Cautiously Optimistic

When asked my view on the global economy and investment markets, I describe my position as cautiously optimistic. I am very bullish on the opportunities over the long term, especially in artificial intelligence and energy, hence my optimism. But I am ever mindful that at any point there are risks to the economy and share market that can lead to a correction and even a bear market. We have been fortunate in the past few years that many of the risks lurking have not happened. That does not mean they will not, in fact eventually some will, hence my caution.

Right now, the world is grappling with several changes, many of which stem from US President Donald Trump’s tearing up of the rule book of international relations and trade. Ordinarily elections come and go and often they are relatively inconsequential to the daily machinations of financial markets. This is different. Trump is taking his opportunity to rewrite the rules of the game and address the perceived imbalances that have become embedded in the global economy.

While it appears Trump is unhappy with and targeting individual countries, he said it best when he explained that he does not blame these countries for the deals in place, they did great deals for their countries. He blames the prior administration(s) in the US. He is right, these deals and frameworks for how the world works have been decades in the making. The problem the world now faces is the uncertainty that comes with the upheaval of changing the global status quo.

So, after a positive honeymoon period for share markets from November last year, the economic reality is now starting to kick in. Nations, companies, and investors alike are starting to understand what tariffs, trade wars, and Trump mean for them on a more granular level. There will likely be a level of dislocation in markets as changes reverberate through markets. But the dust will settle and regardless of the short-term pain that accompanies the change, the key themes of the future remain compelling.

As markets reached new highs, I am always keen to take profit where stocks become overvalued. We have trimmed exposures to blue chip companies such as Commonwealth Bank and Wesfarmers over the past few months as they have become too expensive. They remain core holdings in our client's portfolio, but it's prudent to take profit and reallocate capital to better priced assets at times like this. Keep in mind that at $165 a share Commonwealth Bank was trading at a price earnings ratio of 28x which is ridiculous. Investors need to be careful not to become attached to stocks.

Companies such as Commonwealth Bank and Wesfarmers have been cornerstone stocks for many investors and there is often a reluctance to sell them. In the investment world, it's important to be as objective throughout the ups and downs of the market cycles. It is common sense, but it is more difficult to do than people appreciate. When a company's share price has performed well, we are inclined to expect that it will continue to do so. However, unless the increased share price is driven by similar increases in profits, those gains will not be sustainable.

This is where it is difficult to assess the big tech stocks in the US, especially those with exposure to the AI theme. Our client portfolios include companies such as Microsoft, Amazon, Alphabet, Facebook, and Apple. They have all performed very well. Unlike my approach with traditional companies with more predictable earnings, I have not been taking profit on the big tech companies. The AI theme is a decade plus investment opportunity. Stock prices will not behave rationally along the way. However, the opportunity for future revenue and profit is so significant that I am reluctant to sell them despite their valuations being stretched. The growth opportunity over the next 3, 5 and 10 years makes selling them a greater risk. I'm fine with the volatility and if these stocks pull back 10% or 20% or more, I am not really concerned, it becomes an opportunity to continue adding to the holdings. But it is my view that you cannot afford not to have them in your portfolio.

Remaining objective often means acting counterintuitively. Especially in a world where there seems to be ever mounting risks emerging. The reality is that many will not happen, but certainly some will. Having conviction in the themes you are investing in is critical as is prudently managing capital and not being attached to any particular investment. Your investments must be made based on the future prospects of a company, not the past. Despite the uncertainty in the world, there are always exciting opportunities ahead. So, there will be pull backs and difficulties in the share market and these are not reason for concern but buying opportunities for the long term.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

It's a Marathon, Not a Sprint

Each year, I pick a few items from my bucket list to complete in the 12 months ahead. This year, my number one goal is to run a marathon. A marathon is 42.2 km, and I have no idea if I can do it. I've had people say to me “I couldn’t do that, I hate running”. Well, I am not a runner either. Unlike some people who run like a gazelle, I am in the group where every step seems harder than the last.

Why this challenge? I find a challenge most engaging when I think it’s possible, but I am not sure. I am not interested in doing things I know I can easily do. Where is the fun in that? A marathon is interesting to me because it is hard, and I am not sure if I can do it. So, it's a challenge both physically and mentally. I am excited to find out what tackling such an event will teach me about life and what I can learn about myself. Not just on the day of the run but throughout the entire training process. Even in this early phase of training I've learnt a lot.

Hasten slowly. The first interesting learning was that when you train for a marathon, a common mistake for beginners is to train at too high an intensity. You need to train at a much lower intensity to improve your anaerobic ability. Train at too high a heart rate, you are not improving your ability to run long distances; you are improving your aerobic system for power and speed. It defeats the purpose. I believe in giving it everything you can, so that's always been a struggle to balance the intensity of working at your highest level with the pace needed to sustainably work at that level. Learning how to pace myself in this training has been an interesting and counterintuitive process.                                                                            

Not pushing yourself. One of the hardest parts of this process is not pushing yourself. I have a plan, and I am determined to follow it. That means not only doing the work and being consistent but not doing more than I am meant to. When I ran my first 8 km run a week ago, I felt like I could get to 10 km for the first time. But resisted doing more. The longer run is planned for later. Not pushing myself and instead sticking to the plan is critical. There is a good reason for incrementally increasing the distance, so you condition your body progressively. Run too far, too fast, or too soon, and that's when injuries happen. I’ve done it in the past in other areas, and it sets you back even further.

Book it in. My entire mindset changed once I registered and paid my entrance fee for the event. Previously, I was thinking about it and was starting to train a bit. But once I had an event and a date (Perth Marathon on 12 October) it became real. Everything started to fall into place. The clock was now ticking, and I was committed. I mapped out a training program with the Runna app and tailored my routine to accommodate the new timeline. My training is 3 runs a week. Short runs on Tuesday and Thursday and a long run on Sunday.

Don’t underestimate this challenge. The best lesson I got was after 5 weeks of training. My Sunday long runs had progressively increased from 6km to 7km to 8km before reducing to 5km for the consolidation week. That 5km run was easily the hardest run I've had to do. I struggled the entire way, and I realised halfway through what I had done wrong. I didn’t come prepared mentally. I was easily completing 5km runs at this point and turned up to this one like it was a walk in the park. Not unlike the heavy favourites in any sport who underestimate a lowly ranked opponent and end up suffering a humiliating defeat. Now, I make sure I show up to every run I do ready to work hard.

Achieving the goal. Be mindful of the difference between setting a goal and achieving it. When I went to the Nike store to buy a pair of shoes, the sales assistant asked what the running shoes were for. I explained that I am training for a marathon. Impressed, she said, “Wow, that's awesome” then went on to say she’d only ever done a 21km half marathon. I had to stop her and say I haven't run more than 5km yet. I haven't achieved anything. It's important to not get caught up in the noise of setting a big goal because until you achieve it, it is only talk. This person was clearly a much more accomplished runner than me, and yet their effusive praise for my good intentions would have you think it was the other way around. It's great to have a goal, but it's more important to work towards it and achieve it.

Incremental Improvement. What has surprised me is just how quickly the body and mind adapt. When I first started training in early January, I was able to run for 5 minutes before I had to walk. My first ‘run’ took me 1 hour to do 30 minutes of actual running. It wasn't fast or pretty. Every time I run past the mirrored windows of the Sydney Opera House, I am reminded it's still not, but I am getting faster, and running is getting easier. Six weeks in, I can run 5km in just over 26 minutes, and my longest run so far is 8km. Each week, the program builds incrementally on the previous week, and then every fourth week is a consolidation week where you run less. I still don’t know if I will be able to run the 42.2 km on the day, but already, I can see that it will be possible to build up to it by keeping to the plan and incrementally improving to the next level each month. The most interesting part is that I have actually started to enjoy running and the entire process.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

AI Arms Race

There have been many technological advancements over the years that have been transformative layers for humans to build upon. From the motor car, trains and planes to electricity, computers and the internet. However, none have had the ability to transform the world at the scale and speed as AI.

Earlier technological advancements were often limited to the industries they would ultimately disrupt. But the very nature of AI means every industry will be affected. More importantly, AI is also the missing link that brings technologies together to create synergies that will allow automation to advance by an order of magnitude. For the past decade, we have been hearing about technologies such as the connected home, driverless cars, robots and virtual assistants like Siri and Alexa. But the incremental improvements have yet to embed these in our society. But as these technologies converge with AI, we will quickly see them emerge from novel to ubiquitous.

