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Friday's 5 Minute Note

August 16, 2019

 

 

  • Market volatility is normal - it's just been largely missing for the better part of a decade.

  • The Australian financial advice landscape is changing - post Royal Commission the 20/80 rule will become more evident than ever.

  • What six days in an Audi SQ5 taught me about value for money and great customer service.

  • Hearts and Minds Investments - an IPO with a philanthropic socially responsible investment twist.  

  • Voodoo Medics - Unconventional medicine, unconventional warfare, everyday heros.

 Global Insight

 

The last couple of months has seen an evident return of market volatility, and what has become evident around the corrections of this week, is that many people have been notably concerned and uncomfortable with this volatility.

 

Why? Because market volatility while normal - has largely been missing for the better part of a decade. And ignoring much of the sensationalist media reporting (because good news doesn't sell) is probably worthwhile, especially for investors who have a long term view to returns on their investment.

 

There is nothing wrong with a prudent approach when markets are continuing to tip all time highs, and market corrections are a normal measure of reverting overvalued and over bought assets back to their true intrinsic value. Rather than reading what poses as financial journalism these days in the mainstream media, I take a perspective of historic returns over the longer term (and most people have forgotten what true long term perspectives are), and keep in mind my long term goals for my portfolios.

 

 

The optimist also notes that market corrections provide buying opportunities for assets when all assets reset their pricing regardless of their intrinsic value.

Domestic Insight

 

The Hayne Plane used to refer to a prodigious NRL athlete who code hopped from the NRL to the NFL (an amazing feat), but which crashed and burned on return from orbit to Australia. The new Hayne Plane is more recently associated with the Royal Commission (RC) into banking and finance, and a crash landing will have long lasting significant impact, long after the RC is over.

 

The obvious outcome at the start was that the RC would confirm bad practices by institutions that have been known, and ignored, for ages. The flow on effect though would be a sector of financial services thrown into chaos, with the smaller financial advice firms that have been serving their clients needs for years in their best interests, suffering the repercussions from the actions of the corporate banks. 

 

The downside to this will be the pendulum swinging to the extreme in correction to actions of years ago, and the cost of advice being driven higher due to new mandated compliance, and the associated costs that come with it. Even today we see that only 20% of Australian's seek out financial advice, and of those who do, only half follow through. Is it any wonder that 20% of the population controls 80% of the wealth.

 

As financial advice becomes a true fee for service profession, the number of people prepared to pay for advice will reduce, and the 20/80 ratio will only increase in favour of those who take wealth creation seriously and are prepared to pay for it. Remember:

 

"If you think it's expensive to hire a professional, wait until you hire an amateur..."

Five Minute Focus - Six Days in an Audi

 

On our last trip to Melbourne for a holiday North through Victoria and New South Wales, and we had booked an Audi Q2 for the road leg of the journey. 

 

After a delay in getting our bags, we fronted to the Hertz Gold bays at Melbourne Airport, and sitting in our car space, well... it wasn't an Audi Q2. When we queried the car w the staff, they noted an error had been made and automatically applied an upgrade and gave us an Audi Q5! So we thanked them, loaded up our bags and were about to drive off, when the engine management system advised us there was a fault and we should contact the workshops... Again, Hertz Gold staff to the rescue and upgrade number two - to an Audi SQ5 - and a kind warning that it goes fast... VERY FAST !!

 

At the end of our six days with the car we learnt a couple of valuable lessons. One, when you offer a premium service, customer service matters, and hands off to Hertz Gold for delivering in spades. And secondly, the sports suspension pack, while suited to Melbourne roads - is not really the everyday suspension needed for country roads (a rally pack may have been more appropriate). But we had a blast and loved the car.

Socially Minded

 

If you are looking for a socially and ethically focused investment opportunity, you might want to check out Hearts and Minds Investments Limited (HM1). I decided to invest in this after listening to Chris Cuffe speak four years ago on philanthropic investing, and liked what he had to say.

 

HM1’s Investment Strategy is to create a concentrated portfolio of long only positions in approximately 25 Securities based on the highest conviction ideas from two groups of Fund Managers:

 

  • Conference Fund Managers: 40% of the portfolio will be held in approximately 10 Securities based on the annual recommendations of Fund Managers who present at the Sohn Hearts and Minds Investment Leaders Conference.

  • Core Fund Managers: 60% of the portfolio will be held in approximately 15 securities based on the quarterly recommendations of five leading Fund Managers selected by the Investment Committee.

 

What is notable about this investment though is that the Company will also seek to provide financial funding to leading Australian medical research organisations in order to support the development of new medicine and drive a new generation of medical research in Australia.


In order to support its Charitable Goal, the Company will forego any investment fees and instead donate a Donation Amount to the Designated Charities every six months.


The list of Designated Charities will include The Victor Chang Cardiac Research Institute (Victor Chang Institute) together with the Black Dog Institute; The Brain and Mind Centre, Sydney University; The Charlie Teo Foundation; The Children’s Hospital at Westmead – Pediatric Intensive Care Unit, Research; The Florey Institute of Neuroscience & Mental Health; The Centre of Human Psychopharmacology, Swinburne University; Multiple Sclerosis Research Australia Limited; Orygen and Royal Prince Alfred Hospital, research. These Designated Charities have been nominated by the Core Fund Managers and the Board.


The Company, Fund Managers and a number of the key Service Providers have agreed to forego fees that they would normally charge in relation to services provided to the Company. The members of the Board and the Investment Committee have also agreed to waive any right to be paid director and committee fees.

 

Certainly something different and worth considering further -and obviously do your own due diligence.

Something Personal - Voodoo Medics


There's been a great series of articles run by the Daily Telegraph, titled 'Voodoo Medics', unconventional medicine - unconventional warfare... if you get a chance (search for links on your social media and on the Telegraph), take the time to read these and listen to remarkable tales of human achievement by everyday soldiers at the peak of their careers. To listen, is to understand, and to better comprehend the world of our military veteran community. We owe them a debt that many can't comprehend, but those who have been at the coalface, do...

That's it for this weeks Friday's 5 Minute Note. If you are a new reader and would like to be on the mailing list, feel free to subscribe on the home page ...

 

#zerosumgame #zsgwealth #FridayFiveMinuteNote
 

Cheers, Col

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