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27 November 2025

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Cuffelinks Newsletter Edition 291

  •   1 February 2019
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At the start of every year, investors are inundated with forecasts and projections on all manner of financial metrics. Company profits, economic growth, currencies ... on it goes. In theory, they act as inputs to asset allocations as portfolios are rebalanced.

Yet some of the world's most successful investors eschew these guesses about the future. Warren Buffett told the 2003 Berkshire Hathaway Annual Meeting:

"We don’t give a hoot about anybody’s projections. We don’t even want to hear about them, in terms of what they’re going to do in the future. We’ve never found any value in anything like that."

Another of our favourites, Oaktree's Howard Marks, has been writing letters to his clients for decades. In 1993, he wrote:

"Groucho Marx said "I wouldn't join any club that would have me as a member." Another formulation may be "I would never act on any forecast that someone would share with me." I'm not saying that no one has above-average forecasting ability. Rather, as one University of Chicago professor wrote in a paper years ago, such forecasters are more likely to be sunning themselves in Saint Tropez than going around entreating people to borrow their forecasts."

(The new client memo from Marks includes the famous 'beer' explanation of the tax system). 

What does our annual look at the Morningstar Gameboard tell us? It's all over the place and history is no guide. The best asset class in 2016 was Small Caps, and it was the best again in 2017 then the worst in 2018. Australian fixed interest was near the bottom in 2016 and 2017 and top in 2018.  
 

Nobody predicted Australian government bonds would win in 2018, when interest rates were supposed to be rising with the Fed tightening, the threat of inflation and massive bond issuance. But as the chart below shows, there was a big fall in Australian bond rates and forecasts were wrong.
 

It's time for a government bond face-off 

Dear reader, don't switch off because we're on to fixed interest ... it's important. In one corner, Paul Chinsays diversified portfolios should always hold some government bonds, while Jonathan Rochford says now is not the time. You're welcome to take sides in the comments.

Last week's articles on Labor franking changing behaviour and new superannuation policies drew plenty of comments, and Shadow Treasurer Chris Bowen laid down the gauntlet on ABC Radio on Tuesday:

"I say to your listeners, if they feel very strongly about this, if they feel that this is something which should impact on their vote, they are of course perfectly entitled to vote against us." 

Also this week, Gemma Dale reports on the ASX and foreign bourse trading patterns of nabtrade clients. Nicholas Paul believes the QE flood of liquidity lifted all boats on a rising tide, but now it's time to know what you own as you navigate tougher markets. Similarly, Miles Staude cautions investors who say they need 10% returns but without taking capital risk.

Did you realise the reduction in the income threshold for the extra 15% tax on super contributions has led to thousands of taxpayers receiving a new tax bill? Julie Steed explains how this has crept up on many.

Notwithstanding our comments on the perils of forecasting, this week's White Paper from AMP Capital's Shane Oliver lists his macro factors affecting investments in 2019.

Graham Hand, Managing Editor

 

For a PDF version of this week’s newsletter articles, click here.
 
  •   1 February 2019
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  •   

 

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