AI will improve every week and month from here. Don’t be fooled by the stories about AI fails and mistakes; the game changer is that this technology learns and improves on its own. I remember around 2005 trying to use the internet on my Nokia mobile phone. It would take 5-10 minutes for a page to load. It was useless. It was hard to see what practical use this had. Then in 2006, Apple brought out the iPhone, and the entire world changed forever. That was only 20 years ago. AI is going to be twice as big and happen in half the time. In 10 years, the way we live and work will be unrecognisable from today.

OpenAI recently introduced “Operator”, an AI agent designed to autonomously perform various web-based tasks such as booking flights, ordering groceries, and managing reservations. Operator interacts with websites by simulating human actions like clicking, typing and scrolling, enabling it to navigate websites and complete tasks. This is very early days and so it has delivered mixed results so far, but like the internet on the Nokia mobile once the technology catches up to the concept this will change rapidly. This is just one example of a technological change that will be revolutionary. Imagine the complex tasks that can be completed once robotics such as humanoid robots currently being developed by companies such as Tesla and Boston Dynamics are embedded with the ability to complete manual tasks such as lifting objects. Soon enough every home will have a robot worker doing the daily chores. It might sound far-fetched, but so was the idea of a TV or a computer in every home too once. This will happen faster than we think.

We are already starting to see the benefits of AI as large corporations invest heavily in incorporating it into their operations. Google CEO Sundar Pichel said in late 2024 that 25% of new code at the company is now written by AI. Mind blowing. Imagine that level of additional productivity in all businesses. But it’s not just tech companies gaining early benefits, insurance companies are seeing underwriting assessments that would take weeks completed in minutes. Banks are seeing similar results for home loan approvals. Fast food companies such as McDonald’s will soon enough be operating fully automated restaurants, drastically reducing costs and massively increasing productivity. It’s very early days but the potential here is unlimited.

While we understand that many workers are going to lose their jobs, it’s critical to understand that many companies and business models will become obsolete too. The difficulty for investors at this early stage is working out how this plays out. For example, once you can ask the Operator AI app to organise your next holiday and it automatically goes online, finds the best prices and books the entire trip exactly how you want it done, will we even need travel apps? Companies such as Flight Centre, Webjet and Booking.com may well see initial benefits in integrating AI but eventually, they are at risk when your own AI can do everything they can do for you. Businesses with a single sided online marketplace business model will struggle when AI can do everything they can do for a consumer. Companies operating a two-sided marketplace model such as Seek or Carsales will fare better as the underlying platform will be needed to match both sides.

Make no mistake though: AI is an arms race not just between companies but nations. When Chinese AI company Deep Seek recently announced it had developed a similar quality AI software for a significantly lower cost, it sent a shudder through markets and governments alike. Markets were concerned that the scale of the infrastructure spending and assumptions for future profit were overdone. Governments were alarmed at the prospect of a competing nation gaining the edge.

To be clear, I do not think any of this is a concern. If anything, it accelerates the timeline for the ultimate AI endgame. No one is spending less money on AI. It means that the arms race is well and truly on and that the pace of AI advancement will be even faster. The fact that China has advanced with Deep Seek only serves as a wakeup call for the USA, creating the urgency needed to move even faster.

The world dramatically underestimates the pace and impact of AI’s exponential growth in the next 5-10 years. This isn’t just about AI; it is also about AI as the catalyst for major advances as technologies converge. It catapults technology such as robotics and automation into the stratosphere. Businesses are obviously going to derive massive efficiencies, and global productivity will likely increase dramatically in the years ahead. This technology will evolve to become extremely intuitive, and anyone will be able to use it. There will be business winners and losers, but all of us as individuals will see the most benefit as it transforms and improves our daily lives.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

10 Themes for 2025

AI and Automation

In 2025, artificial intelligence (AI) stands out as the most important investment theme as it begins to enter the mainstream and revolutionise all aspects of our lives. This is a multi-decade theme that will advance exponentially. While there is a lot of hype, I believe most people are dramatically underestimating the opportunities and developments in this space. This is technology that learns and improves rapidly. This is an arms race, and the winners will redesign the future of the world. To be clear, there is no sector or industry that will be exempt from the change ahead.

America First

For someone who is often portrayed as unpredictable, President Trump is completely predictable in prioritising America’s interests first. Trump will extract every ounce of economic benefit for the USA in every situation. It's not unreasonable, and in many ways, the rest of the world has been able to coast on the back of the US. This theme includes areas beyond big tech, such as manufacturing, national security, defence and cybersecurity. While the rest of the world adjusts, the clear winners from this are US businesses, large and small. From an investment perspective US listed companies are well positioned to benefit and easily our preferred geography internationally.

Trump, Tariffs and Trade Wars

This theme dovetails into Trump’s America first strategy, and while very real, it's easy to get caught up in all the noise. Much of the headlines Trump creates aid the theatre of his negotiation. However, don’t underestimate Trump’s focus on getting an outcome that will ultimately optimise the USA’s global position. For a nation such as China, where the US wants to level the pricing playing field, they can expect an escalation in the rhetoric and actions from the US that can potentially lead to a trade war. Similarly, with Europe, it's only a matter of time before Trump turns his attention to various perceived inequalities in the relationship. These are likely to be a more sustained policy shift than those we have seen with Mexico and Canada, which were more transactional.

Energy Demand

The global demand for energy continues to rise, driven by population growth, industrialisation in emerging markets, and the increasing electrification of economies. Nations are transitioning to cleaner energy sources such as solar, wind, and battery storage. However, fossil fuels remain crucial in the near term, particularly for energy security and industrial applications. Additional demand for energy globally will require new energy infrastructure, costing trillions in capital investment over the next decade. This new demand, combined with the significant underinvestment in traditional energy over the past decade, will create more opportunities than ever to capture long-term returns in the energy sector.

China Economic Pain

The world’s second-largest economy faces structural challenges. Real estate problems, high debt levels, weak consumer demand, and geopolitical tensions—especially with the U.S.—may weigh on growth. The Trump presidency will likely escalate trade restrictions, further straining China’s exports and supply chains. Global markets may see deflationary pressures from weaker Chinese demand, impacting commodities and multinational firms with China exposure. While China remains uninvestible in my opinion due to unpredictable government, investors should expect economic volatility and reassess China-dependent assets.

Europe Economic Pain

In 2025, Europe faces sluggish growth, high debt burdens, and geopolitical uncertainty. Structural challenges, including weak industrial output, aging demographics, and energy dependence, may limit economic resilience. Ongoing tensions with Russia, potential trade disruptions from a second Trump presidency, and ECB policy constraints could add to the region’s struggles. I see risks in European equities and the euro, while opportunities could arise in U.S. and emerging markets benefiting from capital outflows. Sectors like luxury goods and autos, heavily reliant on global demand, may face headwinds. At the same time Europe is already being hit by China’s slowdown in consumer spending and the prospect of tariffs from the US.

Geopolitical Tensions

Geopolitical tensions have been elevated since Russia attacked Ukraine in 2022. Heightened uncertainty from factors like trade disputes, regional conflicts, and shifting international alliances lead to volatility in stock markets, commodities, and currencies. As tensions continue, investors may turn to safe-haven assets like gold, bonds, and certain defensive stocks while diversifying portfolios to hedge against risk. Additionally, sectors like defence, energy, and technology are all likely to experience growth, driven by government spending and demand for national security.

Private Debt Bubble

There is pain to come from this area. While unlisted assets certainly have a place and can be attractive opportunities, there are several downsides. The biggest one being that it's far more difficult to exit the investment. The rapid growth of this sector in recent years almost certainly means that at some point the music stops and the bubble bursts. With interest rates remaining elevated in many regions due to ongoing inflation risks, companies face higher refinancing costs, putting pressure on their balance sheets. Keep in mind these investments are typically exposed to higher risk borrowers and are often the most vulnerable to a downturn.

Debt & Deficits

The ability of governments to manage debt loads without triggering market instability is critical. But with ever increasing deficits from higher government spending, sovereign bonds will face volatility, while higher borrowing costs will impact growth at some point. The US stands out because of the colossal size of both its debt (US36T) and deficit (US$711Bil), but make no mistake, this is a global issue. The sheer amount of new debt the US needs to raise each year is huge and requires large investment. At some point that forces prices up, which means higher interest rates and that reverberates around the world.

