August 31, 2025 • 35 mins
Roger Montgomery is the founder of Montgomery Investment Management. While he is into adventure sports, when it comes to investing he's acutely focused on managing risk. From working at a fish and chip shop to managing $1.5bn in funds, he offers his advice on wealth creation for those in their 30s, 40s, 50s, and 60s.
In this bonus episode of The Money Puzzle, Sydney fund manager Roger Montgomery sits down with The Australian's Wealth Editor, Julie-anne Sprague to chat about how he learnt to invest.
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Episode Transcript
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Speaker 1 (00:15):
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirby. Welcome to the second in our series of
three special bonus episodes. My colleague at The Australian, Julianne Spragg,
sat down this time for a chat with fund manager
Roger Montgomery. Roger, of course, is chief investment officer and
(00:35):
founder of Montgomery Investment Management, and in this episode he
talks about his upbringing and life lessons formed as a
young investor and how that shaped what he does today.
Speaker 2 (00:48):
Roger, thanks very much for joining us.
Speaker 3 (00:50):
It's a pleasure, great to be with you.
Speaker 2 (00:51):
You've been investing for quite some time.
Speaker 3 (00:53):
Here's three decades, a little more than three decades.
Speaker 2 (00:56):
Okay, any home? Montgomery Investment Management.
Speaker 3 (00:59):
That's right. We distribute in Australia a variety of funds
across private credit, small caps, large caps, both globally and domestically,
a long short fund, all managed by different teams.
Speaker 2 (01:12):
What do you find. We'll get into your journey in
a second. But I am interested because I think that
there are people in markets who understand how this all works.
But from the outside in, when you sort of meet
friends or family, is there a misconception about what you
might do.
Speaker 3 (01:24):
My kids asked me when they were very young what
I did for a job, and my response was, I read.
That's what I do more of than anything else, reading
and listening.
Speaker 2 (01:35):
Let's talk about how you got into investing. Did you
always know that you wanted to be an.
Speaker 3 (01:40):
Actually I wanted to be a fighter Parlot when I
was a teenager. The Top Gun, the first movie, had
just come out. It was transformative for most young boys,
you know, and that was what I wanted to do.
And then I don't know how, but in high school
I just did a lot of economics and subjects and
(02:01):
decided I preferred that I think as I was wearing glasses,
there was a problem, still a problem today. So if
you join the Air Force, you can't be reliant on glasses,
but if you require them later on in your career,
that's fine. Yeah. So, in fact, I've been in an
FA eighteen Hornet with a pilot who wears glasses. So
(02:24):
I was kind of annoyed that I missed out discriminated.
That's right. So apparently if you need glasses after you've
been trained, then it's too expensive for them to let
you go.
Speaker 2 (02:35):
How are you in an F eighteen. How does this
just one day just walking along?
Speaker 3 (02:40):
No, it's just just an invitation.
Speaker 2 (02:43):
So you study economics finance. What's your first job?
Speaker 3 (02:47):
So first job out of university during the recession that
we had to have, so not many graduates from Melbourne
University were in paid employment initially. I was one of
the fortunate ones that I had a job with a
stockbroking firm and mel called F. W. Holst and I
was an equities analyst there. That was the first job
I remember. My first company that I analyzed was a
(03:10):
company called Central Equity. They were property development firm and
what because of accounting rules at the time, they weren't
recording or they weren't disclosing sales that they'd actually made
because the accounting rules wouldn't allow them to record those sales.
I think maybe only deposits had been paid. But you
could see a very clear line of sight of revenue
(03:33):
for this business and that wasn't being recognized in the
share price, and so happily that one doubled. But I
was young, I was new straight out of university, so
of course none of the stockbrokers really took my research
very seriously. But I was inspired by the fact that hey,
I'd analyzed this, I'd worked it out, and the share
price doubled.
Speaker 2 (03:52):
Had you invested at this point.
Speaker 3 (03:55):
I trust myself at that point. Either. One of the
things that we that happened at the time, though, is
that banks were on their knees, remember the recession that
we had to have. Banks were very cheap. In fact,
you could buy a share of Westpac for two dollars
or two dollars fifty at the time. It was extraordinary.
And I think Kerry Packer was on the board at
(04:16):
the time, and I think there were rumors going around
that maybe he was going to make a takeover bid
for one of the banks. And I remember calling my
mum and said, Mummy, never going to be able to
buy a bank for two dollars fifty again, you know,
you've got to get some shares. But that gave me.
That was confirmation for me that I was in the
right the right industry.
Speaker 2 (04:34):
Can you recall then money discussions in your household or
can you remember sort of the feeling about money growing up?
Speaker 3 (04:40):
I should say at the outset, I wouldn't swap my
childhood with anyone. I had so much fun and We
were always outdoors, and my love for the outdoors stems
from I think mum kicking us out after breakfast and
you know, saying don't come back till dinner. So I
had great childhood. But the discussions about money, there was
a phrase my mum would say repeatedly, and that was
(05:02):
next fortnight. By the way, I'm mentioning mum a lot,
because Dad had died when I was two, so Mum
raised my brother and I. So if we wanted something
next fortnight, yeah, that's when she'd next be paid. And
so we just had to wait, I could, you know.
I very quickly learned that we didn't have what a
lot of other people had, and that probably was a motivator.
But money discussions were really about saving. It was all
(05:25):
about saving and delaying satisfaction.
Speaker 2 (05:29):
Do you think though, I mean at the time, is
a necessity like your mom's on her own trying to
raise the family, so there is just no spare cash,
that's right, But do you feel like that's set you
up today? Do you have those habits from stitched in? So?
Speaker 3 (05:40):
I was a very good saver. I was always very
good savor. My wife would say, not such a great savior.
Speaker 2 (05:45):
Now you lose a discipline.
Speaker 3 (05:47):
Yeah, perhaps. I remember when I met my wife, she
had already purchased an apartment with a friend, and I'd
saved a lot of money, so, you know, by the
time I was in my mid twenties, it was a
very large amount of money. I could buy a house
with the amount of money I'd saved.
Speaker 2 (06:03):
Were you saving for a particular purpose or was just I.
Speaker 3 (06:06):
Was saving for security. I was saving for self preservation.
And I remember my boss at the time, who's also
passed away now, Bruce Bradshaw. He asked me how much
i'd saved. He said, what are you doing with the
bonuses we're giving?
Speaker 2 (06:18):
You know?
Speaker 3 (06:18):
I told him how much I'd saved, and he couldn't
believe it. He said, that's more money than I've got
in the bank, you know. And I'm sure he was joking,
but the point being that I hadn't bought anything. I
just saved. I just accumulated cash. And in fact, when
I received my first bonus, and I'll never forget it,
my first bonus was twenty thousand dollars and I was
in my early twenties, and I was so nervous about
(06:40):
losing it that I split it up and put it
in different banks in case any of the banks went bust.
That's how insecure I was, having grown up with very little,
you know, suddenly getting money or receiving it. I was
really concerned about losing it again.
Speaker 2 (06:56):
I bet you were. Now after the break, Roger, I
want to have a chat to you about those early
lessons and how they shaped how you invest today. Welcome
back to this bonus episode of the Money Puzzle. I'm
Julianne Sprague, a wealth editor at The Australian, and I'm
(07:18):
chatting to Sydney fund manager Roger Montgomery. Roger, knowing what
you know now, do you look back and do you
wish you had done something different with all that money?
You stashed it? You saved it, but do you think
now you should have done something else with it?
Speaker 3 (07:34):
I'm still ultra conservative. I'm still extremely conservative. You know,
if there's a safer version of a product, a financial
product that pays slightly less, I'll urge towards that. But
I'll also I'll also speculate in some things, but with
an appropriate amount of money. You know, it tends to
(07:56):
be a smaller amount of money.
Speaker 2 (07:58):
You fly paragliders. But you're the outdoors type, could I say, Roger,
and you take risks.
Speaker 3 (08:03):
They're measured risks. Yeah. So with paragliding, for example, you know,
you can choose to fly in the middle of the
day in summer when it's going to be really violent
and you're going to sometimes have a bag of washing
over your head, or you can choose to fly earlier
in the day when it's smoother, or late in the
afternoon when it's smoother, so you can adjust the risk.
It's the same with stocks. You know, not all stocks
are the same. And you know, I talk often about
(08:25):
private credit and people say, oh, that's risky. You know,
remember what happened in the eighties or the nineties, and
you know it's the same thing again, Well, well, no,
that's unfair because actually, if you look at the PDS's
or the ims, the information memorandums for all of these funds,
they're all different. Just as stocks have different risk profiles,
so do funds, and it's important to understand what they are.
(08:46):
But by just dismissing everything out of hand, it's you know,
you're missing out on opportunities. So, yes, I'm conservative, but
I'm informed can.
Speaker 2 (08:54):
We chat about your very first investment? Can you remember
what it was?
Speaker 3 (08:57):
I do remember what it was. A friend of mine
and I we had decided to invest in futures or
trade futures on the I think it was futures on
the Dow Jones back then it may been the S
and P five hundred. I was working at that stockbroking
firm in my first job, and we decided to put
in ten thousand dollars each. Now my friend had ten
(09:20):
thousand dollars. He came from a well to do family,
and I didn't have ten thousand dollars. I had to
borrow the money and Mum went Garran Taur on the
loan and we started trading futures, and we knew nothing
about what we were.
Speaker 2 (09:36):
Doing and why futures.
Speaker 3 (09:38):
Because of the leverage, you could invest a relatively small
amount of money and potentially make a lot because of
the leverage that's inherent in futures contracts. So if you
put ten thousand dollars in, you can buy potentially one
hundred thousand dollars worth of the commodity just with the
ten thousand dollars. But of course the leverage works against
you as well when prices fall.
Speaker 2 (09:59):
And just initiated those who might be listening, who, what
the hell's when are you wearing this?
Speaker 3 (10:04):
So, a futures contract is an agreement to purchase or
sell something that is underneath that future contract at a
future date in time, and those future contracts trade at
their own price based on what that underlying commodity or
financial instrument is doing between now and when it expires
that future contract expires. And so we were trading using
(10:27):
nothing else other than technical analysis or charting. Where we'd
seen a Bloomberg screen. We had access to a Bloomberg screen,
and they were the early Bloomberg screens. And I'd noticed
that when the blue line crossed the red line, the
market went up, and when the red line crossed the
blue line, the market went down. And we had about
three months of data. That's all we needed to go,
and off we went, and we started trading, and we
(10:49):
turned out twenty thousand dollars I think into almost forty
thousand dollars initially, and I thought, gosh, this is greater.
Probably don't need to continue going to university. This is
so easy, we can quit. But then it turned pair
shaped and we lost all our money. I ended up
working in a fish and chip shop to earn some
money to pay my mum back for the loan.
Speaker 2 (11:13):
What was the conversation like with mum?
Speaker 3 (11:15):
I remember getting into the car and we were listening
to three ks it at the time, which is during
the news break before the sport and the weather. There
would be a very short Gold's doing this, Oils doing this,
and the Dow Jones did that. And I remember getting
in the car and I was very quiet, and Mum
said what does that mean? And I said, I don't
think it's going to be a good day anyway. I
(11:37):
spoke to my friend I won't say his name, and
he said, what do you reckon we should do? Roger?
And I said, well, in the three months of data
that we've got, it's not fallen. The Dow Jones hasn't
fallen this much before, So what do you think we
should do it? Well? I think we should hold on
and because three months of data is not enough data, right,
that's not a statistically significant sample. Anyway, it fell again,
(11:59):
got in the car three news report, how's that going?
Roger my masks and my response was it's going to
be an even worse day. Anyway, we ended up losing
all the money that we'd made plus the money that
we'd put in, and we closed out our positions, or
they may have been closed for us. And then I
had to pay back the loan fish and chip shop,
and I've probably had a few other jobs as well,
(12:20):
but made that worked in a nightclub as well. It
was called the Cadillac Bar and made the money back.
But I used lived eighteen kilometers away from the nightclub,
and I distinctly remember I would walk home at six
o'clock in the morning when my shift finished at the nightclub,
and I would walk eighteen k's. It took three hours.
I would walk home to say it, because I didn't
(12:41):
want to buy There were no buses running at that
time of the morning or trains, so I would walk
home and I wasn't certainly wasn't going to wake mom up,
and I wasn't going to pay for taxi. So it
made some sacrifices to save money.
Speaker 2 (12:54):
So what was the lesson you learned from that and
how did it shape your investing?
Speaker 3 (12:58):
It fed into that conservative of disposition. Know nothing teaches
you risk like losing money. That is a really painful
way of understanding risk. It gave me some fantastic insights
into leverage, into markets, and into the sort of securities industry,
and it really helped me to evaluate relative risk amongst
(13:22):
capital stacks and different types of securities.
Speaker 2 (13:25):
And the things though that you can pin back to
that moment that you've made rules for investing, that.
Speaker 3 (13:31):
Those early experiences have taught me to actually quarantine that risk,
to make sure I understand that, you know, I'm using
funds that if I lose those funds, it's not such
a big deal. You know. Even today, for example, I
know what my exposure is to the equity market in total.
I know what my exposure is to private equity, which
are businesses that will one day IPO, and so knowing
(13:55):
what the exposure is to the market, I know what
my downside is, you know, And I'm all thinking in
terms of risk rather than in terms of, oh how
much could I make? It's not about that, it's what's
the downside?
Speaker 2 (14:07):
Is there a ratio that you recommend to people? If
people come to you today advice, they say, I've got
one hundred thousand dollars to invest, what portion do you
think needs to be just you lock that one in
the like that has to stay in the bank or
savings account, like don't risk at all? Is the sense
I'm getting from you.
Speaker 3 (14:21):
Well, the answer to that question is the reason why
financial planner is. I'm not a financial planner, but it's
the reason financial planners risk profile their clients. You know,
That's why you go through you answer multiple questions to
understand what your risk profile is. There's no one right
ratio because everybody has a different risk tolerance. There will
(14:44):
be people who will happily gamble the whole hundred thousand
dollars on something and if they lose it, oh well,
even if they don't have a lot of money elsewhere,
you know, they want to have a crack at making
a multiple of that initial one hundred thousand dollars.
Speaker 2 (14:58):
You've done a lot of investing now in your early
twenties anymore. You're looking very good, very young, your old Roger,
but you've learned a lot, and I want to have
a chat to you about some of the key lessons
you've learned from investing. And some of those lessons often
come from making really big mistakes. But I wouldn't mind
exploring maybe something for more recent times where an investment
has gone wrong, And we do have a little bit
(15:20):
of a section. We'd like to call it the fast
five where I'll ask you a series of questions and
just see where that takes us. But we'll do that
when we come back from a breaking We ch added
(15:47):
about the early years investing and learning your way, investing
in futures and working out that your future. But you've
done a lot of investing over the years. When you
look back on that, if you could go back, perhaps
to your mid twenties, if you can go back in
time and maybe do something differently, or perhaps it's adopt
a financial habit, do something that you think would put
(16:10):
you in a better place or your investments would be
in a better place today. Do you know what that
would be?
Speaker 3 (16:14):
So the best way to answer that is this way.
The biggest losses in my investing career have been the
investments I didn't make okay, and they've mostly been in property.
So my advice to my mid twenties.
Speaker 2 (16:33):
Self, you're going back making a phone call by it.
So there was opportunities that came to you when you're
in your mid twenties and for whatever reasons, And.
Speaker 3 (16:43):
See it's even just before COVID. There are opportunities.
Speaker 2 (16:47):
Let's talk about those. Is I feel like that's a
nice little segue into mistakes if you made, And sometimes
the biggest mistake you can make is the choice you didn't.
Speaker 3 (16:56):
Yeah.
Speaker 2 (16:56):
Indeed, so if you had to sort of name one though,
stands out.
Speaker 3 (17:00):
So there was a there was a property going to auction.
