How We Are Investing in the AI Boom

From both a business and a lifestyle perspective, AI is the single most exciting technological development I’ve ever seen. It will be the biggest game changer in the history of the world. Not only will fortunes be made here but it’s going to change our lives in so many ways. There are going to be massive gains in productivity and huge reductions in friction in every type of daily task. If I was a young person looking to start a business, it would be in the AI field. If you are in business, you need to be looking at incorporating AI or you’ll be left behind. It is genuinely revolutionary.

But what is the best way to invest in AI from a long-term portfolio investor’s perspective?

How you access this theme depends on the level of risk you are willing to take. For most investors, there are 4 common ways. I utilise 2 of these in our portfolios and 2 I steer clear of.

• Big tech companies

• Listed AI companies

• SPACs or Themed ETFs

• The broader market

The big tech companies are seeing the most immediate impact in share price movements as the market grasps the enormity of the opportunity and those who are poised to benefit the most. The big tech companies such as Microsoft, Alphabet, Amazon, Apple, and Meta have broadly seen a resurgence on the back of this theme. Most of these companies are great businesses and we hold them in our client portfolios. Right now, for a few reasons they are probably close to fully valued though. While the AI angle has driven share prices up the bigger factor is the flight to safety. In times of uncertainty, the big tech stocks have replaced consumer staples as the ‘recession proof’ businesses for investors who believe consumers will continue to use their products no matter what. Similar sentiment drove their prices up in covid too.

Listed AI companies are all the rage right now and most of them are speculative, expensive and will likely fail. I see this every time a new technology arises from the internet dotcom boom and bust in the late 1990’s and early 2000’s through to the crypto and NFT boom and bust more recently. The key point to recognise is that just because a technological theme is real or going to change the world it doesn’t mean all the companies in the space will. This will play out just like those booms and busts before them. There will be some companies that will flourish and will be what Amazon was to the dotcom boom and bust. But it is really difficult to find individual winners in an emerging technological theme. It takes a massive amount of capital investment to get a technology into the mainstream, very few win, most will lose. Go back as far as you want from air travel to the automobile, it’s the same story. For these reasons, we avoid direct investment in listed AI companies in the early phases.

Similarly, Special Purpose Acquisition Companies (also known as SPACs) and Exchange Traded Funds (ETFs) are often created by fund managers in one way shape or form to provide investors access to a theme that is popular. They raise funds and invest in many different companies or shares within a theme on behalf of investors who don’t have the necessary expertise themselves. However, I’ve seen these types of structures surface in different forms over the last 25 years and I have rarely seen them work in practice. Managers charge huge fees and hold millions of dollars in cash to invest in the popular theme, it collectively drives up prices and the funds end up having to invest the funds at overinflated prices in lots of companies that ultimately fail. The theory of diversification to access the theme doesn’t seem to work as well as promised when it’s a new technology. I would avoid these structures and investment vehicles.  

Lastly, AI’s impacts across all industries will see many untapped areas for long-term investors to access the benefits of AI in the same way that worked for many in the internet boom. The introduction of the internet didn’t just provide great results for technology companies, it was ultimately adopted by almost every industry and delivered incredible benefits for revenue, productivity, and cost reduction. There are many examples of this. Just think about the way the banking industry has changed in the past 30 years. There are many blue-chip companies that integrated the new technology and remain blue-chip companies today. But there are also many examples across so many industries from entertainment, retail to newspapers and travel that didn’t and ended up going bust. This is where the real theme of AI will benefit investors over the next decade. Understanding the existing industries that will benefit and those that will be disrupted is key, and then the impact on all the individual companies in your portfolio. It will be just as important to avoid the losers as it is to pick the winners.

The most important thing to remember as an investor is to be patient even though everything seems to be moving fast. AI technology is still in its infancy and as exciting as the opportunities are right now it’s very uncertain and going to be very volatile along the way. Some businesses will be too early, some won’t execute, and many will fail. But make no mistake, this will be a massive opportunity for more than a decade. It is still super early, and AI’s capabilities are going to grow exponentially over the next several years. This is going to be a truly once in a generation opportunity that will manifest over many years in many ways, many we can’t even envisage yet. So become familiar with AI and learn about it because it will impact every company in your portfolio in one way or the other in the years ahead.

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.

Work, Money and Life

Just back from an overseas trip to Europe with my wife in May hence the mini-break in articles recently. I wrote this list about 2 years ago when we hit a few family milestones, the youngest of our 4 kids turned 18, my wife and I celebrated our 25th wedding anniversary and I was approaching my 45th birthday. Two years later the 22 lessons are just as true as ever. I’ve added many more followers since then, so I thought it was worth resharing.

This is what I want my kids to know about work, money, and life:

1. Make every single day count. There is one thing I know for sure, it’s that time stops for no one. That doesn’t mean be constantly busy or rush. It means be mindful, not wasteful.

2. Do what you love. Everyone says that these days, but people still struggle with it. Do what you really love, and you’ll end up being successful and more importantly, happy.

3. Give it a go. Whatever it is you really want to do, just go and do it. There will never be a perfect time, so don’t overthink it, just do it. If it doesn’t work out, then just start again.

4. Don’t be scared to try new things. If you don’t know what you want to do, try a bunch of things. You’re not going to find your passion thinking about it. Get out there and do.

5. Learn good habits. This goes for work ethic, health and fitness as much as financial discipline. Start off by making it easy and build on it every day until it's unbreakable.

6. Develop a good daily routine. This follows on from good habits. Almost everyone who I’ve seen succeed has a reliable routine. It’s what helps you get through the tough times in life.

7. Choose your partner wisely. It will probably be one of the single biggest factors in the happiness of your life. This applies to love and business.

8. Pick your battles. Don’t get distracted from your goals by everything that goes wrong or every problem that appears. Save your energy for the fights that really matter. 

9. Enjoy the journey of life. It goes quickly and very few times is anything as serious or grave as it may seem. So, stress less and enjoy each day as it comes.

10. Buy books. The best investment you can ever make is to buy a book for $30 to get the insights a world-class expert gained over a lifetime. It remains the best deal I’ve ever seen.

11. Spend less than you make. Always. Save and then invest. Once you build your savings add to your investments regularly. It doesn’t matter if it's shares or property as long as you invest.

12. Credit cards are dumb. Pay cash. If you can’t pay cash, then guess what? You can’t afford it. Only use debt to buy appreciating assets like property and even then, with caution.

13. Start a business when you are young. Whatever it is you want to try once you’ve learned the basics try it. Start small scale and assume you’ll fail. But learn by doing.

14. Turn off notifications. And most social media for that matter. If you don’t consciously turn off from it, you’ll be distracted from your own goals by the barrage of addictive marketing. 

15. Learn about money. Understand the magic of compound interest, the importance of cash flow and how to read a balance sheet. Invest don’t speculate.

16. Learn the power of words. They impact all your relationships, your ability to communicate at every level and negotiate the outcomes you want in life. They matter.

17. Be a lifelong learner. Be curious about the world. Travel and open your mind to other cultures and views. Most importantly never stop learning no matter how old you are.

18. Embrace change. In your everyday life and in the way technology is changing the world. Understanding how the world is changing is one of the most interesting parts of what I do.

19. Take regular holidays and breaks. Spend time with family and rest. I try to take a short mini-break every 3-4 months if I can. Rest, rejuvenate and smell the roses along the way.

20. I assume I’ll die in 10 years. For perspective, it reminds me that life is short and to get on with it, but at the same time, it's far enough away that I’m not too worried about it.

21. The meaning of life. In my younger years, I gave a lot of thought to this and concluded it was a waste of time. There is none. It’s up to us to create whatever we want from our lives.

22. Have fun. Remember to laugh and enjoy every day if you can.

Feel free to share with your kids or grandkids if you think it may provide them with useful insights.

Take the trip, see the show

This might be the best advice I have ever given. To be clear, it’s not the best financial advice but it’s not meant to be. This one is about living life. I see this more than you’d think from very wealthy people concerned about spending money in retirement.

Early on in my career I saw many people who worked so hard to build their future. I saw a few couples who sold their business for millions of dollars to retire only for one of them to die within 12 months. Their dreams and plans for the next phase of their lives turned upside down and all the things they were going to do together were never going to be done

What was all that work for? The future they worked so hard for over decades didn’t exist. So, what was the point? It made me more determined than ever to both succeed and enjoy life along the way. It also heavily influenced my views on how to spend money during both your working years and in retirement.

In my younger years, I was more focused on achieving outcomes. I’d reach a goal and instantly move on to the next one. But as I get older, I realise that it’s the process every day as you work towards your goals is what life is all about. The journey is more important than the destination. That journey includes all the simple things in life such as a family meal together or a walk on the beach, but it also includes the bigger ticket items we tend to put off for too long.

But the same applies once we are older too. If you’re 70 you might have 10–15 years of good health left if you are lucky. That’s often the time when you can still travel and do all the things you want to do in life, but it gets more difficult as you get older. Who knows when our time is up too, so there’s no point in waiting to do things, get on with it and do them.

