Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 356

Welcome to Firstlinks Edition 356

  •   7 May 2020
  • 3
  •      
  •   

Watching the US market open on Friday evening Sydney time was slightly surreal. As unemployment was announced at 14.7% following a loss of over 20 million jobs in April, the worst report in history, the S&P500 quickly jumped over 1%. By the end of the day, the index was up 1.7% or 3.4% for the week. This followed a strong rise in Australia as the Government announced the lifting of lockdown restrictions. 

Even the 'Oracle of Omaha' must have been bemused. Few investors are as influential as Warren Buffett, although for the moment, the stock market is ignoring his caution. The annual meeting of Berkshire Hathaway was held last weekend in a virtual format without his offsider, Charlie Munger, and it contained the usual insights. Most significant, Buffett did not use the heavy market falls in February to buy shares. In fact, rather than 'buy when others are fearful', he was a net seller of US$6 billion for the quarter, including disposing of all his airline shares. Berkshire is sitting on US$137 billion in cash, suggesting he expects better buying opportunities to come. For the moment, though, the pump-priming by the US Fed seems to be winning.

Although Berkshire lost US$50 billion in the March quarter based on revaluations, Buffett was sanguine and spent a great deal of time describing the historical context of previous crises. He said:

"I would like to take you through a little history. If you were to pick one time to be born and one place to be born, and you didn’t know what your sex was going to be, you didn’t know what your intelligence would be, you didn’t know what your special talents or special deficiencies would be. That if you could do that one time, you would not pick 1720, you would not pick 1820, you would not pick 1920. You’d pick today, and you would pick America ...

I'm not saying that this is the right time to buy stocks if you mean by 'right' that they’re going to go up instead of down. I don’t know where they’re going to go in the next day, or week, or month, or year. But I hope I know enough to know, well, I think I can buy a cross section and do fine over 20 or 30 years. And you may think that’s kind of, for a guy, 89, that that’s kind of an optimistic viewpoint. But I hope that really everybody would buy stocks with the idea that they’re buying partnerships in businesses and they wouldn’t look at them as chips to move around, up or down."

Perhaps one reason he is not buying is the level of the 'Buffett Indicator', the ratio of the market value of all listed equities to US GDP. He said back in 2001 that "it is probably the best single measure of where valuations stand at any given moment."

Using the broad-based index of the Wilshire 5000 shows the market is at its highest level since 1970, and that's before GDP falls as expected in the June quarter. Buffett's view is that investors cannot gain wealth at a rate that exceeds the growth in US business. He said in 2001:

"For me, the message of that chart is this: If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you."

Buffett Indicator Variant, Wilshire 5000 to GDP as at May 2020

Source: Advisor Perspectives

Morningstar's Berkshire Hathaway specialist, Greggory Warren, summarises his major takeaways from the meeting, as well as presenting a short video.

Moving to retirement planning, when aiming for a desired level of spending in the future, a rate must be assumed for earnings on investments. Many super funds default to 7.5%, despite bonds currently offering only 0.25% and equities being fully valued. We delve into models of Robert Shiller, London Business School, Research Affiliates and Schroders to estimate a sustainable future performance assumption.

Complementing this, Stephen Miller takes a look at the perils of forecasting in the current market, but despite the unknowns, he sees more risks to the downside.

Still on long-term planning, Wade Matterson provides updated data on the spending of older retirees, who might not need as much money as they expect. Financial advisers often need to convince their retired clients to spend more.

Over the years, we have received many questions on how Net Tangible Assets for Listed Investment Companies (LICs) are calculated. It seems such a simple concept, but as Scott Whiddett and colleagues show, there is a lot of discretion you should know about.

Nathan Zaia checks the value in Australian banks after their heavy price falls and dividend suspensions, to see whether they should continue to play a role in so many portfolios.

As Australia starts to relax coronavirus-inspired restrictions, Michael Collins says policymakers are faced with major ethical issues. Then Tony Dillon questions whether borrowers reducing repayments really realise how much more a loan will cost them, and some of the bank benevolence is not what it seems.

Finally, on his 68th birthday, Kevin Kelly, Co-Founder of Wired magazine has posted 68 little gems of wisdom with something for everyone.

This week's White Paper from Perpetual Investments explains how 'real return' funds work, and whether they have a place in the new investing environment.

Graham Hand, Managing Editor

Latest updates

PDF version of Firstlinks Newsletter

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Indicative Listed Investment Company (LIC) NTA Report from Bell Potter

Plus updates and announcements on the Sponsor Noticeboard on our website

 

  •   7 May 2020
  • 3
  •      
  •   
banner

Most viewed in recent weeks

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Welcome to Firstlinks Edition 672 with weekend update

How does Australia measure up to the rest of the world?

  • 23 July 2026

Welcome to Firstlinks Edition 674 with weekend update

What begins as appetite, grows into excess and ultimately ends in spectacle. Millions of investors just discovered this the hard way.

  • 6 August 2026

Latest Updates

Retirement

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

SMSF strategies

Who really loses from the SMSF borrowing ban?

The ban on borrowing to buy residential property inside a self-managed super fund was framed as closing a loophole for the wealthy. Yet ATO data suggests its effects may be felt more heavily on members with moderate balances.

Investment strategies

The investing rule that explains the next market crash

What if investment success depends less on picking the right assets and more on understanding the decisions of other investors? A principle borrowed from game theory offers a different perspective on markets.

Investment strategies

Gold: should you own the metal or the miners?

Gold is back in the headlines but investors may be asking the wrong question. Before deciding where prices are headed next, it's worth considering whether the investment you choose will deliver the outcome you're actually seeking.

Fixed interest

Global bonds markets are hiccupping

For decades, investors looked the other way as government debt ballooned. But a reckoning may be beginning. Bond markets are stirring and the consequences could reach far beyond markets into everyday life.

Property

Why investors are looking beyond traditional property sectors

A little-known corner of the property market may be quietly benefiting from powerful demographic and healthcare trends. Could this specialised sector offer investors something increasingly difficult to find: enduring demand?

Retirement

Retirement in reality - 6 months in

Is retirement really an identity crisis, or is something else at play? New insights challenge conventional thinking and reveal why some retirees struggle to fully embrace life after work.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.