When I was teenager and living outside of New York I used to listen to a radio station called WFAN. For 24 hours a day the station was dedicated to sport. Most of the programming involved a host arguing with callers about some esoteric sporting topic – player A was better than player B, etc.
This was one of my less harmful teenage vices but it is hard not to look back on it as a giant waste of time. The programing was repetitive and largely consisted of callers citing different stats to make their case. In a sport like baseball where a season lasts 162 games there was a large sample size of statistical measures of performance to draw from.
Investing can sometimes feel a little like my teenage obsession with WFAN.
There was a lively debate in the comments section of Emma Davidson’s article on the relative merits of LICs last week. These types of debates are interesting and - depending upon your proclivities - may even be fun.
Yet these debates can also be harmful to some investors. I’m not worried about the Firstlinks’ audience who are thoughtful and informed. Investors in this mold can determine the relevance of a particular point to their personal situation.
Yet I’m also mindful that similar debates occur across social media with a decidedly uninformed audience. Many of these investors are crowd sourcing opinions or asking AI for answers without providing enough input to make an informed recommendation.
An investor without the knowledge required for self-reflection can start to seize on certain rationale for buying an investment which isn’t applicable to their personal circumstances.
I can use myself as an example – when I hear risk adjusted returns, I stop listening. That doesn’t mean risk adjusted returns are useless. They just happen to be useless to me given my time horizon, cash safety net and goals.
Adjusting a return using volatility as a proxy for risk means nothing to me as volatility isn’t a risk I face. I’ve set myself up with the foundation needed to be a long-term investor. Consequently, I’m just worried about not earning a high enough return over the long-term to meet my goal and trying to avoid catastrophic losses.
To understand what matters for you, and what doesn’t, requires some foundational knowledge to know what a term like “risk adjusted returns” means. But it also requires a good deal of reflection which is difficult when you are constantly bombarded by news and opinions.
I’m writing this in Japan. One of the core components of Japanese culture is the concept of honne and tatemae. Honne is your true feelings while tatemae is the public façade you maintain to keep social cohesion.
Many investors have reversed this concept. In public debates about the ‘best’ investments they come across as confident and, in some cases, arrogant. In private their doubts manifest themselves in a constant churning of their portfolio as they rashly chase each compelling sounding opportunity. The results are the low returns many individuals generate.
The truth is there isn’t a perfect investment. Each structure and specific opportunity has flaws. All each of us can hope to do is find investments where the trade-offs make sense given the problem we are trying to solve.
If you started to doubt your own choices after the 102 comments on the relative merits of ETFs and LICs I wouldn’t worry too much about it. If you learned more about how LICs worked the article served its purpose. Start with what you are trying to accomplish and your own unique circumstances – that is the secret to figuring out what is right for you.
Mark LaMonica
Also in this week's edition...
Roger Montgomery is back, taking a look at the historic impact of war on the equity markets and doubles down on his call that 2026 is the year where diversification will pay off for investors.
As we get closer to the budget the debate continues about intergenerational equity. Tony Dillon takes a look at the origins of the CGT ‘discount’ and what he considers a mis-framing of the debate.
While much of the focus of Div 296 is on the immediate impacts of the new tax, Rachael Rofe looks at what happens after death and the considerations for estate planning.
The indiscriminate sell-off of software shares is overshadowing the more nuanced impact of AI on different companies. Damon Callaghan takes a look at opportunities for investors.
The rift between Trump and the EU continues and is driving an unappreciated transformation according to Matt Reynolds.
Are AI data centres going to space? According to Evelyn Chow and Paul Martinez this might just be the answer to the resource burden of AI.
Katjia Hanewald looks at a way that retirees can tap into their housing wealth using a little known and misperceived government program.
This week's white paper is VanEck's latest Viewpoint quarterly, focusing on global instability and where patient investors can position themselves.
Curated by Mark LaMonica and Leisa Bell
***
Weekend market update
Two article from Morningstar this week. As a follow-up on a previous article I looked at how ETFs and LICs performed for income investors. My colleague Johannes shared his opinion on an ASX listed company that has sent shareholders on a rollar coaster ride since the IPO.
From Shane Oliver, AMP
Share markets rose sharply in the past week as the US and Iran announced a ceasefire with optimism this will ultimately lead to an end to the conflict, despite indications the ceasefire is off to a shaky start. For the week US shares rose 3.6%, Eurozone shares rose 4%, Japanese shares rose 7.2%, Chinese shares rose 4.4% and Australian shares also rose 4.4%. Gains in the ASX were led by miners, banks, property and consumer shares with energy shares down. Global bond yields mostly rose slightly, not helped by the spike in US inflation. In Australia they fell slightly but are still around 5%.
Oil prices fell around 13% over the week on the ceasefire news but remain just below $US100 a barrel on uncertainty about whether the ceasefire will stick or not. West Texas remains above Brent reflecting increased demand for US oil.