Part of the issue here is that once people have sold their business and retired, regardless of their level of wealth, they become more conscious that the amount of money they have is what they have for the rest of their life. That can make it especially daunting to dip into your capital in the name of fun or living life. But outside of leaving an inheritance, what else is it for? What were all the years of blood, sweat and tears for?

I’m not suggesting people become frivolous spendthrifts, but I am suggesting that it’s worth crunching the numbers, whatever your financial position, to understand the balance between frugality and living a fulfilled life. Of course, success and happiness are different for everyone and only you know what that means for you and your family. But what I do know for sure is that our time on this earth is limited, and our time with our loved ones is even more limited.

When I hear people in retirement questioning whether they should dip into their capital for a regular overseas holiday, I take the view that there is no better time than now. We don’t get healthier as we get older. I see it as money well spent. So, buy the tickets and see the show, take the overseas trip because it might just create some of the greatest times and best memories of your life.

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 Earn-Out Phase

Over the years as I speak with clients and more recently, the business owners I have interviewed on my podcast, it is clear one aspect of selling a business is tougher than most would expect. Specifically, the transition phase whereby the founders complete their ‘earn-out’. When a business is sold, there are usually 3 components made as payment, cash, stock and an earn-out. The cash is the amount of the business you sell for dollars in the bank. The stock is the shares in the new entity you receive, often a much bigger listed company. The earn-out phase is a period after the business is sold, after which the seller receives additional payments in exchange for assisting with the transition of the business to the new ownership. Typically lasting up to three years, the earn-out phase incentivises the seller to work towards agreed-upon objectives and performance targets being met to earn a bonus payment.  

The earn-out is an extremely important part of the deal but is sometimes overlooked or at the very least not given the level of consideration by founders as it warrants. After the initial excitement of being acquired for millions, reality soon hits because how the earnout phase is set up and who you have sold the business to is going to impact your life in a big way for the next three years. While many people are willing to endure discomfort for three years when a large cheque is on the table, it is worth taking the time to plan and negotiate the earn-out terms. It is especially important to consider how the next few years may play out if things don’t go well. It could be because of targets being missed, personality clashes or simply tough economic times but you’ve got to consider the downsides. 

The comment I hear the most is that you lose two things that are more important to entrepreneurs than anyone else, autonomy, and time. So be aware that you have handed over ‘your baby’ and you are not in control of the decisions anymore. Other people are in charge and they will not run the business the same way you did. Your business will be part of a larger organisation with a hierarchy that slows everything down. No longer can you decide on a marketing campaign in an afternoon based on your gut instincts based on 20 years of business. Now those are group decisions that must go by the head of marketing for approval. But they will need to run it by legal for approval and so on. Be aware that is just how it will work going forward.  

The reality is that you’re going to experience significant change in the transition phase. More so than anyone else in the business. The greater the percentage of the business you retain, the more important it will be for you to have a level of control. Most importantly you need to prepare yourself psychologically that the business is no longer yours. The new owners will probably drive you insane at times and make decisions that make no sense to you at all. So, you need to be mentally prepared for this because they may very well take your years of blood, sweat, and tears and mess it all up. It might turn out great too and everyone will live happily ever after, but do not underestimate the earn-out phase and the impact it will have on your life for those few years.

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.

Property Trust

One of the defining parts of the GFC was seeing the impact of a credit crunch on large property fund investments. These funds held billions of dollars in all types of property including offices, retail and commercial. Like any investment, these include both good and bad managers. Often when these investments perform badly it’s for relatively obvious reasons such as too much leverage. However, the GFC highlighted a different twist on the problem with debt.

In the lead-up to the GFC, credit was easy to source, it almost didn’t matter how much debt you had as you would just refinance it on new terms when it came due. But once the GFC hit, the music stopped, and it was far more difficult. It led to both good and bad property assets becoming distressed, and not because there was too much leverage or difficulty making repayments. It was because if you couldn’t refinance the loan it had to be repaid in full. This became a major problem that wasn’t expected.

Many big property players had become so complacent during the times of easy money that they forgot the fundamental rule of managing the maturity of their debt. With no refinancing available, the only options became asset sale or default. It was a catastrophe with many funds caught out. The only thing worse than being caught out with a default or having to sell assets in a fire sale is having it happen when everyone else is too. It led to many property trust structures collapsing and investors losing millions.

Fast forward to 2023 and there is an element of this beginning to emerge again. In the USA alone, there is almost $1.5 trillion of commercial real estate debt due in the next 12-18 months. There are two parts to this problem emerging. Firstly, that debt is going to be refinanced at much higher rates and that’s obviously a big problem for organisations making repayments. It may mean that many organisations are not even able to gain approval to refinance under the new terms given the new rates change all the financial models they previously applied. That’s one aspect where failure will occur.

The second part of the problem is going to be those that can theoretically afford to refinance may still miss out. With financial conditions tightening and banks being far more selective, there will be a significant number of organisations that will miss out. Lenders will move from friendly facilitators of business to ruthless corporate vultures pre-emptively picking and choosing the assets they support and those they don’t. Understanding the bank’s place in the pecking order of default will play an important role in their decision-making and which assets and organisations succeed and those that fail.

This time there is a lot of debt not just linked to property assets but also a range of business and other financial assets. The key to property trusts and corporations surviving all of this is making sure they get ahead of any potential credit crunch. They need to refinance sooner rather than later and ensure they have sufficient access to capital, so they are not forced sellers at the wrong time. Make no mistake when push comes to shove in these situations, the deck is very heavily stacked in the bank’s favour. In a time of crisis, the banks will make the decisions that are in their best interest, not the borrower.

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.

My favourite business books

One of the best ways I learnt about business and investing in my life has been by reading books. It still blows my mind that you can spend $30 and get a lifetime of lessons and insights from the very best people in any field in the world. It’s genuinely the greatest investment you will ever make. I remember when I got married almost 27 years ago and we only had $100 in the bank, if I found a great book, I’d buy it without hesitating because we knew it was the fastest way to gain the knowledge to become successful. So here is a list of my favourite business books over the years.

1. Grit by Angela Duckworth

If there was only one book, I could tell my kids to read to help them through life, it would be this one. I can’t think of an attribute that is more important in life than grit. For all the natural talents a person can have, this book highlights that more than anything having grit is the true determinant of success in life.

2. The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone

This is one of the best business books I’ve ever read and is a fantastic insight into the fundamental tenants that make Bezos and Amazon tick. The book goes into great detail about his mindset and philosophy with regard to Amazon. Once you read it, you will have a newfound appreciation for why they will likely continue to dominate for decades. So many lessons for entrepreneurs and investors. 

3. Warren Buffett Speaks by Janet Lowe

One of the easiest books you’ll ever read. The author compiles quote after quote from Warren Buffet over the years to tell the story of how he invests. Buffett’s simple stories and wit build on each other and provide you with a great understanding of his investment philosophy. I love this book and genuinely believe that if you read just this book alone it will provide you with the fundamental tenants for investment from which to understand long-term investment philosophy.

4. Good to Great by Jim Collins

One of the questions I ask guests on my podcast is what their favourite business book is. Good to Great would be the most common answer, and for good reason. The book compares and identifies the critical differences and attributes of companies that are good, to those that are truly great, over the long term. There’s a strong focus on leadership including the hedgehog and the fox concept which is fantastic.

5. Atomic Habits by James Clear

When I read Atomic Habits the first time it was a game-changer. It helped me better understand how to use routine to create sustainable habits. It helped me across all aspects of life from business perspective through to better habits and improving my exercise regime.

6. Seven Habits of Highly Effective People by Stephen R. Covey

A timeless business classic. It’s probably the most challenging on this list to read because it demands your full engagement but nonetheless it’s a foundational book to read for anyone who wants to be successful. So many deep insights about management and perspective that I still use every day. These lessons can be applied by anyone to become better at what they do, from business leaders to investors or even parents. In today’s busy world of distractions, time management and prioritisation of tasks are massively underrated and rarely done very well. This book is a game-changer.

7. Steve Jobs by Walter Isaacson

There is nothing better than getting into the mind of a genius, and no one does it better than Walter Isaacson. In this biography Isaacson captures so many brilliant insights into Steve Jobs and how he built Apple. The first time I read it, I had pages of notes only a quarter of the way through. I had to stop writing because I wanted to enjoy the book. The book is the product of interviews over 2 years including over forty with Jobs and more than 100 family members. Any biography by Isaacson is a must-read.

8. Zero to One by Blake Masters and Peter Thiel

Zero to One is based on learnings from Peter Thiel, the co-founder of PayPal and the legendary venture capitalist who is known for being the first money into Facebook. This book gives you perspectives into the mindset and thinking required to change the world. It looks at how people create something totally new. Most successful businesses take something we already know and expand on it, but Zero to One is about those few exceptional businesses that create an entirely new industry and change the future.

