Property Hub - Investment Insights & Inspiration - Get Invested: Chris Tate: The stock market is not the economy

Episode Date: January 8, 2021

In the spirit of Get Invested, Over the last two episodes we’ve reflected on the year that was and the year that will be in property, so this week we continue our reflective and projective Summer Series with a parallel look at the future through the lens of the financial markets with our inveterate trading mentor Chris Tate of ‘The Trading Game’ fame and the Talking Trading podcast. Investing by developing a profitable personalised trading system that suits you and prevailing market conditions is where Chris can really help you. Chris is considered to be a freaky trading genius by all of his trading peers. He’s a trading veteran of over 30 years, one of the first people ever to release a share trading book in Australia and the bestselling author of The Art of Trading and The Art of Options Trading in Australia – you can enjoy his full story and investment philosophy on Get Invested episode 115 if you haven’t enjoyed it already. Chris is caustically funny, brutally honest and capable of making your jaw drop with his insights – he’s one of the few people who truly understand what does and doesn’t work in the markets and he always has me in fits of laughter. Now if you really want to learn how to invest and trade properly to take advantage of the upcoming financial market opportunities, then start by joining Chris & Louise Bedford on their Talking Trading podcast. And if you move quickly, you can still get in on their next upcoming six month, repeat-for-free forever Trading Game Mentor Program where you’ll learn how to trade every instrument, over every time frame based on a trading plan that suits you. It’s the LONGEST RUNNING REPEAT-FOR-FREE TRADING MENTOR PROGRAM IN THE WORLD so just jump on this link https://www.tradinggame.com.au/about-the-trading-mentor-program/ to secure your spot.  Make sure you let them know that Bushy suggested you reach out so you enjoy the advantage of some exclusive bonuses.  And by the way, there are no brown paper bags full of money exchanging hands here or any form of personal reward for mentioning it – only the personal satisfaction of helping you and others as I’m only recommending them based on the quality of what they do and the very positive feedback I’ve received from other investors I know who have joined them. To further whet your appetite on the great topics Chris and I banter on today, we cover: Why markets across the board, from global and local shares, right through to gold and crypto, have done so well despite the global health and resultant economic challenges Why there’s such a stark disconnect between record highs in the markets and the underlying economy which has been compared to the Great Depression of the 1930’s?  Why there’s been such a massive increase in online and first time share investors?  We comment on the madness of The US Election and its implications? We enjoy Chris’ read on our trade machinations with China and what if any impact will it have on the investment markets We discuss gold and investing in cryptocurrency And we cover off on whether there are any immediate investor risks that may impact on the markets Enjoy! Get Invested is the podcast dedicated to time poor professionals who want to work less and live more. Join Bushy Martin, one of Australia’s top 10 property specialists, as he and his influential guests share know-how on the ways investing in property can unlock the life you always dreamed about and secure your financial future. Remember to subscribe on your favourite podcast player, and if you're enjoying the show please leave us a review. Find out more about Get Invested here https://bushymartin.com.au/get-invested-podcast/  Want to connect with Bushy? Get in touch here https://bushymartin.com.au/contact/  This show is produced by Apiro Media - http://apiropodcasts.comSee omnystudio.com/listener for privacy information.

The easiest way to start is to sort of tell a tale of an email we got, well, probably three weeks ago now, and it came from somebody who said, look, I had been expecting the All Ordinaries to fall to 3,500 all year and stay there, and it hasn't, and they literally signed it off confused. And the central issue here is that they've made a few errors. One is they have assumed that their prediction of what the market will do is true and correct and that the market somehow knows that and will follow through on that. The second is they've not understood the dislocation between markets and economies. that people who are new to trading or who take, let's say, a fundamental approach to investing

seem to have this perception that the economy is the market. It's not. Welcome to the Get Invested podcast, where we share great conversations with experts from all walks of life to uncover their secret know-how and where they invest their time, their skills and their money and the benefits that this has created. You see, the truth is that everyone invests. Every minute of every day, we're investing our time, our skills, our energy and our money in something. Some of us are investing consciously, some unconsciously, sometimes for good, sometimes for bad, sometimes for no impact. Get Invested will help you to start living by design, not by default. I'm going to help you to make it happen, not let

it happen. You'll hear the top tips on how you can live with conscious intent so that you can live more, work less, and leave a living legacy by investing now. Listen to the show to discover the top tips on how to get started, make the most of your investment journey, and ultimately to be living your dream, not someone else's. More episodes can be found on iTunes or at bushymartin.com.au forward slash getinvested. Thanks for listening and now, let's get invested. Hi Freight and Finers. Why are economies suffering but financial markets are soaring?

And what is likely to happen in financial markets next year? Is now a good time to invest? well as we pause on the crest of the change in the calendar year the heralding of the first year of the new decade 2020 will be etched in our memories and history for lots of reasons to paraphrase Shakespeare nothing is good or bad only our thinking makes it so so while there's been plenty of challenges throughout the year there's been some valuable lessons and experiences too that provide good pointers to the new year ahead.

Given the heightened global level of uncertainty and disruption this year that's reverberated and been reinforced and amplified by our always-on media that both feeds on and grows by promoting fear, greed and conflict how are you feeling about the future? In the spirit of Get Invested, over the last two episodes we've reflected on the year that was and the year that will be in property. So this week we continue our reflective and projective summer series with a parallel look at the future through the lens of the financial markets and we're joined by our inveterate

in-house trader and trading mentor Chris Tate from the Trading Game fame and also from the Talking Trading Podcast. To set the scene for our always informative and ever-entertaining conversation today, and to open your eyes and whet your appetite to the possibilities and opportunities that are likely to emerge in the year ahead, I'm going to paint some pictures of potential financial market outlooks, and then delve into some of your questions by drawing on adapted extracts from a number of leading industry insights. To start, let's check in with what respected index firm Vanguard has to say in their just-released Vanguard Economic Outlook 2021,

in a report that they titled Approaching the Dawn, which analyses the short and long-term effects of COVID-19 on the global economy and discusses both challenges and opportunities for equity market returns over the coming years. Here's my adapted extract of the key points. COVID-19 has upended the global economy and produced the most profound economic shock witnessed in quite some time. Therefore, the economic outlook for 2021 is predicated on positive health outcomes for the broader population

as a healthy economy begins and ends with human health. In examining near and long-term effects of COVID-19, the contagion caused the sharpest and deepest short-term economic contraction in modern history. Economies around the world continue on their path to recovery and, thanks to swift fiscal and monetary policy response, many are in a better position now than during the second and third quarters of 2020. Vanguard's outlook foresees supportive measures continuing into 2021 through such support that will rely heavily on the virus's path,

vaccine implementation and health outcomes. The next phase of recovery depends on greater immunity to COVID-19 and reduced consumer reluctance to engage in normal economic activities. Should a vaccine become distributed, administered broadly and be effective, much of the economic losses from COVID-19 could be recovered in the next year. That said, there's a risk that if immunity does not rise, economies may only see marginal progress from current levels. Vanguard's base case economic scenario for 2021 envisions the following.

Major economies will achieve greater immunity to COVID-19. Face-to-face social and business activity will normalise. Unemployment rates will fall. Inflation rates will move higher and pre-pandemic levels of economic output will be reached. Looking beyond the shadow of COVID-19, Vanguard's outlook details longer-term effects that the pandemic may have on the economy, which include the acceleration of work automation and digitalisation, which is fancy words for working remotely, continued deglobalisation, and changes in the expectations and preferences for government policy. Further ahead, Vanguard believes the global economy will regain much of the footing it lost during the pandemic, including a return to steady but still moderate growth, with inflation dynamics muted from the effects of technology adoption and demographics,

and interest rates normalising quite gradually from historic lows. They see a moderating outlook for global asset returns. According to their capital markets model projections, Vanguard's outlook for global equities is in the 5% to 7% range for returns over the next decade. And while this range is below recent returns based on valuations and interest rates, global equities are anticipated to continue to outperform

most other investments and the rate of inflation. For US equities and shares, Vanguard investment strategists paint a more conservative picture though. Expected returns over the next 10 years is in the modest range of 3.5% to 6%, or roughly half of the 10.6% annualised return investors have experienced over the last 30 years. Parts of the US equity market, including value-orientated sectors, are projected to have somewhat higher returns after an extended period of significant underperformance. For non-US equities, including Aussie shares, investors may see stronger long-term returns

in the range 7% to 9% due to more reasonably equated valuations and high dividend yields, among other things. Vanguard economists expect interest rates globally to remain low, despite a constructive outlook for firming global economic growth and inflation as 2021 progresses. Short-term rates are unlikely to rise in any major developed market, as monetary policy remains highly accommodative. As 2021 unfolds, the greatest risk factor would appear to be higher than expected inflation. Let's now consider further some of the risks that Vanguard have identified in their outlook. The risk to the economy and markets should shift as 2021 progresses.

