; more experience, more research to give you more confidence, more opportunities, more investment power. They close by saying that they're Australia's biggest fund manager they can give us more because they have more to work with.

Colonial First State, bring it in tight for a moment and listen carefully. We don't want more power - if we trust you with our client's money, we want more RETURNS. We want you to deliver more returns than a passive fund manager that has less people, does less research and charges far less fees than you do.

Are you delivering more returns than the competition? If you were, I'm sure you'd be telling us all about it. I guess you're not.

Having more people on your staff means a higher wage bill. Paying for experienced staff means a higher wage bill. Doing more research means higher running costs. These costs are borne by my clients, the investor, so do me a favour start focusing your energy on delivering more returns, not power. Until you do start showing us that you're delivering more returns, for me to recommend your funds, I'd have to be a complete MORON.

There's egg on your face Mr Potts

Wed, 03 Feb 2010 03:18:00 GMT

Each Sunday morning I buy The Sunday Age for my better half Sarah who likes to keep up to date with the Melbourne property market. Although it is not good for my stress levels, I always ask Sarah to pass me the "Investor" lift out so I can see what rot is poisoning the minds of potential clients.

David Potts is a journalist who appears in the "Investor" lift out each week and it's fair to say I'm far from his biggest fan. His articles are high on predictions and low on quality education. But then again, to be be fair to David, he's not there to educate, his job is to write content that has the the punters coming back for more, so that the newspaper can sell advertising space.

So I was very interested to read his predication on interest rates on Sunday. The full article is here, but as you can see from the graphic below he writes: "Economists, the market and the media are as one that interest rates will rise by 25 points on Tuesday"...

So my question to you David is: do you feel like an idiot?

The truth is he won't because has he's been wrong many times before and he'll continue to get it wrong again in the future.

The moral of the story is we don't listen to this guy or anyone else who thinks they can predict the future and we don't advise you do either. Mr Potts will have you believe that being a successful investor means having the ability to predict the future, but it's not.

We can't control the future, we can't control markets and we can't control the media. Successful investors focus their energy into things they can control, such as spending less than you earn, understanding how markets work and how to use them to your advantage and viewing the newspaper as a source of entertainment, not a source of education. In my mind Mr Potts is nothing more than a court jester...so David, on with the show!

The 99 Club

Thu, 28 Jan 2010 04:32:00 GMT

More, more, more, I want more! Prepare yourself people, this article will be filed in the “Deep and meaningful” section. The story below makes this point beautifully – we as humans have weaknesses and we often fall into the habit of taking things for granted and focusing too much on what we don’t have rather than being thankful for what we do have.

We found this story on another website and felt the moral of the story was so valuable that we wanted to share it with you. So we present to you, an opportunity to cease your membership of the “99 Club”:

"Once upon a time, there lived a King who, despite his luxurious lifestyle, was neither happy nor content.

One day, the King came upon a servant who was singing happily while he worked. This fascinated the King; why was he, the Supreme Ruler of the Land, unhappy and gloomy, while a lowly servant had so much joy. The King asked the servant, 'Why are you so happy?'

The man replied, 'Your Majesty, I am nothing but a servant, but my family and I don't need too much - just a roof over our heads and warm food to fill our tummies.'

The king was not satisfied with that reply. Later in the day, he sought the advice of his most trusted advisor.

After hearing the King's woes and the servant's' story, the advisor said, 'Your Majesty, I believe that the servant Has not been made part of The 99 Club.'

'The 99 Club? And what exactly is that?' the King inquired.

The advisor replied, 'Your Majesty, to truly know what The 99 Club is, place 99 Gold coins in a bag and leave it at this servant's doorstep.'

When the servant saw the bag, he took it into his house. When he opened the bag, he let out a great shout of joy... So many gold coins!

He began to count them. After several counts, he was at last convinced that there were 99 coins. He wondered, 'What could've happened to that last gold coin? Surely, no one would leave 99 coins!' He looked everywhere he could, but that final coin was elusive. Finally, exhausted he decided that he was going to have to work harder than ever to earn that gold coin and complete his collection.

