The Rules of Investing

No matter how long you’ve been in markets, we’re all guilty, at one point or another, of operating at a headline level. When markets are moving violently - like they are now - and we’re all trying to keep up, operating at a summary level can become even more pronounced. But looking beyond the headlines, challenging what you think you know, and diving deeper into complex issues, will almost certainly always yield a better result. For example, one of the dominant narratives right now is that Trump’s tariffs will lead to higher inflation. Logically, it makes sense. But the reality could look quite different according to Charlie Jamieson, Co-Founder of Jamieson Coote Bonds. “Everybody just jumps to ‘tariffs mean higher prices, that means inflation'. Well, it's not quite that simple. It definitely means higher prices, but that does potentially mean demand destruction in some things. It really matters how elastic the thing that is being tariffed actually is", says Jamieson. He goes on to provide the example of a 100% tariff on a luxury handbag: “you probably won’t sell too many.” Conversely, a tariff on the one little part you need for a broken-down heating or air conditioning unit: " You're probably going to pay it because you're really, really need it - it’s very inelastic.” Jamieson also points out that inflation is “a continual and sustained increase in pricing”. “If prices go up 10% that's terrible, obviously demand will be affected, but if they don't change thereafter, it's not inflationary.  It just means that yes, of course it is in the very first reading of, but it's not a continued and sustained price increase”. The final piece to this puzzle is what happened last time. “As we saw in Trump 1.0, despite his tariffs at that time, inflation continually fell through that period”, notes Jamieson. “Trump's thinking is that if he can bring that budgetary deficit down considerably, it will also help take out excess demand, it'll bring more efficiency to government and in doing so, he will lower inflation”. This is just one of the many narratives that Jamieson unpacks in the following Rules of Investing podcast, which covers a lot of ground about the global economy, central bank policy, interest rates, inflation, and why investors have a great opportunity right now to rethink and reposition their portfolios. Thanks to our Sponsor AlphaSense This latest episode is brought to you by AlphaSense. See what AlphaSense can do for your investment research—visit alpha-sense.com/livewire to get started.

At the start of 2025, there were three big-picture scenarios facing investors: a hard landing, a soft landing, or no landing at all. Just two of those scenarios remain, with a hard landing now off the table, according to Ten Cap’s Jun Bei Liu. That view might seem a touch ambitious in light of the market rout that kicked off in mid-February and gathered steam as sticky inflation and a tariff war put equity valuations under pressure. The ASX 200 has fallen 8.5% in a month and is down over 4.5% for 2025. The picture is worse for US equities, where, after back-to-back years of +20% gains, the S&P 500 has shed over 10% in a month and is down over 5% from the start of the year. The headlines and moves are unnerving, but the backdrop for equities remains favourable, and the volatility is creating opportunities to buy businesses at better valuations, according to Jun Bei Liu.   Thanks to our Sponsor AlphaSense This latest episode is brought to you by AlphaSense. See what AlphaSense can do for your investment research—visit alpha-sense.com/livewire to get started.

The allure of small-cap investing is undeniable. The chance to find an overlooked gem that can skyrocket is real, but the risks are just as high. Illiquidity, limited analyst coverage, and varying investor strategies create opportunities—but also traps. Success stories like Pro Medicus and Netwealth prove the potential, yet the volatility can be brutal. Steve Johnson, CIO at Forager Funds, knows this world well. In the latest episode of The Rules of Investing, he shares his journey from investment newsletters to funds management and reveals the small caps he's backing for future growth. Don’t miss it!

From investing his paper route money in term deposits when he was nine years old, to racing the two kilometres from one end of Collins Street to the other to submit a handwritten RBA bond tender, to running a market-beating income fund for more than 20 years, Yarra Capital Management’s Roy Keenan has seen it all in his 40 years in fixed income. It is this broad experience and love for fixed income that makes Keenan such an interesting person to talk to, particularly given the world as we find it today. There’s a new regime taking shape in the US, the promises of which will need to be funded by new paper, locally we have state governments in trouble (none more so than Victoria, where Keenan was at the coalface last time it was broke), whilst the energy transition and other major investment themes are creating opportunities. Making sense of it all is always the key, but when you have four decades of experience you have learnt when to use your head and when to pay attention to your gut. "I think that the head tells you to put the trade on. I think the gut is the warning signal that something doesn't feel right and therefore instead of taking that trade off quickly, you might just let it run a little bit longer to see how it will play out," he says. So, which themes are dominating Keenan’s head space and innards today? Be sure to listen to the podcast for insights on the world's biggest and most liquid markets, as well as some war stories from Keenan’s 40 years in the market. 

