April 23, 2025 • 31 mins
Forget chasing perfection, let's talk about the power of strategic mediocrity and how it might be your most valuable weapon when it comes to investing.
In this week's episode of Shared Lunch, Garth Bray is joined by Paul MacBeth, editor of The Bottom Line, and Susannah Batley, GM of Sharesies Business. Together, they explore what it takes to build investment strategies, discuss how the NZX has reacted to the volatility of the last few weeks, and unpack well-known investment management firm PIMCO’s approach.
For more or to watch on YouTube—check out http://linktr.ee/sharedlunch
Shared Lunch is brought to you by Sharesies Limited (NZ) in New Zealand and Sharesies Australia Limited (ABN 94 648 811 830; AFSL 529893) (collectively referred to as ‘Sharesies’).
Appearance on Shared Lunch is not an endorsement by Sharesies of the views of the presenters, guests, or the entities they represent. Their views are their own. Shared Lunch is not personal financial advice and provides general information only. We recommend talking to a licensed financial adviser. You should review relevant product disclosure documents before deciding to invest. Investing involves risk. You might lose the money you start with. Content is current at the time.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
What I found is that the companies that perform the
best in over a ten year period never with the
top than any one year.
Speaker 2 (00:07):
The immediate volatility after the Liberation Day announcements, when is
it its first day?
Speaker 3 (00:14):
It ended up the day up.
Speaker 1 (00:15):
If I look at websites of FU managers often of
about a one year, three year, maybe a five year record.
If I'm investing for a longer term than that, then
actually that's not really relevant for me.
Speaker 3 (00:28):
Kyoto Koto, Welcome to shared Lunch. I'm Garth Bray. Congratulations
if you've made it through the past few weeks with
your nerves holding investors haven't seen this volatility for more
than a decade. How are you coping and how are
you looking for the positives and opportunities. Well, we're in
Wellington today and helping me look for those things. We
have some sparkling talent in the form of Paul of Beth,
(00:49):
editor of the bottom Line, and Susan and Batley company
director and also head of Cheesey's business arm. Before we
get started, here's some important information you should always consider
an investing.
Speaker 4 (01:00):
Investing involves the risk you might lose the money you
start with. We recommend talking to a licensed financial advisor.
We also recommend reading product disclosure documents before deciding to invest.
Everything you're about to see and here is current at
the time of recording.
Speaker 3 (01:14):
Welcome to both of you. Paul, you took the boldest
bet I can think of in the first quarter of
twenty twenty five and launched a business, so congratulations on
the bottom line. Susanna, you're a director at deliver Easy
as well as helping out with the business side of
business here at Cheers EA's so, I mean a lot
on your plate obviously. Congratulations and welcome to twenty twenty five.
(01:38):
What are you doing for stress at the moment? How's
your stress levels? I find it pretty calm.
Speaker 2 (01:44):
I mean we're at the bottom of the world with
one hundred thousand mile mote surrounding us. It's quite easy
to be in New Zealand and watch on while Rome burns.
I mean, it's the last couple of weeks in this
year in general have certainly thrown up a lot of
things to think about. But it's the same thing. You know,
(02:06):
New Zealand has that relativity thing right. Things are bad
here at times, but when you look overseas, Yeah, you're
definitely shaken.
Speaker 3 (02:14):
Your head about you are you waking up every morning
checking the numbers and checking again.
Speaker 1 (02:19):
I mean, I am still checking the numbers. But what
I've actually found really helpful for me is actually looking
back in history and continue to look at other times
where there have been a lot of volatility. The reasons
have been different. But I do think that if you
don't engage with history, then everything feels unprecedented. So I've
found that to be quite a calming thing to think
(02:41):
about and look at each time that's happened. That life
does go on and markets do continue, So.
Speaker 3 (02:46):
You're looking at the cycle and trying to work out
where we are there and work out what happens next,
or at least take some stock from the fact that
this is not unprecedented.
Speaker 1 (02:55):
That's right. I mean, I don't try and analyze the future.
In fact, even that is a really odd phrase, because
the future hasn't happened, so there really is nothing to analyze,
and I have really no idea what's going to happen.
And if I look back in history, history is really
a series of surprises, and so it's very hard to
then think about what that next surprise has got to be.
(03:18):
But I do think it is good to focus on
some of the things that we do know are likely
and sort of thinking about what a good response to
that might be. It is hard to continue to invest
when you're seeing your portfolio go down and value and
knowing that that might persist for some time and things
might look worse even the next week. In fact, Howard Marx,
(03:38):
who is someone that I really enjoy his books, and
he's got a very famous memo that I think he's
written since about nineteen ninety and I came across oak
Tree Capital during the GFC. We're at about the last
four months of the GFC. Oak Tree Capital. We're deploying
about six hundred million dollars US into the market every week,
and that was as a market was continuing to deteriorate,
(04:00):
and so every week what they had purchased the week
before was worth less, and then they kept doing it
again and again and again. And that having that high
conviction and be willing to put up with quite an
extended pair of volatility is really hard psychologically, and that's
why often in the past few have been able to
do that. But for the people that can do that well,
(04:21):
it's been incredibly fruitful over the long term, I guess.
Speaker 3 (04:25):
I mean, you know, if you compet it to house prices,
Obviously there's been pandemonium if they dropped like fifteen percent
since February, like was sort of seen with e SMP.
But admittedly there would be people out there licking their
lips and going great, finally, this is my chance to
get into that market will double down or so on.
And it's the same effectively with equities, right.
Speaker 1 (04:42):
That's right. I mean house prices, I think is an
interesting one, and I think gets overlooked a bit around
the impact of leverage that that has as well. So
you know, when people might buy a house if they
have funding it with eighty percent of a mortgage, then
that leverage really amplifies the outcome. And that's great when
things are going up, but that can get pretty catastrophic
(05:04):
when things are going down. And so when we've seen
house prices move down, that return on equity gets a
lot more negative. It's amplified because of the effect of leverage,
whereas in the equity markets, you know a lot of
people investing and not using leverage to that degree. So
it's interesting that house price.
Speaker 3 (05:23):
Analogy not since the eighties anyway, Yeah, Yeah, I want
to get to did a little bit later on because
obviously it's a big part of what's behind what's been
going on coming out of the state, so I spots.
But the reasons about sort of stress was this is
probably a little bit like kind of a health check
time for a lot of people with their portfolio. As
would you say, Paul, Like, it's like, am I comfortable
with this amount of risk?
Speaker 2 (05:45):
Definitely? And they should have been doing that already. Anyway,
if you're looking at equities, you know you're going in
with something that's volatile. There are a lot of other
products out there to mitigate that. In the handy little
risk profiles that we get in various disclosure statements to
one to seven seven bang, you're going to have to
tolerate some downs with the ups and think about it
over a long period of time. I mean, I still
(06:06):
struggle when I see these statements looking at a long
term investment being five years, that's not a long term investment.
You're day trading if you're thinking that's your sort of profile.