From that day, the servant's life was changed. He was overworked, horribly grumpy, and castigated his family for not helping him make that 100th gold coin. He stopped singing while he worked.

Witnessing this drastic transformation, the King was puzzled. When he sought his advisor's help, the advisor said, 'Your Majesty, the servant has now officially joined The 99 Club.'

He continued, 'The 99 Club is a name given to those people who have enough To be happy but are never contented, because they're always yearning and striving for that extra 1 saying to themselves: 'Let me get that one final thing and then I will be happy for life.'

We can be happy, even with very little in our lives, but the minute we're given something bigger and better, we want even more! We lose our sleep, our happiness, we hurt the people around us; all these as a price for our growing needs and desires.

That's the 99 club.

January 2010 Patchwork Quilt

Thu, 28 Jan 2010 04:32:00 GMT

In our December newsletter we warned you about the crystal ball gazers that would take center stage in magazines and newspapers during January. Did you notice them? Do you believe them? If so, then our approach to managing money might not be right for you.

We don’t put any faith in predications because not only do we not know anyone who can reliably predict the future, we don’t know anyone that knows anyone that can do it. When we’re being asked to give advice on how your hard earned money should be invested, we’re not prepared to put our faith in any process that hasn’t withstood the test of time.

If you’ve met with us for a Financial Roadmap appointment or attended one of our presentations, chances are we’ve shown you our Patchwork Quilt chart which is illustrated below. In short, this chart illustrates in a simple way how hard it is to predict which asset sector will be the best performing sector in the year ahead; there are no patterns, no indicators, there’s no point.

What’s most important is that you understand how much risk you’re exposed to (asset allocation) and that you stick to it. The only time it changes is when you change (when something happens in your life which requires you to take more or less risk). In the meantime, it’s interesting to look back and see what the top performing asset sector was in the past 12 months and take comfort that (provided you’re getting advice from us) you achieved that return for the lowest possible cost.

To put things in perspective, let’s revisit 2008, the heart of the Global Financial Crisis. In 2008, all the growth asset sectors (Australian shares, Global shares, Property and Emerging Markets) all suffered very large negative returns. Cash and fixed interest were the top performing asset sectors. Before you scroll down, can you predict what was number one in 2009?

In 2009, the top performing asset sector was Australian Small Companies with a return of 64.13%, followed by Australian Value Companies, Australian Large Companies and Emerging Markets. It’s worth nothing that even though these figures are “massive” when an asset sector such as Australian Large Companies drops by 37% as it did in 2008, it actually needs to achieve a return closer to 75% to get back to where it fell from. So achieving 36% in 2009 whilst good, means that the recovery is only one third to one half complete.

As will become painfully clear to you over time, we don’t make predictions (simply because there is no need to predict the future to have a successful investment experience) so we’re not going to tell you when to get in and out. However, if someone tells you tomorrow that now is the time to get back into the Australian share-market, do us a favour and ask them “Why didn’t you tell me that 12 months ago?”. Predicting the future is a fools game. Investing your money listening to these fools is even worse.

The “Henry Tax Review” Review

Thu, 28 Jan 2010 04:31:00 GMT

We’ve done our best here to make this yawn proof and entertaining, but it’s about tax so stay with us. Our tax system is being reviewed by Dr Ken Henry – so he gets the review named after him, isn’t he lucky.

Anyway, he’s released a report which is 10cm thick which we’re going to post to you shortly (just kidding). It contains a lot of recommendations, here’s the key one’s that we think are worth mentioning now:

There will be no increase to the 9% Superannuation Guarantee
Retirees may have the opportunity to swap their superannuation balance for a Government backed guaranteed income stream
Make changes to superannuation so that low income earners get more of a “fair go”.
The introduction of Pay-As-You-Drive congestion charges
The introduction of fringe benefit tax for charities
Uniform alcohol excise (to bring the relative cost of wine relative to beer)

We’ll comment on the first three, but look forward to hearing your comments on the last three!

There will be no increase to the 9% Superannuation Guarantee

One reason for this is that if the superannuation guarantee increases, it may come at the cost of salary increases in the future (which would cause problems for those with cash-flow problems now). Either way, we all still need to take responsibility for our retirement, because most reports suggest 9%pa is not enough.