Between now and widespread vaccine distribution, health-related risk to economic growth and settlement should prevail. However, as growth and inflation firm in 2021 and immunity to COVID-19 increases, an inflation scare is possible. Ultimately, inflation should cyclically bounce higher in the middle of 2021 from current lows before plateauing near 2%, but such a move could introduce market volatility. In 2020, disciplined investors were yet again rewarded for remaining invested in the financial markets, despite troubling headlines and a challenging environment. For 2021, the wisdom

will be to maintain that same level of discipline and long-term focus, while acknowledging returns may moderate from the past. In other words, go down. For an alternative shorter-term view, let's compare this with Russell Investment's 2021 Global Market Outlook report by Andrew Pease. Again, here's my adapted extract of the salient points. 2020 was a year of surprises. There was the speed at which the pandemic escalated, the severity of the lockdowns, the size of the government stimulus measures globally, and the magnitude of the equity market rebounds. Perhaps the biggest surprise is that global equities have gained around 12% since the beginning of the year, an outcome that few would have predicted during a global pandemic.

And with the US election behind us, and effective vaccines on the way, investors have become bullish, pushing the S&P 500 to record highs. Likewise, we have a position on a positive medium-term outlook for economies and corporate earnings. We're in the early post-recession recovery phase of the cycle. This implies an extended period of low inflation, low interest rate growth, and this favours share market equities over cash and bonds. There are some near-term risks, however. Investor sentiment has become overly optimistic following the vaccine announcements, making markets vulnerable to negative news

This could include renewed lockdowns in Europe and North America as virus cases escalate Logistical difficulties in distributing the vaccine and negative economic growth in early 2021 And this might occur if government support measures are unwound too quickly Geopolitics could also deliver negative surprises from China, Iran or Russia as the new Biden administration in the US takes power Now Russell's cycle value and sentiment investment decision making process scores global equities as expensive at the moment with the very expensive US market offsetting better value elsewhere

where sentiment is seen as overbought and the cycle is seen as supportive. This leaves us slightly cautious on the near-term outlook but moderately positive for the medium term with expensive valuations offset by the positive cycle outlook. Overall, they see the following asset class implications for 2021. Stock market equity should outperform bonds. Long-term bond yield should rise

though with steeper yield curves likely limited by continued low inflation and central banks remaining on hold. The US dollar will likely weaken given its calculo-cyclical nature and non-US equities will outperform given their more cyclical nature and relative valuation advantage over US stocks and this includes Australia. A return to normal by the second half of the year should help extend the rotation that began in early November away from technology growth leadership

towards cyclical value stocks like the banks and resources. During the COVID-19 pandemic, technology and growth stocks enjoyed tailwinds from a boost to earnings and lower discount rates. These tailwinds should become headwinds once a vaccine is available and lockdowns have been eased. This should allow the normal early cycle recovery dynamics to resume with investors rotating towards relatively cheaper value and non-US stocks

that will benefit from the return to more normal economic activity. Now, Russell's major risks in 2021 include lockdowns, vaccine delays and too much optimism. There's a similar message coming here. The vaccine announcements and passing of US election uncertainty have removed two of the near-term worry points about the outlook. The major risk now is the amount of investor optimism since the vaccine announcements. Russell's composite contrarian sentiment indicator is not yet at the overbought threshold, but it's getting close. Investors are positioned for upside gains, which makes markets vulnerable to disappointing news.

This could come from the current upswing in virus cases and a potential demand shortfall in early 2021 if government support programs expire and are not extended Russell's also expect the US dollar will weaken into the global economic recovery given its counter-cyclical behaviour Since the US dollar typically gains during global downturns and declines in the recovery phase their team believes the main beneficiary should be the economically sensitive commodity currencies

such as Australia. Again some interesting insights here and for me the standout is the overly optimistic investor sentiment and this potential overbought indicator which is often the precursor to a market correction. You know that old saying that if it's sounding too good to be true it probably is, well that's starting to ring true here. Now let's drill down to the outlook for Australian stocks next year. We're going to tap into some news from the Motley Fool who suggest that 2021 may be an even better year for ASX Australian Stock Exchange investors. In a recent article by Brendan Lau, they suggest that the ASX share market is being dogged by worries of an imminent correction but some experts believe the ASX is set to

outpaced its global peers in 2021. Make no mistake, valuations of ASX shares are looking overstretched on several metrics after its rapid rebound since March. The S&P ASX 200 index surged by nearly 50% since its COVID-19 low and rocketed by a record-breaking 10% in November alone. The top large cap performers of 2020 include Afterpay, Fortescue Metals Group and Xero. Now impressive as this sounds, the ASX 200 still hasn't quite fully regained all its loss during the COVID market meltdown. It's still around 7% below its February peak and is a laggard compared to global peers such as the S&P 500 index which has hit new record highs. But don't go selling your Australian ASX stocks just yet. Next year could be the time

when the ASX really shines, according to another Bloomberg report who suggests that the ASX 200 may be tipped to break new records. And strategists from AMP and the Commonwealth Bank are also tipping the ASX to break record highs in 2021. Further, Macquarie Group is forecasting double-digit returns for ASX investors, according to Bloomberg's article. The bullish assessment is fuelled by the belief that a successful COVID vaccination program is going to be rolled out. This will give cyclical shares a big boost and the ASX 200 is stacked with cyclicals. Cyclicals are stocks that are most correlated to economic growth, such as miners and banks.

These make up around half of our top 200 benchmark. The path of least resistance for global GDP growth is up. Now it's hard to think it could go any lower from the 2020 recessionary levels. The global economy is expected to contract by 4.9% through 2020, but it's going to surge back into the black to the tune of 5.4% in 2021. they will still put it around 6.5 percent below what the international money fund was expecting for 2020 before covid but it's the change in growth rates that's really exciting analysts the sharp turnaround in 2021 is the key reason why morgan stanley and macquarie are expecting

earnings of asx 200 stocks to jump by 20 on average if this comes to pass it would mark the best earnings expansion since 2016, according to Bloomberg. And just as 2020 was dominated by the pandemic, and this determined the relative performance of investment markets and stocks, 2021 is likely to be dominated by the recovery, which is what Bloomberg quoted Shane Oliver, the head of investment strategy at AMP Capital. They conclude that Australian shares are likely to be relative outperformers. But in a separate article by Sebastian Bowen on the same day, the Motley Fool also cautions some things that ASX stock market investors should watch out for in 2021.

He concurred that there is certainly no shortage of commentators predicting a healthy 2021 for ASX markets and the global economy. The S&P ASX 200 index has just emerged from one of its best months in history, and at the time of writing, the ASX 200 is now also in the green year to date, and up almost 48% from the lows of 23 March, after it endured in excess of a 30% fall in less than a month. Now we all hope for a great year in 2021, but let's look at some of the reasons why 2021 might not go as planned on that front. He questioned whether the ASX may end up in what is called frothy territory. According to a report in the Australian Financial Review, Liz Ann Sunders, Chief Investment Officer at the giant US broker Charles Schwab,

says that investors need to be wary in 21. She cautions that the success of the market this year has bred what she believes is its most significant risk at present. Elevated, optimistic sentiment. and this is that nearly all behavioural and attitudinal measures of sentiment show at best complacency and at worst speculative froth. Now there have been a myriad of comparisons between today's market and the 2000 tech bubble era

but perhaps a better comparison would be the 2009-2010 GFC as we look ahead to 2021. Ms Saunders points out that it took a brutal 17-month bear market back in 2008-9 before the market finally found a bottom. By comparison, the coronavirus crash that 2020 saw early in the year lasted just over a month. Now, that doesn't sit well with Ms Saunders, who states that corrections, and sometimes heavy, often come after periods of market exuberance. So keep an eye on monetary policy.

