Latest News from Newealth

Market Metrics: Listed Companies

• Posted by Dejan Pekic BCom DipFP CFP GAICD

The forward P/E ratio (price to earnings ratio) is a measure of the current share price of a company divided by the estimated future earnings per share of that company.

Meaning, a lower forward P/E ratio is generally better because it implies that you will pay a lower price for the listed company.

Attached is a forward P/E ratio for all 11 market sectors in Australia and a comparison of Australian listed companies against listed companies on other global stock exchanges.

Click for chart.

What is the chart saying?

Technology in Australia is expensive at 91.2 forward P/E ratio and same can be said globally with the NASDAQ at a 27.2 forward P/E ratio.

There are also value buying opportunities such as in German, England and China (DAX Performance, FTSE 100, and Shanghai) with forward P/E ratios measuring between 10 to 12 times.

The message is that investing is hard which is why employing talent, specifically having the right Portfolio Manager working for you is the key to achieving above index performance.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Seven cures for a lean purse: Getting Rich

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Berkshire Hathaway Inc. this week reached a valuation of US1 trillion dollars for investors.

A big congratulations to Warren Buffett and his co-PM (Portfolio Manager) the late Charlie Munger.

How was this done?

Well, in 1926 George S Clason first published a famous series of pamphlets on thrift and financial success using parables from ancient Babylonian clay tablets.

These pamphlets were latter incorporated into his book, The Richest Man in Babylon and the following seven cures for a lean purse are from that book.

1. Start thy purse to fattening
2. Control thy expenditures
3. Make thy gold multiply
4. Guard thy treasures from loss
5. Make of thy dwelling a profitable investment
6. Insure a future income
7. Increase thy ability to earn

Buffett and Munger, even if they had not read the book would have definitely applied these seven cures as professional PM.

This is why talent, specifically having the right PM working for you is the key to achieving above index performance.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Friday Tidbit

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Vanguard have just published their Index Chart for asset class returns to 30 June 2024.

The outcome again confirms just how correct the value investing principles taught by Benjamin Graham are for creating wealth.

Owning a profitable business that sells goods and or services is the investors protection against inflation provided that the business remains profitable.

Click for chart.

This is why remaining invested according to your appetite for volatility is key and when the next panic takes hold, react by buying more quality assets at discounted prices.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Market Cycles: Bull vs Bear

• Posted by Dejan Pekic BCom DipFP CFP GAICD

A bear market is defined as a crash in asset prices from recent peak of 20% or more.

Technically then the Australian All Ordinaries index is still currently in a bull market since COVID-19 which was back in March 2020.

Click All Ordinaries.

However, the United States S&P 500 index has only been in a bull market since the Russian invasion of Ukraine which was in February 2022.

Click S&P500.

The numbers tell a simple story, you cannot avoid bear markets if you are investment in growth assets such as listed businesses. The reason for investing in growth assets is to beat inflation.

The other extremely important message is that bull markets are always bigger and last longer than bear markets.

If you then put add these bull and bear markets together over multiple decades you can see that the benefits of long term compounding outweigh the irregularly occurring asset price crashes.

Click 30 year index performance.

In the words of Benjamin Graham…’the essence of investment management is the management of risks, not the management of returns’… which is why remaining invested according to your appetite for volatility is key and when panic does take hold during a bear market, react by buying more quality assets at discounted prices.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Friday Tidbit

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Buying a primary residential property in Australia is one of the best if not the best investment schemes ever created in this country.

It just does not get better than this, with residential property prices rising and the capital gains being tax free on your primary residence.

Owning a primary residence has been used by most of our clients for decades and will continue to be used going forward because of the tax advantaged status of owning the primary residence.

Click to read.

The problem however is that once built the residential property provides little in the way of future GDP (Gross Domestic Product) for the country.

Meaning that you can have $3 million or $5 million or $10 million or even more tied up in this one asset that produces nothing.

Sure, you can employ a cleaner and or a gardener but that will only deliver on a few thousand dollars of economic activity on an asset typically worth millions.