Retirees may have the opportunity to swap their superannuation balance for a Government backed guaranteed income stream.

This sounds good provided the amount that is being guaranteed is value for money. If it’s anything like the “guarantees” life companies provide, you’re ultimately paying for a very expensive security blanket. One other issue with guaranteed income streams is that you lose access to capital which needs to be weighed up with your future needs and that of your family.

Make changes to superannuation so that low income earners get more of a “fair go”

We hope that this means it’s more attractive for low income earners to put money into super; and not at the expense of high income earners.

So now what?

If you’re worried about these changes then schedule a time to talk to us. Our role is to bring the information and strategy to the table so that you can be in control and make smart, well informed decisions. Our clients delegate the task of keeping up to date with these changes (and the stress that goes with it) so that they can focus on more important things in life such as spending time with the family, keeping fit and healthy and traveling around the world.

$5 Note Challenge

Thu, 28 Jan 2010 04:33:00 GMT

Here’s a great way to save money that’s both fun and simple. It was suggested by Scott Pape on The 7PM Project a few weeks ago - the $5 note challenge.

There is talk that the $5 note may be taken out of production in the coming years and replaced with a coin like the $1 and $2 coin. So to stop this from happening (who wants more coins?) and as a fun way to save money, here’s what Scott suggested:

Each time you get a $5 note as change when paying for anything, keep it separate and put it away in an envelope when you get home, before it's even made its way back into your wallet (and no doubt getting spent at the next shop!)

Matt and Neil have started this challenge at Roskow and already we’ve collected 25 notes in just 3 weeks.

If you can keep up with us then at the end of the year, you’ll around $1,000 put away, just in time for the silly season spending once again.

The BBQ Stopper

Thu, 28 Jan 2010 04:43:00 GMT

By Jim Parker

It's the summer barbecue season in Australia and New Zealand—a time when many of us spend our weekends standing around a burner in someone's backyard discussing the state of the world. When it's male-dominated, the chit-chat over smoking rissoles usually starts with the weather, before progressing to sport, television and New Year's resolutions. Sooner or later, the question of investment crops up.

These barbecue conversations about money can be a little exasperating, particularly if you're a long-term, buy-and-hold investor with a diversified portfolio structured around the known sources of risk and return.

So picture a group of people standing around a barbecue on a summer evening. The small talk exhausted, one guest who's had a particularly good year in the markets, changes the subject to investment . . .

"My broker told me to put a bundle on BHP and Rio this year," he says, in between swigs on a can of expensive imported beer. "Best thing I ever did."

There's a gap in the conversation as the guests, all wondering whether they're adequately leveraged to the commodity "super cycle", nod sagely. Then, a second man pipes up:

"Well, remember that tiny stock I told you about in March? It's quadrupled in price since then; you should have been on it."

There seemed to be no arguing with that.

"Oh, I steer away from those rats and mice," says the first guest. "You're better off in blue chips. At least everybody's heard of them."

At this point, the host—who's invited everyone around to show off his new home—decides it's time to put in his two cents' worth:

"You can keep your shares," he says as he flips the sausages. "For my money, you can't go past bricks and mortar."

Again there's a moment of quiet as everyone looks around to survey the host's spread. Nice place alright. Then, a gruff-looking man elbows his way to the hotplate, tossing back his third whiskey and jabbing his finger in the air.

"Well I say you'll all be ruined," he prophesises. "My advisor told me a recession's on the way. I'm in cash and that's where I'm staying."

Amid all this testosterone-fuelled upmanship, one guest stands unnoticed in the background, quietly sipping on a white wine and soda and wondering what, if anything, she can add to the conversation.

"I only wish I were as smart as you guys," she ventures. "But you know what? I own BHP in my large cap portfolio. I probably own that little stock you were talking about, Jack, in my small cap fund. You mentioned bricks and mortar, Tom? I've got a global listed property portfolio. Plus I've got protection in cash and fixed interest. That's my strategy and I'm happy with it."