Separate reporting in the Australian Financial Review also outlines some additional risks for 2021. This report posits that the largest risks facing the market next year come from an ascending order of likelihood, monetary policy reversal, a la rising global interest rates, a market accident due to excessive risk-taking, and mounting corporate bankruptcies. This report notes that while investors will continue to surf a highly profitable liquidity wave for now, things are likely to get trickier as we get further into 2021. It also states that central banks' deepening distortion of markets will be harder to defend in a recovering economy amid rising inflationary expectations. It concludes by telling investors who want to navigate through these uncharted waters

that they need a willingness to re-examine some conventional wisdom when it comes to investing. Hmm, cryptic and not an easy task. The takeaway? Well, we all want a prosperous 2021. But what we want and what the share market delivers are, of course, very different things. Judging by what these commentators are saying,

we should all keep a very close eye on monetary policy next year. So there you have it, some interesting views on the outlook for next year. My take on all of this, trade confidently, but tread carefully. And the common theme, 2021 is all about recovery. Oh, and before I forget, what I haven't mentioned in any of this is the absolute plethora of alphabet economics that have been rolled out by all and sundry since COVID kicked in to try and explain what's going to happen. It started with talk of a V-shaped recovery, then progressed to an L-shape, then back to a U-shape

before a W-shape recovery became the flavour. And I've just heard about a K-shape recovery with the potential for a Z-shape to emerge. Really? If only everything was as simple as the alphabet. it. Good old humans, we have this propensity to try and simplify complexity and create patterns by joining dots that often don't exist in order to try and make sense of our crazy world. As I mentioned last week in quoting Steve Jobs, you can't connect the dots looking forward, you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. So why do we have this propensity to create patterns where they don't exist, and to simplify complexity into over-simplistic models as a means to understand

things? And believe you me, I'm a culprit for this. Well, as I discussed in my book The Freedom Formula, it all comes down to the way we think, and the way our brains are wired. To deal with complexity, our brains look for and create answers to keep things simple and understandable. The law of gravity is an obvious example. However, this leads us to create patterns, make forecasts, and assume general rules, even if the patterns don't actually hold true. The reliability of weather forecasting demonstrates the inaccuracies that result from trying to project outcomes of a complex and dynamic adaptive system involving myriad interdependent

elements. property and financial markets are no different because participants are constantly learning from interactions and evolving form and behavior to reflect changing conditions in these circumstances no rule book works all the time and let's face it if it did there'd be a lot more wealthy investors out there so echoing the words of abby and ford in their book how much is enough the problem for average investors is that they treat the market as a simple system where the rules are fixed and it's like do this and that results. They spend their time looking for the rule book rather than focusing on strategies that are actually going to help them succeed.

Most investors ignore the boring uneventful monotony of what is very much like a long trip by sea of investing in a quality diversified portfolio and adopting a long-term hold approach. Instead, they allow themselves to be distracted and activated by the emotion of every shiny thing or the most recent media-driven hysteria. Emotional herd responses and the resulting market movements have been exacerbated by technology that has enabled everyone exponential access to constant streams of instant information. This has led to increased volatility from a greater focus on short-term results amplified by infectious mass media scaremongering. Once again, this is why you need to ignore the short-term external noise from factors that you can't control

and adopt the time-honoured, patient and disciplined approach of investing in quality assets and holding them for the long term. You then focus on the one thing that you can control and the aspect that will have the biggest impact on your investment success. And that's how you think and how you behave. To achieve sustainable investment success, you need to overcome your inbuilt natural tendencies and your emotional responses. In other words, the rational needs to tame the emotional.

Easier said than done, I know. Now, research conducted by Dr. Kahneman and Amos Tversky on prospect theory has proven that the pain of loss is twice as great as the pleasure of an equal gain. In addition, further research revealed that the sense of regret that comes from a loss has a greater emotional effect than the loss itself, and regret is powerfully hardwired from experience. As part of our natural survival mechanism, if something has caused us pain, we're less likely to do it again.

this research on loss aversion and the impact of regret helps to explain why many investors find it hard to stay the distance and hold to take the risk and endure the emotional roller coaster of market fluctuations that's actually required to persist long enough to achieve their goals if you take investment risks you also accept the chance of making a loss and experiencing regret As summed up by Abbey and Ford, risk-averse investors are seeking to avoid short-term regret, but such an ostrich response may well lead to even more profound regret later in life. The implication is that we must work against the brain's response mechanism that says it's more important to get through today than worry about the future.

Risk-averse investors may avoid a temporary loss, but in doing so, they also lose the probability of significant long-term gain. So why do I keep reinforcing the need to invest for the long term, I'm talking here at least 10 years, despite our inherent emotional responses to uncertainty and fear of loss and regret? Well, in simple terms, any historical review of property and share markets demonstrates that the longer the investment horizon, the less the price fluctuation and the higher the average returns.

Again, Abbey and Ford, for example, include a graph outlining modelling by IPAC Securities showing that the likely range of returns for international stock markets over different time horizons. While returns are shown to fluctuate enormously over a one-year trading period from approximately minus 17% to plus 37%, which is huge, As the time horizon increases, the range diminishes and actually moves into a gain position. So over a 20-year investment horizon, the range of returns operates within a tight band,

from plus 1.5% to plus 13%. This research also confirms that returns are likely to land within these ranges 95% of the time. So, despite our perceptions that the longer the investment time frame, the greater the uncertainty and the higher the risk of loss, actual market performance demonstrates the opposite. The longer you invest, the higher the probability of higher returns within a narrower range. This is what US economists Bonazzi and Thaler have labelled myopic loss aversion.

So let's assume that you're investing for 10 to 20 years and you've invested in some share indexes, some direct shares and investment property. Every few months you receive reports from your financial advisor and your property manager showing you the current market values and every day you check the stock prices on the news. Will your investment decisions be affected by these short term performance updates and your daily checking of the share prices? Well, research by economists Bonazzi and Thaler proves that investors who regularly check their returns are likely to be influenced more by the reporting period and the frequency they review their returns than by their total investment horizon.

So, despite their established long-term prospects, investors tend to sell some or all of an asset if the value has dropped, reacting emotionally to what they see. In this way, investors have a tendency to minimise the likelihood of loss in the short term and make decisions based on the period between reports or value checks, rather than focus on their long-term 10-20 year goal. In addition, evidence indicates that the more often investors review their investment performance, the greater the likelihood they'll make inappropriate short-term decisions. Conversely, investors who review their portfolios less frequently

have been proven to take more long-term risk, which assists them in realising their full long-term investment potential. In fact, the Banazzi and Thaler research shows that the ratio of loss aversion to portfolio evaluation period demonstrates that investors who stay the course for 20 years are rewarded with an extra 5.1% annual return. Now, this is massive because on an initial $100,000 investment, 5.1% extra growth per year equates to an extra $1.2 million over 20 years

with average capital growth of $64,000 a year. All this means is that you just need to build your emotional resilience to embrace market volatility, or not check up on the volatility in the first place, so that you can weather the inevitable rises and falls through increased mental fortitude. The take-home here? Stop watching and reading the news. Why? Because it's all bad news. In fact, it shouldn't be called the news. It should be renamed the bad news. But again, I digress. I now want to delve into the most common question that we've been seeing circulating this year. why are economies struggling so badly around the world

and yet financial markets are doing really well? Isn't the performance of the stock market linked to and a reflection of the performance of the economy? Well, respected industry analyst Jeff Madrick provides great answers to this in a recent article with the fitting title, The Stock Market is Not the Economy, where he reveals that the status of the stock market

does not correlate with the health of the economy. So here are my adapted extracts of his thoughts. The market is often viewed as a rational indicator of the economy now and of its future. President Trump often touts its success as proof of the strength of the economy, and news commentators often draw direct links between economic events and share market responses. But this idea that the market is closely linked to the real economy is mostly a myth. the market has often been extremely irrational or else we wouldn't have crashes.

Before a market crash is it rational to be valuing stocks so high? No. In the days, weeks, months and even a year before any given crash the market is actually quite irrational and it's not possible to anticipate that coming fall is coming from its behaviour.