If we think about Kiwi Saber forty years, this is
a generational product, So you can go through these sorts
of things and looking at you know, the immediate volatility
(06:28):
after the Liberation Day announcements and ends it x first day,
it ended up the day up. We were the first
market to open. We eaked out in the final fifteen
minutes of the match where all of the big money
sort of trying to set their final prices for the day,
ends up in the green, having been sort of you know,
in the red for a lot of it. Then you
(06:49):
get to a Wall Street reaction the following day slaps everyone.
We finally get it on the Monday, where it comes
down a bit domestically. But you'd look at those numbers
and I remember I was looking back at say sort
of heighter GFC, hider COVID, he to COVID. Was I
mean some of that that some of those movements were nonsensical.
You couldn't quite wrap your head around it, even thinking
(07:10):
about the likes of West Texas and the media oil
prices going negative for a stage mad GFC going back
to you know it was it was a smaller, sort
slightly bigger than the dot com bubble in the early
two thousands. But over the course of it, you're sort
of going, Okay, we're feeling this now because it's happening
right now, but we felt like this in the past.
(07:32):
And that's how you try and sort of think back
into your mind. Okay, if you're thinking about equities, it's
a long term thing. It's it's so easy to get
caught up in the ups and downs. You do want
to have an idea of going into things, you know,
what am I What am I comfortable with and revisit
that every now and then, like, you know, let's have
a look at it, maybe quarterly, maybe yearly. What do
(07:52):
I think about my portfolio now? What do I need
sort of over the next six, twelve, twenty, fourth, thirty
months type thing? And it just accordingly or not.
Speaker 3 (08:02):
It's like a health check, as you kind of check
and maybe once a year with your doctor if you
can get in to see them and go, you know,
how things looking. It's a chance to say, is my
strategy for the long term working right now? And do
I need to adjust it? Would they be right?
Speaker 1 (08:16):
Yeah? And I do think sometimes living through these moments
are the reality check to actually go back and look
and go, am I dipssified enough? Do I have enough
cash on hand? Are those settings right for me? At
the stage of life and for my risk appetite, I
think when it comes to investing, it's really important to
(08:36):
understand whether we are trying to maximize for the short
term or optimize for the long term. And those are
two very different things, and they're actually adulds with each other.
So if you're optimizing for the long term most of
the time, I would say by definition, that means not
maximizing for the short term, and it means actually not
maximizing for returns when times are good. And again psychologically
(08:59):
that's quite hard. You know. For the last couple of years,
I'm very well in Nvidio, and every time that I
go and look at that stock, I go, oh, I
think it's overpriced, and I will invest, and then sure
enough I was wrong and the price will keep going up.
And I do think there are times when things are
going up where people could maximize short term returns by
taking on more debt, having lower cash levels, going more
(09:22):
into individual equities, and maybe having less di versification. But
what that also does is it does make your portfolio
more or less resilient to large volatility and large periers
of uncertainty, and less resilient over the long term and
for people that really are looking to optimize for the
long term. And if we look at the formula of
(09:44):
long term wealth, is your sort of return to the
power of time. That keyword is time, like it's to
the power of time. And so if you're thinking about
endurance and thinking about maximizing for the long term, then
sometimes that does mean holding back a bit in terms
of trying to maximize over short periods of time, because
actually you really want to make sure that you can
(10:07):
survive the one and twenty year event or the one
in forty year event, and that's quite different the what.
Speaker 3 (10:13):
If moment that we're all kind of going through.
Speaker 1 (10:14):
Now, that's right, and I think when we you know,
what we do know so far is that over long
periods of time, there's been lots of periods of volatility,
but that markets overall have done well. And so that
does go back to going, am I diverse wide enough?
What does diversifacation look like? And is my time horizon
to fuce point long enough? And I agree with five
(10:38):
years is just not long enough in my view to
be really thinking about the equity markets.
Speaker 3 (10:42):
You're looking more like ten or longer, yeah.
Speaker 1 (10:45):
Or longer? I mean, I think Warren Buffett made something like,
I think something like ninety nine percent of returns are
to returned sixty I think, and that's just because of
that exponential, that power of time that it's all been
in the the latter years.
Speaker 3 (11:01):
But he made some pretty smart decisions before that, I'm
sure did. Coming back to the INSIDEX and you were
talking about how we actually managed to perform a little
bit out of step with those market moves. You know,
there's obviously a lack there. I mean, has there been
has it been a good guide for the volatility that's
out there, the performance of that market, and are we
(11:22):
sort of seeing it reflected or are there some local
things that we need to think about there would.
Speaker 2 (11:26):
Definitely follow those trends. You're looking at it, and you
don't tend to see the same peaks and troughs that
you get on that daily basis over sort of the
short period of time. I mean, that's where you saw
five percent going on the NASDAK, you might get a
three on the fifty.
Speaker 3 (11:47):
Might that make it a bit more of a defensive
A definitely.
Speaker 2 (11:51):
I mean, when you're looking at the top ten, top twenty,
you're looking at utilities you've got the three government controlled
power companies, an airline which is government controlled, broadband provided
that got out of got into businesses that it probably
shouldn't have. Fisher and Pyble Healthcare is probably the most
interesting one out of there and has been an astonishing success.
(12:12):
There are always a lot of what if moments, and
it does often make you wonder whether or not we've
got the risk settings right. It's one thing for the
market to be defensive, but the trading volumes on the
nz X fifty were pretty low throughout this entire period,
even though activity sort of perked up throughout it all.
When you're looking back at sort of just the actual
(12:32):
volume of shares trading, and you're looking at maybe one
twenty one to thirty mili in turnover value of trading
going through it on a daily basis, The rewatings of
major indices a couple of weeks prior had massive volumes
over that you're looking at sort of equivalent volumes going
through the Breck search back in twenty sixteen around mid
year like that, that seems out of step when you've
(12:54):
got some of the biggest trading volumes going on in
Wall Street over in Australia, and yes, people are sort
of sitting and waiting to see what goes on. But
you're just wondering, why is New Zealand not actually engaging
in this? Is this just a function of the fact
that a lot of our ownership is being done through
(13:15):
passive ETFs now and these are the vehicles that people
are flocking to. Has really been quite curious is to
wonder have we got our risk settings right for what
should be something that is there to support not only
deeper capital markets for new businesses to be coming out there,
but for investors to get involved in. You struggle to
see the imagination getting captured by the New Zealand public
(13:36):
at a time when more of the New Zealand public
is finally getting over the finance company debacle, the eighty
seven crash, You're left sort of scratching your head, going
what gives.
Speaker 3 (13:48):
The data would suggest though, that we are getting over
those things that if you look at even at the
Cheeses index that Cheesy's produces quarterly, people are diving into
those marks, not necessarily the nsiet x point, but they're
getting amongst it, don't they.
Speaker 1 (14:02):
Yeah, I've been really hardened to see the response to
this period of volatility, where the latest figures from the
Cheesy's Index over the quarter January to March showed again
continuing strong netbuying through this period, and then also a
shift away from sort of more individual companies into more
ETFs and diversified funds as well as into defensive individual
(14:26):
companies as well. And I do think that reflects the
fact that we are probably in for a period of
continued volatility and divesification is a really important thing to
make your portfolio more resilient to sort of withstand withstand
that period. I also think actually even before this tariff
(14:47):
war and these geopolitical events that we're seeing play out.