Stagflation

With anaemic growth and inflation remerging, stagflation is beginning to look like the base case for the UK and much of Europe in 2025. That is an unattractive economic backdrop for investors looking at the region. If stagflation takes hold on that region, the overriding concern will be whether this presents risks for the global economic outlook. If inflation remains elevated due to persistent supply chain disruptions, energy price fluctuations, and labour shortages, economic growth could struggle to keep pace, leading to weaker consumer spending and business investment. In this environment, traditional asset classes like equities and bonds may face headwinds.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Winning at Business: Lessons from Sport

Great business leaders don’t operate in silos. Their sharpest strategies, boldest decisions, and most resilient mindsets are often built outside the boardroom—on sports fields, in extreme environments, or through personal adversity. The ability to draw from diverse life experiences not only enhances their problem-solving skills but also cultivates a deeper understanding of leadership, teamwork, and perseverance. 

In conversations with some of the best businesspeople in the country there is a clear pattern. Other areas of life, such as sport, teach lessons especially applicable to business success. 

Christian Beck: From Winning the Sydney to Hobart to Winning Legal Tech 

Christian Beck, founder of Leap Legal Software, is a prime example of this interplay between life and business. Known for his grit and innovation, Beck’s success in the tech space mirrors the precision and perseverance that helped him win the Sydney to Hobart Yacht Race, one of the world’s most challenging sailing competitions. 

Sailing a boat to victory in such a challenging race requires exceptional teamwork, strategic foresight, and an ability to adapt to ever-changing conditions. These are the same qualities Beck brings to his business ventures. He has spoken about how the focus on long-term planning during a yacht race—plotting courses, predicting weather patterns, and optimising every decision for the end goal—directly parallels leading a fast-growing tech company. 

Beck’s key lesson? Leadership is about preparation, but it is also about staying calm when the plan goes awry. Just as unexpected storms hit the water, markets can shift without warning. His philosophy: “You can’t control everything, but you can control how you respond.” 

Greg Taylor: Rowing Lessons in Perseverance and Culture 

Greg Taylor, the founder of Step One, credits much of his business acumen to his experience as a rower representing Australia. Rowing at an elite level demands relentless discipline and an unbreakable belief in collective success. As Taylor has often reflected, every stroke in a rowing race is a battle against exhaustion, self-doubt, and the fear of mediocrity—challenges any entrepreneur will recognise. 

What Taylor has carried into his business is a focus on culture. In rowing, the team operates as one; the slightest misalignment can cost a race. This ethos informed his approach to building Step One’s team, emphasising trust, transparency, and alignment of purpose. 

Taylor’s advice? “The best teams aren’t just skilled—they’re connected. They know why they’re rowing together.” It’s an important reminder that business success is rarely a solo achievement. Whether rowing across the finish line or scaling a company, it is the combined effort that pushes you forward. 

Brad Moran: From AFL to a $205 Million Exit 

Brad Moran’s story takes us to the football field. A former AFL player, Moran turned the discipline and strategic thinking he honed on the field into the driving force behind CitrusAD, the e-commerce software platform he co-founded and sold for $205 million. 

For Moran, success in both football and business has revolved around agility and strategic execution. As a professional athlete, he mastered the art of responding instantly to opportunities while sticking to a well-rehearsed game plan. In business, this translated into a unique ability to pivot quickly while maintaining focus on CitrusAD’s mission. 

Moran’s key insight? "The lessons you learn in sport are about resilience and commitment. You might lose a game, but how you recover determines the next outcome." For entrepreneurs, the message is simple: setbacks are inevitable, but it is critical to continue to trust the process and persevere despite the difficulties along the way. 

Sport and Business Success 

What unites Beck, Taylor, and Moran is not just their success but the diversity of experiences they’ve harnessed to fuel their achievements. Their stories highlight three universal lessons: 

1. Discipline is transferable: Whether it’s the daily grind of training for a race or the relentless effort required to scale a company, discipline in one area sharpens your ability to excel in another. 

2. Teamwork is non-negotiable: From yachts to rowing crews to football teams, the importance of collaboration cannot be overstated. Building a strong team with a shared vision is critical for long-term success. 

3. Adversity builds resilience: Stormy seas, grueling training, and tough games prepare you for business’s inevitable challenges. Resilience, as these leaders demonstrate, is a muscle strengthened through experience. 

These examples also point to a broader truth: the best business leaders embrace experiences outside of their core industries. They understand that life is the ultimate training ground—a place to develop empathy, resilience, and creativity. Whether it’s travel, sport, or personal passion projects, engaging with the world beyond work fosters the kind of innovative thinking that gives leaders an edge. 

As Christian Beck, Greg Taylor, and Brad Moran show us, life and business are not separate domains—they are intertwined. Success in one can profoundly influence the other. So, learn to leverage those lessons. For anyone in business it’s important to draw from every experience. Your next big idea or solution might not come from a business book or a strategy meeting but from something as simple as a sport you love or a challenge you overcame. 

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The Rationale of Buying and Selling

Investing is as much about making sound decisions when buying assets as it is about knowing when to sell. At the core of successful portfolio management lies the principle of diversification and the allocation of capital to investments across asset classes and within those classes. As assets grow at different rates, it's critical to manage your portfolio proactively to adjust the exposures to sectors and investments.  

Asset allocation is a critical part of portfolio management. A well-diversified portfolio will include a mix of growth-oriented assets such as property and stocks and defensive assets like fixed interest bonds, hybrid securities, term deposits, and cash. Then there is diversification within each of the asset classes. Most of our long-term client portfolios will hold 15-20 Australian stocks and a similar number of international stocks. This broad exposure helps to mitigate risk while optimising potential returns. 

If a portfolio is set up to have 70% exposure to growth assets and 30% to defensive assets as the growth assets increase over time the growth defensive split will skew high. Left unchecked you end up with the growth assets being a much higher percentage of the portfolio. It's critical to adjust these weightings periodically to ensure that you don't inadvertently end up with a greater exposure to higher risk assets than you intended to or than is prudent. This also applies to the levels of exposure to each asset class and the specific investments within asset classes, such as when an individual stock grows to become a larger part of the portfolio than is prudent.  

A common conversation I have with clients, especially now as stocks have performed so strongly, is around the timing and rationale of selling to take profits and rebalance the portfolio and then identifying entry points for new investments. If a stock's price has increased significantly faster than its profits, it might be an opportunity to lock in profit, reduce your exposure to the stock and reallocate funds to undervalued investments. The market can often overreact, pushing prices beyond reasonable levels. Selling gradually, or "averaging out," helps manage this risk and ensures gains are locked in while leaving room for further upside as you keep the bulk of the holding.  

A good example of this currently is the Commonwealth Bank of Australia (CBA). Over the past year, its share price climbed from $105 to $160, even as its profits fell slightly. There is a disconnect between the share price increase and CBA’s profit growth. Many investors now have an overweight position in CBA and the banking sector. I think it’s prudent to take some profit as the price rises well beyond the stocks fair value. In many cases we’ve sold small amounts for clients at $150 a share and again at $160. This approach retains the bulk of the holding while strategically reducing exposure to an overvalued asset. If the CBA share price goes higher in the short term, I am happy to continue selling incrementally knowing that we’ve prudently derisked and reinvested in better value assets elsewhere.  

Once profits are realised, the next step is reinvesting. This could mean allocating to another asset class, depending on the portfolio's overall balance, or investing in undervalued companies. Opportunities often lie in overlooked or neglected stocks trading below their fair value. While buying into such companies can be challenging, it’s essential to remain focused on their underlying value rather than current market sentiment. Both buying and selling should follow a measured approach. Investing incrementally allows you to spread risk, especially when markets are high and corrections are more likely. Similarly, gradually selling ensures you benefit from further gains while locking in profits. This disciplined strategy prevents overreactions to short-term market movements, both up and down, and aligns with a fundamental long-term investment philosophy. 

Managing a portfolio is a dynamic process that requires balancing opportunities with prudence. Whether it's reallocating capital from overvalued stocks or identifying undervalued opportunities, the goal is always the same: to manage money in the most efficient and effective way possible. By staying disciplined—buying low and selling high—you can navigate the complexities of the market while maintaining a robust and resilient portfolio. 