The late 1990s saw a huge run-up in internet stocks, only to crash in 2000. Similarly, a big run-up in stocks ended in the 2009 market crash. Recessions followed. To say that stocks rationally and accurately reflect the future, as some analysts and even academics insist that they do, isn't just a naive notion, it's a dangerous one. So why are stock markets so high now when so many people are suffering high unemployment rates and other harsh economic realities? Well, Madry continues that the current stock market run-up, which has reached new highs, is first and most importantly due to the central reserve banks injecting massive amounts of stimulus into the banking system. The central reserve banks in developed economies like America and Australia

feared a serious recession when COVID-19 made it apparent that demand by unemployed workers was going to fall. This shows up in persistently low interest rates and indeed the interest rates are and will remain very low. When interest rates are low, stock market prices are often stimulated higher for two reasons. One, because stocks are discounted by the time value of money, which falls with rates. And the other being that people tend to put money into stocks when interest rates are so low

because cash and bonds provide much lower returns. The Central Reserve banks have also announced that these unusually low interest rates will likely last for the next few years, which is generally a boon for the stock market. Another major factor driving stock prices to new highs is that the massive government stimulus programs have included supplemental unemployment benefits and loans to businesses. This has kept economies from collapsing any further.

Investors in the stock market have responded to these measures optimistically with hopes that an economic recovery is on the horizon. So in summary, we have two factors separating economic conditions from financial market performance. the central reserve banks and the massive fiscal stimulus pumping money and confidence into the system. So let's turn to another key question. Are a handful of stocks carrying the market and if so

how does that fact affect how we read the relationship between the market and the economy? We know that the stock market generally doesn't reflect the economy But another new factor is that the stock market's relative stability right now is coming mostly from only one sector, and that's technology. The rises in stock prices, it's much stronger for technology companies than it is for most other companies. In fact, the disconnect is extremely wide at the moment. It's not that the economy is doing well.

Rather, it's that high-tech companies like Apple, Google and Microsoft are doing really well. We've roughly five high-tech companies now accounting for nearly a quarter of the S&P 500. We currently have a market divided into classifications. The record performing S&P 500 includes many high tech stocks whereas the Dow Jones Industrial 30 is actually well below its form high So is the stock market actually reflecting this super recovery or just the boom in high tech stocks? So what are the concerns about the type of financial and share markets that we have at the moment?

Well, many economic analysts are extremely nervous that the market is too speculative and too dependent on high-tech stocks. It even bears resemblance to the market in the late 1990s when a stock like Netscape soared only to collapse when Microsoft introduced a competitive product. Today, we have some crazily soaring shares that may not make sense on the future valuation,

like Tesla. But people love the game. Many analysts think that the market may collapse should just one or two of these fast rises hit a big bump in the road. Now, stock market bubbles have been associated with our last several recessions. So has the recent rapid recovery and record rises in the stock market created additional risk in the way that similar run-ups have in the past? Madrick's response?

Yes, it's a speculative market, which is another major factor. Stock markets often reach speculative peaks. When they collapse, they often lead to recession as spending falls. We had a big recession in 2000 and again in 2008-2009. If speculation is pushed too far, which is likely at some point, the bubble could easily burst. Madra concluded that we must have a serious ongoing stimulus plan. Right now, we're looking at continued uncertainty over COVID-19 and a stimulus, while stocks and shares are soaring because of the very likely false hope in high-tech companies.

Stock market performance has often been dead wrong. This is a pandemic-based economic condition, and there's an historical, massive new layer of uncertainty because of that. hmm some interesting times ahead my take home from all this financial market results aren't correlated to the fundamental performance of companies and economies but more and more they're being driven by our perceptions and enabled by technology by overall sentiment based on our individual and collective confidence in what is happening fuelled by big dollops of emotionally driven fear and greed.

It's about perception unhinged from underlying performance. And this is potentially very dangerous as confidence can spin on a dime in our always-on, instantly-connected global village. So in my humble and educated opinion, if you want to do well investing in financial markets, You need to get good at reading and anticipating the human nature of the collective herd as well as yourself, instead of worrying or deliberating about the profit and loss performance of individual

companies that you like. Dynamic volatile market movements are more about our perception, not performance. Now, I must emphasise at this point that I'm just purely sharing my personal views here and my own perceptions, which are in no way intended or to be taken as financial advice. As always, you need to seek independent professional advice that suits your individual needs and your risk profile before making any investment. So what's the conclusion to all of this? Do you invest or continue to invest in the financial markets?

And if you do, what do you invest in, when and how? Now, many of you may conclude from today's commentary that it all sounds too risky and it's better to sit out and wait for a better time. Now, this is the easy route, but a route that will leave you on the slow road to penny-pinching poverty and is never going to allow you to secure your future. As you'll know from previous episodes, it's not about if you should invest or when you should invest. It's just a question of what and how as the best time is always now. Your reaction to today's outlooks on the year ahead will be driven by your inbuilt biases. And we all have

them. And my biases are evident in what I chose to share with you today. But here's the rub. It's always a good time to invest. You just need to apply an approach that's appropriate to prevailing conditions. If you're investing in the dynamics of the financial markets, you actually want change in volatility because it's the degree of change in price and values that actually grows your wealth. So as long as the markets are going up or down, but not sideways,

then you're going to grow your wealth. If a stock or a market value is going up, you can go long. If it's going down, you can sell short. And you can still make money on the difference between what you bought it for and what you sold it for. So the devil is in the dynamic detail. And, again in my humble opinion, when you're investing in financial markets,

trade with a well-defined system with definite entry and exit rules that read and anticipate underlying and emerging sentiment that also match your risk appetite and your time available to your time investment horizon. For me personally, this is about indices that aggregate and mirror the overall performance of markets and sectors with built-in diversification rather than going what I see as gold digging for individual stocks and shares. And investing by developing a profitable personalised trading system that suits you and the prevailing market conditions is where today's regular guest Chris Tate can really help you. Chris is considered to be a freaky trading genius by all of his trading peers.

He's a trading veteran of over 30 years and one of the first ever to release a share trading book in Australia and the best-selling author of The Art of Trading and The Art of Options Trading in Australia. You can enjoy his full story and investment philosophy on Get Invested episode 115 if you haven't enjoyed that already. now as his partner in crime louise bedford says chris is caustically funny brutally honest and capable of making your jaw drop with his insights he's one of the few people who truly understand what does and doesn't work in the markets and he always has me in fits of laughter

now if you really want to learn how to invest in trade properly to take advantage of the upcoming financial market opportunities then start by joining chris and louise bedford on their talking trading podcast and if you move quickly you can still get in on their next upcoming six-month repeat for free forever trading game mentor program where you'll learn how to trade every instrument over every time frame based on a trading plan that suits you now it's actually the longest running repeat for free trading mentor program in the world. So just jump on tradinggame.com.au forward slash about the trading mentor program to secure your spot. And make sure that you let them know that Bushy suggested that you reach out so

that you get to enjoy the advantage of some exclusive bonuses. And by the way, there's no brown paper bags full of money exchanging hands here or any form of personal reward from mentioning it. Only the personal satisfaction that I get of helping you and others because I'm only recommending them based on the quality of what they do and the very positive feedback I've received from other investors I know that have joined them. Now to further whet your appetite on the great topics that Chris and I banter on today, we cover why markets across the board from global and local shares right through to gold and crypto have done so well despite the global health and result in economic challenges. We look at why there's such a stark disconnect

between record highs in the markets and the underlying economy, which has been actually compared to the Great Depression of the 1930s. We look at why there's been such a massive increase in online and first-time share investors. We comment on the madness of the US election and its implications. We enjoy Chris's read on our trade machinations with China and what of any impact this is going to have on the investment markets. We discuss gold and investing in cryptocurrency and we cover off on whether there are any immediate investor risks that may impact on the markets. As usual this is a very informative and entertaining chat so before we get into it I'm going to ask you the same favor I've been posing for the last few episodes as I really

need your help and feedback. In order to help improve the Get Invested podcast to better suit your preferences, I really need you to take a couple of minutes and email me personally on bushey at knowhowproperty.com.au to let me know which Get Invested episode you've enjoyed the most so far and why, which episode you've enjoyed the least so far and why, along with what I need to be doing more of and less of. I'd also encourage any suggestions on topics of interest that you'd like me to explore, along with any other guests that you'd love me to interview. So hit me up, because I'd really appreciate your feedback. I'll thank you again in advance. And just before we get into it, remember that the market isn't the