9. You Can Negotiate Anything by Herb Cohen

These last couple of books I first bought and read when I was 18 and working as a labourer for my Dad. You Can Negotiate Anything is to read with lots of great stories teaching people how critical it is to understand the power they have in any situation and that negotiation strategies are useful in all aspects of life. Almost everything in life is some form of negotiation.

10. How to Win Friends & Influence People by Dale Carnegie 

Another age-old business classic first written in 1960. The title is terrible, but the content is profound. For a blue-collar 18-year-old kid from Geraldton, it was life-changing. It helped me see how wealthy people operate and at the same time, it helped me understand that they are all simply people. The reason that is so profound is because then you realise that everyone has hopes and dreams as well as fears and concerns. If you can help people achieve their goals or alleviate their fears, you’ll become successful.

Summary

I highly recommend all of these books. Each of them has taught me many important lessons over the course of the years. There are many other great ones that aren’t on this list too, but these are the ones that have been most influential on me at different points in time. If you have any books that have had a similar impact on you, I would love to hear about them.

Let Them Learn

There is an old story about a Zen Master who refused to help someone who was struggling with the burden of a hard and difficult life. People asked the Zen Master if he would help the person. He said, “no let them struggle”. The people didn’t understand why he wouldn’t help. Eventually, he explained… “when you rob a person of their pain and suffering, you rob him of his life, his freedom, his independence; you keep him dependent on you and rob them of the experience and of their journey”. As a mentor, whether it be a parent, teacher, boss, or coach, it’s not necessary to give the answer. There is something profound to be gained by letting people learn by doing. We don’t have to correct them when we see them doing something we think is wrong or that we don’t think will work. Maybe it will, maybe it won’t but there is beauty in the struggle.

My youngest daughter is 21 years old and has slowly started a business over the last few months. A side hustle as the kids say these days. I gave her the best advice I could – Go for it. Give it everything you’ve got. That’s about all I need to say for now. But I’ve also heard people say, “Oh another candle business there are so many”. So what? Maybe it will work, and it won’t, but these people are missing the point. The lessons are in the struggle not in whether this business is a roaring success. I have learned the hard way over the years that in life, as with business, the best you can do for your kids and your people is to let them find their own way. That means getting out of the way and letting them learn. It also means letting them find their passion for themselves and see where it takes them. At the end of the day if someone has a passion for something they will become all consumed by it and it will lead to a happy and successful life. 

It’s the same with the young people I know who thought Crypto and NFTs were the easy path to riches. All their friends were into it, and everyone was making money early on. Sounded great. My comments to my son’s mates who asked my view on it was this: “I think you will probably lose your money at some point, but I think it is a great process for you to go through.” For most of these kids aged 18-25 who were investing in it, it wasn’t big dollars, but it was a lesson to be learned. Plus, while it was the latest craze none of them were going to listen to me anyway. To experience the emotions and be a part of it is the lesson and if it works out then great. If it fails, then you will have been through your first crash and will be all the better for the experience.

But this applies to everyone that we come across who has dreams and aspirations, not just our kids. One of our best people here at Fortress is a young guy who has worked for me part-time for the last 2 years, Marcel. He’s a 20-year-old student studying software engineering at Uni and in only a few hours a week produces my podcast, organises the guests and takes care of all our social media. He’s quite brilliant. In the past, I would have tried to work out how to keep him working for me but early on I realised he would be here for a few years and then he’ll outgrow me. I realised my job is to help him do that. So, there will come a day down the track when he moves on to do something far more impactful on the world than what I do here, simply managing investments. I think it’s pretty cool I get to be a part of his development and how he approaches the world with his future endeavours.

It's often the same with investment advice from well-intentioned family members giving their views on how someone should invest. If you ask 20 different people, you’ll get 20 different views and most of them are either wrong or biased towards the weaknesses of the person who is answering. I see it all the time. As parents, we want the best for our kids. In many respects, we try to avoid the mistakes we think our parents made, but the flip side is I think we often just find new and interesting ways to mess our kids up anyway. One of the best things my dad ever did for me was when I was 15 and asking him about how to make money. He said, “I don’t know, you already know more about money than me, you’ll work it out.” But that was exactly what I needed, not my dad’s views on money, but his humility and honesty to tell me he didn’t know and to encourage me to go and learn for myself. When someone is curious and passionate, they will find the answers they need regardless of the hurdles in front of them.

Why I’m Selling this Rally

In a world beset by geopolitical tensions, high inflation and interest rates, banking collapses and uncertainty, the stock market has been surprisingly resilient this year. So far in the calendar year 2023, the Australian stock market is up 3.8% while in the USA the S&P500 is up 6.9%. The NASDAQ is up an astonishing 19.4%! That’s more than resilient, that’s almost a bull market. Now obviously stock markets are still well off their highs of 2021, but it does highlight the difference between what is evolving in the global economy and how stock markets are reacting.

I’ve said before that the share market looks out 6 to 18 months ahead of current economic issues. So, does this recent rally indicate that the market is comfortable with where the global economy is heading? I think the answer to that is a simple no. I also think that there is so much uncertainty in the world right now that the usual playbooks have been ripped up and it’s almost become every investor for themselves. Investors are confused and there is little advantage in knowing what others are doing because, well, they are probably wrong.

The big question is are we through the worst? I think that’s unlikely. I think we are only getting to the end of the beginning. As tricky as the last 12-18 months have been, the real economic woes are yet to play out and until we have that phase underway, share markets will continue to be confused. Right now, that confusion has resulted in stocks being higher than they probably should be. I believe this is an excellent opportunity to sell further and add to the cash in our client portfolio’s.

While share markets have been relatively resilient, we are seeing real volatility in markets that are traditionally very stable. For example, the yields on 2- and 10-year US bonds have been moving up and down like a yo-yo in response to the re-rating of risks from bank collapses to inflation expectations. The yield on the 2-year US bond has moved from 4.06% to 5.05% and back to 3.79% over the last 10 weeks. These are incredible moves that are anything but normal. It highlights the conflicting nature of much of the data coming through and just how difficult it is to get a read on critical data. How the data ultimately plays out will determine the direction of both the economy and the share market.

I am still convinced that the share market will pull back as it becomes clearer that we are heading into a global slowdown. I expect the market to retest those lows of 2022 and possibly head lower. To me, there is so much evidence that points to a slowdown that I think it’s prudent to sell further into the current strength we are seeing in the share market. It’s impossible to know where markets go in the short term so you can only ever make decisions that are prudent for the long term. Cash remains king. If the market continues to go up after we sell a little, I am more than happy to sell some more.

As resilient as the share market has been I don’t believe that this is an accurate reflection of where the market should or will be. One of the simplest tests for whether you have enough cash when you enter a downturn is how you feel as the market falls or when the next crisis arrives. Are you excited because of the opportunities you see becoming available or are you worried as markets fall? If you’re feeling nervous, then that’s a pretty good sign that you don’t have enough cash.

Our current focus for our client portfolios is weighted to protecting capital and minimising losses in the event of a market downturn. This is a unique time in the history of the world. There is really no precedent for the current situation and so it is difficult to predict how badly the global economy will be impacted. A lot of this is mitigating those risks and being ready. It is not about making money right now; it’s about protecting it. If in the next year or so the world has muddled through and it turns out there is no major downturn, then that’s great. There will always be opportunities to make more money when times are good or at least more predictable. But in the next year or so we will know for sure just how all the current events and variables have collided and their impact on the global economy. Sometimes treading water is what you need to do to ensure you survive.

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.

Balaji’s Bet

Amidst the emergence of the banking issues, US entrepreneur and former partner at prominent Silicon Valley venture capital firm Andreessen Horowitz, Balaji Srinivasan made a very public bet on Twitter. He bet $2m that the price of bitcoin will go to US$1m in 90 days. Given the price of bitcoin at the time was about US$26,000, it’s an aggressive bet and it certainly gained a lot of attention. The good news is that we will know very quickly just how clever he is. The bad news is that if he is right then the world is in far more trouble than anyone is prepared for. I’ve had a few people ask me about this, so I thought I'd provide my thoughts more publicly. 

Over the past decade, Balaji has amassed a huge following in tech and cryptocurrency circles. He also gained prominence over the past few years for his predictions on a range of topics including how Covid would play out. He is a smart guy and is very influential within the tech and VC space. His views on the banking system and the pace of change are extreme. His rationale for his position is his prediction of imminent hyperinflation, his concerns around the bond losses the banks hold and ultimately the collapse of the USD. He views bitcoin as the likely replacement.

For the record, I think he’s completely wrong for several reasons but it's worth exploring his rationale and the counter points. Financial markets are always a melting pot of diverse views and sometimes the most unusual perspectives prove to be right. Considering different viewpoints in a critical manner is always worthwhile even if it is especially unusual or extreme. It’s always worth understanding the rationale behind someone's position.