You know, if I look at twenty twenty four, in
the year, the S and P five hundred was up,
I think about twenty five percent, but about half of
those companies had losses so had a negative return for
that period. And actually it's a very few number of
companies that accounted for the majority of that return. And
(15:09):
I think that is a trend that we're seeing more
and more, particularly as you have large tech players with
high operating leverage and you're seeing some more global companies,
you are seeing that the drive to the tails and
the tails that are driving for the big outcomes, and
unless you can you know, really pick who those winners
will be. And I mean I certainly can't. Definitely, we're
(15:32):
not near my day job if I could do that.
But you know, unless you can do that, well, then
you know you're it's going to be hard to even
beat the market return if you haven't got decent exposure
to those very few sort of fewer and fewer stocks
that are driving the big outcomes. And so I do
think that moving more to that diversified approach is really
(15:55):
helpful as we're seeing that trend even beyond you know,
the volatility with off the back of the Trump saga.
Speaker 2 (16:02):
That's just also one of those issues that you get
around the shifting around the ETFs and the such. It's
hard to look at say like a QQQ, the Nasdaq
ETF or the S and P five hundred and really
consider either of those to be diversified given the concentration
of Magnificent seven and you know, just thinking about, like
you know, people on Shares's platform, this is we investors
(16:24):
being drawn more to US stocks and they're going down
this you get told to diversify your portfolio. This American
market should be one that you should go into. But
if you're only going into seven companies that are making
up the dominance of it, you know, it's hard to
wrap your head around how you're actually diversifying your investment there,
or if you're just trying to ride the wave that
we've all been don for what last seven eight nine
(16:45):
years now?
Speaker 1 (16:45):
I mean to fourth point though. Yeah, when you look
at for example one E S and P five hundred ETF,
it is dominated by a very few number of stocks.
And I mean I remember a time on the ins
oft X fifty where I think it was fishing, Packal, Healthcare,
and A two milk collectively where something like thirty percent
of the index. And so unless you had for fund
managers that didn't have a massive exposure to those two,
(17:07):
they almost always underperformed index at that time. What we
are also seeing because we call a lot of our
keep we saving members, and we are talking to investors
all the time. And another thing we're seeing is we're
actually fine larging investors not disengage. They're not going I
just put my head in the set end and try
and just forget about this period we are seeing investors
(17:29):
actually continue to check in with their balances, but also
they're saying, actually, this is just part and parcel of
being an investor. And I think that really is a
shift in mentality of what we've seen in previous periods,
particularly amongst retail where I'm talking to investors, I've seen
a really big shift in psychology where it is much
more volatility is the price of investing, and it's not
(17:51):
a penalty, it's not for doing something wrong. It's literally
the price of being in the market. And actually, when
I do talk to investors, the things that they're about
is not volatility in the short term, and they shouldn't
be like for investors taking a long enough time horizon
and advertate, volatility in itself shouldn't be the issue. The
issue is, you know, can I lose some all of
(18:12):
my money? Or am I going to get inadequate returns
for the risk I'm taking on? Those are the issues
that investors need to be concerned with, not that short
term volatility.
Speaker 3 (18:21):
Yeah, I guess key. We saver is probably a huge
part of that equation. Right, people are now directly invested
that can sort of see a little bit about their
peace of the world. And that's probably leading a lot
of financial literacy as well. I guess the fact that
it's locked in right that people are in there until
sixty five or whatever, or until they buy their first house,
if that's where they're trying to push it to. So
that's got to be a big part of this.
Speaker 1 (18:42):
Yeah, totally. And dolo cost averaging in that is the
key saver strategy. Like every month money gets deployed, whether
or not people are feeling good about it and looking
at the balance and obviously only investing at the top
of the market is not a good strategy. So dolo
cost averaging does rely on investing when markets go down
and continue to deploy money during those moments, which, as
(19:04):
we've talked about psychologically, is challenging.
Speaker 3 (19:06):
I mean, we do have some slightly unusual KEI we
server settings here where we sort of tax it going in,
whereas a lot of other countries will just say you
make the money, you grow, your pie, will have it
when you cash it out when you're retired. Things like
is it time for us to look at that and
say we need a health check on We.
Speaker 2 (19:21):
Should be looking at that all the time, you know.
The esteemed commentator Brian Fellow, who is very smart columnist
at The Herald for many, many many years, would regularly
point out a bit the horrendous change that was made
when Roger Douglass was Finance Minister to change that setting
around the tax you're clipping the ticket on the way
through and what government wants to give up that money,
(19:44):
which the ultimate taxpayer doesn't see. You're not aware of
how much you're actually paying. Until we had the sort
of it might have been the COVID crash. When you're
looking at the annual key we save balances, it was
almost about that time where the tax take was going
to be bigger than the fees generated. Now, you know,
(20:05):
it's kind of a moral for the government to be
a bigger beneficiary of the privatizing of future savings than
the people that it constantly complains about. It's a horrendous setting.
Speaker 3 (20:17):
I kind of imagined it's a little bit like trying
to steal food out of the mouth of the animal
that you're trying to feed. Rather than just saying, hey,
one day we're going to you know, it's going to
meet at the end and we're all going to eat.
You know, it feels like they're trying to take too
much too soon. But like you say, it's locked in
and probably hard to reverse. But are there other changes
where you trying to make well.
Speaker 2 (20:34):
I mean everyone's pushing for pushing for increasing contribution rates,
which makes sense. I mean even if you go back
to doctor Cullen when he was setting it up, the
staggered rate of one, two, three, four going up one
percentage point a year to minimum and then wanting, you know,
wanting to be able to get for it to go
up to eight.
Speaker 1 (20:54):
I mean, the great thing with key we save is
it really does maximize for that time horizon. And I
think as humans, for most people, and I said, it's
for myself, compounding is not insuredive. Like if someone said
to me, what's seven plus seven plus seven plus seven,
I'd give them the answer. They said, what's seven times
seven times seven times seven? I just say that's a
really big number. I personally think compounding, the compounding formula,
(21:16):
we're the most useful formula that my kids ever learn.
And I just think that we don't. It's very hard
to visualize and really understand how powerful that is. Over decades.
Speaker 3 (21:27):
Look, we've managed to get through this mostly without a
lot of talk about Trump or tariffs or any of
those things, or it's been in the background there, right,
because every other day it's a new thing, right. But
coming back to what we're talking about with some of
those New Zealand companies, those local companies, is there any
way we can work out what those likely impacts are
to be on some of the market players that we've got.
Speaker 2 (21:47):
Here, not yet, Yeah, well ofause, I mean, your first
round had so Fisher and Pugle health Care, which has
significant manufacturing operations in Mexico, which were immediately slapped with
tariffs before the big Donald Trump versus the World, which
was then peered back to Donald Trump versus China Super Slam.
Speaker 3 (22:06):
We should start coming at some wrestling metaphors or something
at SummerSlam.