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

What Trump’s Victory Means for Investors

As the dust settles on Donald Trump’s election victory, investors globally are adjusting quickly as they look ahead to 2025 and beyond. Trump’s win is not just a political event, it is a significant adjustment for the investment landscape. While some sectors are poised to benefit, others will struggle with volatility and uncertainty.  

When Trump was first elected in 2016, much of his strategy revolved around prioritising an America-first foreign policy. This created significant shifts in global alliances, trade agreements, and even military positioning. With his return to power, investors need to understand how his emboldened “America First” approach will impact geopolitical stability and market sentiment. 

Trump has previously prioritised military strength, and his second term will see the US continuing to invest heavily in its military as they expand their military budget. This will be to the benefit of defense contractors such as Lockheed Martin. This increase in military budgets is not limited to the US though. Trump previously pressured other NATO countries to meet and increase their defense spending obligations. As geopolitical tensions across the world rise, many countries will be increasing their military spending.  

From a geopolitical perspective, Trump’s proposed use of tariffs is great news for US manufacturers but bad news for almost every other country. In the past, Trump used tariffs as leverage in trade negotiations. This time around, his intent is to protect US businesses and generate income. China is likely to feel the brunt of Trump’s policies which will directly impact Chinese companies exporting to the US. The auto industry is a good example where tariffs of 60% are designed to stop China from exporting cheap electric cars to assist a re-emergence of the US auto manufacturers.   

China’s economy has been struggling for the past few years under the weight of a collapse in the property market, an oversupply of infrastructure projects and the high debts related to these sectors. Additional economic headwinds for China, due to Trump imposed tariffs, won’t help the prospects for commodities, especially for materials. We remain underweight in our exposures to BHP and RIO as lower demand for iron ore continues to be problematic.  

Trump has consistently pushed for energy independence for the US. If he maintains or intensifies his support for domestic energy production, several US energy stocks such as Chevron will benefit. Energy is one of our highest conviction, long-term themes, and as such we remain bullish on domestic energy giants such as Woodside Petroleum and Santos. Additionally, coal stocks, amid global energy concerns, could continue their upward trend, particularly those with strong exports to the U.S. Further, instability in the Middle East, could send prices soaring at any point. Trump’s stance on environmental and social governance (ESG) may hurt companies prioritizing sustainability initiatives and clean energy. 

The financial sector, particularly banks and investment firms, will likely benefit from Trump’s policies. A more lenient regulatory environment in the U.S. has been favorable to banks, allowing them to take on more risk and increase profitability. For Australian investors, this could translate into more growth for companies like Macquarie Group, which is well-positioned in both domestic and international markets. If the Trump administration reduces regulatory hurdles for major banks, Australian financial institutions may find new opportunities in global markets, especially in the U.S. 

A less obvious flow-on effect is in relation to bonds and bond yields. Trump will be spending more than ever, and the US will borrow to do so. This will be trillions of dollars in additional debt. Counter-intuitively, we have seen bond yields move up since the Federal Reserve cut rates by 0.5% in September and since the election bond yields have jumped again. Some of this is related to the sheer volume of debt the US must raise going forward, new debt and refinancing maturing debt. It is basic supply and demand. When you have a lot of something to sell, you need to make the pricing more attractive to the buyers. US debt and deficit are an emerging theme to watch for 2025 and 2026. 

While investment markets have seen Trump’s pro-growth philosophy as great for business, the trillions in additional spending and the proposed tariffs are inflationary as they will cause prices in the US to rise. Inflation in the US is not solved yet and there is an assumption that it is no longer a problem. US inflation is much lower at 2.3% but core inflation is still uncomfortably high at 3.3%. So, with pressure on prices inflation may well be a reemerging concern in 2025. 

For those invested in US stocks, energy, and defense, Trump’s victory looks positive with the prospect of continued growth. On the other hand, those with heavy exposure to China, ESG-focused firms, or international trade could see more volatility.  Investors should be prepared for change and keep an eye on sectors most influenced by US policy shifts. However, perhaps the most important areas to watch in 2025 will be the impact of all this on the US national debt and inflation rate.  

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Trump Change

The US election and Trump’s win last week delivered a message that “America First” remains a powerful mantra for many US voters. While many do not like him or his policies, his decisive win shows broader trends that both American and Australian political leaders would do well to study closely. Trump’s success tells me that the concerns of everyday voters are increasingly being met with a mistrust of government bureaucracy. The lessons for Australia’s upcoming federal election in 2025 are clear: there is a rising need for policies that address the needs of the average worker and people’s concerns that relate directly to the national interest and the economy.

In a world where geopolitical tensions are rising, many in the US want leaders who keep US interests at the forefront of every decision. Economically, this approach means favoring American manufacturing, energy independence, and job creation over commitments to overseas friends and foes alike. Trump’s emphasis on controlling immigration, cutting regulations, and bolstering domestic energy production have been especially popular with voters who feel that they have been negatively impacted by globalisation.

One of the most widely discussed aspects of the Democrats’ campaign strategy was its heavy emphasis on minority issues. While addressing inequalities and providing support is vital, in the wake of such a resounding loss, it is possible the Democrats may have overcorrected. The pushback against well-intentioned policies for minority groups may have been caused by inadvertently alienating the broader population who did not feel represented by their policies. Many working-class Americans felt their concerns were dismissed or overshadowed. Trump tapped into this discontent, positioning himself as a voice for the ‘forgotten Americans,’ which drew substantial support from those who felt increasingly neglected. Rightly or wrongly the proof is in the result that shows emphatic support for Trump.

The Australian Labor Party should take note. While issues such as Indigenous reconciliation and support for multicultural communities are important, from a voter’s perspective, there is a fine line between inclusion and overemphasis. With the Voice debate still fresh in people’s minds, the Albanese government needs to avoid the perception that they are focusing on niche issues at the expense of widespread economic and social concerns. For Australian leaders, a balanced approach is key to maintaining focus on the majority without diminishing important minority issues.

Among the policies Biden championed was student debt forgiveness. It was popular among younger voters but a divisive one more broadly. I would argue that student debt forgiveness served a specific, and relatively privileged, part of society, particularly when compared to blue-collar workers or those who chose a trade as their path. The policy may have helped secure some youth votes, but it left a bitter taste for those who felt their financial burdens were ignored. The Albanese government has recently floated similar ideas but, as with the US, this risks backlash from a much larger segment of the working population. Additionally, Biden’s proposal to tax unrealized capital gains raised eyebrows. While it might seem like a straightforward way to tax wealthier individuals, it’s an impractical and unfair tax that Australians are sensitive about given their reliance on property and superannuation for retirement.

Another lesson from Trump’s economic strategy was the focus on industry and domestic production. Many Americans feel disconnected from the global economy and want Government to refocus on the manufacturing jobs that have vanished over the last few decades. Trump’s messaging, which often focused on job creation and keeping U.S. industries competitive, helped assure voters that he was looking out for their financial security. In Australia, where the economy is tied heavily to both mining exports and global markets, this will be much more difficult for government to address. We are very reliant on China and as tensions rise between our greatest ally and our biggest trading partner, it leaves Australia in a precarious position.

Australia’s upcoming election in 2025 will be very different from the US election but the dynamics are similar. There’s a rising sentiment that leaders need to address the issues of the majority, prioritise national interests, and communicate simply and clearly. While Albanese and other leaders look to address inequality, economic security, and social inclusion, the key will be to maintain a balance. The lessons from the 2024 US election point to the value of policy pragmatism, effective communication, and a focus on strengthening the nation from within.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The Butterfly Effect

In Chaos Theory, the Butterfly Effect predicts that extremely small changes in conditions can lead to massive differences in outcomes later. An example often given is that a butterfly flapping its wings in Brazil sets off a tornado in Texas. In economics, minor decisions or unexpected disruptions in one corner of the world can flow into massive consequences across the globe. From the Global Financial Crisis (GFC) in 2008 to today’s volatile financial environment, small adjustments have created ripples that continue to influence economies worldwide. Seemingly minor decisions, from interest rate changes to supply chain adjustments, have reshaped markets, fueled investment trends, and reshuffled the balance of global power. 

The GFC is one of the best examples of the Butterfly Effect in recent history. The crisis began with risky lending practices in the US housing market, where financial institutions issued subprime mortgages to buyers with poor credit histories. At the time, it seemed like an isolated issue in one sector of the US economy. However, these loans were bundled up, repackaged, and sold worldwide, spreading the risk across financial systems. When homeowners began to default, the underlying value of these securities plummeted, triggering a range of problems.  