Firstly, in the short term, a US banking crisis is likely to be deflationary rather than inflationary. The real risk for the economy right now is if banks tighten their lending criteria and start to hoard cash for their own liquidity. That potentially starves businesses, consumers and the economy of the capital that generates economic activity. This would more likely lead to an old-fashioned credit crunch which would hammer economic growth. So, an escalation of the banking crisis he predicts is not inflationary at all and may well ‘cure’ the inflation problem. 

Secondly, in anticipation of a credit crunch or recession, the impact on interest rates is more likely to change from rate rises to cuts very quickly. The bond market is already telling us rate cuts are coming with 2-year bond yields dropping from about 5.05% to 3.94% in a matter of 3 weeks. Bond markets are now pricing in several rate cuts in 2023 even though the Fed’s position is that this is unlikely. The implications are that the tightening in the banking sector is effectively acting like added interest rate hikes which will further dampen inflation. The hyperinflation argument seems extreme and unlikely. 

Thirdly, any interest rate cuts would quickly erase a sizeable part of the unrealised bond losses that many institutions are carrying on their balance sheet. These unrealised bond losses are a big part of the problem at the banks, and a central part of the Balaji thesis. Whether interest rates come down due to market forces or because the Fed deliberately changes course is largely irrelevant. If interest rates do come down, it will reduce the bond losses that banks carry, which will alleviate the pressure on the bad bond investments in the banking system.

The unrealised bond losses are a significant issue for banks, but it's not necessarily the existential issue Balaji seems to fear. The US govt can simply choose a different interest rate policy. If push comes to shove and the Fed must choose between addressing a bigger issue in the banking system or inflation its likely they choose the biggest immediate threat. That would mean dropping rates due to banking issues and dealing with inflation later.

While there are not many tools at the disposal of the Fed to fight inflation, they have lots of tools to deal with bank issues. In the face of Bitcoin appearing as a threat to US hegemony, I would say that laws in the US would change rapidly. I'm not saying that’s a good thing but I'm a realist. As great as all the tech and VC gurus think bitcoin is for the future of a utopian world, if it’s a threat to the US and its dominance, they will restrict it and suffocate it, or even make it illegal if needed. I would not underestimate the US govt ability or willingness to protect itself by any means necessary if its position is threatened.

While I do think cryptocurrencies may be the future of money, I am not convinced that it will be bitcoin. Even if it should be, the control of the monetary system is far too important for governments to relinquish control. Additionally, there is a major risk in holding bitcoin that it has no intrinsic value and that its price is simply determined by the flow of money in and out. If a more technologically advanced and energy-efficient cryptocurrency ends up being adopted, then bitcoin will end up worthless as everyone moves across to the new coin. 

I think that Balaji’s prediction is a combination of self-promotion combined with limited downside risk. He knows that as money moves out of banks, some will certainly find its way into bitcoin, limiting the downside risk, while all the publicity and uncertainty puts upward pressure on the price. Overall, I suspect as part of the Silicon Valley clique that is very bullish on cryptocurrencies and exposed directly to the collapse of Silicon Valley Bank that he’s just a little too close to the situation to see the forest for the trees. A little like a conspiracy theorist who goes down a rabbit hole and continually reaffirms their theories in an endless stream of combined confirmation bias and group think. 

What’s certain is that you’ll increasingly hear and read these types of Armageddon predictions as the global economy head into recession. But there is an enormous difference between a recession, even a bad one, and the type of predictions the most extreme people will start to espouse. In times of uncertainty fear mongering escalates and is an easy way to grab attention and headlines.

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.

An Economic Downturn is Inevitable but Normal

An economic downturn across the world, including Australia, is inevitable. It’s simply a part of the natural business cycle. I remember my mum talking about this when I was a kid. Dad had a small earth moving business in Geraldton in country WA. WA is probably more accustomed to the boom-and-bust nature of the business cycle than most economies given the mining industry. In Geraldton, you’ve also got farmers and crayfishermen. So, the ups and downs of a good or bad season are very much part of the fabric of the local economy. 

In the early days, Dad was a sole operator and business came in by word-of-mouth. No phones back then so you’d get calls on the house landline and take messages. Most people would call in the evening when dad was home to book in jobs in the days and weeks ahead. A plumber needs to hire dad and the backhoe to dig a leach drain for a new house, or a farmer needed him to dig the footings for a new shed. I was always proud that Dad had the reputation as the best operator in Geraldton. 

Usually, dad was really busy and worked 12 or 14-hour days, 6 days a week. He’d have Sunday off for family time. He charged an hourly hire rate so there were no wages, there was no safety net. So, you work when the work was there knowing that at some point it might not be. In the 70’s and 80’s various economic challenges arose. There were certainly times when work was quiet. If the phone didn’t ring there was no work, there was no money. 

When work was quiet one particular time, I was old enough to wonder if things would be ok. Mum’s answer was simple. Yes, it comes goes in cycles, quiet times don’t last, and it will get busy again, don’t know when, but it will. Booms and busts have been happening for years, it’s just how it works. And she was right. Many people understand the cyclical nature of the industries the economies of regional towns are built on. Farmers have good and bad seasons, and they know neither lasts forever. But these days we’ve become conditioned to only good times. Even when Covid hit, governments across the world made life easier for people to the point that many still have surplus savings from that period. 

But these extended good times haven’t made us more prosperous and helped us collectively put away more for a rainy day. It’s had the opposite effect because people have not had to worry about when things go bad for so long. So, they just stopped worrying and lived it up. That’s where we are at today, after 15 years or more of good times, complacency has set in and suddenly everyone is surprised at the prospect of a downturn and looking for someone to blame. 

No doubt there are various organisations, including the RBA and the federal government that have made the situation worse. What these organisations do really does impact the economy. They do significant damage to the economy and business when they get it wrong. Just ask anyone who paid interest rates as high as 18% back in 1990. To this day they have not forgotten the pain and difficulties of that time. Conversely though, today we’ve experienced too much of a good thing and now it is coming home to roost. 

While Paul Keating was much derided for his “Recession we had to have” comment in 1990, he wasn’t wrong conceptually. The Government and RBA nearly broke a generation of mortgage holders by forcing rates up too high. But the idea of a recession being needed once again rings true to me. In some respects, I think it's inevitable and just part of the natural business cycle. Something is lost when people don’t experience the full cycle of the good and the bad. The problem this time around is that people are woefully unprepared to deal with a downturn not just financially, but mentally in my view.

What’s created this is 3 things. A super cycle boom on the back of a once-in-a-generation urbanisation of China, low-interest rates by the government for the past 15 years in response to the aftermath of the GFC and a boom mentality that has been normalised. The third change is the biggest problem now, as this has conditioned people to expect good economic conditions or a safety net. This is understandable if that’s all you’ve ever known. But it will make the adjustment more difficult as conditions return to normal and the eventual bust is much bigger than it would otherwise have been. Ask anyone in small business in a country town, that's just how it works, but it's up to each of us to prepare for the tough times ahead.

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.

Don't bank on it being a crisis

Within the last week we’ve seen three US banks collapse and now perhaps more significantly Swiss banking giant Credit Suisse appears to be in trouble and needs to raise more capital. Fear of contagion is extremely high because many remember the flow-on effects of the GFC all too well. Although necessary, interest rates going up so high so quickly to slow inflation will ultimately break something in the economy at some point. I have been sitting on cash patiently waiting for the catalyst to appear that would send share markets falling back to their lows of 2022. That’s the buying opportunity we are waiting for. The current issues in the banking system sound bad and have damaged confidence significantly, however I am not convinced that this is the systemic threat that markets seem to fear it is. That said, these sorts of situations can escalate quickly, and can be unpredictable so I am certainly mindful of that too.  

Firstly, to really understand the current situation we need to separate the US bank failures from the Credit Suisse issues. They are not related. Credit Suisse has been poorly managed for years and the current need for more capital is not really a surprise. The issue came to a head yesterday when the chairperson of the Saudi National Bank, the largest shareholder in Credit Suisse, said they wouldn’t supply further funding if the bank needed it. Investment markets started to fear the worst. I would expect swift intervention from the Swiss Government or Central Bank to provide the funding needed to stabilise the bank. That will prevent systemic risks from coming into play. It will cost the Swiss taxpayers and Credit Suisse shareholders significantly but for the rest of the world it’s business as usual.  

In the US, the Silicon Valley Bank (SVB) collapse was effectively the result of the bank having so many deposits that they had to invest surplus funds and did so in only longer dated bond style investments. When interest rates increased and SVB had to cash in some of these investments earlier than they expected, they had to realise losses on those bonds. That spooked depositors, many of whom were in the tech industry in Silicon Valley and were advised by their venture capital backers to withdraw their money ASAP. That created a good old fashion bank run and led to the demise of the bank. SVB mismanaged several issues along the way but the run on their deposits is what ended them. The US government has moved quickly to ensure depositors are protected and in theory that should be sufficient to provide depositors confidence going forward.  