economy, and it's about perception, not performance. So here's a couple of other relevant quotes to focus our perceptions. Einstein proved in the theory of relativity that different observers in different states of motion see different realities. Your perceptions are your perceptions, but don't confuse them with facts or truths. As famous investor George Soros once quipped, it's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong. Robert Arnott also sums it up when he said, in investing, what is comfortable is rarely profitable. And Sir John Templeton also nailed it with this insight, where he said that the four most dangerous words in

investing are, this time it's different. And to conclude, an ancient African proverb says that loss of sight is unfortunate, but loss of perception is a calamity. Refusing to see from another's point of view is an acute form of blindness. Now, let's get our laughing gear on and enjoy some hard truths with the infamous Chris Tate. Welcome back, Friendly Fighters. Now, it's fair to say that the year 2020 has been a very interesting year from just about every angle. And it's been a year in which there's been a growing chasm in a divergence between perception and reality on what was expected to happen versus what actually did happen. And if you've been around a while like myself and today's

guest, this level of divergence always seems to follow times of hyper uncertainty and radical change. So to try and make sense of it all and to discuss the year that was, what it all means, and some preparation for what next year may be, I'm joined by our resident financial market sage, Chris Tate. Welcome back, Chris. Bushy, how are you? Always good to chat to you, mate. I'm looking forward to a good laugh like I normally do with your sardonic comments. Let's hope we're not too offensive this time.

Why will we change today? That's true. Mate, it has been a fascinating year. I'd love to start by getting your take on what's happened and your thoughts on why. I think probably the easiest way to start is to sort of tell a tale of an email we got, well, probably three weeks ago now. And it came from somebody who said, look, I had been expecting the All Ordinaries to fall to 3,500 all year and stay there, and it hasn't. And they literally signed it off confused. And the central issue here is that they've made a few errors.

One is they have assumed that their prediction of what the market will do is true and correct and that the market somehow knows that and will follow through on that. The second is they've not understood the dislocation between markets and economies. people who are new to trading or who take any let's say a fundamental approach to investing seem to have this perception that the economy is the market it's not the market is perceptions of what the economy might be in 12 to 18 months time and it then prices itself according to that markets are future pacing instruments very very rarely do they look at what's happening today and go oh crap that's happened today we need to do this unless it's something extraordinarily catastrophic like somebody detonate detonates a nuke in new york city

then it will react to that yeah but for these slow burn events like a pandemic like the global financial crisis is, once the initial shock is out of the way, once the initial sting disappears, people sit down, they take a deep breath, they pause, and they go, well, the world hasn't ended. All right, what will happen in the next 12 months, 18 months, two years? Because just like the global financial crisis had a use-by date, pandemics have a use-by date. They all end.

There is this wonderful Jewish saying that I always fall back on in all sorts of times that simply says, and this too shall pass. And people have realised that the pandemic will pass. But you get this situation where people are reflexive, not reactive. when you're reactive it it assumes that you've assimilated the information around you you've let it filter through you you then make a deliberation based upon that that is sensible and has a pause in it markets are initially reflexive in that they jump but once the jump has ended you've then got to do something and that's what we've seen this year yes we saw markets in the first quarter of the year collapse.

But then for the following part of the year, we saw them recover. We've even seen US markets make new highs. And our market, surprise, surprise, moved towards its previous high. So markets recovered very, very quickly. Once the shock was out of the way, once we realised that if you're involved in an airline, a cruise line, anything related to travel, you were stuffed. But by the same token, if you're involved in anything to do

with, as we were talking about before, online shopping for gyms and outdoor furniture, you were going to do all right, as evidenced by the performance of groups like Temple and Webster and Kogan here domestically. And in the US, you still had the situation where, particularly with the NASDAQ 100, you have a series of stocks, like a tiny handful, driving that market very, very, very hard. Yeah. And this is what people, I think, forget. And it's quite human to be sort of reflexive because that's the way we're hardwired. But you've got to get over that, remove your perceptions and your ideas of what you think will happen, take a step back and go, well, this is what is actually happening. so if we go back to our you know confused emailer what they had failed to do was to step back and go well my perception is wrong what do i do now as opposed to clinging to the perception because

people are ego defensive they want to defend their point of view they don't want to admit they're wrong and this this is what we saw with a lot of people they simply did not turn into the wind and that that is resulted in their distress underperformance generating losses all the things you'd expect with that sort of behavior yeah yeah it's always what's between the ears and how you're viewing the situation not what's actually going on and then imposing those thoughts on it and expecting it to respond it always is in many ways it's a little bit like magical thinking that came out of that idiot book the secret in that if you wish for it it will happen you know it won't because there is that wonderful old saying you know if wishes were

horses beggars would ride but they don't they're on the bones of their asses and it is this thing as you say it's it's what's between the ears and your capacity to adapt to change it's very Darwinian people assume that Darwin said survival of the fittest he didn't despite what mad right wing conservatives think he said it's survival of those that are most capable of change and adaptation yeah and the same is true with investors in any market if if you can see what is happening and adapt and change then you prosper if you can't adapt even if you are even after you've seen what is happening then you won't prosper yeah exactly right and i think the probably the interesting thing about it looking in from the outside this time around is that there seems to have been

a level of confidence not only by you know the regular investors and the institutional investors but they're after the initial shock and that that reflexive moment that you've spoken about that a lot of people have appeared to jump on the bandwagon. And, you know, I've heard numbers quoted that the number of online traders, for example, has jumped, you know, up to five times what it was previously. Why do you think that is, given the amount of fear-factory negativity

that keeps vomiting out of the mainstream media that designed to scare the shit out of us? Yeah, I would probably say it's really quite simple. It's exactly the same reason the traffic to Pornhub went through the roof and people bought a metric shit tonne of stuff from Sexyland. They were bored. That's right. They had time on their hands.

They've got too much time on their hands and they want something to do. And this is the thing about markets. markets can be endlessly entertaining but because there is always something happening there's always something new you feel as if you're in the action and there is a seminal piece of work in behavioral finance that dates back now we're almost talking three decades now that looked at it's got this wonderful title of the habitual motivations of commodity speculators and what it did was poll a raft of commodity speculators as to what their motivations for trading were and their single prime motivation was entertainment it was not to make money and that's been my experience over the

past now almost four decades is that the prime reason people trade is to be entertained they're not in it to make money money is secondary being in the action is the most important thing and this is what we've seen with the rise of groups like Robin Hood in the US. They want to be entertained. And granted, they are providing an enormous amount of liquidity in a certain end of the market. But it does come with a cost. And for many, it has been financial distress. And for others, quite tragically, it has been suicide. Once your motivation for investing in anything, it doesn't matter what it is, it doesn't matter whether you're buying a block of flats or you're buying bhp once that motivation is entertainment

you've actually lost the game your game will end sooner or later right it's paramount to no different from online gambling that's that's we're talking about exactly the same thing and that that's the best way to put it you're talking about people who who you know probably don't have this is going to sound harsh probably don't have the skill to learn how to play online poker but they have the skill to learn how to push a buy and sell button on their comsec account yeah and and also to hang around uh forums that are populated by you know 40 year olds who still live at home with their mother and drive a 25 year old corolla but who present themselves as extraordinary investors and traders and and so they get caught in that uh let's call

an echo chamber and they simply want to live out what they feel in that echo chamber yeah it's a pretty scary concept in terms of what it's doing but but you're right that there's a liquidity that's come into the equation as a result of that sort of mass boredom that you talk about which i look in many ways it's made for some of us part of our job easier because it's actually easier to get some positions in some segments of the market away much more easily simply because there's more peanuts to buy and sell to. Yeah, it's interesting to see how it pans out long term.

Once people are back at work and they're back into some sort of routine that doesn't give them that time, it'll be very interesting to see how that pans out. Look, I would probably term it to be either the hula hoop or the yo-yo of 2020, and come 2021, it will have disappeared. Interesting.