The aftermath was devastating as major banks in the US collapsed, stock markets crashed, and liquidity dried up. Countries across Europe were affected as US financial products had permeated their banking sectors. Iceland, Ireland, and Greece all faced crises, and central banks around the world had to intervene with unprecedented bailouts and stimulus measures. Poor lending practices in a single country spiraled into a global economic disaster, leading to a recession that took nearly a decade for some countries to fully overcome.  

Fast forward to today, and China’s economy plays a similar role as a key driver of global economic outcomes. China’s recent economic slowdown, especially in its real estate sector, has had significant consequences worldwide. Real estate giants like Evergrande defaulted on their debt, and China’s government implemented measures intended to stabilise the property market. But it also reduced demand for construction materials such as steel and cement which are crucial exports for many countries. 

In Europe, which exports machinery, cars and raw materials to China, industrial output has felt the brunt of this downturn. Germany, a leader in industrial manufacturing, has seen slower growth as demand for its exports decline. Countries from Brazil to Australia, which supply raw materials to China, have also felt the economic impact. When I read that Volkswagen is shutting down three manufacturing plants in Germany it's a great reminder of just how interconnected the global economy is that a local policy decision by China to rein in its real estate sector can result in jobs losses in Germany and impact economies on the other side of the world. 

In 2022 and 2023, the US Federal Reserve started aggressively increasing interest rates to control inflation. While this move was primarily aimed at stabilising prices in the U.S. economy, the ripple effects were global. Higher interest rates made the dollar more attractive, leading to a stronger currency. This, in turn, increased the cost of dollar-denominated debt for emerging markets, putting pressure on countries from South America to Southeast Asia.  

Meanwhile, the conflict in Ukraine, disrupted natural gas supplies to Europe, pushing prices to historic highs. Europe, which relied heavily on Russian gas, scrambled to find alternative sources, which sent global energy prices soaring. This ripple effect was felt in everything from manufacturing costs to household energy bills, not only in Europe but globally. 

For investors, the Butterfly Effect highlights the importance of understanding global interdependencies. Diversifying portfolios across geographies can mitigate risk, as challenges in one market often create opportunities in others. So, being aware of the changes in major economies is crucial. For instance, understanding China’s economic shifts can provide insight into commodity prices, while understanding U.S. monetary policy can signal potential changes in global capital flows. 

As technology continues to increasingly connect the world, the Butterfly Effect will likely become more pronounced in economic and investment contexts. Small policy adjustments or market shifts influence everything from inflation to investment sentiment. The key for investors is to recognise that seemingly small decisions have the power to set global financial markets on a new path. Whether it’s a policy in China, an interest rate hike in the US, or a geopolitical shift in Europe, these decisions create ripples that cross borders, affecting people, companies, and entire economies.  

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Making Decisions: Finding Opportunities and Avoiding Mistakes

Every day, we make countless decisions, from small, routine choices to life-altering ones. Yet, despite the frequency with which we face decisions, few of us are taught how to make them well. Whether in business or personal life, the ability to make thoughtful, well-considered decisions can significantly impact our success and happiness. Most importantly, it’s often not about making perfect decisions, but about avoiding costly mistakes. By approaching decision-making with consideration and structure, we can improve our chances of success and better outcomes in life and business.

I think there would be a lot of benefit in teaching people from as young an age as possible how to approach the decision-making process. Some decisions matter more than others. Most people struggle with making long-term decisions. Often in life, people make big decisions on a whim or without considering the consequences properly. This might include starting a business without understanding the market or buying shares in a company just because a friend did. The opposite is also true, people who don’t make a decision even when it makes sense to do it and it's something they want to do. If you don’t pull the trigger and do it, then the opportunity is lost.

I watched a speech by Warren Buffet where he explained that we don't get 500 great opportunities in our lifetime, he says we get perhaps 20. Buffett suggests we give kids finishing high school a punch card with 20 punches for the major financial decisions in their lives. When you make any investment that's a punch on the card and you only get one card for your whole life. This paradigm will dramatically change your thinking. He argues that you will become successful much more quickly because you’ll spend more time identifying the truly great opportunities and eliminating the ill-considered investments. It is a fantastic mindset to adopt when it comes to making decisions in all areas of life.

Interestingly, success doesn’t always hinge on making the best decisions. Sometimes avoiding major mistakes is enough to move you forward. Decisions that reduce the likelihood of negative outcomes are extremely underrated. We talk about good and bad decisions but in many cases what we are really talking about is the outcome they lead to. Making the right decision can still lead to a bad outcome but that doesn’t change the fact it was the best decision. Similarly, an ill-considered decision doesn’t always result in a bad outcome. If someone drives their car home after too many drinks and they get home safely it doesn’t make the decision a good one. But if you make enough unwise decisions the probability of a poor outcome will eventually catch up with you.

Following are a range of decision-making tools and methods that are simple to use in life and business.

A pros and cons list is a straightforward way to list out the reasons for and against to allow you to see what the list of factors looks like when considering all the positives and negatives that apply.

The Covey matrix categorises tasks into 4 quadrants according to whether they are urgent and important or not. It is an extremely effective tool to decide where you need to spend your time.

Pareto's analysis or the 80/20 rule as it is better known, applies across so many areas. It suggests that 20% of your decisions result in 80% of your happiness. In business, 20% of your effort produces 80% of your outcomes. In investment, 20% of your portfolio may well produce 80% of your returns. This is particularly useful in helping you to decide where to focus your time and effort in almost any endeavour.

Cost-benefit analysis is useful in assessing the trade-offs between your investment and the gain.

A SWOT analysis will help you decide whether to enter a market or even start a business in the first place as you assess the strengths, weaknesses, opportunities and threats.

Scenario planning is extremely useful in making decisions where variables can change the outcome significantly. It helps you prepare for the future and reduces the uncertainty where there are a range of possible outcomes that may eventuate.

Having a process for making decisions makes a world of difference in our ability to make well-considered decisions. While no single method guarantees success, using a structured approach can help you avoid common pitfalls and make better, more informed choices. By incorporating tools like pros and cons lists, SWOT analyses, and scenario planning into your decision-making process, you will have a clearer perspective on the options in front of you. As Warren Buffett suggests, it’s not about making lots of decisions or chasing every opportunity – it's about making a relatively small number of carefully considered decisions count. Whether in life or business, by focusing on reducing mistakes and improving our decision-making frameworks, we set ourselves up for long-term success in the face of uncertainty.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Private Credit - A Wolf in Sheep's Clothing

In recent years, there has been a massive surge in demand from investors looking to place money into private credit. These investors have typically been investing in funds managed by people with experience in bonds, corporate debt or banking. The fund managers have spotted gaps in the market where the big banks once operated. As the banks have become increasingly conservative, it's been difficult for some borrowers to finance deals, from property groups and developers through to businesses. By helping match higher-risk borrowers with investors seeking higher fixed-income yields, the Australian private credit has emerged as a reported $200 billion dollar market. While Australia leads the way, it is also a worldwide phenomenon as the market globally passes $US1 trillion.

Despite their popularity, I would be very wary of investing in these funds. In many cases, these funds have been positioned as being less volatile because they are unlisted. However, that's only true in relation to the day-to-day unit pricing. The underlying assets are still only worth whatever they can be sold for. This will become a problem if higher interest rates result in defaults, or the economy deteriorates. We are already seeing dramatically increasing signs of insolvency here in Australia with the September quarter up 45.5% from the same period in 2023. If a borrower could borrow from a bank at a lower rate they would, so, many of these loans are being made to higher-risk borrowers and projects that the banks avoid. While the banks are simplifying their business the higher-risk end of the market is moving to private credit. The big banks are as focused on profit as any entity in the country, so they have good reasons for avoiding this part of the market.

Like all markets, there will be good and bad operators, and it’s the poorer performers where the risks will emerge. When fund managers have millions or billions of dollars to manage there is a fight to place the funds and provide finance. It’s a different system to how banks manage risk. Often the private credit funds are paid high management fees to manage the loan book. There isn’t the same financial risk for them in the event of a default as there is by a bank. Those who lose money on a bad loan from the bank are the bank as the loss sits on their balance sheet. Those who lose money on a bad deal from the private credit fund manager are their direct investors. The billions of dollars in private credit now looking for a home means there are deals getting funded now that wouldn’t be in a normal market. It's not their money, and it potentially leads to outsized risks being taken. It’s creating a bubble. Not only is it a bubble, but this is also an unregulated and opaque sector.