The US banking sector is much bigger than here in Australia but also much more fragmented. There are hundreds of medium-sized and thousands of smaller banks in the US. However, although the government has moved quickly to make depositors secure, we are talking about the same people who only months ago ransacked supermarket shelves of toilet paper during the Covid pandemic. So, let’s not pretend that people are going to be sensible and not panic when it comes to money in the bank. I believe the next move will be depositors moving their money out of small banks into the very largest to ensure the safety of their funds. Even if depositors are conceptually comfortable with the measures in place, the prospect that others might not be, or that the government may change the rules will push them to move to a big bank. No one wants to wake up to the news that their bank is at risk or that their funds are frozen. There really isn’t any incentive to keep their money in the 28th or the 37th biggest bank compared to having it in the 1st or 2nd largest bank. 

So, the largest banks will get even bigger as they win market share from smaller regional banks. I expect a wave of smaller banks to close and be taken over as they simply lose their client base to the biggest banks. Great for the big banks and their shareholders, terrible for the small banks and theirs. But it’s important to keep this dynamic in mind as the media will have no hesitation in printing headlines about the number of banks that ‘collapse’ along the way. It might be unnerving to see in the weeks and months ahead, but it doesn’t necessarily translate into another financial crisis. The depositors will move to a new bigger bank either by choice or when taken over and life will go on. The banks are not collapsing because of bad debts at this stage, it’s only because of a quirk that’s created a liquidity and confidence issue. In other words, at this early stage it doesn’t seem to me that these banks failing will create the negative economic consequences feared, and that is an extremely important distinction.  

So, while I do expect that there are other issues brewing that will negatively impact the economy, to me this banking issue isn’t likely one of them. That said, the spectre of unrealised bond losses such as those incurred by SVB will hang over many institutions from insurance companies to banks and pension funds and is yet to be fully understood by markets. I think the fear in this situation is more likely to create opportunities to buy the very biggest US banks such as JP Morgan at lower prices. Well-capitalised and well-managed businesses will benefit from the wave of new customer deposits and gain market share as the fragmented US banking sector consolidates rapidly.  

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.

Lowe needs to go.

When you’re in the top job in any organisation if you don’t get it right, you’re out. Whether it’s the coach, CEO, or Prime Minister, they are the first to go when things go wrong. So, it’s beyond comprehension that after getting it so wrong so often that Phillip Lowe is still the chairman of the RBA (Reserve Bank of Australia). He got it wrong on inflation. He got it wrong on rates. He got it wrong when he told the Australian public as recently as 2021 that rates won’t go up until 2024. He’s getting it wrong again now. He is still hoping that inflation is transitory. Even in his speech today he’s indicated a pause in rate rises as soon as May. Yet with interest rates at only 3.6% following yesterday’s interest rate increase, there is a long way to go before the RBA tames inflation at over 7.8%. 

Here's the thing. If you’re too tough on inflation you can drop rates quickly but if you are too soft on inflation and it becomes entrenched it’s a recipe for economic disaster. I appreciate that many of the initial drivers for inflation have been on the supply side and there isn’t much the RBA can do about that. However, inflation is an insidious cancer. If you don’t do everything to remove it, it will find its way into other parts of the economy. This is a genuine concern. This is already happening in the USA where as recently as January it was thought inflation was starting to be tamed. Yet just a month later, data has shown it is likely to re-emerge. Many say Lowe’s doing too much, but everyone continues to underestimate inflation. I don’t think he’s done enough. 

After some horrendous missteps, Lowe now seems more worried about managing expectations rather than inflation right now. Why else would you increase rates by only 1.25% over the last 6 months and say there is still more to come? The RBA are compounding their initial mistake of being far too slow to act by now being far too slow to raise rates. Their argument that it takes time to see the economic impact of rate increases would have been better served by front-loading the rate hikes and doing 0.5% in Oct, Nov and December 2022. It’s a slightly higher overall increase but now they would have had 3 months to observe the effects instead of still talking about what theoretically may happen. 

If Lowe thinks there are more rate increases to come, then get on with the job and increase rates by the amount needed to make an impact. We should have rates at well over 4% right now. There’s far too much mollycoddling all around in my view. If people with mortgages are going to suffer financial pain because they listened to him the first time and borrowed too much, then so be it. That’s how markets work. There’s too much trying to signal intentions and too many cleverly crafted speeches for people to interpret the language. He’d be better off playing it with a straight bat. There are winners and losers. It’s not his job to worry about consumers’ feelings or mental health, it’s his job to manage inflation and that means making the hard decisions that are needed. The overall consequences will be worse if he delays. 

There are really two ways to kill off inflation, the first is by raising interest rates. By doing so Central Banks seek to increase borrowing costs sufficiently that it reduces spending, dampening demand for goods and ultimately slowing the economy and the pace at which prices go up. There is a second, less common solution and that is simply inflation itself. If left to run rampant inflation eventually leads to demand destruction for goods and services resulting in a similar effect to that of rising interest rates, except it's uncontrolled. 

I’d liken raising interest rates to the back-burning of forests. Back-burning results in deliberately burning forests in a controlled, planned manner that is designed to mitigate a disastrous bushfire that engulfs everything. Letting inflation run wild is the equivalent of an out-of-control bushfire with no back-burning. Central banks slowing or pausing rate hikes in anticipation of a slowing economy is the equivalent of not fighting a fire because you hope there is rain coming. Maybe it does, maybe it doesn’t but you can’t afford to take the chance. You fight the fire with everything you’ve got while it’s burning. 

What we’ve got currently are the most difficult set of inflationary economic pressures in 40 years. There is no easy solution. The reality is either way there is going to have to be pain here. Either it’s the pain of inflation or the pain of rate rises. One results in controlled inflation, and one doesn’t. The fact that raising rates will cause many financial pain and hardship does not mean it’s the wrong path. That soft approach to dealing with economic problems only leads to a bigger problem later. At the first sign of pain, the outcry leads to short-term fixes, not long-term solutions. 

Lowe has repeatedly shown he is not capable of getting the basic decisions right. Nor has he been able to navigate the political tensions that arise with making conditions tougher for the economy in the short term for its benefit in the long term. He didn’t take the pain early and now whichever way he turns there is a bigger problem. Conveniently for the Government, when public outrage hits fever pitch later this year because either inflation is too high, or interest rates are, it will be Lowe’s fault. So, the government will not remove him until it is politically necessary. Regardless of that, Chairman Lowe has got it wrong too many times and needs to go. 

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.

Are Industry Funds a Trojan Horse?

With one announcement Prime Minster Anthony Albanese and Treasurer Jim Chalmers have not only reignited the ‘super wars’ they have also signalled their willingness to compromise the integrity of the superannuation system for political gain. Their proposal to tax funds over a $3m cap at a 30% tax rate is a blatant tax grab and moves the goal posts on those who have invested in good faith. The government is now specifically targeting people with legacy funds that have been operating within the rules for decades. It highlights a very real and much bigger problem brewing within the superannuation system and the underlying control of these funds.

Most will understand the Labor Government’s links to the trade unions at a grass roots level and their influence behind the scenes within the political regime. Over the years it’s fair to say that both political parties have seen their traditional power base change somewhat. But while the Liberal Party’s struggles to redefine itself are well known; most Australians are probably not aware of the power shift within the political landscape as it pertains to the Australian Labor Party today. Regardless of your political leaning, most would agree that a balance in power is healthy for a strong democracy. So, it’s important that people understand how the new powerbrokers are influencing the change in the political system.

Industry superannuation funds have grown to become the dominant force in the superannuation industry. Their marketing has been excellent, and workers have been drawn to them. Low-fee funds run on behalf of members of particular industries. They sound great in theory but as with anything, when power is too concentrated, it’s potentially a problem. Today, in my opinion, the industry super funds have quietly become more powerful and influential than the trade union movement ever was. The big difference between the unions and industry funds is that the amount of capital controlled by these funds is now approaching $1 trillion dollars.

The industry funds history stems from being the default superannuation fund for various industry sectors such as Hostplus for hospitality workers, REST for retail workers and UniSuper for higher education workers. To this day, there remains requirements for “Equal Representation” governance which broadly means that the superannuation fund trustees must include an equal number of directors nominated by employers or representatives of employers, and members of the fund or representatives of members including trade unions.

The more I hear the current government talk about superannuation, the more it appears to me that a level of political ideology is increasingly becoming entrenched in the superannuation system. Superannuation was always for the purpose of investing for retirement. In fact, this aspect was considered so important that there was a piece of legislation that became a cornerstone of governing superannuation funds. The Superannuation Industry (Supervision) Act subsection 62 includes a test called the sole purpose test. It literally defined that superannuation was required to meet this definition, being that superannuation funds are for the sole purpose of providing for retirement and death benefits.

Fast forward a couple of decades and I see Industry Super Fund ads in the media not talking about superannuation investment but rather about the infrastructure projects and jobs being created for everyday Australians. Well, that is very noble, but it has nothing to do with the purpose of superannuation. The obligation on the trustees of all superannuation funds is on managing the money and generating returns for superannuants for their retirement. If there are better returns elsewhere jobs have no place in the discussion and should not even be a consideration.