And there'll be a lot of mums and dads that'll probably get burnt as a result, unfortunately. I've seen this before. I saw this particularly pre the tech wreck because it was that same sort of euphoria and the technology was just emerging to enable as to do this sort of thing. So it's not new by any stretch of the imagination.

No, and this is the thing. I mean, if you've been, you and I know, Chris, that good investing is actually as boring as batshit. Oh, God, yes. And as soon as you start to try and make it happen or expecting it to happen, that's when you get into all sorts of strife. Yeah. And as you say, it has to be boring because in being boring, it means that it is systematic in nature in that you do the same thing in the same way every day.

There's no random input into the system because the moment you get random input into the system, there's no way you can measure what is occurring because you have a host of variables that change from instance to instance. And so you can't look back and go, well, that investment went well because I did A, B and C. That one went poorly because I did A, B and E. So E must be the issue and the absence of C. So let's try that again. Once you're effectively pulling investment ideas out your ass, it's not going to work. Well, we're still doing it on emotion and the latest news that you've just seen on the TV or the newspaper. Oh, very much so.

Interesting, very interesting. Let's talk a little about, and I think the biggest entertainment I've had this year is watching the reality TV comedy that was the US election. I haven't laughed as much for a long time. What are your thoughts on it and what implications of any do you think that's going to have on markets in the short to medium term? Yes. Oh, God. The initial words that come to mind. I do have others, but we probably can't mention those. Look, I think historians in generations to come will look back at what has occurred in 2020 in the US.

and they will look at it as the last throes of an empire and they will perhaps look at it in the same vein as, let's say, ancient historians look back at Rome and they look at the rule of Caligula as a seminal event in Roman history. And I think what we are seeing is the end of an empire. Yeah, it's a bit like Nero playing the violin as Rome burns, that's what it feels like, doesn't it?

And what people don't realise, and particularly people who've never been to the US, is that the US is not one country. It's actually several joined together. That's why it's called the United States. East Coast and West Coast are different. But in turn, both of those are vastly different from what occurs in the middle,

which is again slightly different from what occurs, you know, in the South. Yeah. And it's trying to get those all together. The intriguing thing about the U.S. is that they cannot deal with their own history. So they can't deal with slavery. The South still think they were robbed. No, they're absolutely shit beaten out of them for several years and lost. Yeah.

So, one of the things I've never understood with people who do reenactments is, why do you want to be on the southern side? You lost. And the thing I can never understand in the US, why do you display the Confederate flag? You lost. You got hammered. And there was no doubt about it. And so, you know, support a losing side all you want, but, you know, it's probably as bad as supporting Collingwood here in Victoria. People just point and laugh at you and go, bogan idiots. Well, I think the interesting thing is it's, I mean, I don't think they can actually continue to use the term United States because it's very clearly the divided states.

It is very, very much so. And with what social media algorithms are doing to further that divide, I think yeah I'd be interested in your thoughts on where this is heading because with Biden getting in now and it looks to me I'm no expert in this area but it looks like

the Senate is going to be in gridlock so they'll be pretty much stonewalled from implementing anything yeah what's your thoughts on all of that there's been no real policy change in the US for the past few administrations

So they're stuck, they're moribund, and they can't seem to take a step back and say, what is the problem? Their politicians are – look, it's hard to say their politicians are worse than ours because ours are crap. But they seem to be so captive to special interest groups, conspiracy theories, mad Christian conservative groups. add to that the fact that apparently when their senate was polled and said how many of you been outside the country something like only 15 had left the continental united states which means they'd never been further than the canadian or mexican border and unfortunately when you have that very insular view and this notion that you're god's country and nothing you can do is wrong then there's no capacity for reflection on what is wrong with the country and if you can't reflect

upon what is wrong you can't in any way shape or form reach out to people and say well this is the problem as i see it this is a solution i propose what are your views on that because you simply get again reflexive thinking you get you have this divide between cultures you do have they're very nasty white supremacist right wing, which was emboldened and empowered under Trump and is emboldened by its own echo chamber of social media, and you get the left, which is becoming as intolerant as the right. And someone quite wisely said there are two sorts of fascists. There are fascists and anti-fascists, and they are the same in terms of their approach.

so again it's simply end of empire and they don't realize that they can't see it because of their enormous size and horsepower but sooner or later it will dawn upon them that that is the situation and i i i doubt whether biden can bridge that divide simply because he's simply pale and male and until there's a recognition that the world is not that way and particularly that america is not that way then nothing will change until they stop electing old white men and putting old white men in positions of power then i'm uncertain as to how you're going to get a different voice and without a different voice you can't get any form of change at all.

Spot on. And there's obviously going to be still some fun and games even in the changeover process between now and mid-January before it officially takes hold. I actually think that what you're going to see is Trump being dragged out by his heels, having a tantrum like a two-year-old who will not leave the toy store.

Yeah. Because he is about that dignified. Yeah, clearly the antics so far have been pretty much evident of that. So, and again, putting an investor perspective on all of this, I would love your thoughts on what it means and what, if anything, investors should be thinking about as we move through that transition. I actually think markets will ignore it,

like they've ignored everything else. If they can ignore 300,000 American dead, then they can ignore a hiccup in transition. I actually have a slightly different view to other people. I think governments are sometimes capable of influencing economies, but I think economies are of such scale and such size that they're entities unto themselves. And so they will do their thing.

Unless governments do something dramatically stupid like turn off the tap completely for finance, like they did during the Great Depression, which made it much, much worse. Economies just keep going and markets are the same. They will just keep going because the central issue is that markets always present opportunities. Irrespective of what your view of a government or policy or whatever is, they present opportunities. If we look at, if you just reference the local market, we've got, what can I say, probably 30 stocks from the All Ordinaries, which has about 500 stocks in it, that have gains in excess of 100%. The biggest gain is DeGray Mining, which was over 2,000%.

These opportunities always exist. And I think what happens is when people become myopically focused on these external events, that they miss that capacity to see opportunities because, again, their emotions and perceptions are getting in the way of the reality of what they're being told. And that is problematic for people. You could say that post the pandemic, the Australian economy was shot. We lifted the handbrake, all shops shut. There was no retail, nothing. We were completely buggered. Well, Chalice Mining up 1,600% would probably disagree with you.

Temple and Webster, which we mentioned before, is up about 300% this year. So there are still things that occur. And once you get locked into your own dogma, you're like a racehorse with blinkers on. You can't actually see these things. And that becomes problematic. And again, we're back to what you said before, that it's what goes on between your ears. Yeah, I think the danger now though, Chris, is that if you're unfortunate enough to spend your time watching the evening news and you look at the finance segments, then you've got people on there that are drawing linkages between what happened today and a stock price. and they're just trying to make something up

to fill up the three or four minutes that they have to talk. And the average partner sitting at home goes, oh, okay, so the economy is having an impact on this when you and I know that's just absolute bollocks. Yeah, and that's the issue. It is this desperate attempt to, within a chaotic system, and you can make an argument that markets are chaotic in mathematical terms,

to draw cause and effect that you can understand. Yeah. And it's always – my view is like yours. You get some airhead on television who craps on about retail spending figures or some other nonsense for three minutes. And again, as you say, people try and draw parallels to what they see and what they believe. And this again is the issue. it's problematic that it is whilst you want investing to be a democratic process and you want people to have control over what they do because god knows the professionals are so

friggin bad at it that they couldn't be any worse but you you should do so with some knowledge i I mean, the central issue is people – I've had people sort of email me and go, I've quit my job. I want to be a day trader. Why the hell have you quit your job? Yeah. What in God's name? Because I saw on Twitter that there are these people making 1,000% per month.

Yeah, bullshit. They're not. It's fake. It's false. It's made up because that's what social media is. and they don't seem to understand that to get an undergraduate degree is three years if you want to if if someone emailed me and said i've quit my job i want to become a commercial airline pilot i'm heading down the airport now to see if they'll just let me jump on the 737

you go mate you're an idiot it's going to take you at least probably 10 to 15 years to get a slot i've got friends who went through medicine back in my day six years undergraduate it, six years post-grad to specialise in what you wanted, and then constant ongoing upgrading from then on. Even after you'd done your 12 years, you were still at the bottom of the totem pole. Yet people seem to think that I've opened a ComSec account, how hard could it be? It's actually really freaking hard. And you must see it in your line of work.