The risk on tone saw the $US fall and the $A rise back above $US0.70 with gold, Bitcoin and copper also up. Iron ore prices fell but remain solid around $US105/tonne.
TACO Tuesday – will Trump’s ceasefire stick? Trump’s announcement of a two-week ceasefire was good news and consistent with our base case that the War will be relatively short. Trump appears to have become increasingly desperate (evident in his petulant “Open the F…… Strait” comment) with his poll support collapsing, markets threatening to riot and the reality that any follow through with his threat of the “complete demolition” of Iranian power plants and bridges would have made the situation worse as Iran would simply retaliate against its neighbours further pushing up oil prices. Trump may claim he is just playing the “madman” as part of a negotiating ploy, but it risks backfiring if he never delivers, and if he does ever deliver on his extreme threats, he will likely further lose domestic and international support (which is already weak). While Trump has military superiority on his side, Iran has weaponised the Strait of Hormuz to control global oil supplies. Despite Trump’s assertion that “Iranians don’t seem to realise they have no cards” this is a really big card to have! Trump maybe (with Israel’s suggestion) thought he would be fighting another Venezuela, but it’s turned out to be more like Vietnam - the US had overwhelming military might, but North Vietnam and the Vietcong still won by 1975 using so called “asymmetric warfare”. So, it has become a sort of MAD (mutually assured destruction) stand off from which Trump had to back down (or literally “chicken out”).
It’s a messy TACO with a lot of uncertainty. The ceasefire is off to a shaky start with Israel firing missiles at Lebanon, Iran crying foul and the number of ships moving through the Strait remaining limited. This could just be teething problems though with Israel opening talks with Lebanon and uncertainty around whether ships have to pay $2million to Iran to use its Strait toll gate system (Trump says no, Iran says yes) - but it highlights how fragile the ceasefire is. More fundamentally, the likelihood of a quick deal from talks between the US and Iran seems low given how far apart the US and Iran are but there is a good chance Trump will want to extend the ceasefire with an excuse that talks are continuing. More fundamentally if a deal is reached its unclear as to whether it will be sustainable as while Iran has been weakened in terms of its conventional military its ability to engage in asymmetric warfare – by attacks on its neighbours and by controlling the Strait – remains, which the US, its Gulf allies and much of the rest of the world may not accept indefinitely. This would point to a resumption of the conflict at some point - maybe after the midterms when Trump is less politically constrained or if his polling gets so bad that he has nothing to lose by escalating again.
The key thing to watch for remains a significant and sustained pick up in the number of ships coming through the Strait of Hormuz – it has picked up but it’s a fraction of normal levels. As a result, roughly 10-15% of normal global oil production remains blocked (allowing for diversions through, eg the Saudi’s East-West pipeline, but not allowing for temporary oil stockpile rundowns). But if the Strait were too more significantly open even with Iran collecting a fee it could allow the War to continue but with less impact on the global economy and markets.
Even if there is a sustained and extended ceasefire leading to a quick end to the War and/or a sustained increase in ships flowing through the Strait it will take months for global oil flows to return to normal. This is because it will take time to reopen shuttered energy production in the Gulf (weeks or months for oil, potentially years for some gas plants), to then load this onto ships, for those ships to arrive at importing countries including in Asia and then for refineries to ramp up production again. And of course, Australia is at the end of this production chain for refined oil products so we may take longer to get back to normal than some other countries.
So, some near term stagflationary impact of higher inflation and weaker growth is likely baked in, but if oil starts to flow again it would be temporary. In Australia we see inflation peaking around 5-5.5% in the current quarter and GDP growth slowing to around 1.5% this year. This assumes that the ceasefire holds and morphs into a longer-term cessation of conflict or at least a return to more normal oil flows from the Gulf, in which case the boost to inflation and hit to growth will be short-lived. Obviously if the War resumes and the Strait remains effectively closed then the boost to inflation will be bigger and longer and there would be a high risk of recession.
For central banks wary of letting inflation expectations rise the focus is likely to be on the boost to inflation rather than the hit to growth. This is particularly the case in Australia where inflation was already well above target and signs of rising wage growth pressures - for youth and the minimum and award wages for starters - will worry the RBA. So, we are allowing for the RBA to hike again. This is likely to occur in May but if the ceasefire sticks and is extended there is a good chance the RBA will decide to hold.
The hit to Australian households has fallen thanks to the fuel tax cuts but remains significant. Petrol prices have fallen from around $2.58/litre at their high to around $2.25/litre thanks to the cuts to fuel excise and GST. This has lowered the hit to household budgets compared to February from around $31 a week at the high last month to around $19 a week now (or $73 a month). It’s worse for those with diesel vehicles though as diesel prices have now reached a new record high. If the Strait quickly reopens then Australia should be able to make it through without fuel rationing, but if not then it’s likely to be necessary from late next month.
Latest updates
PDF version of Firstlinks Newsletter
ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade
Listed Investment Company (LIC) Indicative NTA Report from Bell Potter
Plus updates and announcements on the Sponsor Noticeboard on our website