Now the Labor Government is pushing for changes to redefine ‘the objective of super’. Why? There may be a few reasons. Various proposals push for superannuation to access impact investing in lower-cost social housing, infrastructure, clean energy, and aged care. Many of these are government and political objectives not based on the best investment decision. There should be no crossover, it’s a dangerous and slippery slope. While there are robust governance and rigour in place around these massive pools of money being used to fund projects and create jobs, it’s critical to ensure that there is never any room for the lines to be blurred and for problems to evolve in the future. Superannuation should never be a political weapon. It’s not the government’s money, it’s the retirement savings of hard-working Australians.

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.

Playing Politics with Tax and Super

You may have noticed in the last few days increased rhetoric from Federal Treasurer Jim Chalmers around reforming the superannuation system and its “unsustainable” tax breaks. As we approach the Federal budget, expect to again see a wide range of stories in the media calling for tax reform. They generate a lot of debate in the media and in the community and can be quite concerning for anyone who might be impacted. So, you’ll increasingly see articles about:

• Taxing the trillions of dollars in superannuation.

• Ending negative gearing. 

• Increasing the GST.  

• Taxing the rich and inheritances. 

It happens ahead of every budget and election cycle in one form or another. These stories are basically planted by the political parties or vested interest groups to gauge what is and isn’t acceptable policy to run with ahead of the budget or an election. Meanwhile, the spreadsheet nerds back in Canberra come up with forecasts that potentially raise billions in additional taxes that they can’t believe it’s not been done before. Problem solved, no more budget deficits. 

Generating billions in new taxes looks so simple on the spreadsheet. The only problem is that those four issues above are probably the most emotive financial topics at a grass roots level. Every government and opposition seemingly try new ways to tax these funds and increase their tax revenue streams but after a few weeks or months of trying every angle to open the door, they end up retreating with their tails (and calculators) between their legs. 

Both side of politics have at various times positioned their proposed changes as ‘closing loops holes’ that are being ‘exploited by the rich’ but it never resonates with the average Australian in the real world. The reasons most voters reject these notions are more psychological and personal than financial or political. Below I’ve outlined why I don’t think these issues are something people need to be overly concerned about right now even as they gain attention in the press. 

Everyone has super. While many don’t really pay enough attention to it, they all know it’s there and it’s their nest egg. Many workers fear that one day there will be no age pension. When the government starts talking about changing super rules or taxing super, they are messing with people’s retirement plans and their future. Their future freedom from that job they probably don’t like and work hard in every day. Not a good idea. Every single time a government tries to ‘change super’ they create mistrust. More concerningly, because they underestimate the complexity of super their changes inadvertently make the system even more complicated. It ends up compromising the integrity of the system.

When there’s talk about ending negative gearing, you’re potentially eliminating one of the few ways the aspiring working class has in their financial arsenal to grow their wealth. I say aspiring because it is mainly utilised by higher income earning workers, wealthy enough borrow large amounts of debt for an investment property but not wealthy enough to buy the property without debt. However, the pool of people who aspire to one day own an investment property is even higher than those who do. If you remove negative gearing, you conceptually kill the dreams of millions. The people intuitively understand this even if government doesn’t. The banks and property industry are also very powerful and unlikely to support this. 

Increasing the GST is an obvious tax government would like to increase but presumably will be rejected by the public out of hand. Partially because any proposed increase is a direct cost to the consumer but just as importantly, the fastest way to end up with a GST rate of 15% down the track is to agree to ‘a onetime only’ increase to 10.5%. The average punter is far smarter than politicians think they are. 

Wealth and inheritance taxes are potentially the easier sell if the government takes their usual Robin Hood approach to selling it. But in the end people care less about the theoretical billions the wealth may pay in new taxes and more about the thousands their family may one day pay. Keep in mind that the current capital gains tax regime already acts as a quasi-inheritance tax when a family sells an asset anyway. 

So, in the weeks and months ahead keep an eye out for some of these issues gaining more attention but it with a grain of salt. I wouldn’t be overly concerned, and you can probably ignore most of these issues as you see them arise. The political parties all do it as they try to find the policies that will resonate best and those to avoid as they map out their battle plan for the nations finances. The four topics I have flagged seem to be raised on a recurring basis, yet over the years for all the concern it has caused, rarely has any material change eventuated. That said, as budget constraints become increasingly problematic in the coming years expect the pressure to ‘reform’ these areas to intensify.

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.

Write a blog post in the style of Dion Guagliardo

Today I'd like to talk about how artificial intelligence (AI) and specifically OpenAI's GPT-3 model, ChatGPT, will change the way we live, work, and interact with each other.

The development of AI has been one of the most significant technological advancements in recent years. It has the potential to revolutionize various industries and change our lives in ways we can't even imagine yet. But what sets ChatGPT apart from other AI models is its advanced language generation capabilities.

ChatGPT is a conversational AI model that has been trained on a massive amount of data, allowing it to generate human-like text and respond to questions and prompts with incredible accuracy. This opens up a whole new world of possibilities for businesses and individuals alike.

For businesses, ChatGPT can be used to automate customer service and support tasks, freeing up human employees to focus on more complex and critical tasks. ChatGPT can also be used to generate content, such as articles and social media posts, saving time and increasing efficiency.

On a personal level, ChatGPT has the potential to revolutionize the way we communicate with each other. With its natural language generation capabilities, it can assist us in our daily lives, whether it's helping us schedule appointments, answering our questions, or just being a friend to chat with.

Another exciting aspect of ChatGPT is its ability to learn and adapt to new information. As it continues to be used and fed new data, its abilities will only continue to improve, making it an incredibly valuable tool for businesses and individuals alike.

In conclusion, the potential of AI and specifically ChatGPT is massive. It has the power to change the way we live, work, and interact with each other for the better. The future is truly an exciting place, and I can't wait to see what else AI and ChatGPT will bring us.

A note from the author

To demonstrate how powerful ChatGPT is I asked it to write the above post for me. I typed in the following instructions: “write a blog post in the style of Dion Guagliardo explaining how AI and ChatGPT specifically will change the world”. Within 10 seconds the above post was generated and I’ve share it exactly as it was produced without changing a word.

It’s ability to compose documents alone will revolutionise areas such as law, finance and administration reducing costs and saving time. But it goes so much further than that. Almost any industry will benefit from its capabilities. Perhaps the most challenging aspect initially is coming up with the right questions for ChatGPT to maximise it potential to solve problems and create efficiencies.

When I started using ChatGPT I realised my questions weren’t complex enough because I was treating it like a Google search. So, I asked it how it was different to Google. It gave me a great detailed answer. Then I asked if to give me some examples of the most complex questions it can deal with and it answered that too. Then I started to adapt my questions.

ChatGPT's ability to understand context and remember previous questions makes it incredibly intuitive. Without a doubt this type of technology will transform the entire user experience and functionality of the internet. It’s clear why Microsoft and Google are now locked in an AI arms race following Microsoft’s recent multi-billion-dollar investment and partnership with Open AI. This is the future.

It something everyone should be starting to look at more closely. Once you use it a few times you’ll start to think of more and more applications that will apply to both your work and home life now and as the technology becomes even more sophisticated in the future. Here is the link to ChatGPT if you want to try it for yourself: https://chat.openai.com/auth/login

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.

Hope is not a strategy

Markets continue to misinterpret what the US Federal Reserve will do with regard to interest rates. I alluded to this last week but there remains a stunning divide in both communication and understanding between the two groups. It’s a recipe for disaster for investors who are unwilling to be patient.

The rally in markets over the last month or two hinged on the assumption that inflation was coming down rapidly, the economy was slowing, and all was returning to ‘normal’. After increasing rates by 0.25% last week, Fed Chairman Powell again handled his post-meeting press conference poorly and effectively poured fuel on the fire by using new language that investors instantly latched on to and sent markets instantly higher.

There are a few issues here. Firstly, he should know better by now. He’s seen his loose language create bear market rallies on multiple occasions. That said is that really his problem? How markets choose to interpret nuanced language? Secondly, investors have become so accustomed to reading so deeply into the underlying meaning of the words of officials that they make my year 12 English literature teacher look like a straight shooter.

And that’s part of the problem everyone is looking at all of this far too deeply as they try to make the situation fit the economic world they want. A world where making money was easy, a world where interest rates and inflation were constantly low. Everyone wants that and many have become accustomed to those conditions. If you take a step back everything is probably much simpler than we make it. While investors around the world look for every insight and clue to explain why everything could be bullish as it fits their narrative or strategy, they tend to lack objectivity and overlook what is right in front of them.

While Powell should know better in terms of choosing his words, his core message has really been the same for some time. If inflation remains high, rates will need to go up. Everyone looks to the Fed officials and those of other central banks to determine how ‘hawkish’ or ‘dovish’ they are in order to glean an insight into where rates may go. But the truth is that they don’t really know any more than anyone else. They have a view, which does matter as it pertains to their immediate decision, but ultimately it will be the economic data that will make these decisions for them over time.