Stock markets are off to a flying start for 2025. The S&P ASX 200 is up nearly 5%, with gold, banks and technology companies continuing their bull runs from 2024. The consensus view is that banks and tech are expensive, but the market doesn't seem to agree, or at least it doesn't care. Moments like this can be challenging for investors; fundamentals tell you to look the other way, but ignoring the temptation to follow the momentum is hard. In this episode of the Rules of Investing, Laretive shares some tips for keeping a cool head when markets are on fire, identifies some opportunities from the lower Aussie dollar and discusses three stocks he thinks can deliver strong results in the upcoming reporting season.   Paul Tudor Jones article Seneca's M&A list

The past few years have been kind to investors. A glance over 2024 asset class returns suggests that most Australian investors have been sitting on healthy gains for the past 12 months, with the much-loved banks leading the charge. Global equity exposure will have sweetened returns, with the S&P 500 clocking up consecutive years of +20%. Even conservative investors have been rewarded with returns on cash, which is the best we've seen in decades. It's in our nature to resist making changes to a winning formula. However, with market leadership being highly concentrated and, for the most part, coming from high-growth stocks, there's a decent chance that your portfolio has developed a few biases and overweight positions. Why does this matter? Markets have repeatedly reminded us that good times don't last. Reviewing your portfolio and making tweaks or rebalances is prudent. This ensures you harvest some of those gains and position your portfolio for all market conditions. Livewire's James Marlay spoke with Charlie Viola from Viola Private Wealth and Ben Clark from TMS Private Wealth to explore the factors they think matter for 2025, discuss how they are allocating capital for the year ahead, and to get some professional tips on rebalancing your portfolio. Putting theory into practice, he also revealed his SMSF portfolio and asked our guests to share the changes they would make. To see the charts and tables referenced in the podcast are on this link: https://www.livewiremarkets.com/wires/how-to-invest-1-million-in-2025 ------------------------------ This year's Outlook Series sponsor is Commsec, Australia’s leading online broker. With over 25 years of industry leading service and experience, CommSec offers Australia’s best online and mobile trading solutions. Begin your investment journey - commsec.com.au 

If you’re feeling upbeat about markets as we head into 2025, you’re not alone. 41% of investors that participated in Livewire’s Outlook Series Survey said they are feeling optimistic about markets right now, well ahead of the following most popular response with 30% of survey participants saying they are feeling anxious. The responses are not surprising, given the decisive run in equity markets in recent years. The S&P 500 is on the cusp of racking up consecutive years of 20%+ returns. A feat only achieved four times since 1926.  The other instances occurred in 1927-1928 before the great depression, in 1942-1943 during World War II, from 1995-1999 there were unprecedented gains with five 20%+ years and more recently in 2017-2018. Investors are likely feeling optimistic given the strong returns on offer, whilst it is natural that anxiety is growing and a recognition that the good times won’t last forever.  Unfortunately, history provides little solace for those investors looking to the past in the hope that it might give some clues as to what 2025 might hold. The returns in the years following the four historical precedents are ambiguous, with a 50/50 split between negative and positive returns. However, the drawdown years were smaller than when markets continued to rally.  So, how does this information help us, and what should investors think about as we head into 2025? To answer this question, we drew on the expertise of top-rated financial adviser Paul Burgon, Chief Investment Officer and Managing Partner at Lipman Burgon and Partners. Paul has decades of experience allocating capital on behalf of his clients and was ranked #6 in 2024 on Barron’s list of top financial advisers. Even with his experience, Paul acknowledges that predicting the future is fraught with danger and a recipe for disappointment. However, over his career, he has developed a set of ten principles that he believes can underwrite investment success.  These principles draw on the renowned endowment model of investing developed by David Swenson and are now widely adopted by many leading investment institutions, including Australia’s Future Fund.  Yale’s endowment fund returns under Swenson are compelling, having delivered annual returns of 14% over 35 years.  Summarising the underlying objective of Burgon’s philosophy is relatively simple. He is seeking to remove or dampen the influence of emotions on investment decisions. In 2024, access to extensive research, institutional-grade investment models and improved access to private markets make it possible to achieve more consistent returns, reducing the prospect of poor decision-making at times of peak emotion.  While few of us will be seeking to replicate the allocation of global endowment funds, I’m sure most of us would like to bank the healthy returns of recent years and dampen the impact of any impending market dislocations.  “If you can have more reliability of outcomes in your equity allocation and more consistency of returns that is a much better way to allocate capital than trying to chase the next high-performing manager.” In the final episode of The Rules of Investing, we hope to leave you with valuable asset allocation and portfolio construction insights from one of Australia’s top financial advisers. And while we’d all love to see another 20% + year from the S&P 500, it makes sense to ensure your portfolio can withstand the chance that 2025 could be a down year. Better to be safe than sorry!

Andrew Schwartz, Co-Founder and CIO at Qualitas, discusses the complexities of the Australian property market. He highlights the sharp disparity between thriving markets like Brisbane and the cooling atmosphere in Sydney and Melbourne. Schwartz predicts that 2025 will be a thrilling year for investors, driven by supply-demand dynamics and interest rates. He also examines the challenging landscape of rising construction costs and labor shortages, proposing the need for strategic adjustments to navigate the evolving real estate environment.