The higher-risk end of the market that the banks are moving away from is still there, it’s simply being transferred elsewhere in the system to private credit. With interest rates still relatively high, it's possible that these higher-risk loans see increases in defaults. That raises serious questions for investors to consider when things go wrong. Unlisted assets can’t be easily sold. When things go wrong you simply can’t exit, there is almost no way to get your money out. However, you can generally sell a listed asset, perhaps for a lower price but you can sell. When it’s an unlisted vehicle, the mechanisms for redeeming the investment when things go wrong evaporate. The funds are tied up and redeeming your funds can be a multiyear process.

We have stayed clear of many of these unlisted funds, from hedge funds to private equity and especially in the private credit sector. It is a great business model for the operators but there are potentially significant downside risks for investors in the event of broader issues in the economy. In many respects, part of the issue is the simplistic nature of investors' mindset with these investments. They see an interest rate and assume it is a better version of a term deposit or bond. It could not be further from the truth when you look at the underlying investments and structure. In some cases, these are junk bonds, in others they are chopped up and mixed like they did in the GFC. As popular as these unlisted funds have become, there is a real risk it will not end well. My priority for the fixed interest portion of our portfolios is for it to be defensive and do the job we want it to do. If we want growth-style returns, that is for the equity part of the portfolio. I would strongly urge investors to be aware of exactly the risk they are exposed to.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

What Successful Business Owners Have in Common

I have interviewed almost 100 business owners on my podcast over the last three years. The other night around the dinner table I was asked: “What do the most successful business founders have in common?” I have found there are five key traits that separate great business owners from all the others. 

1. Self-aware – they understand their strengths and weaknesses and are reflective. 

2. Ambitious – goal oriented, big goals, relentless, resilient and won't settle 

3. Growth mindset – constantly wanting to improve, be challenged and grow 

4. Deliberate – they are intentional and considered in everything they do 

5. Passionate – this drives their enthusiastic approach to life and business 

The most interesting insight is that there is never a sole distinguishing trait that sets a successful business owner apart as someone who will build a hugely successful business. Certainly, some founders are exceptional in many ways, but in many cases, they are not particularly different from other people in business.   

For example, they don't work harder than the small to medium business owner. That isn’t to say they don’t work hard, they do. But I know many small to medium business owners who work just as hard, and they haven’t been able to turn their business into a $100m or $1billion organization. So, while hard work might be a prerequisite, it's not the differentiator that many people assume. 

Nor do many of the traditional stereotypes like the egomaniac or control freak billionaire ring true. Most of the people I've interviewed are just the opposite, they are incredibly self-aware and quite humble. They almost all explain the importance to their success in finding great people to come in and do the jobs they weren’t good at. They learn to let go and provide their people with the autonomy they need to do their jobs. They understand that they can’t be control freaks because it stymies growth for everyone. 

They have a growth mindset. That mindset starts with their personal growth but permeates through the entire organization.  So, while they have ambitious goals and are relentless in their pursuit of success, they are aware of their strengths and weaknesses and the need to continuously improve. It is at the intersection of ambition with self-awareness and a growth mindset where the most successful founders separate themselves from the pack. 

One is that they are very deliberate in their thinking and actions. They are intentional in their approach to growth and scale. They are considered in their communications and the way they approach both their people. They are also enthusiastic and passionate. I think this is the real driver of their underlying success. It dictates their positive can-do approach to life and business and is their superpower when they go through the tough times that they will inevitably face. 

What is clear to me is that while their motivation can be anything from achieving family financial security to changing the world, one thing they have in common is that they are ambitious and driven. They are prepared to go all in, and they are not afraid to face their fears or potentially failing. Most importantly, they want to reach their potential. 

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Energy Boost

Energy is one of the most important macroeconomic themes shaping the global investment landscape in the decade ahead. From the demand for oil and gas to the geopolitical factors affecting energy supply chains, the importance of energy in determining economic growth, market dynamics, and investment returns cannot be overstated. It is critical for investors to have exposure to this sector in your portfolio for the long term.

While much of the world has focused on the transition to renewable energy, from a pure investment perspective, it has distorted parts of the energy market. Fossil fuels still account for over 80% of the global energy mix, and despite the growth of renewables, that figure is expected to remain high for at least the next decade. This is due in part to the sheer scale of global energy demand, particularly in emerging markets, where industrialization and population growth are driving a need for more energy.

The world needs an ever-increasing amount of energy to power the activities of the future. AI is a massive extra and unexpected demand on energy. The additional energy required to power the AI energy demand will see AI energy demand double by 2026, from 2% of global demand to 4% of global demand. Of course that is just the start. But even that equates to all the energy required to power Japan for a year being added to global energy requirements.

Part of the problem with the transition to renewables was that it was too expensive to produce enough to meet demand. Simultaneously, it became politically difficult for the oil and gas industry to gain the investment needed to fill the shortfall. Consequently, the world has drastically underinvested in energy and energy infrastructure over the past decade and that will need to be rectified. Global spending on data centers alone is estimated to be $US2 trillion by 2029 (Blackstone) so high energy-demanding technologies from data centers to AI require a long runway of energy demand for the rest of the decade and beyond.

Energy has always been a geopolitical issue, and the coming decade is unlikely to be any different. As countries vie for control over energy resources and supply chains, geopolitical tensions will continue to affect energy markets. The Russia-Ukraine war has caused widespread disruption in global energy markets, leading to supply shortages and spiking prices, particularly in Europe. More recently, tensions in the Middle East have seen increased volatility and prices spike.

As countries worldwide move toward energy independence in the interest of national security, geopolitical risks can be a double-edged sword for investors. The price of oil fell as low as the US$70 a barrel mark about two weeks ago on the prospects of a weaker global outlook before jumping quickly to around US$80 a barrel today. It is important to remember that the USA dramatically depleted their emergency oil reserves in their bid to curb inflation and pledged to replenish this reserve at US$70 a barrel. This potentially provides a floor under the price.

The investment opportunities in energy are broad. I think the simplest way to gain exposure is through blue chip companies in the oil and gas sector as well as uranium. We hold stocks such as Woodside, Santos, Chevron, and Cameco. I am less bullish on the renewables space because in many cases it is more dependent on technology bringing prices down over time. Many of the investments therefore are more complicated than I like and while they may appear to be energy stocks, they are effectively higher-risk technology companies. There are also massive opportunities in energy utilities and energy storage.

Energy will be one of the most important macroeconomic themes of the decade ahead. The demand for energy from emerging countries and industries, the importance of energy storage, and the geopolitical complexities of energy supply chains all underscore the central role energy will play in shaping markets and investment strategies. We are still at the start of a massive global energy expansion that will be a core component of our investment portfolio for the long term.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Keep it Simple

Some of the best advice I have ever heard was also the simplest. In a competitive world, it is easy to get wrapped up looking for ever more sophisticated ways to gain an edge. Yet keeping things simple is one of the most underrated aspects of doing something well. It applies to any endeavor whether it is investment, business, sport, or life.

From an investment perspective, I see it all the time. Investors who are easily distracted by every shiny new opportunity often don’t know their true objective or achieve the results they want. When you really know what you are doing, you do not lose focus. It comes back to having a robust understanding of your investment criteria and being disciplined on the fundamentals.

Warren Buffett is the world's greatest investor, yet his investment portfolio remains remarkably simple. His portfolio is invested in shares, cash, and bonds. He does the fundamentals exceptionally well and has done since 1956 when he started his first investment partnership. Today his investment vehicle, Berkshire Hathaway, is valued at almost $US1 trillion. His methodology is simple. He buys great businesses at fair prices and holds them for the long term.

I am always perplexed and slightly amused when I see the range of exotic investments that many large investment firms have wealthy families pour money into in the chase for better returns. I think that might be more about marketing and fees than returns. As a long-term investor, the best thing you can do is simply master the basics. When you have done that, you can be patient and trust the process you have in place.

To succeed in whatever you are doing, you do not need exotic or risky strategies. Understanding the fundamentals and then mastering them will provide the foundations for success. As Bruce Lee once famously said “I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times”. In other words, it is far more powerful to have focused on mastering one thing than it is to have tried everything. As a long-term investor, the best thing you can do is keep it simple. 