Speaker 2 (22:10):
I mean, he is a WWE fan, but it's the
were their immediate thing was it's not going to hit
our twenty twenty five financial year because their financial year
ends in March, so that gives them a bit of
an out to then think about, well, gee, we need
to work out what the impact is going to be,
whether or not we're going to be able to pass
(22:30):
this on to our customers, whether or not we're going
to shift more manufacturing back to New Zealand. They went
through this in twenty sixteen after the original when NAFTA
got torn up and Trump renegotiated the free trade agreement
with Canada or Mexico. Fisher and Pigal Healthcare. We're looking
at their manufacturing footprint and thought this is too much
(22:50):
of a risk. We need to find another country to
build things. They ended up settling on a Chinese factory
which came on stream. It might have been last year
or the year before, quite remember, but this is this
is how every company is going to respond. They will
look at what the rules are going to be, and
they will work out what will we get hit by
and how can we get around it, and how else
(23:13):
should we respond. I mean, in video promising to build
half a trillion dollars worth of AI servers and there
are supercomputers in America. That's exactly the sort of behavioral
shift that this White House administration wants to see. Whether
or not you know that the tariff regime would have
forced their hand or not. Counter factual, We've got no.
Speaker 3 (23:31):
Idea whether they've got the consistency coming out of the
White House that these businesses can actually use to make
those decisions as well, right, you know, can't we just
get a deal instead?
Speaker 1 (23:40):
Yeah, I'm intrigued to see actually how much manufacturing will
move to the US, because there is there is quite
a lag in terms of that response to them going,
oh we actually going to build a factory or going
to set up a factory, and that that takes time,
and I'm seeing various countdowns as to when Trump, you know,
when his term will finish, and look, who knows what
(24:01):
will happen at that point. But you know, if that
takes time, and do you think that they will get reversed,
then you do sort of whip back and go, well, actually,
is that worth it or not?
Speaker 2 (24:11):
There are always going to be winners and losers throughout
this entire sort of situation. Some people will find the
opportunities and others will get burnt, which is kind of capitalism, right.
I mean, you know, it's not a win win, win
win win, no matter how much these sort of well
manufactured press release tries to pict it is. So.
Speaker 1 (24:29):
Yeah, and then another interesting thing is thinking about what
the long term consequences might be of all of this
as well. You know, even if things are completely reversed,
that doesn't necessarily take away the fact that this has happened.
And then what, you know, how will global fund managers
look at the US or you know, what will be
certain views around the US dollar moving forward, And that's
(24:50):
really hard to predict, you know what that might be.
Speaker 2 (24:53):
I was just thinking Milford, our local fund manager in
New Zealand, they had already been looking at the valuations
in the US and gone, it's a bit toppy. And
they had been pairing back their US exposure and shifting
it to Europe where things were looking like a better value.
And you saw in the first sort of the first
(25:13):
quarter up until Liberation Day which liberated US at our gains,
that some of those European defense stocks have been going
through the absolute roof in Europe, primarily because they couldn't
trust on being able to source American product anymore. But
you know, these things, these things have massive budgets coming
(25:34):
their way as well as a result of what could
possibly be the dissolving of the NATO alliance, which is
crazy when you say that out loud.
Speaker 3 (25:42):
Yeah, I did say we were going to try and
be unashamedly local. I feel like we've ranged pretty far
from home now. So I'm just going to bring it back.
If we're talking about the NZIX. There's something I need
to ask you, Susan strategic mediocrity explain.
Speaker 1 (25:56):
Yeah, Strategic metirocrity was actually a term that the global
asset manager used to use. I don't know if they
still do, and it was really from a bond trader
back in the day called Ben Trotsky. In two thousand
and three, he retired with the best ten year record
at the time globally. And what ben Trotsky had done
(26:19):
is he analyzed a lot of a lot of history,
a lot of data, and actually found that if he
could stay within the top third of performers each year,
but not higher than that, so not on the top
twenty percent or the top twenty five percent, then naturally,
if he did that consistently over a ten year period,
he would be at the top in any competitive universe.
(26:40):
And really what it is about is going things change
all the time. Just as we're talking about things are
so uncertain all the time, and so an environment that
might produce sellar returns one year, if the environment changes,
then that same strategy might not produce the same outcome.
In fact, it's unlikely to so if the strategy is
(27:02):
more about thinking about a really resilient and robust approach
that will work in a variety of different environments. If
you apply that consistently each year, then actually over a
longer period of time, say a ten year period, then
that should produce really good outcomes. And I actually looked
at this on with instx data, and it was really
(27:22):
fascinating to see over I looked at a range of
different decades, and what I found is that the companies
that perform the best over a ten year period never
with the top than any one year. And I think, again,
it's that optimizing over the longer term versus maximizing over
(27:43):
the shorter term. And I don't think we talk about
this enough. If I look at websites or fund managers,
they often talk about a one year or three year,
maybe a five year record. If I'm investing for a
longer term than that, then actually that's not really relevant
for me. I need to be looking at what that
track record looks like over a much longer time frame.
And it was interesting seeing some of the top formers
(28:05):
on the insiet X. I mean, Chorus was one that
has produced some stellar returns over a ten year period,
and in fact, if you account for the sort of
risk control as well, it's probably even better. So, you know,
I think it's interesting too. Over the last few years
we've seen quite a bag shift away from the injetex
into the US markets. But I did look at a
(28:27):
range of Intertex companies and actually, if we take a
much longer time horizon, there's been some really really strong
consistent returns on some of these companies over a decade plus.
Speaker 3 (28:38):
All are there hidden treasures in there in the insiet.
Speaker 2 (28:40):
X They're always hidden treasures, but I mean it's part
of the problem around crystallizing value out of them as
the lack of liquidity throughout the entire market. People won't
touch anything outside of those top twenty companies. And when
you're looking at sort of those mid and small cap companies,
and these are why they're so often how to takeover
(29:00):
targets because they're trading possibly even below the net tangible
assets that you know, if you were to liquidate the
matter point in time, you would get more money than
what you could do buying them all on market at
that price. There are a lot of companies in that
sort of space, and part of it is just because
they've fallen out of favor. Part of it is that
(29:20):
their owners, the shareholders, don't want to sell at the
prices that someone else is out there trying to do so.
But it's just really difficult to drive that activity to
get a real, a transparent price, which is what a
stock market, a forum for people to buy and sell,
is all about. Why didn't Rocket Lab get a secondary
listing when it went to the Nasdaq? What are we
(29:42):
doing in New Zealand that's not encouraging those companies that
are imagining to get from small to medium to big,
or those hugely ambitious companies to think domestic, even if
that's only just a component of it. Why are they
completely assuring us? And it's very easy to take a
crack at the stock exchange operator and say, well, you're
(30:04):
not sticking to your knitting, you're too busy off and
funds management, wealth administration. Well that's unfair. They're just one
component to the entire thing. Is it the fifteen years
of the conduct legislation that we've been operating under, did
that get it right? Maybe it's time to have we
think about that. I mean, Cheersy's has been a magnificent
introduction into the market to at least inject, if not necessarily,
(30:25):
the value of trading that you see from the big houses,
the volume of it. Retail investors are getting engaged through
it and doing so, but more it just seems to
be like we've left something on the table, and if
I knew what it was, I'd probably be sitting in
the top floor of PWC's our own commercial bank. The
(30:46):
what if moment out of all of this and the
peaks and troughs of the SMP five hundred is we
need to look a little bit local and fix our
own house as well and fix some of these things.