It was one hundred acres, might have been one hundred
and fifty acres. It was down on the south just
south of Cayama, on the East coast of Australia, just
south of Sydney and Wollongong, and it was for sale.
(17:24):
It was right on the cliff and it had beach access.
And I went down, drove down there, visited it, loved it,
thought it was absolutely spectacular. And the real estate agent
at the time down there, who was really very well
connected and new prices down there really well, he said, look, Roger,
it's going to go for between two and three million dollars.
(17:46):
And I remember saying that's great.
Speaker 2 (17:47):
How long ago are we talking.
Speaker 3 (17:49):
This would have been twenty maybe twenty fifteen, Yeah, okay,
twenty fifteen, And he said it's going to go for
between two and three million dollars and I said, that's great.
I'll come to the auction, although I'll probably attend by phone.
And there's a reason for attending by auctions by phone.
By the way, that's another piece of advice I can
share anyway, So that bit remind me. But yeah, yeah,
(18:11):
we'll talk about that later for we get time. So
the day before the auction, the agent said, look, it
now looks like it's going to go for between three
and four. There's a lot of interest in the property.
I said, okay, no problem. I'll be there, no worries
at all. The auction started. The next day. I was
there on the phone. They started the auction. There were
(18:35):
no bids so much for a lot of interest in
the property. So the agent has said between three and four.
That's fine, no problem. They have me on the phone.
They're asked me if I want a bid. No, I
don't want a bid. Why would I do that? So
then they put in a vendor bid of three point five. Great.
A second later I bid three point six and I thought, okay,
(18:57):
Well he said between three and four indoor a bit
of three and a half. I've been three point six.
It's mine, done, done and dusted. No problem anyway, he's
I'm on the phone. He says, we'll give you a
call back. I was expecting a congratulations anyway, give you
a call back. So I wait, no call. The next day,
(19:18):
still no call. So I've called the agent and the
agent says, oh, you're not going to believe this, Roger,
the vendor wants five what really, nobody how I'm annoyed
right now, I'm annoyed. But you know, time passed. They
continued to approach me, continue to try and get me
to five, and I was so annoyed I just said no.
(19:41):
In fact, my recollection is that the vendor came to well,
he didn't come to my office. He came to my
office at work and offered vendor finance for the extra
amount of money. You know, he said, look, I'll give
you more money. Yeah, I'll give you more money if
that's the issue. And I was just so annoyed. And
that property sat on the market for another twelve months. Now,
(20:05):
one of my peers in the industry, he ended up
buying it for one of his kids, or one of
his kids bought it. And so it's another fund manager
whose family ended up buying it. They built a great
home on the property. It would now be worth twenty
five or thirty million dollars. Same thing happened again just
(20:26):
before COVID in twenty eighteen at NUSA there was a
house that came up for five million dollars. This time
it was Thomas Muster's house, the tennis player, and I
was invited to purchase that property, and we just decided
that it was too much money to pay for a
holiday house.
Speaker 2 (20:46):
You know, that was an extravagant It was extravagant, too extravagant.
Speaker 3 (20:49):
It's not like us, so we didn't do it. And yeah,
that then COVID hit prices and NUSA went nuts. And
that's easily twenty four million dollars between twenty eighteen and now.
So you know, from five to twenty four it's arguably this,
you know, the best property price increase that's happened anywhere
in Australia at any time. You know, it's just been incredible,
(21:12):
the looser property prices.
Speaker 2 (21:13):
Some mean, you're better at stocks than property, are you
telling me?
Speaker 3 (21:16):
Like I said to you, the worst investments have been
the things I didn't buy. I'm quite content with the
investments I have made, but I'm upset about the ones
I missed out on.
Speaker 2 (21:25):
This will be interesting because I think we might get
into the fast five, but the first one we can
take a little bit longer with. Because I was going
to ask you if you can only invest in one
thing for the next ten years so it shares all property.
Speaker 3 (21:34):
Yeah, I think that's an unfair question to ask, because
I think both will do extremely well. If you buy
a bad property, you're going to do badly. If you
buy bad stock, you're going to do badly. You know
you've heard that aphorism. It's time in the market, not
timing the market that's important. Actually, that's not quite right.
Time is only the friend of an extraordinary business. If
you own a bad business, the longer you are invested
(21:57):
in it, the worse it's going to be. You know
those people who bought Telstra on the first day it listed,
You know they're still waiting to make their money back.
So being invested in a mediocre business is going to
give you a mediocre return. Being invested in a mediocre
property for a long period of time is going to
give you a bad return.
Speaker 2 (22:12):
So how do you work this out? If I'm thinking
about right, Roger, I want to go and invest.
Speaker 3 (22:16):
But how do I know when it comes to any asset,
or any fund or any property put quality first? Is
it high quality? And quality means different things to different people.
But ultimately when it comes to property, you know there's
a scarcity factor. You know, when you look at NUSA
(22:37):
and there are other places in Australia that are wonderful.
I'm not to you know, don't want to denigrate other places,
but at the moment, at least, you know, NUSA has
a couple of things going for it. You know, it
has great climate. There's a demographic avalanche that wants to move,
particularly from Southern States to Queensland because of that climate.
And as they get older, as the baby boomers get older,
you know, they like the cold less and so they
(22:59):
tend to want to move to warmer climates. Great restaurants.
You know, there's a whole bunch of things going for it.
There'll be other places in Australia as well, and so
you know, Moosa ticks a lot of boxes for people
and there's not many houses. So you've got if you
think about, you know, the great population of Australia, which
is you know, people debate this whether it's growing too
(23:19):
fast or not. But the population of Australia is growing quickly,
Musa is not getting bigger. When it comes to stocks,
quality is different. Quality is about businesses that have sustainable
competitive advantages. They do something that other companies find hard
to replicate or too expensive to replicate, or they're just
(23:41):
locked out because it's a geographical advantage. For example, you
know a Westfield shopping center has a geographical competitive advantage.
And those competitive advantages are important because they drive what's
called return on equity. And you want to own a
business that generates a high rate of return on equity
and is able to do two things. High rate of
(24:02):
return on equity, but is able to retain a large
portion of its profits every year and reinvest it at
a high rate of return.
Speaker 2 (24:10):
Again, I want your advice for investing at different stages
of your life. Everyone's on a different financial journey and
there are different things that come at you at different stages.
But what would your advice be for someone in their thirties,
their forties, well, their fifties.
Speaker 3 (24:27):
Okay, So in your thirties you're ascending. You're on the
ascendant in terms of your career, and if you're good
at what you do and people like you, then you're
going to be earning more. As time, your earning power
is going to be increasing, and so you can afford
still to take some risks. But if your preference, because
(24:49):
your conservative is to buy property, then my advice would
be to pay off the mortgage as quickly as possible
with that additional income that's coming in. Because let's assume
you're on a higher tax bracket. Then if you adjust
the interest rate on your mortgage for your tax rate,
(25:11):
then the return the interest rate is much higher. So
let's say it's let's say the interest rate is six percent,
you're on the highest tax bracket, let's round it to
fifty percent. Your pre tax return by paying off the
mortgage is nine percent. Now, there aren't many investments that
can guarantee you a nine percent return, so paying that
(25:33):
mortgage down is like investing in a nine percent guaranteed investment.
So my advice would be pay that down as quickly
as you can and accept that really great return.
Speaker 2 (25:46):
Nine percent sounds like a great return, But the other
thing that comes at you all the time is time
in the market, and so sure, how do you get
around the idea that should all of the money be
following to get that mortgage down, or should you be
making investments at the same time, I work out some
sort of balance parallel strategy.
Speaker 3 (26:02):
I actually would advise, and this is just me, but
I would be advising people to get that mortgage down
because nine percent, you know, a bird in the hand
is worth two in the bush, right, and a guaranteed
nine percent return versus a return that might be higher
than nine, but it also could be down twenty you know,
(26:23):
in the stock market. You know, again this is my
conservative side talking. But once you get that mortgage down to.
Speaker 2 (26:31):
A level where with hit the next decade, we're into
the forties. Yeah, yeah, Okay. Let's make an assumption here
that your mortgage is you've got built up equity.