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The Epicentre: China

The major stimulus package announced by China on Tuesday should be a warning sign to markets of how bad their economic woes are and not a reason to celebrate as they did. The growth of China from an economic backwater to a global powerhouse over the past 45 years has been phenomenal. In many respects, we are seeing the first real stumble for the emerging economic and geopolitical power since they embraced elements of the capitalist system and moved to integrate into the world economy in 1978. But China increasingly appears to be the epicentre of an emerging global slowdown.

An influx of capital investment from all around the world turned China into a manufacturing behemoth. It became the centrepiece of the global supply chain and the primary beneficiary of globalisation. The subsequent urbanisation of China led to their next phase of growth based around construction and infrastructure. The rapid rise of China’s middle-class consumer opened an entirely new market for companies across the world and appeared to be the driver for the next phase of economic growth as the nation looked to overtake the US as the world's major economy.

However, that hasn’t quite played out as the Chinese economy falters under the weight of economic, geopolitical and demographic crises converging at the same time. The major problem facing China now is that the themes that provided their economy uninterrupted growth for decades no longer exist and are even reversing in some cases. There are three key challenges that fundamentally threaten the drivers of China’s economic growth going forward.

Firstly, they have been dealing with a collapsing property market for years now and there isn’t an obvious or simple solution. As a government-controlled economy, China can implement strategies to contain losses that western capitalist economies cannot. While that has helped prevent a full-scale collapse and the immediate contagion, the fallout is still reverberating through the economy.

The second key problem China is facing is the decoupling from their economy by the west. This is a slow-moving but very real problem for them. What gave China such as boost for the last 20 years simply doesn't exist anymore. Following the Russian invasion of Ukraine most western countries have moved to decouple from China in the interests of national security. There is a whole suite of changes that ultimately boil down to removing their dependence on China to protect their supply chains in the increasingly probable event of a conflict. This will be a decade-long economic drag on the Chinese economy as investment is redeployed by western nations back home or to allied nations.

Thirdly, they have a population problem. China has low fertility rates and its population is rapidly aging. Around 30% of the population is forecast to be aged over 60 by 2035 and that figure is forecast to hit almost 40% by 2050. The implications are serious for China because it means more people need government support with a shrinking workforce paying taxes to fund it. You need only look at Japan most recently to see how problematic this can be.

What does this all mean for Australia and the rest of the world? Well, it’s bad news. From European auto manufacturers to Australian miners, it going to hit core industries at the hearts of many national economies. It's important to remember that outside of Australia almost every major economy is now cutting rates to get ahead of the slowdown. This month alone the US cut interest rates 50 basis points (bps), Europe 65 bps, and China 20 bps. Ironically, for all its own problems, the US may well be the best-positioned major economy. It remains our preferred investment market against the backdrop of a potential slowdown.

This all raises the question of how China can stabilise its economy and avoid a more serious economic downturn. China doesn’t have many options up its sleeve. In some ways, they are simply at the mercy of the wave they rode up now that it is on the way down. Many of the changing themes are structural and out of their control. The flow-on effects of the downturn in China are yet to fully impact Australia and the rest of the world. Keep watching though because the downturn is coming.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Get Comfortable Being Uncomfortable

The most successful people are those who are the hungriest to learn and improve. They understand early on in life that they need to get comfortable being uncomfortable. They are confident operating in the grey zone of uncertainty. That’s how you learn and grow. They know they need to be outside their comfort zone on a regular basis because if you are not growing as an individual or as an organisation, you are going backward.

But being comfortable being uncomfortable is easier for some than it is for others. For some, learning can be intimidating. But you cannot let fear hold you back. I am reminded of the karate teacher who once told a class of new white belts attending their first lesson that every black belt walked through the dojo door once as a white belt on their first day too. That lesson applies to everything. Whatever we are great at in any field, we were all white belts once. Conversely, whatever you want to be great at you can learn if you just start.

It is not only fear that we need to combat, complacency is equally damaging. There are many people who go through life and grow to a point and then stop. They get comfortable and then lazy. Being comfortable is like an inflation that erodes a person's ambition and ability to grow. We all know people who wish they changed careers, or took the job offer or lived overseas and never did it. When they don't, it’s often a combination of being too comfortable in their current situation and a fear of failure, so they do nothing. They stay where it is comfortable and then it gets easy not to change and grow.

The people who have achieved success do not think about or talk about failure in the same way as unsuccessful people. They are too busy trying to improve to let anything stop them. Successful people are focused on improving, what worked and did not work, then they move forward fast. Velocity matters with learning. It is not about your feelings. If you want to be successful, it is best to leave your insecurities at the door.

When someone is thinking about embarking on a life changing journey, I will often ask them what their mix of fear and excitement is. I find personally when the mix is 50% excitement and 50% nervousness that has always been a good indicator that this challenge is the right step up to the next level. Too much fear might mean you are not ready for the challenge or it’s beyond uncomfortable, while too much excitement might mean you are blind to the risks, or you are being irrationally exuberant. While it is important to push outside your comfort zone it must still be a very rational and deliberate approach.

At a time when there is so much uncertainty in the world, I hear from a lot of people, especially younger people, that they are increasingly overwhelmed. They often don't know where to start or how. There seems to be an increased level of anxiety people feel when they are out of their comfort zone. There is no need to overthink this because there is never a perfect time or place to start. The best way is simply to walk through the door like everyone else before you and create your own day one. A lot of things will go wrong, but that doesn’t matter. You will work hard and solve the problems as they are faced with them and keep moving forward. That’s how you start to learn and ultimately succeed.

Not happy in your life or career? Change something, do something different. The worst thing you can do is keep doing the same thing that makes you miserable because you’re too worried about what might go wrong. But it happens every day because people are complacent or scared. So, they do nothing. Getting comfortable being uncomfortable is not about learning. It is a mindset that becomes the difference between getting to the end of your life and having achieved your hopes and dreams or becoming complacent and living a life filled with the regret of potential that was never reached.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Keep Watching Jobs and Unemployment

As I have said for a while, keep watching the unemployment data. When the unemployment rate starts to move up then you know the economy has a problem. I wrote about exactly that in my weekly note titled “Unemployment the canary in the recessionary coal mine.” back in February. Unemployment in the US has indeed gone up. From 3.4% in April 2023 unemployment has since jumped to 4.3% in July 2024. The trend is clear; the US economy is genuinely slowing.

A rising unemployment rate is very significant because it is a real and tangible indicator that the economy is slowing. It is why interest rate cuts in the US are on the table for September and beyond. Then the question becomes how fast is the economy slowing and how far will it fall? The ongoing debate for investors is whether it will be a soft or a hard landing. In other words, will it be a mild downturn or a major problem? I think a recession is probable with the potential for a crisis, or crises to emerge. We are positioned accordingly within our client portfolios, though we are cautiously optimistic.

I am concerned that governments and investors all seem to think that an economic slowdown can be fixed every time simply by dropping rates. It is not always the case. When the GFC and Covid hit, the playbook was to drop interest rates to 0%, pump money into the economy and away we go. It was about giving consumers confidence to keep spending by letting them know that the government would do everything needed to keep the economy moving. Somewhere along the way, the world became addicted to low interest rates as governments moved from lower rates to save a faltering economy to using them to turbo charge it. That is where the asset bubbles and inflation we have seen across the world come from.

But as inflation took hold and interest rates went higher, cost of living pressures reemerged for the first time in decades. The world changed and a psychological line in the sand was drawn as real-life consequences began to emerge. Higher costs eventually slow the economy, whether it is via inflation, or the higher rates needed to curb it. Then as business adjusts the casualty is jobs. That is the real game changer. As the unemployment rate moves higher, the issue is not the lost spending from the few people who lose their jobs, that's just the tip of the iceberg. It's a complete change of mindset in the consumer.

A consumer is not just someone who spends in isolation. They are usually an employee who earns an income so they can meet their living costs. If they have some income left over, they also have discretionary income they may spend. In the past, when the economy slowed, rate cuts put money into people's pockets and the spending flowed. In the environment we face now, the unemployment rate is going the wrong way, so the rate cuts are not going to be met with the same psychological response as they were in the past. They are not going to think about spending extra, as unemployment creeps higher the fear becomes “will I have a job next month or next year?”