Thank you so much for your insights, for your experience.
Do you come stay calm people, honestly and as you say,
just just check in when you need to and you know,
(31:07):
back the long game.
Speaker 3 (31:08):
Thank you very much, Paul, Thank you very much. Susanna,
Thank you very much as well for listening and for
watching YouTube Spotify, Apple iHeart straight off the shares exap.
If that's where you're getting it from, Thanks very much.
Let us know what you thought, let us know what
you'd like to hear about, Kumitu. That's us for now.
What I found is that the companies that perform the
best in over a ten year period never with the
top than any one year.
Speaker 2 (00:07):
The immediate volatility after the Liberation Day announcements, when is
it its first day?
Speaker 3 (00:14):
It ended up the day up.
Speaker 1 (00:15):
If I look at websites of FU managers often of
about a one year, three year, maybe a five year record.
If I'm investing for a longer term than that, then
actually that's not really relevant for me.
Speaker 3 (00:28):
Kyoto Koto, Welcome to shared Lunch. I'm Garth Bray. Congratulations
if you've made it through the past few weeks with
your nerves holding investors haven't seen this volatility for more
than a decade. How are you coping and how are
you looking for the positives and opportunities. Well, we're in
Wellington today and helping me look for those things. We
have some sparkling talent in the form of Paul of Beth,
(00:49):
editor of the bottom Line, and Susan and Batley company
director and also head of Cheesey's business arm. Before we
get started, here's some important information you should always consider
an investing.
Speaker 4 (01:00):
Investing involves the risk you might lose the money you
start with. We recommend talking to a licensed financial advisor.
We also recommend reading product disclosure documents before deciding to invest.
Everything you're about to see and here is current at
the time of recording.
Speaker 3 (01:14):
Welcome to both of you. Paul, you took the boldest
bet I can think of in the first quarter of
twenty twenty five and launched a business, so congratulations on
the bottom line. Susanna, you're a director at deliver Easy
as well as helping out with the business side of
business here at Cheers EA's so, I mean a lot
on your plate obviously. Congratulations and welcome to twenty twenty five.
(01:38):
What are you doing for stress at the moment? How's
your stress levels? I find it pretty calm.
Speaker 2 (01:44):
I mean we're at the bottom of the world with
one hundred thousand mile mote surrounding us. It's quite easy
to be in New Zealand and watch on while Rome burns.
I mean, it's the last couple of weeks in this
year in general have certainly thrown up a lot of
things to think about. But it's the same thing. You know,
(02:06):
New Zealand has that relativity thing right. Things are bad
here at times, but when you look overseas, Yeah, you're
definitely shaken.
Speaker 3 (02:14):
Your head about you are you waking up every morning
checking the numbers and checking again.
Speaker 1 (02:19):
I mean, I am still checking the numbers. But what
I've actually found really helpful for me is actually looking
back in history and continue to look at other times
where there have been a lot of volatility. The reasons
have been different. But I do think that if you
don't engage with history, then everything feels unprecedented. So I've
found that to be quite a calming thing to think
(02:41):
about and look at each time that's happened. That life
does go on and markets do continue, So.
Speaker 3 (02:46):
You're looking at the cycle and trying to work out
where we are there and work out what happens next,
or at least take some stock from the fact that
this is not unprecedented.
Speaker 1 (02:55):
That's right. I mean, I don't try and analyze the future.
In fact, even that is a really odd phrase, because
the future hasn't happened, so there really is nothing to analyze,
and I have really no idea what's going to happen.
And if I look back in history, history is really
a series of surprises, and so it's very hard to
then think about what that next surprise has got to be.
(03:18):
But I do think it is good to focus on
some of the things that we do know are likely
and sort of thinking about what a good response to
that might be. It is hard to continue to invest
when you're seeing your portfolio go down and value and
knowing that that might persist for some time and things
might look worse even the next week. In fact, Howard Marx,
(03:38):
who is someone that I really enjoy his books, and
he's got a very famous memo that I think he's
written since about nineteen ninety and I came across oak
Tree Capital during the GFC. We're at about the last
four months of the GFC. Oak Tree Capital. We're deploying
about six hundred million dollars US into the market every week,
and that was as a market was continuing to deteriorate,
(04:00):
and so every week what they had purchased the week
before was worth less, and then they kept doing it
again and again and again. And that having that high
conviction and be willing to put up with quite an
extended pair of volatility is really hard psychologically, and that's
why often in the past few have been able to
do that. But for the people that can do that well,
(04:21):
it's been incredibly fruitful over the long term, I guess.
Speaker 3 (04:25):
I mean, you know, if you compet it to house prices,
Obviously there's been pandemonium if they dropped like fifteen percent
since February, like was sort of seen with e SMP.
But admittedly there would be people out there licking their
lips and going great, finally, this is my chance to
get into that market will double down or so on.
And it's the same effectively with equities, right.
Speaker 1 (04:42):
That's right. I mean house prices, I think is an
interesting one, and I think gets overlooked a bit around
the impact of leverage that that has as well. So
you know, when people might buy a house if they
have funding it with eighty percent of a mortgage, then
that leverage really amplifies the outcome. And that's great when
things are going up, but that can get pretty catastrophic
(05:04):
when things are going down. And so when we've seen
house prices move down, that return on equity gets a
lot more negative. It's amplified because of the effect of leverage,
whereas in the equity markets, you know a lot of
people investing and not using leverage to that degree. So
it's interesting that house price.
Speaker 3 (05:23):
Analogy not since the eighties anyway, Yeah, Yeah, I want
to get to did a little bit later on because
obviously it's a big part of what's behind what's been
going on coming out of the state, so I spots.
But the reasons about sort of stress was this is
probably a little bit like kind of a health check
time for a lot of people with their portfolio. As
would you say, Paul, Like, it's like, am I comfortable
with this amount of risk?
Speaker 2 (05:45):
Definitely? And they should have been doing that already. Anyway,
if you're looking at equities, you know you're going in
with something that's volatile. There are a lot of other
products out there to mitigate that. In the handy little
risk profiles that we get in various disclosure statements to
one to seven seven bang, you're going to have to
tolerate some downs with the ups and think about it
over a long period of time. I mean, I still
(06:06):
struggle when I see these statements looking at a long
term investment being five years, that's not a long term investment.
You're day trading if you're thinking that's your sort of profile.
If we think about Kiwi Saber forty years, this is
a generational product, So you can go through these sorts
of things and looking at you know, the immediate volatility
(06:28):
after the Liberation Day announcements and ends it x first day,
it ended up the day up. We were the first
market to open. We eaked out in the final fifteen
minutes of the match where all of the big money
sort of trying to set their final prices for the day,
ends up in the green, having been sort of you know,
in the red for a lot of it. Then you
(06:49):
get to a Wall Street reaction the following day slaps everyone.
We finally get it on the Monday, where it comes
down a bit domestically. But you'd look at those numbers
and I remember I was looking back at say sort
of heighter GFC, hider COVID, he to COVID. Was I
mean some of that that some of those movements were nonsensical.