Speaker 3 (26:38):
In the home.
Speaker 2 (26:38):
You've built up to me, probably haven't paid off the mortgage,
but good luck to you if you have.
Speaker 3 (26:41):
But if you have great or you can start thinking
about some other investments. You'll certainly be thinking about for
the first time ever, you'll probably be thinking about your
superannuation and retirement. Believe it or not. You might think,
no way, I'm not going to do that, but it
just happens. You get to forty, and you start to think.
Speaker 2 (26:57):
Is that money there, what's it been doing?
Speaker 3 (27:00):
Also entering what's called the sandwich generation right where you're
looking after kids, You've got school fees to pay potentially,
but you also you know you're starting to think about
your parents getting older, and you know, what are you
going to do to help them out?
Speaker 2 (27:13):
I think the demands on your time increase as well
they do you're managing children, like you've mentioned your parents.
Your career is career is a peak at a pace?
Speaker 3 (27:22):
Probably? Yeah, you're really going well in your career in
your forties, and so now is the time that you
can start thinking about making some investments. The simplest way
I can think about creating a portfolio or the metaphor
that we can use as a boat. Right, So you
need a hull. The boat needs a whole because it
needs to keep you afloat. So what you want to
(27:42):
do is you want to put the bulk of your assets,
or the bulk of your investment portfolio into investments that
are high quality. They may grow, you want them to grow,
but mostly they're high quality companies. So and a mix
of overseas and local domestic investments is fine. But just remember,
the vast majority of Australian businesses pay most of their
(28:04):
earnings out as a dividend. They don't retain the bulk
of their profits for growth. And that's because of our
tax system, right, we don't double tax dividends in Australia
our profits. Rather, so the franking credits that are produced
when a company generates profits in Australia, they're worth nothing
to the company and worth a lot to recipients, particularly
recipients who are on lower tax rates than the company
(28:26):
tax rate. And so companies tend to pay out the
bulk of their earnings in Australia as a dividend. In
the US they don't. They retain most of their profits
for growth. And so you find a lot of companies
outside of the small cap space that are still growing.
You get big companies that are growing, so they're high quality,
they're very liquid, and they're growing fast. And so some
(28:47):
investments in those businesses I think make sense. And then
you want an outboard engine on the boat. Otherwise you're
going to be listless, you know, and you're going to
be You're just going to go. You're not going to
go in the right direction. That outboard engine that should
be in your thirties and forties, should be a small
cap fund by a manager who's doing a really great job.
(29:08):
And I think small companies in Australia and overseas, that's
where you're going to find a lot of innovators. You're
going to find a lot of companies that might be
worth a billion dollars today but one hundred billion dollars
in ten years time or twenty years time, and they're
in that small cap space. So that's your outboard engine.
And if there's anything left, well, you could pop a
turbo engine on the outboard and that's a smaller amount
(29:29):
of money. Again, and that might be things like private equity,
you know, or you know, I don't want to say
futures trading, but you know, it could be something that's alternative.
Speaker 2 (29:39):
Okay. So if you were sailing into the fifties sixties,
so in your fifties and sixties, you are in the
Sandwich generation.
Speaker 3 (29:45):
And if you're a woman, particularly, you know, you're really
going to feel the pressure because you know, unfortunately husbands
die tend to die first, you know, so you might
be left alone, you might be left with you know,
the responsibility of managing money, looking after the kids, and
looking after your aging adult parents. And was rightly or
(30:06):
wrongly it was the husband who looked after the money matters.
And so you know, I would say, make sure you're
getting educated about financial matters, put together a group of
people who can advise you. You know, get your support
network in place. That mortgage has to be gone. Focus
on your highest interest debt and get that paid off.
If you've got credit cards, get rid of that, and
(30:29):
now you can start you know, now you can really
start thinking about investments that or you might want to
start thinking about investments that give you an attractive return
but don't have as much volatility in them. As I
noticed with our clients, as they age, their appetite volatility,
appetite for volatility becomes less. And so this is where
(30:49):
I really think, this is where private credit is really
going to play a bigger role in people's portfolios going forward.
And again, like stocks, different credit funds have different risk profiles,
so it's important you understand what those risk profiles are.
A lot of them lend money to and the reason
why there's no stock market volatility is they're not buying equities.
(31:12):
They're lending money to businesses. They're doing what the banks
used to do, but because of the global financial crisis
and regulation on capital adequacy requirements of banks, they're not
lending to these small and medium sized enterprises anymore. Some
of these private credit funds are lending to property developers.
That's riskier than in lending elsewhere, and so it's important
(31:32):
to understand some of the risks. But Yeah, as you
get older, I think people are going to be more
and more attracted to a seven, eight or nine percent
return without stock market volatility. So you're going to start
to think more and more about rebalancing your portfolio towards
those more conservative investments rather, I should say, investments that
(31:53):
may have less public market risk.
Speaker 2 (31:56):
I'm going to condense down a fast five to a
fast three you go. Best finance book that you could recommend.
Speaker 3 (32:04):
The Making of an American Capitalist by Roger Lowenstein. It's
the story one of the early biographies of Warren Buffett.
If you're interested in the stock market and you're interested
in investing, and I suspect you are if you're listening
to this podcast, then that would be the book that
I would go out and get first. I should say
the one I wrote as well value Able. It was
(32:24):
a bestseller in twenty ten in the finance space, and
I wrote that for my kids, if something happened to me,
I wanted them to have a guidebook for investing in
the stock market.
Speaker 2 (32:33):
Well, my next question was going to be, what's the
one thing you want your kids to learn about money
or take away from What if you could impart one
thing into your children about money, what do you want
them to hold on to?
Speaker 3 (32:43):
Good with it? Do good with it, if you make it,
do good with it. It's much more fun giving it
away and sharing than it is accumulating stuff. Give it away.
Speaker 2 (32:54):
Okay, so less on the material possessions and more on.
Speaker 3 (32:57):
There's ecstasy in getting something new, but it aids very quickly.
You know where contentment comes from actually making other people happy.
We're built for relationships.
Speaker 2 (33:07):
Well, and this is another beautiful seguey, I think, because
my final question was going to be what can't money buy.
Speaker 3 (33:14):
It can't buy old friends, and it can't buy contentment.
It gives you choice, which is fantastic. As May west
One said, you know, too much of a good thing
is wonderful, but once you've got a certain level of comfort,
more money and more stuff doesn't make you happier than
you already were. Look on Sydney Harbor, you know, all
of those wonderful homes with beautiful views. The blinds are
(33:35):
often closed. Money buys you brief ecstasy. It bars you
that brief jolt of happiness. Wow, look at this view.
But then you get used to it, you know, and
then the blinds are closed and you Wealthy people still
have all the problems that everyone else has, except maybe
money problems. But you know, they still have divorce. They
(33:56):
still suffer from sadness and loneliness and insecurities and all
of those things. It doesn't buy any of those things.
Speaker 2 (34:02):
You meet and deal a lot with the What makes
them the happiest if you can think about it. You
don't have to name them. But if you think about
sort of the happiest wealthiest people, you know, what is
it that is driving them? It's not sort of the
bank balance.
Speaker 3 (34:14):
Yeah, they're content, they're content. They try to be content
in all circumstances. Imagine imagine being extremely wealthy, but holding
that money with an open hand and saying, if it goes,
I'm okay. If you can't say that, then you're putting
too much of your self worth and too much value
in the money and not in relationships and other things.
(34:37):
You know, I met. I remember going to a wedding
once at Blackwattle Bay where the souper yachts are all moored.
And the minister of that particular wedding at a church
where a lot of wealthy people attend, and he's been
at the bedside of dying wealthy people, and he said, Roger,
I can assure you that a lot of these people
(34:58):
would give up everything that they have, including all of
these boats, for one extra day, and that goes to
show you what it's really worth.
Speaker 2 (35:07):
Oh, that's a lovely way to end. Focus on the day,
live in the now. That's not all about the money.
But it's good to make some money. Let's be honest.
Speaker 3 (35:14):
As I said, it gives you choice, you know, it
does give you choice.
Speaker 2 (35:18):
Thanks for joining me Julianne Sprague, Wealth editor at The
Australian for this bonus episode of the Money Puzzle. For
more insights into building wealth and knowing what the smart
money is doing, head to The Australian dot com dot
au slash Wealth
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirby. Welcome to the second in our series of
three special bonus episodes. My colleague at The Australian, Julianne Spragg,
sat down this time for a chat with fund manager
Roger Montgomery. Roger, of course, is chief investment officer and
(00:35):
founder of Montgomery Investment Management, and in this episode he
talks about his upbringing and life lessons formed as a
young investor and how that shaped what he does today.
Speaker 2 (00:48):
Roger, thanks very much for joining us.
Speaker 3 (00:50):
It's a pleasure, great to be with you.
Speaker 2 (00:51):
You've been investing for quite some time.
Speaker 3 (00:53):
Here's three decades, a little more than three decades.
Speaker 2 (00:56):
Okay, any home? Montgomery Investment Management.
Speaker 3 (00:59):
That's right. We distribute in Australia a variety of funds
across private credit, small caps, large caps, both globally and domestically,
a long short fund, all managed by different teams.
Speaker 2 (01:12):
What do you find. We'll get into your journey in
a second. But I am interested because I think that
there are people in markets who understand how this all works.
But from the outside in, when you sort of meet
friends or family, is there a misconception about what you
might do.
Speaker 3 (01:24):
My kids asked me when they were very young what
I did for a job, and my response was, I read.
That's what I do more of than anything else, reading
and listening.
Speaker 2 (01:35):
Let's talk about how you got into investing. Did you
always know that you wanted to be an.
Speaker 3 (01:40):
Actually I wanted to be a fighter Parlot when I
was a teenager. The Top Gun, the first movie, had
just come out. It was transformative for most young boys,
you know, and that was what I wanted to do.
And then I don't know how, but in high school
I just did a lot of economics and subjects and
(02:01):
decided I preferred that I think as I was wearing glasses,
there was a problem, still a problem today. So if
you join the Air Force, you can't be reliant on glasses,
but if you require them later on in your career,
that's fine. Yeah. So, in fact, I've been in an
FA eighteen Hornet with a pilot who wears glasses. So
(02:24):
I was kind of annoyed that I missed out discriminated.
That's right. So apparently if you need glasses after you've
been trained, then it's too expensive for them to let
you go.
Speaker 2 (02:35):
How are you in an F eighteen. How does this
just one day just walking along?
Speaker 3 (02:40):
No, it's just just an invitation.
Speaker 2 (02:43):
So you study economics finance. What's your first job?
Speaker 3 (02:47):
So first job out of university during the recession that
we had to have, so not many graduates from Melbourne
University were in paid employment initially. I was one of
the fortunate ones that I had a job with a
stockbroking firm and mel called F. W. Holst and I
was an equities analyst there. That was the first job
I remember. My first company that I analyzed was a
(03:10):
company called Central Equity. They were property development firm and
what because of accounting rules at the time, they weren't
recording or they weren't disclosing sales that they'd actually made
because the accounting rules wouldn't allow them to record those sales.
I think maybe only deposits had been paid. But you
could see a very clear line of sight of revenue
(03:33):
for this business and that wasn't being recognized in the
share price, and so happily that one doubled. But I
was young, I was new straight out of university, so
of course none of the stockbrokers really took my research
very seriously. But I was inspired by the fact that hey,
I'd analyzed this, I'd worked it out, and the share
price doubled.
Speaker 2 (03:52):
Had you invested at this point.
Speaker 3 (03:55):
I trust myself at that point. Either. One of the
things that we that happened at the time, though, is
that banks were on their knees, remember the recession that
we had to have. Banks were very cheap. In fact,
you could buy a share of Westpac for two dollars
or two dollars fifty at the time. It was extraordinary.
And I think Kerry Packer was on the board at
(04:16):
the time, and I think there were rumors going around
that maybe he was going to make a takeover bid
for one of the banks. And I remember calling my
mum and said, Mummy, never going to be able to
buy a bank for two dollars fifty again, you know,
you've got to get some shares. But that gave me.
That was confirmation for me that I was in the
right the right industry.
Speaker 2 (04:34):
Can you recall then money discussions in your household or
can you remember sort of the feeling about money growing up?
Speaker 3 (04:40):
I should say at the outset, I wouldn't swap my
childhood with anyone. I had so much fun and We
were always outdoors, and my love for the outdoors stems
from I think mum kicking us out after breakfast and
you know, saying don't come back till dinner. So I
had great childhood. But the discussions about money, there was
a phrase my mum would say repeatedly, and that was
(05:02):
next fortnight. By the way, I'm mentioning mum a lot,
because Dad had died when I was two, so Mum
raised my brother and I. So if we wanted something
next fortnight, yeah, that's when she'd next be paid. And
so we just had to wait, I could, you know.
I very quickly learned that we didn't have what a
lot of other people had, and that probably was a motivator.
But money discussions were really about saving. It was all
(05:25):
about saving and delaying satisfaction.
Speaker 2 (05:29):
Do you think though, I mean at the time, is
a necessity like your mom's on her own trying to
raise the family, so there is just no spare cash,
that's right, But do you feel like that's set you
up today? Do you have those habits from stitched in? So?
Speaker 3 (05:40):
I was a very good saver. I was always very
good savor. My wife would say, not such a great savior.
Speaker 2 (05:45):
Now you lose a discipline.
Speaker 3 (05:47):
Yeah, perhaps. I remember when I met my wife, she
had already purchased an apartment with a friend, and I'd
saved a lot of money, so, you know, by the
time I was in my mid twenties, it was a
very large amount of money. I could buy a house
with the amount of money I'd saved.
Speaker 2 (06:03):
Were you saving for a particular purpose or was just I.
Speaker 3 (06:06):
Was saving for security. I was saving for self preservation.
And I remember my boss at the time, who's also
passed away now, Bruce Bradshaw. He asked me how much
i'd saved. He said, what are you doing with the
bonuses we're giving?
Speaker 2 (06:18):
You know?
Speaker 3 (06:18):
I told him how much I'd saved, and he couldn't
believe it. He said, that's more money than I've got
in the bank, you know. And I'm sure he was joking,
but the point being that I hadn't bought anything. I
just saved. I just accumulated cash. And in fact, when
I received my first bonus, and I'll never forget it,
my first bonus was twenty thousand dollars and I was
in my early twenties, and I was so nervous about
(06:40):
losing it that I split it up and put it
in different banks in case any of the banks went bust.
That's how insecure I was, having grown up with very little,
you know, suddenly getting money or receiving it. I was
really concerned about losing it again.
Speaker 2 (06:56):
I bet you were. Now after the break, Roger, I
want to have a chat to you about those early
lessons and how they shaped how you invest today. Welcome
back to this bonus episode of the Money Puzzle. I'm
Julianne Sprague, a wealth editor at The Australian, and I'm
(07:18):
chatting to Sydney fund manager Roger Montgomery. Roger, knowing what
you know now, do you look back and do you
wish you had done something different with all that money?
You stashed it? You saved it, but do you think
now you should have done something else with it?
Speaker 3 (07:34):
I'm still ultra conservative. I'm still extremely conservative. You know,
if there's a safer version of a product, a financial
product that pays slightly less, I'll urge towards that. But
I'll also I'll also speculate in some things, but with
an appropriate amount of money. You know, it tends to
(07:56):
be a smaller amount of money.
Speaker 2 (07:58):
You fly paragliders. But you're the outdoors type, could I say, Roger,
and you take risks.
Speaker 3 (08:03):
They're measured risks. Yeah. So with paragliding, for example, you know,
you can choose to fly in the middle of the
day in summer when it's going to be really violent
and you're going to sometimes have a bag of washing
over your head, or you can choose to fly earlier
in the day when it's smoother, or late in the
afternoon when it's smoother, so you can adjust the risk.
It's the same with stocks. You know, not all stocks
are the same. And you know, I talk often about
(08:25):
private credit and people say, oh, that's risky. You know,
remember what happened in the eighties or the nineties, and
you know it's the same thing again, Well, well, no,
that's unfair because actually, if you look at the PDS's
or the ims, the information memorandums for all of these funds,
they're all different. Just as stocks have different risk profiles,
so do funds, and it's important to understand what they are.
(08:46):
But by just dismissing everything out of hand, it's you know,
you're missing out on opportunities. So, yes, I'm conservative, but
I'm informed can.
Speaker 2 (08:54):
We chat about your very first investment? Can you remember
what it was?
Speaker 3 (08:57):
I do remember what it was. A friend of mine
and I we had decided to invest in futures or
trade futures on the I think it was futures on
the Dow Jones back then it may been the S
and P five hundred. I was working at that stockbroking
firm in my first job, and we decided to put
in ten thousand dollars each. Now my friend had ten
(09:20):
thousand dollars. He came from a well to do family,
and I didn't have ten thousand dollars. I had to
borrow the money and Mum went Garran Taur on the
loan and we started trading futures, and we knew nothing
about what we were.
Speaker 2 (09:36):
Doing and why futures.
Speaker 3 (09:38):
Because of the leverage, you could invest a relatively small
amount of money and potentially make a lot because of
the leverage that's inherent in futures contracts. So if you
put ten thousand dollars in, you can buy potentially one
hundred thousand dollars worth of the commodity just with the
ten thousand dollars. But of course the leverage works against
you as well when prices fall.
Speaker 2 (09:59):
And just initiated those who might be listening, who, what
the hell's when are you wearing this?
Speaker 3 (10:04):
So, a futures contract is an agreement to purchase or
sell something that is underneath that future contract at a
future date in time, and those future contracts trade at
their own price based on what that underlying commodity or
financial instrument is doing between now and when it expires
that future contract expires. And so we were trading using
(10:27):
nothing else other than technical analysis or charting. Where we'd
seen a Bloomberg screen. We had access to a Bloomberg screen,
and they were the early Bloomberg screens. And I'd noticed
that when the blue line crossed the red line, the
market went up, and when the red line crossed the
blue line, the market went down. And we had about
three months of data. That's all we needed to go,
and off we went, and we started trading, and we
(10:49):
turned out twenty thousand dollars I think into almost forty
thousand dollars initially, and I thought, gosh, this is greater.
Probably don't need to continue going to university. This is
so easy, we can quit. But then it turned pair
shaped and we lost all our money. I ended up
working in a fish and chip shop to earn some
money to pay my mum back for the loan.
Speaker 2 (11:13):
What was the conversation like with mum?
Speaker 3 (11:15):
I remember getting into the car and we were listening
to three ks it at the time, which is during
the news break before the sport and the weather. There
would be a very short Gold's doing this, Oils doing this,
and the Dow Jones did that. And I remember getting
in the car and I was very quiet, and Mum
said what does that mean? And I said, I don't
think it's going to be a good day anyway. I
(11:37):
spoke to my friend I won't say his name, and
he said, what do you reckon we should do? Roger?
And I said, well, in the three months of data
that we've got, it's not fallen. The Dow Jones hasn't
fallen this much before, So what do you think we
should do it? Well? I think we should hold on
and because three months of data is not enough data, right,
that's not a statistically significant sample. Anyway, it fell again,
(11:59):
got in the car three news report, how's that going?
Roger my masks and my response was it's going to
be an even worse day. Anyway, we ended up losing
all the money that we'd made plus the money that
we'd put in, and we closed out our positions, or
they may have been closed for us. And then I
had to pay back the loan fish and chip shop,
and I've probably had a few other jobs as well,
(12:20):
but made that worked in a nightclub as well. It
was called the Cadillac Bar and made the money back.
But I used lived eighteen kilometers away from the nightclub,
and I distinctly remember I would walk home at six
o'clock in the morning when my shift finished at the nightclub,
and I would walk eighteen k's. It took three hours.
I would walk home to say it, because I didn't
(12:41):
want to buy There were no buses running at that
time of the morning or trains, so I would walk
home and I wasn't certainly wasn't going to wake mom up,
and I wasn't going to pay for taxi. So it
made some sacrifices to save money.
Speaker 2 (12:54):
So what was the lesson you learned from that and
how did it shape your investing?
Speaker 3 (12:58):
It fed into that conservative of disposition. Know nothing teaches
you risk like losing money. That is a really painful
way of understanding risk. It gave me some fantastic insights
into leverage, into markets, and into the sort of securities industry,
and it really helped me to evaluate relative risk amongst
(13:22):
capital stacks and different types of securities.
Speaker 2 (13:25):
And the things though that you can pin back to
that moment that you've made rules for investing, that.
Speaker 3 (13:31):
Those early experiences have taught me to actually quarantine that risk,
to make sure I understand that, you know, I'm using
funds that if I lose those funds, it's not such
a big deal. You know. Even today, for example, I
know what my exposure is to the equity market in total.
I know what my exposure is to private equity, which
are businesses that will one day IPO, and so knowing
(13:55):
what the exposure is to the market, I know what
my downside is, you know, And I'm all thinking in
terms of risk rather than in terms of, oh how
much could I make? It's not about that, it's what's
the downside?
Speaker 2 (14:07):
Is there a ratio that you recommend to people? If
people come to you today advice, they say, I've got
one hundred thousand dollars to invest, what portion do you
think needs to be just you lock that one in
the like that has to stay in the bank or
savings account, like don't risk at all? Is the sense
I'm getting from you.
Speaker 3 (14:21):
Well, the answer to that question is the reason why
financial planner is. I'm not a financial planner, but it's
the reason financial planners risk profile their clients. You know,
That's why you go through you answer multiple questions to
understand what your risk profile is. There's no one right
ratio because everybody has a different risk tolerance. There will
(14:44):
be people who will happily gamble the whole hundred thousand
dollars on something and if they lose it, oh well,
even if they don't have a lot of money elsewhere,
you know, they want to have a crack at making
a multiple of that initial one hundred thousand dollars.
Speaker 2 (14:58):
You've done a lot of investing now in your early
twenties anymore. You're looking very good, very young, your old Roger,
but you've learned a lot, and I want to have
a chat to you about some of the key lessons
you've learned from investing. And some of those lessons often
come from making really big mistakes. But I wouldn't mind
exploring maybe something for more recent times where an investment
has gone wrong, And we do have a little bit
(15:20):
of a section. We'd like to call it the fast
five where I'll ask you a series of questions and
just see where that takes us. But we'll do that
when we come back from a breaking We ch added
(15:47):
about the early years investing and learning your way, investing
in futures and working out that your future. But you've
done a lot of investing over the years. When you
look back on that, if you could go back, perhaps
to your mid twenties, if you can go back in
time and maybe do something differently, or perhaps it's adopt
a financial habit, do something that you think would put
(16:10):
you in a better place or your investments would be
in a better place today. Do you know what that
would be?
Speaker 3 (16:14):
So the best way to answer that is this way.
The biggest losses in my investing career have been the
investments I didn't make okay, and they've mostly been in property.
So my advice to my mid twenties.
Speaker 2 (16:33):
Self, you're going back making a phone call by it.
So there was opportunities that came to you when you're
in your mid twenties and for whatever reasons, And.
Speaker 3 (16:43):
See it's even just before COVID. There are opportunities.
Speaker 2 (16:47):
Let's talk about those. Is I feel like that's a
nice little segue into mistakes if you made, And sometimes
the biggest mistake you can make is the choice you didn't.
Speaker 3 (16:56):
Yeah.
Speaker 2 (16:56):
Indeed, so if you had to sort of name one though,
stands out.
Speaker 3 (17:00):
So there was a there was a property going to auction.
It was one hundred acres, might have been one hundred
and fifty acres. It was down on the south just
south of Cayama, on the East coast of Australia, just
south of Sydney and Wollongong, and it was for sale.
(17:24):
It was right on the cliff and it had beach access.
And I went down, drove down there, visited it, loved it,
thought it was absolutely spectacular. And the real estate agent
at the time down there, who was really very well
connected and new prices down there really well, he said, look, Roger,
it's going to go for between two and three million dollars.