People must ring you up and go, I want to be a property developer. I live in a house, therefore I understand property investment, therefore I'm just going to go and buy a house like I live in, and now I'm an investor. Well, no, they're poles apart, absolute poles, just like you're saying in that regard. Hey, Chris, on a similar ilk, there's been, again, a lot of talk by the news crews in their financial slots around China flexing its muscles and its impact on trade arrangements with a whole bunch of sectors here. And the latest one, of course, is iron ore, given that there's a fair dependency from China on our iron ore, given they don't have alternatives at this point in time. What's your read on where that's heading? And I guess I've got to, again, draw the line between what's happening in terms of the economy and separate that from investing because they are two very different things.

Yeah, they're thematically two different entities. And I have to, again, we were talking before we came on air about compliance and all the rest. I actually have to disclose I'm actually long iron ore. and have been for a while. Again, we come back to this notion that the mainstream media is constructed to generate an emotional response in people and it's designed to make people hypervigilant as to all that is going wrong in the world.

And yes, if you're involved in wine, you're probably getting touched up and that's a bad thing. But what it forces upon people and industries is the good old notion that if you don't have diversification in markets, then you're an idiot. And so in many ways that if people did not have an alternative for what is a volatile investment – and China is a volatile investment. because just as America is the end of empire, China is trying to find its way and it's doing so at present by having a series of tantrums and it's intriguing the parallels in the US

are currently governed by an administration whose head has tantrums. The Chinese are having a similar sort of series of conniptions and attempting to throw their weight around. But what you're seeing is they're throwing their weight around against us because they can't throw it around against the US or Europe because Europe is a unified trading bloc still, even without the POMs, because nobody really cares about them. We're the runt in the schoolyard, basically, aren't we? Yeah, basically. But as people say, these businesses that are being affected will find other markets.

Yeah. They just will. Yeah. And so what the market will do is price that in and go, yes, okay, we can see that there are other markets, there are other alternatives. And I don't think, as much carry on as we get, we've had this nonsense before. One of the problems you face with people on TV is that their level of intellect is, I did media studies for three years, which meant I watched TV for three years. okay have you read a book about the history of economies because we've had these trade spats before they're not new yeah and so everybody involved goes oh yeah okay my dance card's full

at present let's try again next week and that's what will happen and again this will pass the chinese will have a tantrum we will respond other people will get involved we'll go to you know international arbitration and everybody will go away feeling they've done really really well but the market itself in terms of investment perspective will simply ignore all of it and the issue is that for example uh yes they've smacked our iron ore stocks sorry our iron ore imports but that in no way shape or form impacts the stocks themselves no exactly and i mean the exactly as you said it's already the market's already pricing that in because it's future focused and that the market knows that that uh china doesn't have anywhere else to go for it

it's on all right now and won't do for probably at least three or four years even if it does pursue other alternatives and it's it again it's a tantrum it's if you view politicians as two-year-olds then you have a fairly good handle on the way they behave so yes they'll hold their breath until they turn blue and eventually they'll have to take a breath and and so they'll have to go no crap we've got no iron ore from anywhere else no one else is going to sell it to us because we act like dicks all right somebody get the bloody australians on the phone please so true mate you sum it up so beautifully uh mate um i want to sort of switch gears a little bit into the other traditional stores of value be it gold and the metals because

similarly we've seen uh some pretty strong rises in in those areas uh over the course of this 12 months what are your thoughts around that and and where that's heading look i'm i'm i'm always intrigued by gold bugs i've always had fun with them over the years particularly when i get occasionally these almost survivalist newsletters from people and i got a i got a lot when the pandemic was beginning to unfold you know saying it's the end of the world you need to buy gold i'd rather buy toilet paper i think because i can i can use that and and people really seem to want that. It is this thing that, and I have this argument, not argument, this observation when I see people who are cryptocurrency fanatics and gold bugs arguing. And it's a little bit

like watching kids argue over whose imaginary friend is best. And gold as an instrument for trading, same with cryptocurrencies, is a very, very powerful instrument for trading. It is an instrument that makes people wealthy when they trade it correctly. And there's two ways to do it. You can trade spot gold if you're into trading futures, or you can trade one-step removal slightly downstream by trading gold miners. So there is something that suits everybody's level of sophistication. But again, we have to come back to that notion that this is a trading vehicle. And it's a vehicle that is working off people's emotive responses to what is occurring.

And so, as you would expect, since the beginning of the year, gold's almost doubled. We've gone from about $1,200, $1,250 to $2,000. And that in several tradable ranges. But they're tradable ranges. This notion that you should buy gold, stick it under the bed for the coming apocalypse is a frigging stupid one. If you're going to buy anything and stick it under the bed for the coming apocalypse, it would be baked beans because you can eat those. You can't eat gold. No, you don't have so many fillings in your teeth that you need when it comes to that.

There is. And so we have to measure what is the reality of what an instrument is capable of doing in terms of trading opportunities versus what your emotional response has to what you want it to be. And again, we come back to that echo chamber of the sort of people who indulge in that sort of thinking continually get that fed back into them. and you continually get this notion. There's one particular peanut who pops up in my LinkedIn profile for some reason saying that gold's going to $10,000 because the world's going to end. Well, if the world's going to end, the least of my worries is how much gold I have. It's the fact that the toilet won't flush.

That's a much more pressing concern to me. Exactly right. Exactly right. No, absolutely spot on. Well, let's sort of slide across into crypto for a little bit, because I guess, and again, I'm the worst person to talk to about crypto. I haven't spent enough time really looking at it. My initial concerns, and they're probably past now, you'd be across this more than I am, with the liquidity of crypto. I don't care what the price is, I've got to be able to get out.

But that train's probably moved on since I looked at it seriously. I'd love your thoughts on crypto from a trading perspective again. As a trading vehicle, they're very, very good. And in terms of I trade them through CFD, so I always have a liquidity point because someone else, a market maker, is providing liquidity. But again, I'm basing that on an assumption that the market maker can find liquidity at their end or find a mechanism of doing so for me. What I find intriguing about crypto is it's a little bit like gold in that people presume it can do things it can't. And all this crap, because you get all this spam marketing

that says it's going to take over the world. No, it's not. It can't be used as a global currency in any way, shape or form. And it can't because at present, you know, the mining they do for this, even though it's done electronically has a carbon footprint about the size of New Zealand so it's enormously

energy intensive and it's extraordinarily slow like Visa or Mastercard can process tens of millions of transactions a second Bitcoin can't cryptocurrencies can't and the more transactions they have to process

the slower it becomes and it's just not regulated and people say well that's the best thing about it no that's the worst thing about it because if it's not regulated it simply means that no one will have faith in it and people will look at it and go well crap it's all a bunch of cowboys it's full of scams the wallets are unsecured it's got enormous volatility now that makes it really good as a trading tool but it's not it's not really good for the mum and dad who go well i think i'll put my superannuation into this because you might end up with four dollars in your superannuation when you retire at 65 and that that's part of the problem and again we come back to we have to delineate between what the fanboys claim something can do versus its utility as a trading instrument

and the two are very very different something can have tremendous utility as a trading instrument but be completely useless, completely pointless. Case in point, Tesla. Wonderful for trading. They make shit cars and it's a Ponzi scheme. And the only people who think that a Tesla is a luxury car are people who were brought up on a diet of American cars and they've never actually driven a European car.

And more importantly, they've never actually driven a European electric car. Now that, again, we have this dichotomy. Yeah, the car's a shit. They just are. The build quality is poor. They only make a tiny handful of them versus the fact that Tesla provides trading opportunities or the listed vehicle does.

And again, we have this separation. That's so true. And I think that's the theme that I'd love the listeners to take away from this is separate the object from its investability. They are two very, very different things. and once you start blurring those edges and believing that the performance of something in terms of its actual product performance

has any influence at all on its trading value, then you're missing the point. And people fall prey to it in all sorts of things. I have friends who have attempted to collect cars. Why are you collecting cars? I like cars. Yes, so do I, but that doesn't mean they go up in value.

