Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Register

Monday, 27 September 2021

Home / 291

Cuffelinks Newsletter Edition 291

  •   1 February 2019
  •      
  •   
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.
 

 

Leave a Comment:

     
Firstlinks is sponsored by:
banner

Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Latest Updates

Investment strategies

Joe Hockey on the big investment influences on Australia

Former Treasurer Joe Hockey became Australia's Ambassador to the US and he now runs an office in Washington, giving him a unique perspective on geopolitical issues. They have never been so important for investors.

Investment strategies

The tipping point for investing in decarbonisation

Throughout time, transformative technology has changed the course of human history, but it is easy to be lulled into believing new technology will also transform investment returns. Where's the tipping point?

Exchange traded products

The options to gain equity exposure with less risk

Equity investing pays off over long terms but comes with risks in the short term that many people cannot tolerate, especially retirees preserving capital. There are ways to invest in stocks with little downside.

Exchange traded products

8 ways LIC bonus options can benefit investors

Bonus options issued by Listed Investment Companies (LICs) deliver many advantages but there is a potential dilutionary impact if options are exercised well below the share price. This must be factored in.

Retirement

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Investment strategies

Three demographic themes shaping investments for the future

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict future opportunities. Three main themes stand out.

Fixed interest

It's not high return/risk equities versus low return/risk bonds

High-yield bonds carry more risk than investment grade but they offer higher income returns. An allocation to high-yield bonds in a portfolio - alongside equities and other bonds – is worth considering.

Sponsors

Alliances

Site Map

About Firstlinks

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.