This was never more evident than last week when Chairman Powell’s post-Fed meeting comments were interpreted as meaning rate increases may stop soon. Everyone was happy and markets jumped. But Powell’s view is really just the best guess of one man. The reality is different because what needs to happen will be determined by the economic data. And the reality was different. A couple of days later new data was released, a US jobs report. The Wall Street consensus forecast was for 190,000 new jobs created in the month of January. There was talk in the financial media that a lower than expected number of say 100,000 would really indicate that the rate hikes were nearly done.

However, that report showed that 517,000 jobs were created. A massive upside surprise. Suddenly nothing Powell said or didn’t say mattered. No one had forecast such a jump (of 20 or so Wall Street firms surveyed the estimates ranged between 130,000 and 305,000). Suddenly this single report changed everything. That job report means that unemployment in the US is now 3.4% the strongest since 1969. It also means that the labour market is still really tight and that means even more interest rate rises are likely required to cool off the jobs market.

In other words, if the jobs market is too strong it means wages will be driven up, potentially creating a wage-price spiral that will push inflation back up. So, the Fed will need to put up rates until it effectively creates higher unemployment.

Now there is new data coming out all the time, so you can’t become so obsessed with every data point announcement that you tie yourself up in knots just as some do with the words of Jerome Powell. But the data is what really matters, and ultimately the data will determine what Powell needs to do in the end regardless of the words he uses along the way or what he thinks or where he is leaning in his views.

Too many investors pin their hopes on an economic scenario evolving that aligns with their own greed or optimism. I would love to be more bullish in the short term but it’s not how the data adds up to me. The economic data will be the final decider of where interest rates go. Investors would be better equipped to look objectively at the numbers to navigate the reality of the situation. Hope is not a strategy.

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 2023

The advancement in technology continues every year regardless of stock market movements. This year, I’ve selected two specific areas of technology as the leading themes for the year ahead. There is no better example of this than the progress in artificial intelligence with ChatGPT hitting the mainstream in recent months. This is world-changing technology, and every business and consumer will be exploring its capabilities in 2023. It’s not only what the technology can do, but also all the businesses and applications that can be built to utilise the platform.

Improvements in these technologies will accelerate exponentially, ushering in entirely new ways of doing business. Not only will it be creating and eliminating jobs but creating and eliminating entire industries too. The emergence of AI and machine learning will bring about unprecedented efficiency and productivity for countless businesses. I also think the opportunity in robotics and automation is massive too and that it’s only a matter of time before this area has its ChatGPT moment as well. Watch the latest Boston Dynamics robot video and consider what that type of technology means for the future. So many industries benefit here.

The most difficult part of 2023 for investment markets may simply be trying to answer the inflation question. Financial markets currently anticipate a goldilocks situation where no recessions eventuate, inflation returns to 2% and economic growth and corporate earnings will improve. This is essentially the rationale for the recent rally in stock markets globally. I would not be surprised to see inflation stick around the 5-6% mark for some time. That would force the Federal Reserve in the US to hold rates higher for longer and deliver significant pain across the board. A recession being the likely result. Markets are not pricing in such a situation. Inflation is not easily defeated and doing so usually requires significant financial and economic pain.

As much as the Goldilocks scenario has emerged as the consensus in financial markets over the last month or two, I am still very concerned about recession and expect this to be the reality for the global economy. I would urge caution. I believe there is far more downside risk in 2023 than there is upside. Recession risk is still high in Europe, the US and even here in Australia. It just takes time for all these dynamics to flow through. There are landmines everywhere for markets to navigate. None of these are being factored in by the market currently, and while not all of them will eventuate, some will and that poses a big problem.

Geopolitical tensions are near the top of the list for 2023 and the longer the war in Ukraine festers the more likely something escalates or spreads. It is on the side burner at the moment but I expect this to remerge as a bigger problem in 2023. There is no easy way to resolve a conflict when the aggressor is both a nuclear power and under authoritarian control. Russia’s aggression has the potential to spark other conflicts and test the resolve of all nations going forward. Tensions between China and the US have seemingly cooled off, but I suspect more for strategic reasons than due to any real change in the long-term relationship which is one of rivalry and distrust.

It also leads to entirely new trends that impact the investment landscape. The continuous movement towards reshoring of manufacturing and supply chains across the world is critical to national security whilst also having an inflationary effect. Additionally, the energy shortage in Europe highlights the systemic lack of supply globally. While a moderate winter combined with the China covid lockdown helped Europe navigate their energy shortage for now, energy remains both an issue of concern and a significant investment opportunity in 2023.

As lower consumer spending and weaker corporate earnings in the next 6 months lead to cost-cutting and a potential recession, I expect the second half of the 2023 calendar year to see unemployment well on the rise too. Job security will become an issue as job layoffs start to spread. It’s a pending disaster for home builders and construction that will have a massive flow-on effect over the next 1-2 years as all the related trades and businesses feel it. This could end up being hundreds of thousands or even millions of jobs in the US. There are several separate areas like this across the world where economic spot fires are waiting to emerge.

There is an increasing risk of debt crises emerging too. Higher interest rates are now a reality, and the flow-on effects will start being felt in a range of areas. Businesses of all sizes with borrowings due to be refinanced will face a real wake-up call. But the same also applies to Government at all levels. Suddenly the debt they have will begin costing substantially more. I think there are several areas where disaster could strike from Japan trying to control their yield curve through to the US and their debt ceiling issues remerging. Normally these issues resolve themselves and carry on, however, the game has changed for good, and I would not be surprised to see these situations deteriorate. 

My final point after outlining a variety of macro themes is this: There will always be great businesses to invest in regardless of the macroeconomic situation. If anything, the last few years have forced investors to consider the macroeconomic circumstances more than ever, but more than is ordinarily necessary. Great businesses will continue to thrive and prosper regardless of the geopolitical environment, inflation, interest rates or the global economic outlook. As long-term investors, it’s critical not to overthink this. It’s easy to get caught up in the timing of short-term fluctuations, and while it definitely matters, the individual investments that you own matter more. Invest in great businesses at reasonable prices for the long term.

Themes:

1. Continued Rise of Artificial Intelligence and Machine Learning

2. Robotics and Automation

3. Inflation and Interest rates

4. Energy

5. Geopolitical Tensions - Escalation of the War

6. National Security

7. Corporate Earnings

8. Recession Risk

9. Risk of a Debt Crisis Emerging

10. Post Covid - A Return to Normal

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.

Review of my 10 Themes for 2022

As I work through my 10 Themes for 2023, I always find it interesting to re-read the prior year’s note. While it’s critical to look ahead, it’s also important to review your forecasts and to hold yourself accountable. You’ll never get everything right but it’s a great exercise to revisit earlier thinking and compare it to how things actually played out.

A lot has happened since I sent the note below out on the 24th of January 2022. This was a month before Russia invaded Ukraine (24th Feb), before the USA started raising interest rates (March) and well before Australia did (May). Energy certainly became one of the biggest stories of the year, while inflation and interest rates would go on to become significant issues for markets and the economy.

Many thanks to everyone for their support and feedback over the course of the year. I really enjoy hearing from you when a particular article resonates or strikes a chord.

I will be on leave from Thursday 22nd December and returning on the 18th January 2023. As always, I am available on mobile and will be in touch if there is anything time critical that requires action from an investment perspective.

I wish you and your family a very merry Christmas and a safe and happy New Year!!

10 Themes of 2022

For all the uncertainty over the last 2 years with the pandemic, investment markets across the world had performed very well. However, 2022 is already shaping up as a more difficult year for investors with the All-Ordinaries index down over 6%, the S&P500 down over 8% and the NASDAQ down 13% all in the last few weeks. Markets are going to continue to be challenging as we move from an environment of low interest rates, low inflation, and significant government stimulus to one of rising inflation, higher interest rates and a wind back of government stimulus.

From an investor’s perspective, I think the pandemic will largely be over by June as the omicron variant continues to spread throughout the world like wildfire over the next couple of months and we move to the endemic phase. Obviously, a more serious variant could emerge, but for investors, I expect we are through the worst. If that’s the case, then all of these issues slowly start to rectify themselves. The disruption to supply chains will work themselves out over the next 12 months and with that inflation will ease too. Interest rates will then stabilise.

To me the most important theme is the continued rise in all facets of technology, not only for 2022, but for the next decade and beyond. It underpins everything. It determines the areas we invest in and those we bypass; it determines the companies we buy and those we avoid. It is central to our investment thesis and generating returns over the long term. Outside of the big tech giants there has already been very significant falls in the prices of pure tech stocks. This is not unreasonable given their high prices and adjusting for rising interest rates. However, as markets retreat exceptional long-term buying opportunities are emerging in this area. Patience is key.