You couldn't quite wrap your head around it, even thinking
(07:10):
about the likes of West Texas and the media oil
prices going negative for a stage mad GFC going back
to you know it was it was a smaller, sort
slightly bigger than the dot com bubble in the early
two thousands. But over the course of it, you're sort
of going, Okay, we're feeling this now because it's happening
right now, but we felt like this in the past.
(07:32):
And that's how you try and sort of think back
into your mind. Okay, if you're thinking about equities, it's
a long term thing. It's it's so easy to get
caught up in the ups and downs. You do want
to have an idea of going into things, you know,
what am I What am I comfortable with and revisit
that every now and then, like, you know, let's have
a look at it, maybe quarterly, maybe yearly. What do
(07:52):
I think about my portfolio now? What do I need
sort of over the next six, twelve, twenty, fourth, thirty
months type thing? And it just accordingly or not.
Speaker 3 (08:02):
It's like a health check, as you kind of check
and maybe once a year with your doctor if you
can get in to see them and go, you know,
how things looking. It's a chance to say, is my
strategy for the long term working right now? And do
I need to adjust it? Would they be right?
Speaker 1 (08:16):
Yeah? And I do think sometimes living through these moments
are the reality check to actually go back and look
and go, am I dipssified enough? Do I have enough
cash on hand? Are those settings right for me? At
the stage of life and for my risk appetite, I
think when it comes to investing, it's really important to
(08:36):
understand whether we are trying to maximize for the short
term or optimize for the long term. And those are
two very different things, and they're actually adulds with each other.
So if you're optimizing for the long term most of
the time, I would say by definition, that means not
maximizing for the short term, and it means actually not
maximizing for returns when times are good. And again psychologically
(08:59):
that's quite hard. You know. For the last couple of years,
I'm very well in Nvidio, and every time that I
go and look at that stock, I go, oh, I
think it's overpriced, and I will invest, and then sure
enough I was wrong and the price will keep going up.
And I do think there are times when things are
going up where people could maximize short term returns by
taking on more debt, having lower cash levels, going more
(09:22):
into individual equities, and maybe having less di versification. But
what that also does is it does make your portfolio
more or less resilient to large volatility and large periers
of uncertainty, and less resilient over the long term and
for people that really are looking to optimize for the
long term. And if we look at the formula of
(09:44):
long term wealth, is your sort of return to the
power of time. That keyword is time, like it's to
the power of time. And so if you're thinking about
endurance and thinking about maximizing for the long term, then
sometimes that does mean holding back a bit in terms
of trying to maximize over short periods of time, because
actually you really want to make sure that you can
(10:07):
survive the one and twenty year event or the one
in forty year event, and that's quite different the what.
Speaker 3 (10:13):
If moment that we're all kind of going through.
Speaker 1 (10:14):
Now, that's right, and I think when we you know,
what we do know so far is that over long
periods of time, there's been lots of periods of volatility,
but that markets overall have done well. And so that
does go back to going, am I diverse wide enough?
What does diversifacation look like? And is my time horizon
to fuce point long enough? And I agree with five
(10:38):
years is just not long enough in my view to
be really thinking about the equity markets.
Speaker 3 (10:42):
You're looking more like ten or longer, yeah.
Speaker 1 (10:45):
Or longer? I mean, I think Warren Buffett made something like,
I think something like ninety nine percent of returns are
to returned sixty I think, and that's just because of
that exponential, that power of time that it's all been
in the the latter years.
Speaker 3 (11:01):
But he made some pretty smart decisions before that, I'm
sure did. Coming back to the INSIDEX and you were
talking about how we actually managed to perform a little
bit out of step with those market moves. You know,
there's obviously a lack there. I mean, has there been
has it been a good guide for the volatility that's
out there, the performance of that market, and are we
(11:22):
sort of seeing it reflected or are there some local
things that we need to think about there would.
Speaker 2 (11:26):
Definitely follow those trends. You're looking at it, and you
don't tend to see the same peaks and troughs that
you get on that daily basis over sort of the
short period of time. I mean, that's where you saw
five percent going on the NASDAK, you might get a
three on the fifty.
Speaker 3 (11:47):
Might that make it a bit more of a defensive
A definitely.
Speaker 2 (11:51):
I mean, when you're looking at the top ten, top twenty,
you're looking at utilities you've got the three government controlled
power companies, an airline which is government controlled, broadband provided
that got out of got into businesses that it probably
shouldn't have. Fisher and Pyble Healthcare is probably the most
interesting one out of there and has been an astonishing success.
(12:12):
There are always a lot of what if moments, and
it does often make you wonder whether or not we've
got the risk settings right. It's one thing for the
market to be defensive, but the trading volumes on the
nz X fifty were pretty low throughout this entire period,
even though activity sort of perked up throughout it all.
When you're looking back at sort of just the actual
(12:32):
volume of shares trading, and you're looking at maybe one
twenty one to thirty mili in turnover value of trading
going through it on a daily basis, The rewatings of
major indices a couple of weeks prior had massive volumes
over that you're looking at sort of equivalent volumes going
through the Breck search back in twenty sixteen around mid
year like that, that seems out of step when you've
(12:54):
got some of the biggest trading volumes going on in
Wall Street over in Australia, and yes, people are sort
of sitting and waiting to see what goes on. But
you're just wondering, why is New Zealand not actually engaging
in this? Is this just a function of the fact
that a lot of our ownership is being done through
(13:15):
passive ETFs now and these are the vehicles that people
are flocking to. Has really been quite curious is to
wonder have we got our risk settings right for what
should be something that is there to support not only
deeper capital markets for new businesses to be coming out there,
but for investors to get involved in. You struggle to
see the imagination getting captured by the New Zealand public
(13:36):
at a time when more of the New Zealand public
is finally getting over the finance company debacle, the eighty
seven crash, You're left sort of scratching your head, going
what gives.
Speaker 3 (13:48):
The data would suggest though, that we are getting over
those things that if you look at even at the
Cheeses index that Cheesy's produces quarterly, people are diving into
those marks, not necessarily the nsiet x point, but they're
getting amongst it, don't they.
Speaker 1 (14:02):
Yeah, I've been really hardened to see the response to
this period of volatility, where the latest figures from the
Cheesy's Index over the quarter January to March showed again
continuing strong netbuying through this period, and then also a
shift away from sort of more individual companies into more
ETFs and diversified funds as well as into defensive individual
(14:26):
companies as well. And I do think that reflects the
fact that we are probably in for a period of
continued volatility and divesification is a really important thing to
make your portfolio more resilient to sort of withstand withstand
that period. I also think actually even before this tariff
(14:47):
war and these geopolitical events that we're seeing play out.
You know, if I look at twenty twenty four, in
the year, the S and P five hundred was up,
I think about twenty five percent, but about half of
those companies had losses so had a negative return for
that period. And actually it's a very few number of
companies that accounted for the majority of that return. And
(15:09):
I think that is a trend that we're seeing more
and more, particularly as you have large tech players with
high operating leverage and you're seeing some more global companies,
you are seeing that the drive to the tails and
the tails that are driving for the big outcomes, and
unless you can you know, really pick who those winners
will be. And I mean I certainly can't. Definitely, we're
(15:32):
not near my day job if I could do that.