Koda Capital is one of Australia's elite wealth management firms, charged with allocating over $11.5 billion of capital on behalf of high-net-worth individuals, family offices, and charitable foundations. For the past decade, Brigette Leckie has played a pivotal role in shaping the firm's views on where the best opportunities lie across global asset markets. Leckie firmly believes that understanding the macro environment is the starting point for building an investment strategy. And while it's not every day that investors like you and me get to pick the brains of an asset allocator with Brigette's experience. In this episode of the Rules of Investing, you'll get a front-row seat and learn how Brigette makes sense of the dynamics in global economies and what that means for investors. With a new regime set to take office in the world's largest economy and Australia's largest trading partner, China, amid a generational economic transition, the macro environment requires careful consideration for investors. Around the world with Brigette Leckie Fresh off the back of visits to Europe and the United States, Brigette made these observations. Europe: Better than the headlines and muddling through 'muddle through' Traffic is everywhere (yes, worse than Sydney) A change in attitudes towards experiences over spending on goods persists. Restaurants and streets are buzzing, and with the exception of Germany, economies will continue to muddle along Manufacturing in Germany remains sluggish United States: The gap is widening Inflation is real. Flights are at capacity, it's hard to get an Uber, and the streets are buzzing in many cities. The gap between the haves and the have-nots is widening. Politics remains highly divisive for families and corporations. "I did see divisiveness in a couple of things I did see on the corporate side. So, for example, getting into a car and asking the driver what his views on the election were, and he said, "Company policy is we don't talk about the election or politics." So that surprised me," said Leckie. China: Three significant issues to deal with Leckie says that China has been letting market forces deal with three major issues in its economy, and she expects these will take some time to resolve. Deflation: This remains an issue caused by excess capacity in the economy. Weak consumer: Consumer sentiment is fragile, creating a downward deflation spiral. Excesses of the property market: This is a well-documented issue that will take time to work through. Historically, China's policy has been boom or bust. Leckie believes that a mindset shift has taken place, and the old approach is being replaced by genuine reform. The goal is to gradually turn China into a more consumer-based economy. A stronger China is good for global economies, especially Australia; however, we should not expect the boom days of the past to return. So does macro matter? Leckie emphatically believes that understanding macroeconomics is the foundation of good investment strategy and asset allocation. She cites the example of interest rates near zero or negative as a point in time when the macroeconomics was 'out of whack' and providing a clear signal. Developed market bonds were 'uninvestable' in her eyes—a call that has been vindicated in recent years. Currency markets can also provide a signal. Most of the time, currencies trade in a narrow range, but there are times when they get to extremes. For example, the Australian dollar was worth less than US50 cents, and equally, it traded at parity. For globally diversified portfolios, these extreme moments matter. Three points for asset allocation right now Leckie says returns in recent years have been exceptional, and investors should be mindful not to extrapolate these into the future. Knowing what risk you will tolerate is easy to underestimate when markets are ripping higher. Leckie had these key messages for investors. Hold your conviction on big calls. If you have a strong foundation for your positions, you need to be willing to ride out short-term noise. Investors are too bullish on risk assets and should be cautious about expecting these returns to continue Diversification will be crucial over the period ahead. Investors must ensure their portfolios are properly diversified with uncorrelated investments.

For those who love equities, you’re in for a treat with the latest Rules of Investing podcast. This week's episode features First Sentier Investors’ Deputy Head of Australian Equities Growth, David Wilson. Wilson's bread and butter is picking high-quality growth companies - a role he executes every day as part of the team that runs the First Sentier Geared Australian Share Fund. He is not afraid to explain how he goes about doing this while acknowledging his missteps and sharing a handful of stocks he likes right now. When it comes to his process for picking stocks, Wilson says it’s all “pretty logical”. “We just try to invest in good businesses with management that are trying to do the right thing for you and with the right sort of balance sheet. It's pretty straightforward. You can overcomplicate these things, but generally, that's our approach”, says Wilson. Wilson adds that the team watches company management very closely:  “What they're trying to achieve, what their goals are, but also at their actions, particularly when they make an acquisition or divestment - that's a point where you get a real insight into how a company is thinking," says Wilson. Wilson points to Car Group (ASX: CAR) as a company with a solid acquisition history. The company is a recent addition to the portfolio, though Wilson acknowledges that he was a bit late to the party. Another stock he particularly likes right now is pallet-maker and logistics company Brambles (ASX: BXB), saying that “the new management team has brought in a real pricing discipline over the last five years”, which has allowed them to cement a dominant position as a global leader. In the following episode, Wilson also discusses the Fund's current overweights in tech and healthcare and names one stock from each sector that stands out (one of which is also the stock he would own if the market closed for five years). In terms of what Wilson doesn’t like right now, he talks about the shrinking position of consumer staples and explains why they haven’t been “quite so staple” over the past year. He also talks to sector underweights in energy, financials and materials – despite being overweight BHP Group (ASX: BHP) and Rio Tinto (ASX: RIO). For good measure, he also shares his thoughts on Rio’s takeover of Arcadium Lithium. Finally, in explaining how valuations matter, Wilson shares why he is underweight Cochlear (ASX: COH), despite it being a great business. Listen to the podcast to learn what keeps Wilson motivated after 40 years in markets, how he sees the current market conditions, and learn a little more about his process for picking stocks. For good measure, he'll even share with you which financial metric is a waste of time!   Note: This interview was recorded on Tuesday22 October 2024.