The whole policy around owning residential property is wrong as evidenced by the fact that it is so difficult for first home buyers to purchase a primary residence and the Federal Governments of the past three decades have done nothing to solve this problem.

Today, residential property prices are extraordinarily high and they should not be this expensive.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Market Metrics: Gold

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Gold is an asset because it represents as store of wealth.

This undisputed fact has been the case for millennia and Gold is also purchased heavily in times of financial fear such as during the past 2 years which has seen a rapid rise in inflation.

For example, the price of one ounce of Gold in October 2022 was US$1,624 and today it is US$2,370 which is a 45.9% increase in 20 months.

However, the problem with investing in this asset is that Gold does not multiply.

A bar of Gold does not produce baby Gold ingots which means an investor can make no money for extended periods such as between late 1970’s and the 2008 Global Financial Crisis (some 30 plus years) during which time an investor did not make a dollar.

Gold investors again made no money between 2011 and 2020 during which the Gold price once again remained below the 2011 purchase price.

Click for charts.

The principles of Value Investing teach us to not invest in commodities, Gold might be shiny but it is just too risky.

WARNING, this does not constitute Personal Advice. To discuss if this is an appropriate strategy for your given circumstances, please do not hesitate to contact us directly.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Superannuation: Boomerang Children

• Posted by Dejan Pekic BCom DipFP CFP GAICD

A question that we often get asked is in relation to adult child and whether an interdependency exists if they are living at home.

That is a difficult question and we recommend you seek legal advice because the Australian Tax Office view is that an arrangement of commercial convenience does not prove a mutual commitment to a shared life which is needed to evidence an interdependency relationship.

The benefit of an interdependency is that there is no 15% lump sum tax plus 2% Medicare to be paid on the taxable component of the superannuation death benefit.

For example, on a $500,000 superannuation death benefit that could be the difference between paying $85,000 in lump sum tax versus NIL if there is an interdependency relationship.

We have a attached a quick reference guide to who qualifies as a dependent under the Superannuation Industry (supervision) Act 1993.

Click for table.

This is also a timely reminder to keep your superannuation death benefit nominations up to date so that the individuals that you have chosen get the money rather than leaving this to the superannuation trustee to decide.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Market Metrics: Global Macro

• Posted by Dejan Pekic BCom DipFP CFP GAICD

As we close out another financial year, we all in our own way come to reflect on the past 12 months.

Was 30 June 2024 financial year a good year?

Yes, asset prices have increased but with investing one must keep looking forward.

We have attached growth, inflation and monetary policy expectation for five regions and the message is slow and steady economic activity.

Contributing to this slow and steady economic activity is increased investor liquidity with cash holding rising to US$5.98 trillion in the United States as at 1st April 2024 from US$4.68 trillion in 2020 or 28% according to the Investment Company Institute.

Click to read.

In the words of Benjamin Graham…’the essence of investment management is the management of risks, not the management of returns’… which is why remaining invested according to your appetite for volatility is key and when panic does take hold, react by buying more quality assets at discounted prices.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Disruptive Technology: Grandkids won’t learn

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Waymo (which stands for a new way forward in mobility) continues to expand autonomous taxi services in the United States.

It is not perfect but it is operational right now and it is being used.

This will not just negatively impact new people applying for a driver’s licenses, it will also eventually eliminate an estimated 730,000 Australian transport, postal and warehousing employees.

Click to read.

Yes, AI (Artificial Intelligence) is at an ‘inflection point’ and yes this is going to allow investors to tap into trillions of dollars of investment opportunity but it is difficult to foresee what employment role if any humans will play after this transition.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.

Australian Residential Property- Undersupply

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Residential property prices (especially Sydney) just keep increasing and are at record highs.

You can see from the attached that median residential property prices are about $800,000 but buying capacity in only in the $400,000’s. We have not seen this level of disconnect since the 2008 GFC (Global Financial Crisis).

Click for chart.

If the Federal Government wants to stop further steep rises in residential property prices then we need to build.

Building more residential property (increasing supply) brings economic benefits but it takes years to deliver supply of new residential property.

Our business is based on referrals, so if you have family, friends or colleagues that want advice please ask them to contact us.