But you know, unless you can do that, well, then
you know you're it's going to be hard to even
beat the market return if you haven't got decent exposure
to those very few sort of fewer and fewer stocks
that are driving the big outcomes. And so I do
think that moving more to that diversified approach is really
(15:55):
helpful as we're seeing that trend even beyond you know,
the volatility with off the back of the Trump saga.
Speaker 2 (16:02):
That's just also one of those issues that you get
around the shifting around the ETFs and the such. It's
hard to look at say like a QQQ, the Nasdaq
ETF or the S and P five hundred and really
consider either of those to be diversified given the concentration
of Magnificent seven and you know, just thinking about, like
you know, people on Shares's platform, this is we investors
(16:24):
being drawn more to US stocks and they're going down
this you get told to diversify your portfolio. This American
market should be one that you should go into. But
if you're only going into seven companies that are making
up the dominance of it, you know, it's hard to
wrap your head around how you're actually diversifying your investment there,
or if you're just trying to ride the wave that
we've all been don for what last seven eight nine
(16:45):
years now?
Speaker 1 (16:45):
I mean to fourth point though. Yeah, when you look
at for example one E S and P five hundred ETF,
it is dominated by a very few number of stocks.
And I mean I remember a time on the ins
oft X fifty where I think it was fishing, Packal, Healthcare,
and A two milk collectively where something like thirty percent
of the index. And so unless you had for fund
managers that didn't have a massive exposure to those two,
(17:07):
they almost always underperformed index at that time. What we
are also seeing because we call a lot of our
keep we saving members, and we are talking to investors
all the time. And another thing we're seeing is we're
actually fine larging investors not disengage. They're not going I
just put my head in the set end and try
and just forget about this period we are seeing investors
(17:29):
actually continue to check in with their balances, but also
they're saying, actually, this is just part and parcel of
being an investor. And I think that really is a
shift in mentality of what we've seen in previous periods,
particularly amongst retail where I'm talking to investors, I've seen
a really big shift in psychology where it is much
more volatility is the price of investing, and it's not
(17:51):
a penalty, it's not for doing something wrong. It's literally
the price of being in the market. And actually, when
I do talk to investors, the things that they're about
is not volatility in the short term, and they shouldn't
be like for investors taking a long enough time horizon
and advertate, volatility in itself shouldn't be the issue. The
issue is, you know, can I lose some all of
(18:12):
my money? Or am I going to get inadequate returns
for the risk I'm taking on? Those are the issues
that investors need to be concerned with, not that short
term volatility.
Speaker 3 (18:21):
Yeah, I guess key. We saver is probably a huge
part of that equation. Right, people are now directly invested
that can sort of see a little bit about their
peace of the world. And that's probably leading a lot
of financial literacy as well. I guess the fact that
it's locked in right that people are in there until
sixty five or whatever, or until they buy their first house,
if that's where they're trying to push it to. So
that's got to be a big part of this.
Speaker 1 (18:42):
Yeah, totally. And dolo cost averaging in that is the
key saver strategy. Like every month money gets deployed, whether
or not people are feeling good about it and looking
at the balance and obviously only investing at the top
of the market is not a good strategy. So dolo
cost averaging does rely on investing when markets go down
and continue to deploy money during those moments, which, as
(19:04):
we've talked about psychologically, is challenging.
Speaker 3 (19:06):
I mean, we do have some slightly unusual KEI we
server settings here where we sort of tax it going in,
whereas a lot of other countries will just say you
make the money, you grow, your pie, will have it
when you cash it out when you're retired. Things like
is it time for us to look at that and
say we need a health check on We.
Speaker 2 (19:21):
Should be looking at that all the time, you know.
The esteemed commentator Brian Fellow, who is very smart columnist
at The Herald for many, many many years, would regularly
point out a bit the horrendous change that was made
when Roger Douglass was Finance Minister to change that setting
around the tax you're clipping the ticket on the way
through and what government wants to give up that money,
(19:44):
which the ultimate taxpayer doesn't see. You're not aware of
how much you're actually paying. Until we had the sort
of it might have been the COVID crash. When you're
looking at the annual key we save balances, it was
almost about that time where the tax take was going
to be bigger than the fees generated. Now, you know,
(20:05):
it's kind of a moral for the government to be
a bigger beneficiary of the privatizing of future savings than
the people that it constantly complains about. It's a horrendous setting.
Speaker 3 (20:17):
I kind of imagined it's a little bit like trying
to steal food out of the mouth of the animal
that you're trying to feed. Rather than just saying, hey,
one day we're going to you know, it's going to
meet at the end and we're all going to eat.
You know, it feels like they're trying to take too
much too soon. But like you say, it's locked in
and probably hard to reverse. But are there other changes
where you trying to make well.
Speaker 2 (20:34):
I mean everyone's pushing for pushing for increasing contribution rates,
which makes sense. I mean even if you go back
to doctor Cullen when he was setting it up, the
staggered rate of one, two, three, four going up one
percentage point a year to minimum and then wanting, you know,
wanting to be able to get for it to go
up to eight.
Speaker 1 (20:54):
I mean, the great thing with key we save is
it really does maximize for that time horizon. And I
think as humans, for most people, and I said, it's
for myself, compounding is not insuredive. Like if someone said
to me, what's seven plus seven plus seven plus seven,
I'd give them the answer. They said, what's seven times
seven times seven times seven? I just say that's a
really big number. I personally think compounding, the compounding formula,
(21:16):
we're the most useful formula that my kids ever learn.
And I just think that we don't. It's very hard
to visualize and really understand how powerful that is. Over decades.
Speaker 3 (21:27):
Look, we've managed to get through this mostly without a
lot of talk about Trump or tariffs or any of
those things, or it's been in the background there, right,
because every other day it's a new thing, right. But
coming back to what we're talking about with some of
those New Zealand companies, those local companies, is there any
way we can work out what those likely impacts are
to be on some of the market players that we've got.
Speaker 2 (21:47):
Here, not yet, Yeah, well ofause, I mean, your first
round had so Fisher and Pugle health Care, which has
significant manufacturing operations in Mexico, which were immediately slapped with
tariffs before the big Donald Trump versus the World, which
was then peered back to Donald Trump versus China Super Slam.
Speaker 3 (22:06):
We should start coming at some wrestling metaphors or something
at SummerSlam.
Speaker 2 (22:10):
I mean, he is a WWE fan, but it's the
were their immediate thing was it's not going to hit
our twenty twenty five financial year because their financial year
ends in March, so that gives them a bit of
an out to then think about, well, gee, we need
to work out what the impact is going to be,
whether or not we're going to be able to pass
(22:30):
this on to our customers, whether or not we're going
to shift more manufacturing back to New Zealand. They went
through this in twenty sixteen after the original when NAFTA
got torn up and Trump renegotiated the free trade agreement
with Canada or Mexico. Fisher and Pigal Healthcare. We're looking
at their manufacturing footprint and thought this is too much
(22:50):
of a risk. We need to find another country to
build things. They ended up settling on a Chinese factory
which came on stream. It might have been last year
or the year before, quite remember, but this is this
is how every company is going to respond. They will
look at what the rules are going to be, and
they will work out what will we get hit by
and how can we get around it, and how else
(23:13):
should we respond. I mean, in video promising to build
half a trillion dollars worth of AI servers and there
are supercomputers in America. That's exactly the sort of behavioral
shift that this White House administration wants to see. Whether
or not you know that the tariff regime would have
forced their hand or not. Counter factual, We've got no.