Perhaps the biggest threat to the Australian economy is the slowdown in China on the back of their property and debt issues. China appears to be dealing with this situation so as to protect the country from any major financial catastrophe however, as always, their methods are opaque and do not provide the outside world with great confidence in the overall system. Importantly China’s president, Xi Jinping, needs to ensure the nation’s stability as he locks in his next term later in the year. What is most clear though is that the Chinese economy is slowing, and that Australia’s economy will be directly impacted by this.

While there are always geopolitical concerns and the risk of conflict it appears to me that the USA and the west will have a more challenging time than usual in 2022. Russian troops at the Ukraine border are the latest to add to ongoing threat of China invading Taiwan. I expect China and Russia to coordinate the timing of their provocations as to apply pressure on the USA and its allies, forcing them to either prioritise one potential conflict over the other or spread themselves thin. Either way, rising geopolitical instability is an emerging concern to note.

Energy as a theme is similar to technology in that it encompasses several important sub-themes. Captured here is everything from oil and gas to uranium and renewables. Importantly ESG may be the most influential sub-theme here as energy use, production and sustainable business practices are increasingly prioritised by investors, consumers, and leaders across the world. On the flip side under-investment in traditional energy will create distortions in markets and potentially create opportunities. Demand for energy globally will continue to rise and will likely require a pragmatic approach to avoid dislocation in energy markets in the short term. Big opportunity in multiple areas.

Overall, the inflationary pressures driving interest rate rises are a short-term game changer, even if it’s just for the next 12 months. Higher interest rates not only mark the end of easy money but the end of easy investing across all asset classes. Add to this a slowdown in China, rising geopolitical risks across the world and the now familiar backdrop of pandemic and there is more uncertainty than ever. Looking ahead the investing environment for 2022 appears more challenging than it has in recent years. The key variables that were previously so conducive to growth have turned and a tougher outlook will be the result. Returns on most asset classes will be lower than we have come to expect. As always though there will opportunities that present themselves despite the challenges.

10 themes for 2022

1. Continued rise of technology

2. Rising interest rates

3. Inflation risk

4. Covid variants and vaccine

5. Supply chain disruption and economic impact

6. China economic issues

7. Geopolitical risks

8. Energy

9. Govt debt and spending

10. Bond market concerns

Bucket List

As I start to think about the new year ahead and reflect on the year that was, I’ve started looking at my bucket list. I’m not one for New Year’s resolutions, I think they are short sighted. They tend to reflect our inability to change our habits. We think we can just set a date and fix it, but this inevitably fails.

But a bucket list is something I’ve increasingly found to be beneficial as a long-term tool. I’ve had a list for several years and I pick a few items each year that I want to tick off. Now it’s inherently a very personal list but it’s a great exercise to think deeply about what you want to do in the years you have left on this earth.

I think that’s the key, a bucket list makes you explore your own mortality. It’s the items you would love to do before you kick the bucket. It makes you plan your life a little more than you otherwise might. Not planning in a rigid way but rather in a purposeful way.

I start by thinking about what I would regret not having done by the end of my life. They are the real priorities. That process helps cut through a lot of the ego driven items. The things you don’t really care about as much as you think and are more about how they look or make you feel.

The other way I approach it is to think about what would be awesome to do or challenging to try. I’m a big basketball fan, but I’ve never been to a live NBA game in the US. I really want to do that. I started karate with my kids many years ago, my oldest achieved their black belt, but I stopped going. It’s on my list to return to at some point and get my black belt too. 

But they don’t have to be big ticket items or impressive achievements. They might be deeply personal. One of mine was to write a song and another was to sing at karaoke, I ticked both off in 2022. I’d like to try standup comedy too, no idea why because the thought of it is somewhat terrifying. But I want to see if I can do it. The most important item on my list is to visit Sicily and the 2 small villages of Sant’ Angelo di Brolo and Sinagra where my Nonna and Nonno grew up.

There’s something very powerful in actively writing down what you want to achieve in your life. Very often in the busyness of life, it’s easy to find 10 years go by and if you are not proactive, you’ll get caught in the everyday grind and lose yourself. This simple activity is the antidote.

So, what’s left? Well, one of my first items added as a kid was to build a billion-dollar business, turns out that is quite a bit harder to do than I thought back then. But I love investment markets, and I’ll do what I do until I’m 90 plus so maybe that does one day turn into a billion-dollar business. I want to travel the world and experience other cultures so living in Italy for a year down the track.

But more important than what’s on your bucket list is which ones you do. The ones you will tick off next year and the ones you already did tick off this year. I keep a separate list of the bucket list items I have done, and it reminds me of not only how lucky I’ve been in life but how much fun it has been having some of these adventures along the way. 

The biggest consideration is that we don’t know how long we will live. This year might be your last. And if it was what will you regret not having done? Life is for living. Most of what we worry about is a waste of time. I love coming up with new ideas that pique my interest to add to the list. World sporting events and travel are items I think more about as time goes by. I ask myself this… When you are old and look back on your life, what do you want to have done? What are the top items on your bucket list?

Bucket List – To Do

1. Visit Sicily (Nonno and Nonna villages)

2. Wedding anniversary in Paris 

3. Bench press 100kg 

4. Black belt

5. See NBA game live 

6. Attend event at Madison Square Garden, New York 

7. Try standup comedy

8. Write a book 

9. Publish a book of poetry 

10. Build a billion-dollar company 

11. Live in Italy for a year

12. Live in NY for a year

13. Study at Oxford and/or Harvard 

14. Complete a PhD 

15. Visit Positano, Florence

16. Visit Egypt & Pyramids 

17. Karate tournament (open event)

18. Play organised basketball again

19. Play in a chess tournament 

20. Whiskey in Scotland 

Bucket List - Done

1. Get Married 

2. Have Kids

3. Get my MBA

4. Attend AFL grand final 

5. See Cat Stevens live 

6. Attended Formula 1

7. See Ludovico live 

8. Met John Howard 

9. Drink a bottle of Penfolds Grange

10. Karate tournament (won novice event) 

11. Coached basketball grand final win 

12. Kids all finish school

13. NYE fireworks from the top of Sydney

14. Built a house

15. Start and run a business 

16. Learn chess 

17. Live in Perth

18. Live in Sydney 

19. Sing at karaoke 

20. Kids all adults 

21. Write a song 

22. Took kids to Disneyland and Europe 

23. Attended Lauren Jackson’s last game for Australia

24. Espresso with Dad in Rome 

25. Champagne with Paula in Paris

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.

Changing the World

I’ve always been fascinated by business and entrepreneurs. From a young age I would read the stories of any successful entrepreneur I could find, from Richard Branson to Steve Jobs overseas to Kerry Packer and Gerry Harvey in Australia. I was always interested in where they came from and how they built their empires. But there is a layer of mythology to these epic success stories that becomes problematic as well which we should also be mindful of. The way the stories of success are told and learned amplifies both the traits that are desirable but also those that are not. We can easily fall for the narratives that would make you believe you must be a relentless megalomaniac to achieve success.

Elon Musk is easily today’s poster child for aspiring entrepreneurs. Without a doubt he is as brilliant an entrepreneur as the world has ever seen along with people such as Steve Jobs and Howard Hughes. His ability to take on seemingly insurmountable problems, prove the naysayers wrong and create multi-billion-dollar businesses along the way is extraordinary. The fact that he can execute his plans across multiple businesses in different industries simultaneously is simply mind blowing. His combination of intellect, vision, and ability to relentlessly execute have made him the wealthiest man on the planet. Yet the biggest mistake aspiring entrepreneurs can make is to try to be like Elon Musk.

One of the reasons I started my podcast was that I still love learning about the journeys of people who have created successful businesses. There have been guests who have made me reflect more deeply on a topic and my recent interview with Kristy Chong had that impact on me. She is almost an accidental entrepreneur. I often hear people say they want to “change the world” or “solve big problems” and I get the sense that in many cases this is ego driven as people find their place in the world and make their mark. Nothing wrong with ego or ambition but it makes me think about what it really means to change the world and what defines a big problem to tackle.

Kristy created a business called Modibodi that has profoundly changed people’s lives. It’s not what you would describe as a traditionally cool or sexy business, in fact it might be the opposite. But what Kristy did was to solve a very real, very difficult problem. As a mum of four, Kristy came up with the concept in 2011 while training for a marathon and experiencing light incontinence. Upon finding there was no product available she spent the next 2 years creating one, patenting leak-proof underwear. From there it became obvious that this was a big problem for a lot of people who were desperate for her solution. Fast forward to 2022 and Kristy sold the business for $140 million. 

It struck me as we spoke about the use cases for her product that this was indeed a life changing product. Kristy soon discovered that post-natal women were not the only ones who struggled with embarrassing leakage issues. Before long there was demand from young girls to people with disabilities through to old men. Suddenly people had a solution that opened the possibilities of life and activities that they had avoided. Her product literally changed people lives overnight. It wasn’t something people felt they were able to talk about, there was no solution, until Kristy created it.

In a world where every entrepreneur seems to aspire to be the next Elon Musk, I would love to see a far greater emphasis on helping more and more people become the next Kristy Chong. 

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.