(17:46):
And I remember saying that's great.
Speaker 2 (17:47):
How long ago are we talking.
Speaker 3 (17:49):
This would have been twenty maybe twenty fifteen, Yeah, okay,
twenty fifteen, And he said it's going to go for
between two and three million dollars and I said, that's great.
I'll come to the auction, although I'll probably attend by phone.
And there's a reason for attending by auctions by phone.
By the way, that's another piece of advice I can
share anyway, So that bit remind me. But yeah, yeah,
(18:11):
we'll talk about that later for we get time. So
the day before the auction, the agent said, look, it
now looks like it's going to go for between three
and four. There's a lot of interest in the property.
I said, okay, no problem. I'll be there, no worries
at all. The auction started. The next day. I was
there on the phone. They started the auction. There were
(18:35):
no bids so much for a lot of interest in
the property. So the agent has said between three and four.
That's fine, no problem. They have me on the phone.
They're asked me if I want a bid. No, I
don't want a bid. Why would I do that? So
then they put in a vendor bid of three point five. Great.
A second later I bid three point six and I thought, okay,
(18:57):
Well he said between three and four indoor a bit
of three and a half. I've been three point six.
It's mine, done, done and dusted. No problem anyway, he's
I'm on the phone. He says, we'll give you a
call back. I was expecting a congratulations anyway, give you
a call back. So I wait, no call. The next day,
(19:18):
still no call. So I've called the agent and the
agent says, oh, you're not going to believe this, Roger,
the vendor wants five what really, nobody how I'm annoyed
right now, I'm annoyed. But you know, time passed. They
continued to approach me, continue to try and get me
to five, and I was so annoyed I just said no.
(19:41):
In fact, my recollection is that the vendor came to well,
he didn't come to my office. He came to my
office at work and offered vendor finance for the extra
amount of money. You know, he said, look, I'll give
you more money. Yeah, I'll give you more money if
that's the issue. And I was just so annoyed. And
that property sat on the market for another twelve months. Now,
(20:05):
one of my peers in the industry, he ended up
buying it for one of his kids, or one of
his kids bought it. And so it's another fund manager
whose family ended up buying it. They built a great
home on the property. It would now be worth twenty
five or thirty million dollars. Same thing happened again just
(20:26):
before COVID in twenty eighteen at NUSA there was a
house that came up for five million dollars. This time
it was Thomas Muster's house, the tennis player, and I
was invited to purchase that property, and we just decided
that it was too much money to pay for a
holiday house.
Speaker 2 (20:46):
You know, that was an extravagant It was extravagant, too extravagant.
Speaker 3 (20:49):
It's not like us, so we didn't do it. And yeah,
that then COVID hit prices and NUSA went nuts. And
that's easily twenty four million dollars between twenty eighteen and now.
So you know, from five to twenty four it's arguably this,
you know, the best property price increase that's happened anywhere
in Australia at any time. You know, it's just been incredible,
(21:12):
the looser property prices.
Speaker 2 (21:13):
Some mean, you're better at stocks than property, are you
telling me?
Speaker 3 (21:16):
Like I said to you, the worst investments have been
the things I didn't buy. I'm quite content with the
investments I have made, but I'm upset about the ones
I missed out on.
Speaker 2 (21:25):
This will be interesting because I think we might get
into the fast five, but the first one we can
take a little bit longer with. Because I was going
to ask you if you can only invest in one
thing for the next ten years so it shares all property.
Speaker 3 (21:34):
Yeah, I think that's an unfair question to ask, because
I think both will do extremely well. If you buy
a bad property, you're going to do badly. If you
buy bad stock, you're going to do badly. You know
you've heard that aphorism. It's time in the market, not
timing the market that's important. Actually, that's not quite right.
Time is only the friend of an extraordinary business. If
you own a bad business, the longer you are invested
(21:57):
in it, the worse it's going to be. You know
those people who bought Telstra on the first day it listed,
You know they're still waiting to make their money back.
So being invested in a mediocre business is going to
give you a mediocre return. Being invested in a mediocre
property for a long period of time is going to
give you a bad return.
Speaker 2 (22:12):
So how do you work this out? If I'm thinking
about right, Roger, I want to go and invest.
Speaker 3 (22:16):
But how do I know when it comes to any asset,
or any fund or any property put quality first? Is
it high quality? And quality means different things to different people.
But ultimately when it comes to property, you know there's
a scarcity factor. You know, when you look at NUSA
(22:37):
and there are other places in Australia that are wonderful.
I'm not to you know, don't want to denigrate other places,
but at the moment, at least, you know, NUSA has
a couple of things going for it. You know, it
has great climate. There's a demographic avalanche that wants to move,
particularly from Southern States to Queensland because of that climate.
And as they get older, as the baby boomers get older,
you know, they like the cold less and so they
(22:59):
tend to want to move to warmer climates. Great restaurants.
You know, there's a whole bunch of things going for it.
There'll be other places in Australia as well, and so
you know, Moosa ticks a lot of boxes for people
and there's not many houses. So you've got if you
think about, you know, the great population of Australia, which
is you know, people debate this whether it's growing too
(23:19):
fast or not. But the population of Australia is growing quickly,
Musa is not getting bigger. When it comes to stocks,
quality is different. Quality is about businesses that have sustainable
competitive advantages. They do something that other companies find hard
to replicate or too expensive to replicate, or they're just
(23:41):
locked out because it's a geographical advantage. For example, you
know a Westfield shopping center has a geographical competitive advantage.
And those competitive advantages are important because they drive what's
called return on equity. And you want to own a
business that generates a high rate of return on equity
and is able to do two things. High rate of
(24:02):
return on equity, but is able to retain a large
portion of its profits every year and reinvest it at
a high rate of return.
Speaker 2 (24:10):
Again, I want your advice for investing at different stages
of your life. Everyone's on a different financial journey and
there are different things that come at you at different stages.
But what would your advice be for someone in their thirties,
their forties, well, their fifties.
Speaker 3 (24:27):
Okay, So in your thirties you're ascending. You're on the
ascendant in terms of your career, and if you're good
at what you do and people like you, then you're
going to be earning more. As time, your earning power
is going to be increasing, and so you can afford
still to take some risks. But if your preference, because
(24:49):
your conservative is to buy property, then my advice would
be to pay off the mortgage as quickly as possible
with that additional income that's coming in. Because let's assume
you're on a higher tax bracket. Then if you adjust
the interest rate on your mortgage for your tax rate,
(25:11):
then the return the interest rate is much higher. So
let's say it's let's say the interest rate is six percent,
you're on the highest tax bracket, let's round it to
fifty percent. Your pre tax return by paying off the
mortgage is nine percent. Now, there aren't many investments that
can guarantee you a nine percent return, so paying that
(25:33):
mortgage down is like investing in a nine percent guaranteed investment.
So my advice would be pay that down as quickly
as you can and accept that really great return.
Speaker 2 (25:46):
Nine percent sounds like a great return, But the other
thing that comes at you all the time is time
in the market, and so sure, how do you get
around the idea that should all of the money be
following to get that mortgage down, or should you be
making investments at the same time, I work out some
sort of balance parallel strategy.
Speaker 3 (26:02):
I actually would advise, and this is just me, but
I would be advising people to get that mortgage down
because nine percent, you know, a bird in the hand
is worth two in the bush, right, and a guaranteed
nine percent return versus a return that might be higher
than nine, but it also could be down twenty you know,
(26:23):
in the stock market. You know, again this is my
conservative side talking. But once you get that mortgage down to.
Speaker 2 (26:31):
A level where with hit the next decade, we're into
the forties. Yeah, yeah, Okay. Let's make an assumption here
that your mortgage is you've got built up equity.
Speaker 3 (26:38):
In the home.
Speaker 2 (26:38):
You've built up to me, probably haven't paid off the mortgage,
but good luck to you if you have.