"So what do you call your strategy?" the host asks of the woman who by now has everyone's attention.

"I call it diversification," she says.

"Look, it sounds like you've all had a bit of luck with your investments this year and good for you. A rising tide lifts all boats and all that. But the fact is a few boats spring a leak every year. And I want to make sure that when they do, they don't sink my entire portfolio."

The mention of leaky boats and sinking portfolios sends a couple of the less diversified guests scurrying away to call their brokers.

Now the woman has the floor. She turns first to the whiskey-swilling pessimist and says: "You may be right. There may be a recession next year. But none of us knows for sure. And I don't want to stake my savings on a forecast. By the way, didn't you tell us there was going to be a recession last year?"

The pessimist blushes at this and decides it's time for a refill.

To the man who won big on a single small cap stock, the woman says: "I'm glad your gamble paid off, but it was a gamble. I have stakes in thousands of small cap stocks, and not just in Australia. Some won't amount to much. Some will. But this way I make sure I get the returns of that asset class."

The single stock guy swallows hard and makes a mental note to Google up "asset class" when he gets home.

To the blue chip fan, the woman says: "I like good companies, too. But there's a difference between a good company and a good stock. The important point is how much you pay for it. Some stocks are cheap because they're riskier. If I buy lots of risky stocks, some of them will grow up to be blue chips one day."

At this point, the blue chip guest decides it's a good time to go to the kitchen and help make the salad.
"And another thing," the woman adds, as she crushes a fly with an empty beer can. "Do you guys know how much you're losing in fees and taxes?"

Fees? Taxes? Blank looks all around at this one.

"Well, what I do is focus on things I can manage—fees, taxes, portfolio structure. Then, all I have to do is stay disciplined."

The woman smiles. She's said what she had to say. But no-one can think of what to say next. The silence is broken only by the sizzle of the steaks. Then the host clears his throat: "Sooooooo, enough about money; how about that cricket, eh?"

Warning! Tis the season for crystal ball gazing...

Thu, 28 Jan 2010 04:42:00 GMT

In the coming weeks you’re going to be blessed with the gift of time which for some of you will be an opportunity to think about your investments for 2010. So we beg you – don’t waste $8.95 on a glossy investment magazine when you’re buying the paper one day because frankly, they’re full of crap.

In the next few weeks, the January 2010 issue of trashy investment magazines and newspapers will hit the shelves with predicable headlines such as "Top Stocks for 2010" or "The Hot Asset Sector for 2010 Revealed”.

For example, The Weekend Australian Financial Review, Jan 5-6, 2008 ran an article titled '20 Stocks to Watch in 2008’. Most of the names cited were obscure junior miners, healthcare hopefuls and information technology start-ups. For those preferring large blue-chip names, it was an unfamiliar list.

By the end of the year the market was down 40% but this portfolio was down 64%. The second worst performer was a company that makes bamboo flooring. The article said brokers back in January had price targets on the stock of anywhere from $1.15 to $1.39. As it turned out, the bamboo floors didn't hold and the stock was down to 3 cents by mid-November.

While we are talking about red faces, The Australian Financial Review's panel of "top fund managers" in late 2005 were asked their forecasts for local shares in 2006. "The market is fully valued," said one. "We don't see much capital growth from current levels," said another. "We see at best a 5 per cent return," chimed a third. As it turned out, total returns for the year were just above 20 per cent.

Not only is this information poisonous, the contradictory opinions and view will leave you feeling very frustrated at a time when you’re supposed to be relaxing. No one has a crystal ball, no one can predict the future but most importantly you don’t need to be able to predict the future to be a successful investor.

The journalists that write for these magazines and newspapers know that no-one can predict the future, but if they told you this, why would you keep buying future editions. To be successful, they need to keep the dream alive, that there is a way to beat the market because this keeps punters coming back for more. These magazines are not designed to educate you, they’re designed to sell advertising space – so don’t get sucked in.

If you’re investing into property, the key is to identify a property with a high growth rate. If you’re investing into shares, the key is to spread your risk and keep costs low. We can show you how to do both so instead of investing an hour into reading one of these magazines during January, invest an hour of your time talking to us.