Speaker 3 (23:31):
Idea whether they've got the consistency coming out of the
White House that these businesses can actually use to make
those decisions as well, right, you know, can't we just
get a deal instead?
Speaker 1 (23:40):
Yeah, I'm intrigued to see actually how much manufacturing will
move to the US, because there is there is quite
a lag in terms of that response to them going,
oh we actually going to build a factory or going
to set up a factory, and that that takes time,
and I'm seeing various countdowns as to when Trump, you know,
when his term will finish, and look, who knows what
(24:01):
will happen at that point. But you know, if that
takes time, and do you think that they will get reversed,
then you do sort of whip back and go, well, actually,
is that worth it or not?
Speaker 2 (24:11):
There are always going to be winners and losers throughout
this entire sort of situation. Some people will find the
opportunities and others will get burnt, which is kind of capitalism, right.
I mean, you know, it's not a win win, win
win win, no matter how much these sort of well
manufactured press release tries to pict it is. So.
Speaker 1 (24:29):
Yeah, and then another interesting thing is thinking about what
the long term consequences might be of all of this
as well. You know, even if things are completely reversed,
that doesn't necessarily take away the fact that this has happened.
And then what, you know, how will global fund managers
look at the US or you know, what will be
certain views around the US dollar moving forward, And that's
(24:50):
really hard to predict, you know what that might be.
Speaker 2 (24:53):
I was just thinking Milford, our local fund manager in
New Zealand, they had already been looking at the valuations
in the US and gone, it's a bit toppy. And
they had been pairing back their US exposure and shifting
it to Europe where things were looking like a better value.
And you saw in the first sort of the first
(25:13):
quarter up until Liberation Day which liberated US at our gains,
that some of those European defense stocks have been going
through the absolute roof in Europe, primarily because they couldn't
trust on being able to source American product anymore. But
you know, these things, these things have massive budgets coming
(25:34):
their way as well as a result of what could
possibly be the dissolving of the NATO alliance, which is
crazy when you say that out loud.
Speaker 3 (25:42):
Yeah, I did say we were going to try and
be unashamedly local. I feel like we've ranged pretty far
from home now. So I'm just going to bring it back.
If we're talking about the NZIX. There's something I need
to ask you, Susan strategic mediocrity explain.
Speaker 1 (25:56):
Yeah, Strategic metirocrity was actually a term that the global
asset manager used to use. I don't know if they
still do, and it was really from a bond trader
back in the day called Ben Trotsky. In two thousand
and three, he retired with the best ten year record
at the time globally. And what ben Trotsky had done
(26:19):
is he analyzed a lot of a lot of history,
a lot of data, and actually found that if he
could stay within the top third of performers each year,
but not higher than that, so not on the top
twenty percent or the top twenty five percent, then naturally,
if he did that consistently over a ten year period,
he would be at the top in any competitive universe.
(26:40):
And really what it is about is going things change
all the time. Just as we're talking about things are
so uncertain all the time, and so an environment that
might produce sellar returns one year, if the environment changes,
then that same strategy might not produce the same outcome.
In fact, it's unlikely to so if the strategy is
(27:02):
more about thinking about a really resilient and robust approach
that will work in a variety of different environments. If
you apply that consistently each year, then actually over a
longer period of time, say a ten year period, then
that should produce really good outcomes. And I actually looked
at this on with instx data, and it was really
(27:22):
fascinating to see over I looked at a range of
different decades, and what I found is that the companies
that perform the best over a ten year period never
with the top than any one year. And I think, again,
it's that optimizing over the longer term versus maximizing over
(27:43):
the shorter term. And I don't think we talk about
this enough. If I look at websites or fund managers,
they often talk about a one year or three year,
maybe a five year record. If I'm investing for a
longer term than that, then actually that's not really relevant
for me. I need to be looking at what that
track record looks like over a much longer time frame.
And it was interesting seeing some of the top formers
(28:05):
on the insiet X. I mean, Chorus was one that
has produced some stellar returns over a ten year period,
and in fact, if you account for the sort of
risk control as well, it's probably even better. So, you know,
I think it's interesting too. Over the last few years
we've seen quite a bag shift away from the injetex
into the US markets. But I did look at a
(28:27):
range of Intertex companies and actually, if we take a
much longer time horizon, there's been some really really strong
consistent returns on some of these companies over a decade plus.
Speaker 3 (28:38):
All are there hidden treasures in there in the insiet.
Speaker 2 (28:40):
X They're always hidden treasures, but I mean it's part
of the problem around crystallizing value out of them as
the lack of liquidity throughout the entire market. People won't
touch anything outside of those top twenty companies. And when
you're looking at sort of those mid and small cap companies,
and these are why they're so often how to takeover
(29:00):
targets because they're trading possibly even below the net tangible
assets that you know, if you were to liquidate the
matter point in time, you would get more money than
what you could do buying them all on market at
that price. There are a lot of companies in that
sort of space, and part of it is just because
they've fallen out of favor. Part of it is that
(29:20):
their owners, the shareholders, don't want to sell at the
prices that someone else is out there trying to do so.
But it's just really difficult to drive that activity to
get a real, a transparent price, which is what a
stock market, a forum for people to buy and sell,
is all about. Why didn't Rocket Lab get a secondary
listing when it went to the Nasdaq? What are we
(29:42):
doing in New Zealand that's not encouraging those companies that
are imagining to get from small to medium to big,
or those hugely ambitious companies to think domestic, even if
that's only just a component of it. Why are they
completely assuring us? And it's very easy to take a
crack at the stock exchange operator and say, well, you're
(30:04):
not sticking to your knitting, you're too busy off and
funds management, wealth administration. Well that's unfair. They're just one
component to the entire thing. Is it the fifteen years
of the conduct legislation that we've been operating under, did
that get it right? Maybe it's time to have we
think about that. I mean, Cheersy's has been a magnificent
introduction into the market to at least inject, if not necessarily,
(30:25):
the value of trading that you see from the big houses,
the volume of it. Retail investors are getting engaged through
it and doing so, but more it just seems to
be like we've left something on the table, and if
I knew what it was, I'd probably be sitting in
the top floor of PWC's our own commercial bank. The
(30:46):
what if moment out of all of this and the
peaks and troughs of the SMP five hundred is we
need to look a little bit local and fix our
own house as well and fix some of these things.
Thank you so much for your insights, for your experience.
Do you come stay calm people, honestly and as you say,
just just check in when you need to and you know,
(31:07):
back the long game.
Speaker 3 (31:08):
Thank you very much, Paul, Thank you very much. Susanna,
Thank you very much as well for listening and for
watching YouTube Spotify, Apple iHeart straight off the shares exap.
If that's where you're getting it from, Thanks very much.
Let us know what you thought, let us know what
you'd like to hear about, Kumitu. That's us for now.
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