And as someone who's spent more than a small fortune on European cars that are stupid, I can attest to the fact that their utility as something you want is completely different from their investability. It's like people who pay fortunes for autographed guitars on eBay. It'll be worth $50,000 in a year. No, it won't. No, it looks like a wall,

but it'll be worth what someone's going to pay for it. Yeah, and strangely enough, in the greater fool theory, you'll find you're at the end of the greater fool chain. The greater fool theory, I love it. No, that is awesome. As we sort of emerge into the next year and if we look at all the underlying signs, things are only going to get better.

Are you seeing any risks at all in the investor space that investors need to be wary of. And I guess one of them that is circulating in my head is perhaps the over-optimism that I'm seeing in some of the sentiment. But I'd be interested in your thoughts around that. I think I'd probably shine a slightly different light on that and say, yes, over-optimism.

But within that, I think there's a subset of it's all so easy. And it's not. What you're seeing is the situation I found when I first started trading in the very early 80s, is that all boats float on a rising tide and don't sort of conflate genius with a bull market. And to perhaps put it in terms of your market,

where I live here in Melbourne, you could have bought any house and it would have gone up. That's got nothing to do with you. And you've not brought any value to the decision-making process. you've just simply taken part in what's an overall theme and that's that's a little bit of my concern is that people will think it's so easy and part of the sort of culprit of this in in terms of inflating that perception again is we come back to social media unfortunately twitter is full of people and i have someone on my feed who has claimed to have made

5 000 percent since the end of 2019 now if you started with a million dollars you're now well into billionaire territory but nobody ever seems to be but there are people out there who are starting this game who go oh yeah that that must be real and it no doubt happens in your field i've been to many investment sort of show or presentation where i've heard property spruikers come up and say well you know i bought this block of flats for two dollars with no finance and it's now we're 60 million dollars you know it's not yeah you've just pulled that out your ass and there'll be people going oh yeah that that must be the way because people lack this discrimination this ability to sit back and go oh hang on that's not right and again so i i take the sort of

overconfidence and i look at this notion of it's too it's easy anyone can do it well yes anyone can do it provided you've managed to put in the groundwork beforehand and unfortunately for what people don't understand is that the groundwork often involves them looking at themselves in the mirror and saying why do i why do i do the things i do what what is my role in what i do as an analogy in my younger days i worked my way through university as a bouncer hard to imagine isn't it with my sunny disposition but but after every confrontation i i would sit down and go what was my role because i will have played a role and and how could i have done it differently how could i have de-escalated how

could i have changed things and to this day i do that when i get irritated with somebody in the car and give somebody a gob full as we all do i sit back and go what was my role how could i have just let that wash over me but again it is that reflective process of what what is my role what am I doing? But very few people actually want to do that, because that's really hard. And at times, it's extraordinarily confronting and painful. But as we both know, and it doesn't matter what your investment field is, whether you're trading cryptocurrencies, whether you're developing blocks of flats, or you're some point in between, or you're a combination of all of those, unless you sit down and look at your own motivations, and why you're doing things,

why you want to do things why you respond the way you do why you do stupid things and we all do stupid things and you have to admit that you are stupid at times if you don't do that then you can't in any way shape or form move forward because you can't measure your own behavior and we're back to this notion of random inputs in your own behavior and so i think my concern for people who come out of this year is that you'll get somebody who got lucky and who bought kogan at three dollars and you know they've now got five six times their money and they go well that was easy what i'll do now is i'll draw down my home equity loan and they drop all of that into the market and in a month it's all gone yeah so so they've destroyed you know their major

asset base which is their home which which they won't recover and they've dropped themselves in a hole it's a big lesson there are other lessons you think we can take from this year that the listeners need to be mindful of markets will do their own thing irrespective of what people think irrespective of what people tell you they will do they will do their thing and they will do their thing whether you're involved or not and we come back to this notion of ego and we come back to our you know confused email at the beginning of the segment irrespective of what your ego says The market's just going to go, yeah, no, mate, sorry, I'm not going to $3,500. I'm, you know, I'm going to nearly double.

So you can either come with me or stay where you are, clinging to your opinion, thinking you're right. And the market's always going to prove you wrong. Oh, look, markets are never wrong. I'm always intrigued when I hear that statement. And it doesn't matter what market it is. by its very nature it can't be wrong it's it's like me looking out the window now and it's probably about 24 25 degrees nice and sunny and me going the weather's wrong okay let me think about that for a moment because that's one of the most profoundly

stupid things i've said this morning but the analogy is absolutely spot on with all the commentators that you were or a lot of them that talk about their predictions and their forecasts and trying to justify and link, as we've spoken about this morning, circumstances and its impact on the market once you recognise that there is no correlation and that you're better off to use a system with proven rules that you stick to to remove yourself from the equation as much as you possibly can.

But it's... I mean, the analogy I use is surfing. Surfing's a lot like investing. Some days are really good, some days are bad, some days you get dropped on your head and you get a wet suit full of sand. They just are. But the intriguing thing is if I took Kelly Slater, the world's best ever surfer, and I said to him, how do you surf so well? He would say, well, you know, something along the lines of, well, look, I'm getting into technicalities, so I put my feet here, my balance is here, my centre of gravity is here. But it would come back to, I wait for the wave. And then I go, yes, but can you tell me about the Navier-Stokes equations that govern wave formation?

And he would go, you're an idiot. You've missed the point. And financial commentators are idiots looking for cause and effect where none is necessary. You don't have to understand how markets work to be profitable at them. And that is one of the greatest paradoxes that catches people. you don't have to understand the mathematics and physics behind wave formation to be the world's best surfer

that is a beautiful analogy that's a really good analogy actually I haven't heard you say that before and it sums it up spot on so all the theorising and the post-justification that I continuously hear about is all bollocks if you're taking a long-term view

and you're applying a very systematic approach and then letting your profits run and cutting your losses and getting out early, then it's not rocket science. But we tend to want to turn it into rocket science for some reason. But it's not. I only know three things about trading. If it's going up over the time frame you trade, you buy it. If it's going down over the time frame you trade, you sell it.

You don't bet the farm. That's it. And I actually don't know any more than that. Look, I can bullshit for hours on things people want to hear about what they presume I should know, but at the end of the day, it simply comes down to that, and it's very difficult to get that across to people because, again, we refuse to accept that simplicity is an enormously powerful tool, and there is a tremendous robustness in simplicity. it it just works but we have to find all these things and draw lines all over the freaking chart and we have to read reports from here and reports from there and listen to this dickhead on you know one of the business channels and you just sit there going it's all crap is it going up yes or no yes or by the freaking thing oh no but i've heard i don't care what you've heard just buy the

thing. Exactly. Mate, I always love talking to you, mate. You always sum it up so beautifully and your sardonic insights always have me in stitches. Is sardonic a polite word for rude? It depends how you define it, I guess, mate. Yeah, it's true, isn't it? It's all on the eye of the beholder. I'll take it as a compliment. I would definitely take that as a compliment from me, mate. Because sardonic is something that I aspire to and I'm nowhere near to the level that you've achieved.

But for listeners who really want to learn how to invest using the awesome methods that yourself and Louise Tate have created through the trading game, I know that they can get all of the juice from the Talking Trading podcast. Is there any opportunity for them to join you on your mentor program, which I know is a six-month repeat for free forever program? Can they do that now or not?

Yeah, they can. The easiest way to touch base with me is through our website, tradinggame.com.au. You can get hold of me at chris at tradinggame.com.au. And having slammed social media for, what have we got, almost an hour, you can catch us on Twitter. I handle Simply Trading Game or you can catch up with me on LinkedIn

just under my own name I'm really quite easy to find Fantastic mate look I really appreciate you coming on board it's been has been a an interesting fascinating year and we're in for another one next year and they they'll continue to be so very privileged to continue to enjoy your insights

and your common sense that cuts through the bollocks and gets down to the what's what really is important Not a problem. And I am reminded of what he said, that old Chinese insult, may you live in interesting times. Well, we certainly do. We certainly do.

Compliments for the season, mate. We'll talk to you soon. Thank you, mate. Thanks, mate. Well, Freedom Fighters, how good was that? To get a summary of all this investment gold in the show notes, just email me on hello at khgroup.com.au.

It's H-E-L-L-O at khgroup.com.au or check us out at www.bushymartin.com.au forward slash Get Invested. I look forward to joining you next week for another episode of the Get Invested podcast. So thanks for listening. And as always, dream as if you live forever and live as if you die tomorrow.