Speaker 3 (26:41):
But if you have great or you can start thinking
about some other investments. You'll certainly be thinking about for
the first time ever, you'll probably be thinking about your
superannuation and retirement. Believe it or not. You might think,
no way, I'm not going to do that, but it
just happens. You get to forty, and you start to think.
Speaker 2 (26:57):
Is that money there, what's it been doing?
Speaker 3 (27:00):
Also entering what's called the sandwich generation right where you're
looking after kids, You've got school fees to pay potentially,
but you also you know you're starting to think about
your parents getting older, and you know, what are you
going to do to help them out?
Speaker 2 (27:13):
I think the demands on your time increase as well
they do you're managing children, like you've mentioned your parents.
Your career is career is a peak at a pace?
Speaker 3 (27:22):
Probably? Yeah, you're really going well in your career in
your forties, and so now is the time that you
can start thinking about making some investments. The simplest way
I can think about creating a portfolio or the metaphor
that we can use as a boat. Right, So you
need a hull. The boat needs a whole because it
needs to keep you afloat. So what you want to
(27:42):
do is you want to put the bulk of your assets,
or the bulk of your investment portfolio into investments that
are high quality. They may grow, you want them to grow,
but mostly they're high quality companies. So and a mix
of overseas and local domestic investments is fine. But just remember,
the vast majority of Australian businesses pay most of their
(28:04):
earnings out as a dividend. They don't retain the bulk
of their profits for growth. And that's because of our
tax system, right, we don't double tax dividends in Australia
our profits. Rather, so the franking credits that are produced
when a company generates profits in Australia, they're worth nothing
to the company and worth a lot to recipients, particularly
recipients who are on lower tax rates than the company
(28:26):
tax rate. And so companies tend to pay out the
bulk of their earnings in Australia as a dividend. In
the US they don't. They retain most of their profits
for growth. And so you find a lot of companies
outside of the small cap space that are still growing.
You get big companies that are growing, so they're high quality,
they're very liquid, and they're growing fast. And so some
(28:47):
investments in those businesses I think make sense. And then
you want an outboard engine on the boat. Otherwise you're
going to be listless, you know, and you're going to
be You're just going to go. You're not going to
go in the right direction. That outboard engine that should
be in your thirties and forties, should be a small
cap fund by a manager who's doing a really great job.
(29:08):
And I think small companies in Australia and overseas, that's
where you're going to find a lot of innovators. You're
going to find a lot of companies that might be
worth a billion dollars today but one hundred billion dollars
in ten years time or twenty years time, and they're
in that small cap space. So that's your outboard engine.
And if there's anything left, well, you could pop a
turbo engine on the outboard and that's a smaller amount
(29:29):
of money. Again, and that might be things like private equity,
you know, or you know, I don't want to say
futures trading, but you know, it could be something that's alternative.
Speaker 2 (29:39):
Okay. So if you were sailing into the fifties sixties,
so in your fifties and sixties, you are in the
Sandwich generation.
Speaker 3 (29:45):
And if you're a woman, particularly, you know, you're really
going to feel the pressure because you know, unfortunately husbands
die tend to die first, you know, so you might
be left alone, you might be left with you know,
the responsibility of managing money, looking after the kids, and
looking after your aging adult parents. And was rightly or
(30:06):
wrongly it was the husband who looked after the money matters.
And so you know, I would say, make sure you're
getting educated about financial matters, put together a group of
people who can advise you. You know, get your support
network in place. That mortgage has to be gone. Focus
on your highest interest debt and get that paid off.
If you've got credit cards, get rid of that, and
(30:29):
now you can start you know, now you can really
start thinking about investments that or you might want to
start thinking about investments that give you an attractive return
but don't have as much volatility in them. As I
noticed with our clients, as they age, their appetite volatility,
appetite for volatility becomes less. And so this is where
(30:49):
I really think, this is where private credit is really
going to play a bigger role in people's portfolios going forward.
And again, like stocks, different credit funds have different risk profiles,
so it's important you understand what those risk profiles are.
A lot of them lend money to and the reason
why there's no stock market volatility is they're not buying equities.
(31:12):
They're lending money to businesses. They're doing what the banks
used to do, but because of the global financial crisis
and regulation on capital adequacy requirements of banks, they're not
lending to these small and medium sized enterprises anymore. Some
of these private credit funds are lending to property developers.
That's riskier than in lending elsewhere, and so it's important
(31:32):
to understand some of the risks. But Yeah, as you
get older, I think people are going to be more
and more attracted to a seven, eight or nine percent
return without stock market volatility. So you're going to start
to think more and more about rebalancing your portfolio towards
those more conservative investments rather, I should say, investments that
(31:53):
may have less public market risk.
Speaker 2 (31:56):
I'm going to condense down a fast five to a
fast three you go. Best finance book that you could recommend.
Speaker 3 (32:04):
The Making of an American Capitalist by Roger Lowenstein. It's
the story one of the early biographies of Warren Buffett.
If you're interested in the stock market and you're interested
in investing, and I suspect you are if you're listening
to this podcast, then that would be the book that
I would go out and get first. I should say
the one I wrote as well value Able. It was
(32:24):
a bestseller in twenty ten in the finance space, and
I wrote that for my kids, if something happened to me,
I wanted them to have a guidebook for investing in
the stock market.
Speaker 2 (32:33):
Well, my next question was going to be, what's the
one thing you want your kids to learn about money
or take away from What if you could impart one
thing into your children about money, what do you want
them to hold on to?
Speaker 3 (32:43):
Good with it? Do good with it, if you make it,
do good with it. It's much more fun giving it
away and sharing than it is accumulating stuff. Give it away.
Speaker 2 (32:54):
Okay, so less on the material possessions and more on.
Speaker 3 (32:57):
There's ecstasy in getting something new, but it aids very quickly.
You know where contentment comes from actually making other people happy.
We're built for relationships.
Speaker 2 (33:07):
Well, and this is another beautiful seguey, I think, because
my final question was going to be what can't money buy.
Speaker 3 (33:14):
It can't buy old friends, and it can't buy contentment.
It gives you choice, which is fantastic. As May west
One said, you know, too much of a good thing
is wonderful, but once you've got a certain level of comfort,
more money and more stuff doesn't make you happier than
you already were. Look on Sydney Harbor, you know, all
of those wonderful homes with beautiful views. The blinds are
(33:35):
often closed. Money buys you brief ecstasy. It bars you
that brief jolt of happiness. Wow, look at this view.
But then you get used to it, you know, and
then the blinds are closed and you Wealthy people still
have all the problems that everyone else has, except maybe
money problems. But you know, they still have divorce. They
(33:56):
still suffer from sadness and loneliness and insecurities and all
of those things. It doesn't buy any of those things.
Speaker 2 (34:02):
You meet and deal a lot with the What makes
them the happiest if you can think about it. You
don't have to name them. But if you think about
sort of the happiest wealthiest people, you know, what is
it that is driving them? It's not sort of the
bank balance.
Speaker 3 (34:14):
Yeah, they're content, they're content. They try to be content
in all circumstances. Imagine imagine being extremely wealthy, but holding
that money with an open hand and saying, if it goes,
I'm okay. If you can't say that, then you're putting
too much of your self worth and too much value
in the money and not in relationships and other things.
(34:37):
You know, I met. I remember going to a wedding
once at Blackwattle Bay where the souper yachts are all moored.
And the minister of that particular wedding at a church
where a lot of wealthy people attend, and he's been
at the bedside of dying wealthy people, and he said, Roger,
I can assure you that a lot of these people
(34:58):
would give up everything that they have, including all of
these boats, for one extra day, and that goes to
show you what it's really worth.
Speaker 2 (35:07):
Oh, that's a lovely way to end. Focus on the day,
live in the now. That's not all about the money.
But it's good to make some money. Let's be honest.
Speaker 3 (35:14):
As I said, it gives you choice, you know, it
does give you choice.
Speaker 2 (35:18):
Thanks for joining me Julianne Sprague, Wealth editor at The
Australian for this bonus episode of the Money Puzzle. For
more insights into building wealth and knowing what the smart
money is doing, head to The Australian dot com dot
au slash Wealth
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