So, a rate cut in this situation is not met with the previous celebratory spending. Employees, as they become worried about their job security, are instead battening down the hatches and preparing for a rainy day that may soon befall them. We are at the very start of this process. Unfortunately, that very fear of their job security is the catalyst for why rate cuts are unlikely to have the same positive economic impact as they have in the past. The biggest challenge facing governments across the world next is rising unemployment as economies stall and businesses cut jobs. While consumers might react to rate cuts, employees care more about jobs.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Debt and Deficits

Investors are trying to work out just what a win for either Trump or Harris means for their investments, the economy and the ramifications for the entire world. Certainly, there are significant changes ahead in many areas depending on who leads for the next four years. However, what many overlook is that there are many areas that will not change much regardless of who wins. In many respects, these areas are more important to understand long-term.

Firstly, the US will keep spending and run up huge budget deficits. With a forecast deficit of $1.9 trillion (yes with a T) for 2024 this is not sustainable, but the US will keep on this path until they cannot. In other words, while we would all like to think the US government will at some point rein in their spending and get their house in order proactively, history tells us it will take some form of crisis to force change.

Secondly, on the back of those massive budget deficits, national debt will continue to balloon. At last count, it is about $35 trillion and increasing rapidly. By 2034, the US Federal budget deficit is forecast to be $2.9 trillion and debt to reach $54 trillion US dollars. Go back ten years to 2014 US govt debt was $17 trillion and ten years before that in 2004 it was just $7 trillion. Ever higher debt will have massive implications for the pricing of debt in the future, not just for the US but for every other country and business in the world. US debt is seen as the benchmark for pricing risk.

Thirdly, the US will continue to be the most important and powerful country in the world, from both an economic and a military perspective. The biggest, best and most innovative businesses will continue to prosper there. The US dollar will continue to be the world's currency for international trade despite what people may say about the emergence of crypto currency or any other currency taking hold. The US will continue to be the undisputed military power in the world. Regardless of their challenges, sentiment and enemies; US military might remains critical to global stability and economic trade.

Eventually, there will be a time when too much debt is needed by too many countries from too few investors. No one really knows how long it will be before that happens. Everything will be fine until it's not. Once too many debt issuers are competing for too few investors it will force bond yields up. While some countries simply won't get finance and will need to dramatically reduce their spending while others will not be able to refinance their existing debts. Either way, it poses significant economic problems for individual nations and the global economy.

However, the major reason financial markets are less concerned when it comes to the US debt level is that where a country controls its own currency, it effectively has an endless source of money. The US specifically has the added advantage that it is the global reserve currency too. If the debt problem one day morphs into a debt crisis, the US can pull the money printing lever as its get out of jail free card. But the closer we get to that lever being pulled, the more we need to consider what that world looks like.

If the debt and deficits from countries across the world are not reined in, a global debt crisis will eventually emerge. The US will do whatever needs to be done to protect their national interests. They will have no problem going back to the GFC playbook and printing even more money to inflate asset prices and their economy once again. The likely outcome then is a massive spike in inflation. It's not inevitable but fast forward 10 years to a world of many nations with higher deficits and more massive debt, then that will be the necessary outcome.

So, when it comes to the USA, regardless of who wins the election, some things will not change. The federal deficit and debt will continue to grow. There is no plan to address it. Everyone is in denial on this from politicians to financial institutions. No one knows how to implement the change needed before it gets to be out of control so they just kick the can down the road and will deal with the crisis when it eventually arrives. When it finally does, the US will be able to use its dominant position in the world to manage the situation and make it everyone else's problem.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Are You The Leader You Wish You Had?

One of my favourite parts of interviewing exceptional leaders and businesspeople on my podcast is hearing the stories that are unique to their journeys. While high performers have many similar traits, there are always insights to uncover based on each person's path and hard-earned lessons along the way.

With that in mind, I was especially looking forward to speaking with Sydney Swans Premiership coach and AFL Legend Paul Roos on my most recent episode. There were so many awesome insights across a range of topics. We covered everything from success and failure to culture and leading through to mentoring, succession, family, and parenting.

When he retired as a player in 1998, he compiled a list of 25 'Coaching notes’. These were the key attributes or actions he wanted from his coaches. The list was quite different from what you might think and was part of the revolutionary approach he brought to the AFL when he started coaching. He is adamant that he would never have won the 2005 AFL premiership without the list.

The list comes from a simple question that Paul suggests that every leader ask themselves:

“Are you the leader you wish you had?”

It is a question worth asking.

Paul Roos Coaching Notes (1998):

1. Always remember to enjoy what you’re doing.

2. Coach’s attitude will rub off on the players.

3. If coach doesn’t appear happy/relaxed, players will adopt same mentality.

4. Never lose sight of the fact it is a game of football.

5. Coach’s job is to set strategies: team plans, team rules, team disciplines, specific instructions to players.

6. Good communication skills.

7. Treat people as you want to be treated yourself.

8. Positive reinforcement to players.

9. Players don’t mean to make mistakes – don’t go out to lose.

10. 42 senior players – all different personalities, deal with each one individually to get the best out of him.

11. Never drag a player for making a mistake.

12. Don’t overuse interchange.

13. Players go into a game with different mental approach.

14. Enjoy training.

15. Make players accountable for training, discipline, team plans – it is their team too.

16. Weekly meetings with team leaders.

17. Be specific at quarter, half, three-quarter time by re-addressing strategies – don’t just verbally abuse.

18. Motivate players by being positive.

19. After game don’t fly off the handle. If too emotional say nothing, wait until Monday.

20. Surround yourself with coaches and personnel you know and respect.

21. Be prepared to listen to advice from advisers.

22. Keep training interesting and vary when necessary.

23. Team bonding and camaraderie is important for a winning team.

24. Make injured players feel as much a part of the team as possible (players don’t usually make up injuries).

25. Training should be game-related.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions

The Economic Power of Sentiment

When it comes to the stock market, sentiment is usually something I’d associate with the noise of the market. In this context, sentiment is often the momentum of the share price movement driven by the investor emotions of fear and greed. When sentiment is against a company, it is often out of favour. Ignoring the noise of the crowd means it may potentially be a buying opportunity. Conversely, when sentiment is in favour of a stock or trend, this noise may well mean that it’s time to sell down or take profit. In this regard, sentiment reflects the weight of the herd's view in the short term. For long-term investors in shares, paying attention to sentiment can be counterproductive.

From an economic perspective though, sentiment really does matter. After all, the global economy is not a machine or some abstract concept, it’s just the output of what all the people in the world do. The global economy is simply the result of what we collectively produce and consume as individuals every day. This is an important and often forgotten aspect of how we look at the world from an investment perspective.  If consumers and business owners are positive about where the economy is going, they are more likely to spend and invest. While if they are negative about the economic situation then they’ll spend and invest less. So, it becomes a self-fulfilling cycle. Consumer and business sentiment matter a great deal to economic activity.

Central banks and governments understand that sentiment matters from an economic perspective. It’s why they are so focused on managing consumer and business expectations. In tough times, they will never say “this situation looks like it could be an economic disaster”. Even in a recession they will say something like “it’s been a tough few months, but we think the worst is behind us, the green shoots of growth are coming through”. Then they will repeat that every month until it ends up being right. That approach is also the right way to manage sentiment in the down times from a government managing the macro-economic perspective. If you talk down the economy, you’ll shift sentiment down fast, then the economy will fall off a cliff too quickly.

It's rare and in fact counterproductive for governments and central banks to speak openly about any real concerns for the economy as it will only make them worse. It's far better to speak positively to blunt the impact in tough times and eventually, the good times will return. That’s the playbook for governments around the world. The mistake investors make after listening to it is to believe it. It's up to an investor to decide for themselves what their view of the macroeconomic picture is. Your mandate is to generate a return from your investments and that is completely different from the aim of the government and the central banks. The worst time to listen to the government for economic guidance is when the economy slows because that is exactly when your goals clash with theirs.

So, as the global economy begins to slow over the coming months remember all of this. It’s up to you as an investor to form your own view of the economy and what that means for consumers and businesses. Understanding the impact that sentiment has on a slowdown in the global economy is critical for investors because ultimately the activity of consumers and businesses flows through directly to the profits of companies you invest in. But don't be fooled into thinking that the government or central banks will tell you how an economic slowdown will play out. Their task is different to yours.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions