Property Hub - Investment Insights & Inspiration - Get Invested: Part 2: How to survive in uncertain times with Pete Wargent

Starting point is 00:00:00 We need to build a bridge to the other side because I think it's quite clear that a recession is now baked in. There's no avoiding that. But as DeBell from the Reserve Bank quite rightly said, at some point we'll flatten the curve and we'll come out the other side. And when we do, we'll have potentially the lowest Aussie dollar in a couple of decades, which is stimulatory. We'll have the lowest interest rates in living memory. And also there'll be a lot of government money, that's new money in the economy, sloshing around. So the combination of all those things could see the snapback being pretty sharp on the other side, but obviously between now and then, we need to build a bridge.

Starting point is 00:00:40 Welcome to the Get Invested podcast, where we share great conversations with experts from all walks of life to uncover their secret know-how on 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.

Starting point is 00:01:20 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.

Starting point is 00:01:45 Thanks for listening, and now, let's get invested. Hi Freedom Fighters, how are you building a bridge? And if not a bridge, how can you tread water long enough to keep your head above water and or hold your breath underwater long enough to swim across the short and narrow yet raging torrent of our times? Because like a lumbar, we're now in the midst of radically uncertain and rapidly changing times as a result of responses to the global pandemic. It's like we're all living in our own real-life version of the TV show Survivor.

Starting point is 00:02:28 It's a real 24-7 blockbuster where we all need to outwit our play and outlast the challenging times and unexpected blindsides that lay ahead. A game of life where the only players enjoying immunity are those that have cash flow contingencies and rainy day reserves sufficient to cross the chasm. And to avoid getting voted out, the remainder need to quickly tap into the collective team tribe reward challenges that the government support packages are offering. It feels like we've all been forced to stick our heads underwater and only those who can hold their breath long enough or have access to spare air tanks will survive.

Starting point is 00:03:08 But we don't even know how long we need to hold our breath. And this uncertainty and constant cascading rapid change is fuelling our fear that the mainstream media love to ignite. In our current world, the O2 that makes up our oxygen that fuels our survival is made up equally of one part opinion and one part our operating cash flow. In other words, our mindset and our money are critical. This is where our proven calm know-how approach, that's C-A-L-M, comes to the rescue. We need to control our thinking in our costs, activate and access savings and reserves, and then be ready to leverage emerging opportunities by constantly monitoring and managing our internal and external environments.

Starting point is 00:03:59 And it all starts with controlling what we can control, our thoughts and our costs, and ignoring the rest. We need to cut out the noise of the unknown unknowns and focus on what we can control, our thinking and our costs. And these key elements of our survival oxygen revolve around cutting and controlling, cutting out the crap and controlling our mindset and our money. So what do I mean by cutting out the crap? At the mindset level, we need to control what and who we listen to, where we get our information

Starting point is 00:04:37 and how much time we spend doing it. For those of you who've been listening to me for a while, you know that my wife Sonia and I haven't listened to the news or read the newspaper for over 20 years now. Counting the killings and multiplying the misery of the mainstream media is not our idea of a healthy mental diet. Ignorance of the media's ignorance is our bliss. It's important to look beyond the immediacy of our current climate and lift our sights on the longer-term future to gain a proper and balanced perspective we need to shift from an immediate media driven microscope that blows the current situation completely out of proportion by focusing purely on the negative

Starting point is 00:05:20 and switch our vision to a telescope to appreciate that the current circumstance will be short-lived and that a positive long-term future awaits and a quick look in the rearview mirror gives us comfort that we've faced survived and then thrived in every so-called major the life-threatening circumstance and calamity that we've ever faced. So here are my thoughts on cutting the mental crap. Only spend five minutes a day getting an update directly from the source on any government change, responses or new relief measures that affect you. Do not spend any time watching the commercial TV stations' misery musings.

Starting point is 00:06:02 Do not read the newspaper unless you do the crossword or laugh at the comics before using it to light your fire and limit your time on social media to positive posts and block the rest. And remember that based on current stats, 96% of people are lucky enough to contract the C word virus survivor. That's 96 out of every 100 people. If you're careful, they're good odds. And remember that what you think about is what you bring about so direct your attention and your intention to positive pursuits and positive people cutting the crap also means reviewing what you spend your money on and controlling your costs by reducing limiting or eliminating costs that don't restrict or limit your lifestyle if you want to know how

Starting point is 00:06:55 you can easily and safely put an extra 400 to 1200 a month back in your pocket just by restructuring your finances and expenses by remote control, all from the safety of your own home, feel free to jump on our website www.knowhowproperty.com.au and book in a quick no BS, no catch appointment with our know-how team. That's an extra $4,800 up to $14,400 a year in your skyrocket just by making a phone call. And in relation to controlling your cash flow to cross the bridge, here's a word of caution. don't be too quick to leap onto the six-month home loan repayment holidays that are being offered unless you have no other option because here's the hidden catch the unpaid repayments all get

Starting point is 00:07:46 added to your loan and the loan terms extended so it's not a free hit but worse still repayment holidays also known as deferred repayments or hardship provisions will appear on your credit file for two years. And at the time of going to air, the jury is still out on how each of the banks will treat this when you need to access credit either for a refinance, a purchase, personal loan or credit card at some time in the future. There's no such thing as a free lunch and when it sounds too good to be true, it generally is. Home loan repayment holidays should be your absolute last resort, not your first thought. If you want to explore safer, cheaper, easier, less risky and no future penalty cost reduction options like offset access or loan redraw provisions, rainy day reserve equity loan war chests, loan cost reduction negotiations or refinances to cheaper lenders,

Starting point is 00:08:47 book a quick call with one of our KnowHow team again on that website, knowhowproperty.com.au or contact another savvy mortgage breaker before you call your bank. in the next episode i'll talk more about the second element of our calm calm approach which revolves around activating and accessing savings reserves to buy breathing space in the meantime today's episode is about giving you informed independent information to reduce the unknowns and your uncertainty fears by answering all of your key questions that include What is the reality of the responses to COVID-19 on our current situation? How are things likely to roll out in the short-term, medium and long-term as far as impacts on the economy, business, property, equities, markets

Starting point is 00:09:35 and our lifestyles are concerned? What will it mean for investors, homeowners, renters, buyers and sellers? What should you do? What shouldn't you do? Where are the opportunities? How can you take advantage of them? and ultimately, how are you going to survive long enough to thrive? And the best way to understand exactly what's going on

Starting point is 00:09:58 is to turn to the best available, reliable, trusted and independent source who walks their own talk. And in my humble opinion, the best and most qualified person in Australia to do this is one of our previous Get Invested guests, Pete Wargent. If you want to hear his full backstory, have a listen to episode 50. For those of you who haven't heard him, Pete is recognised as one of Australia's brightest financial minds and is regularly featured in all of Australia's mainstream media outlets. As an active investor, a property buyers agent, a strategist and a mentor,

Starting point is 00:10:33 Pete uses his tried and tested strategies to assist investors in achieving their financial goals through profitable equities and real estate investment. he specializes in the analysis dynamics and impacts of australian household debt construction trends and real estate market cycles he's now a six times published finance author and all of his books are must reads for any investor his book get a financial grip and take a financial leap are actually referenced in my own book the Freedom Formula, and he's just published his latest co-authored book, Low Rates, High Returns, which will help you to successfully navigate the investment landscape over the

Starting point is 00:11:18 next decade. As an extra incentive for you to listen closely to his words of wisdom today, we're going to offer one copy of his new book to the listener who lets me know what are Pete's three C's of money, along with your best financial survival tip, by simply jumping on knowhowproperty.com.au and scrolling to the bottom of the page and completing the How Can We Help tabs with your answer in the Briefly Tell Us What You Need box. To keep your finger on the pulse of what's happening and what to do about it, make sure you're subscribed to his daily blog, petewargent.blogspot.com.

Starting point is 00:12:00 And if you want to check him out and how he can help you further, just jump on his website, peteorgent.com. Most importantly, Pete has successfully weathered the storm of every so-called global calamity over the last 30 years, including the global financial crisis. And he's continued to grow through all of the seasons across multiple assets, across multiple global locations, across multiple decades. and he's achieved all of this while enjoying a relaxed lifestyle and he delivers his easy to understand message in a down to earth, easy going way so to begin eliminating your fears with knowledge

Starting point is 00:12:43 and to help you make good fully informed decisions in challenging times sit back and soak in the awesome insights of Pete Wardgett Hi Freedom Fighters. Well, it's an understatement to say that we live in radically uncertain and rapidly changing times. And understandably, a lot of you are scared and anxious because you can't make any sense at all of what's going on and you're not sure what to do about it.

Starting point is 00:13:14 In these times, it's absolutely critical to separate fact from fiction by turning off the mass media fear factories and getting educated insights from reliable sources. So today, we're privileged to be joined again by one of my most respected investors and industry commentators, whose personal international portfolio bridges asset classes from property shares, as well as countries investing in Australia and the UK. But he's also a very down-to-earth, humble mate who calls it how it is and sees it without any vested interests. And when he's got something to say, I strongly suggest that you have a listen.

Starting point is 00:13:48 So welcome back to Get Invested, Pete. Pleasure, Bush. You're always great to chat. No, enjoy it, mate. Looking forward to a chat at this exciting time in our history. But just before we sort of get into that, mate, what's been happening in your world since we last spoke? Well, yeah, there is a bit going on.

Starting point is 00:14:06 I suppose, look, in the recent history, we've been effectively in lockdown here. So we've got two toddlers up here at Noosa. Thankfully, as we were saying just before I came on, Thankfully, we've got a pool because I'm not sure what we would do with the time otherwise. But, yeah, look, it's, I guess, going back a few months. I've been a bit back and forth the past year for family reasons.

Starting point is 00:14:32 I've had to spend a bit of time over in London, but back here in Noosa now and enjoying life on the sunny coast. Yeah, awesome, mate. I think while everyone trying to adjust to major disruption and major change often sees the negative side of it. I think there's actually some real positives in being able to spend more time with family and reconnect in a way and starting to communicate in a way that there's actually going to be a bit more down-to-earth and authentic in any case.

Starting point is 00:15:04 Mate, what's your feelings around all of that? Oh, yeah, totally. I mean, every crisis brings an opportunity. I think working from home and remote working will take off in a way that it probably was already beginning to, but now it's becoming accepted as a necessary norm. So that's one thing which will change. I think, as you said, a lot of families can take the opportunity to connect and spend more time together. Now, that's obviously it's not great in every family, but for a lot of us who tend to be preoccupied with work and career and business, we're being almost forced in many ways to spend more time at home,

Starting point is 00:15:44 but that can be a good thing as well. Yeah, absolutely, mate. It's certainly some adjustment. A bit less time on the golf course, I suppose. Yeah, I wish, mate. All right, well, look, hey, sort of cutting to the chase in relation to the current scenario, what's the reality of the responses to the C-word virus

Starting point is 00:16:07 on our current situation as you see it, mate? Yes, I guess it's different from a lot of economic downturns. So if you think back to previous recessions, often they were financial in nature. So if you think back to the global financial crisis, it was sparked out of subprime and then all of the related issues. I mean, this time around it's different because it's an environmental issue. So first and foremost, the public health response

Starting point is 00:16:34 is how this thing can get under control. But one of the things that has changed over the decades is that policymakers have long since learned that you can't just sit around on the sidelines idly waiting for markets and the economy to start operating and functioning again. So in 2008, the response was bigger and quicker than was seen in, say, 1929. This time around, the response will be much quicker again. So that's not just monetary policy in terms of interest rates being cut. It's also fiscal policy, so massive stimulus packages being rushed through very quickly, and also unconventional measures which were not really well understood even a decade or 12 years ago. Now there's a general acceptance that those will kick into gear very quickly.

Starting point is 00:17:31 So first and foremost, it's a health issue. People need to practice social distancing until we can get the curve flattened, buying valuable time for medical centres and hospitals. But the policymaker response in terms of monetary and fiscal, way quicker this time around and much bigger, I would think, overall. Yeah, and I guess the comfort level that gives me personally is that, and I've heard statements from leaders not only here in Australia but around the world basically saying we will do what it takes to try and minimise the financial and economic impacts. And like them or love them, I guess I've been pretty impressed

Starting point is 00:18:20 with the speed of action that's been taken. And not all the actions will be perfect because it's pretty much policy on the fly to some degree and understandably so. But given that context, mate, what's your feeling around the stimulus packages and the support mechanisms that have been introduced so far and what else, if anything, do you think is likely to roll out

Starting point is 00:18:41 as this thing lengthens? Yeah, look, it's hard to keep up. So the analogy that the Reserve Bank used almost immediately was, that we need to build a bridge to the other side because I think it's quite clear that a recession is now baked in. There's no avoiding that. But as De Bell from the Reserve Bank quite rightly said, at some point we'll flatten the curve and we'll come out the other side.

Starting point is 00:19:05 And when we do, we'll have potentially the lowest Aussie dollar in a couple of decades, which is stimulatory. We'll have the lowest interest rates in living memory. And also there'll be a lot of government money, that's new money in the economy, sloshing around so the combination of all those things could see the snapback uh being pretty sharp on the other side but obviously between now and then uh we need to build a bridge to the other side so i guess at the time of speaking we've just seen the third round of stimulus and this time i

Starting point is 00:19:38 think what was really needed was something to put cash in the hands of workers uh because particularly in retail hospitality travel tourism i mean those industries have just been decimated and um so what the government is doing there is a wage subsidy model a little bit different from the one seen in europe but um that should really help to uh stop the the feared huge spike in unemployment which was what was coming if they didn't take those measures so uh i think credit where it's due to the government the reserve bank has done what it's needed to as well and they will adopt So what they call yield curve control, just a push down interest rates across the curve. And there are other measures in place that we'll no doubt talk about through the potty today.

Starting point is 00:20:24 Yeah, absolutely, mate. All good. One of the ones that has virtually just been released is the tenant eviction moratorium for six months. And that certainly sparked some nervousness from a lot of mum and dad investors who, you know, some of them and a lot of them are negative geared and pretty much relying on the rent to be covering the exercise. What's your view around that and what sort of measures would you be suggesting investors and landlords be taking to try and ameliorate that? Yeah, look, Bushy, as you know, my outlook on life is that things are rarely as good or bad as they seem. And obviously the initial reaction to such an announcement is, well, this is the end for landlords. It's going to be people refusing to pay their rent and so on.

Starting point is 00:21:18 I think in reality, most tenants, most professionals will carry on paying their rent because my understanding of the rules is that the rent is still payable. there's just been a moratorium on evicting tenants for failing to pay the rent over the next six months in terms of what landlords can do to prepare and obviously people need to work with tenants and not try to be too heavy-handed but the first port of call for a lot of landlords will be insurance if they're insured for rental cover if not there may be even a period where the rents aren't flowing in as they as they would would have been hoped to um but i suppose one of the things in australia is uh net rental losses can be uh written off against income uh not always the case such as in britain for example you can't always get the full deduction um and eventually

Starting point is 00:22:15 we will come out the other side so i think people don't need to catastrophize um i think in the Worst case as well, the Reserve Bank has recognised that a falling housing market is not a healthy dynamic. It never is for household wealth and the economy. So worst case scenario, payment holidays are going to be available for people with mortgages. Yeah, exactly right. And I 100% agree with you. I think for those, I know that for the investors that we've been looking after now for getting close to 15 years, one of the important aspects of setting up the structure

Starting point is 00:22:55 around investing is the risk management and one of the very first things we build in is a rainy day reserve that will cover someone for between three to six months so that they've got cheap money to fall back on if they need to in not times probably as drastic as this but this is certainly a time when that's going to come to the fore.

Starting point is 00:23:19 I think the other thing too that this is going to do for us all is landlords will be communicating through their property managers or directly to their tenants to negotiate a position that's going to work for everyone in this exercise. So if a landlord is getting a repayment holiday on the loans, that doesn't mean that they won't be paying it later. It's going to capitalise and then extend the length of the loan. Well, the same sort of approach, I think, needs to be applied to tenants.

Starting point is 00:23:50 If they are in a position where they can't pay, that doesn't give them a free ride. That just means that there's a repayment plan put in place at the time when things change so that ultimately the landlord's not going to be out of pocket. So I do think there are a number of measures that need to be taken at various levels. Insurance, you've mentioned, that's certainly a good one. And this will sort out the average landlord policies from the good ones. and I've been saying for a long time there's a couple of really good landlord policies

Starting point is 00:24:20 that give far more cover in those sorts of situations than the average off-the-shelf number that you buy from one of the major insurance companies. But it's certainly a time to be reviewing all that and tightening up to make sure that you're planning for the worst and expecting the best. Any further thoughts on that from your side, mate? Yeah, sure.

Starting point is 00:24:38 I think I always look at real estate and equities as two complementary but very different asset classes And real estate, because of the leverage that you generally use, especially in resi, it's critical to have that buffer because unforeseen things will always come around. It doesn't matter if it's a repair or a vacancy or a recession or whatever it may be, or even a period where your income takes a hit. So in real estate, having that buffer is critical. In the stock market, you keep cash as well, but for a different reason, mainly because there will always be great opportunities in the future. But for landlords, I think just, you know, you need to stay alive to capitalise on those long-term growth opportunities. So I know we always say this, but it is critical to have that buffer.

Starting point is 00:25:28 Yeah, 100%. And I guess the good news for those that don't have the buffer, given the raft of support and relief mechanisms that are now being introduced, and I'm also pretty confident that we haven't heard the end of those. I mean, they've made the statement early on tenant eviction moratorium for six months. I won't be surprised if there's a flow on policy change that might look at tax credits on not paying tax and some other mechanisms that may well flow through to that to soften the pain for the landlord so that everyone's sharing the position. What's your thoughts around that? yeah look i think um it's a very fluid situation at the moment so um i mean even by the day things are changing so um i think um when you go through these situations you try and uh try to think back

Starting point is 00:26:24 to some of the old buffett quotes and he always says you know well the mark of an investor is whether you know do you care if the market's open tomorrow and uh you know if you're thinking with a 10-year outlook. This is just one of those periods and they do come around on average once a decade. And I guess if you're a long-term investor, you'll hopefully experience several cycles. So I guess, yeah, obviously you need to keep tabs on what's changing. I think the wage subsidies will really help in terms of giving tenants the security they need. And And landlords, in the worst case scenario, as I say, you can take a break. But I think the housing market itself will take a knock over the coming six months.

Starting point is 00:27:09 I think what we've historically understood about housing market cycles is that the first thing to take a hit is transaction numbers. They will drop sharply first before prices have any impact. So if you look, in fact, in Britain already, the earliest numbers from HomeTrack showed something like two thirds of deals falling over. No impact on prices yet. But the longer these things go on, if unemployment starts to rise, then that's when you can start to see some forced selling. And I think, I mean, kudos or credit to the policymakers here that they've understood the risks and they've got on the front foot to give people some comfort that there will be packages and help in place for people who get into stress. Because the last thing the system needs is people going into arrears or falling behind or foreclosures. So policymakers have got on the front foot there. Yeah, absolutely.

Starting point is 00:28:05 And I think for the most part, a lot of sectors of the economy are just going to go into pause because we've got a situation, and one analogy I heard the other day, we've got a finely tuned car that is turbocharged almost to accelerate with low rates and all the rest of the support. We've got the government pouring fuel into it, but given the way we now need to operate, there's no drivers in the car. We just simply can't drive. So I think for those of us that have significant holdings, we just need to take a pause and survive the distance and don't follow the mass hysteria and do anything silly

Starting point is 00:28:56 like trying to sell property. it would be the worst possible time to do that. There will be some buying opportunities because there will be some people that have to sell and that will present some opportunities for some. But for most, it's just wait it out and then take advantage of the – because I think there will be quite a spring back pretty quickly once we come through this.

Starting point is 00:29:21 Please, what's your thoughts? Totally, yeah. Because when you think about how the global economic machine works, I mean, how do economies grow? well they only really grow when there's new money in the economy and for some years that was driven in australia by the resources boom and then a following boom in demographic population boom then there was private sector credit but this time around what we're going to see is record low interest rates but just a flood of government money and reserve bank stimulus

Starting point is 00:29:50 pouring into the economy so when we do come out the other side um we'll have inadvertently taken a bit of a shift to the left with the government having a lot more involvement in the day-to-day running of the economy, but a lot more money knocking around as well. So if you couple that with cash in the bank earning next to nothing and record low mortgage rates, I mean, I've seen products out there from the low twos now. Well, that's quite a lot of fuel there when we do come out the other side so for landlords and property investors um it's it's not the same as in the stock market where you see trading halts it's not quite the same because transactions will still happen a bit like in the old days when you used to phone up for a private inspection and everything

Starting point is 00:30:37 was done one-to-one instead of open homes and auctions yeah but we do have these things every year there's effectively especially up here in queensland there is a summer shutdown everybody goes on holiday for a month and very few transactions. And I guess that's what we're going to see over the next few months. There won't be much selling. A lot of auction campaigns will be cancelled outright. But at some point, we will come out the other side and you wouldn't want to have done something stupid in the meantime. Yeah, absolutely. This is absolute crystal ball, But if we look at the timeline rolling forward, what's in your head as you see it rolling out? Well, I suppose when you actually think back to what were people predicting three months ago,

Starting point is 00:31:25 we were going through droughts and bushfires and climate change was all the rage. Nobody was predicting a global pandemic. So with that caveat, you know, Black Swan events and you can always come along and predicting the future is very difficult. I mean, I suppose what we can only do is really look at the experiences of other countries and those that have had the most success in flattening the curve, generally Asian countries where they've learned previously from SARS about the importance of social distancing, wearing face masks. So if you think about countries like Japan, Taiwan, Hong Kong, Singapore, South Korea, where my younger brother lives, they've had tremendous success. I think, to be fair, there's probably a stronger social norm towards obedience in those countries where I think Britain and Australia, to a certain extent, may struggle because we don't really like being told we can't go to the beach or we can't go to the pub. So that might hamper us somewhat. But if you look at the timelines of those countries,

Starting point is 00:32:33 two or three months of effective understanding and policy seems to flatten the curve. And I mean, so we're still speaking here in March. Overnight, I've seen Spain, Italy, Germany, all making tremendous progress. So that gives us a lot of comfort that at some point, You would think the curve starts to flatten and markets and the economy and businesses can start to look out to the other side of this thing. So promising numbers for Australia at this point, but we don't want to count our chickens before they hatch.

Starting point is 00:33:12 No, exactly right. And I just think that underlying support and the responsiveness of governments at all levels is, you know, I'd reiterate that comment around we will do what it takes to minimise the pain. It's very encouraging. So we just do need to sit tight. And I think your analogy of saying, well, let's treat this as a holiday, I mean, it's easy for perhaps you and I to say that. and a lot of people who are directly affected in terms of incomes disappearing, that's going to be challenging. But if they do take advantage of what the government's got to offer

Starting point is 00:33:51 to get them through and then realise that, if you listen closely to the RBA governor's words last week when they made that quite out-of-sync rate drop, he made it very clear that rates aren't going to go anywhere until we're back in full employment and until inflation's within the target range of 2% to 3%. Well, that to me says we're going to continue to see rates like this for at least three years plus.

Starting point is 00:34:21 So I'd be interested in your comments on that. But I think the other thing that needs to come in behind this now, Pete, and this is where it might catch us a little bit, is that we're already seeing banks shy away and tighten up policy and, in fact, won't lend to anyone in COVID-19-affected industry sectors. And what they're also doing is saying, right, we won't include any bonuses, commissions, overtime, et cetera,

Starting point is 00:34:54 in loan servicing. So I think some of the challenges that may come in are very cheap credit but very difficult to get. And that may also be influenced a little bit by some fairly conservative views of bank valuers who are now factoring in COVID-19 in terms of their thoughts that it will have a negative impact on the market and are therefore dropping bank valuations as a consequence. What's your read of all of that?

Starting point is 00:35:25 Yes, in fact, I jotted down a few notes before I came on And one of them said conservative valuations because we did see a lot of that during, well, there was some of it going on during the Banking World Commission and just nervous valuers. But particularly in 2008-9, there were a lot of very conservative valuations. I think, I guess the base case strategy at this point seems to be let's hope that businesses can go into hibernation. And what the government will be hoping is that for a short, sharp shutdown, and then when it appears that we've got cases under control, they'll start to open up the economy again. But with social distancing, probably more rigorous and widespread testing and tracing programs, I don't know what point the borders can open again. maybe if this is beyond my pay grade but maybe if there are 15 minute testing kits

Starting point is 00:36:24 that can be put in place then maybe the borders will eventually open again but I think first and foremost the focus will be on a short shut down just to get everything under control as much as possible and then when things start to come out the other side then we'll pick up again

Starting point is 00:36:43 on the interest rates piece I think you're right The Reserve Bank wording basically said, well, forget any change in the cash rate for three years. We actually, I suppose, to talk my own book for a second, literally, we actually wrote a book called Low Rates, High Returns, which is due out April or May in the bookstores. Because our view was in the global landscape, at some point, this cycle would draw to a close. and the next downturn would bring zero interest rates or negative in many cases. We didn't anticipate the reason for the downturn, obviously,

Starting point is 00:37:23 but sooner than we thought, we're now there. And we're basically looking down the barrel of 10 years of low interest rates now. So people need to think a little bit differently about how they manage their finances because the cash in the bank no longer earns a valuable rate of return. Mortgage offsets can, but, yes, it's a different environment from what we were used to. But I suppose on the positive side, as you alluded to, if you'd have told us in, say, 2006 or 2007 when some of us had mortgage rates at approaching 9% or whatever it was, if you'd have said that people would be borrowing at 2% or 3%, we'd have bitten your hand off. So, yes, every crisis does bring an opportunity.

Starting point is 00:38:10 think yeah you've touched on on the book which i wasn't aware of mate so low rates and high returns tell us let's dig into a little bit given that every reading i'm looking at that says that once we come out of that the conditions are primed to see some very favorable investment conditions across the board over the next 10 years or so so given that quite different change in the in the fundamentals around low rates and high returns, how should investors be thinking and positioning themselves to take advantage of that? What's different in the way they should be approaching it? Yeah. So, I mean, the book isn't asset class specific. It does talk more about cash and equities more so than property. But the idea of the book is that it's based upon eight timeless

Starting point is 00:39:04 investment principles so you can apply those principles to all asset classes we mainly discuss stock markets um in the book and the reason we actually wrote the book we wrote it late 2019 is we were essentially saying well at that point in time stocks were just we went to the rampant speculation phase that we the third phase of the cycle where the general public piles in and markets you could see it everywhere there was bitcoin there was tech unicorns uh you know there was all kinds of crazy ipos going on all of the indicators were there that um the market was essentially just had just become a voting machine and money flowed into whatever was popular and that's just a risky place to be as a stock market investor um so we were just trying to take a step

Starting point is 00:39:56 back and say well you know it's difficult these days because money in cash or bonds just doesn't earn the returns that it once did but you need to think a little bit differently in terms of cycles and you need to look for value um and but those those principles apply just as much to real estate as they do to stock so i guess the the good news for uh people with a buffer or people who were prudence and held back some cash is that stock markets will become much more attractive than they were over the next year or two there'll be lots of opportunities I think in real estate well yeah we've never had that situation where we could borrow such low mortgage rates in Australia before so there'll be opportunities as we come out the other side yeah absolutely we haven't touched on

Starting point is 00:40:46 the equities markets at all really so why don't we just dive in there a little bit given that That was clearly the focus of the new book. And talk about what's likely to happen in the short term. I mean, I'm with you. I was waiting for the correction to happen in the stock market. This has certainly put the oxy torch on that. But given that we're seeing it bounce around a fair bit, how do you see it rolling out in the short term and then longer term?

Starting point is 00:41:14 And where do you think the opportunities will be from a sector perspective in the equities markets? Yeah, really good questions. Well, quick disclaimer, obviously, we're just talking one-to-one. I've got no idea about personal circumstances. So obviously this isn't financial advice because we can't take into account individual circumstances. So I guess from the top level view,

Starting point is 00:41:40 we place a lot of emphasis on macro valuations and year-to-year price-earnings ratios, they bounce around all over the place. So we tend to prefer looking at a smoothed ratio, so the CAPE ratio or the Shiller PE ratio, which takes a 10-year smoothed view, is a much more, it's a smoother and more reliable measure. It's not a market timing tool by any means,

Starting point is 00:42:12 But what it does do, being a 10-year measure, it really has an accord with the business cycle. And the long-run average for the CAPE ratio has been over 120-odd years. It's been about 17. And the U.S. markets were up at 33. So that's why we were in cash last year. Not because we thought we could pick the top of the market, just because when you're investing at a CAPE ratio of 33,

Starting point is 00:42:37 that all of the information tells you that the expected returns over the next 10 years from that kind of level are essentially zero. So I guess applying that more broadly, well, Australia's CAPE ratio wasn't as wildly overvalued as the US. So that's a good starting point for people who are interested in looking at home. I think it's pretty rare for bear markets to finish in five weeks. So I think people don't need to panic about missing the bottom. If you look back over previous cycles, they say that bear markets often come in two phases.

Starting point is 00:43:16 There's the initial short, sharp shock, which we've already seen. But the second phase tends to be when people get sort of sandpapered to death as the bad news on earnings just keeps on coming. And we haven't even seen the beginning of that yet. So every travel company, every tourism company, hospitality, retail, they're all going to see their earnings smashed over the next six, 12 months. And we're not taking any joy in that, but just observing that if people think all of the bad news is priced in, that might be a tad optimistic, we might think so.

Starting point is 00:43:54 The old dead cat counts. Yeah, that's it. I think it's just a good time to be patient. You don't need to rush back in. That's not what investing is all about. You know, it's not an all or nothing thing. I think in terms of sectors, well, just again, applying the macro valuation tools, tech has been way overvalued for some years now. The most out of favour sectors have really been things like energy and oil sectors like that. So some opportunity is starting to come around. But I think just to summarize, really, these days you don't need to be a stock picker.

Starting point is 00:44:31 You can own whole indexes. You can own whole sectors. So it's become a lot easier for the mum and dad investor. But just try and think with a value hat on because I think that's where at the peak of a cycle, That just goes out the window and everybody's just chasing the next big thing like Beyond Meat or WeWork or whatever it is. And that's where people come unstuck. So just go back to a bit of common sense. Be patient.

Starting point is 00:44:59 There'll be plenty of opportunities over the next few years. Emerging markets are now very cheap indeed. So there's lots of countries outside of Australia where you can invest. And from a personal perspective, the FTSE has dropped 40% in a very short space of time, so I've got some British pounds that I'll be looking to drop in there, especially into the big oil companies. Yes, yes, spot on. Yeah, I couldn't agree more.

Starting point is 00:45:25 And I think the take-home message there for me, and I guess I'm talking personally here, I've been a bit of an index investor for quite a while because I simply don't have the time to look at individual stocks and I'd rather spread that risk across an index rather than trying to back a horse in a race. So that's pretty much your thoughts around it, mate, or you'd take a much more laser-focused approach on what you invest in? Yeah, look, it's personal perspective. I think if you look at the capitalist distribution,

Starting point is 00:46:01 you'll find that very few companies account for the bulk of returns and probably in australia something like 60 of companies in the asx never beat the index and a surprisingly big chunk lose three quarters of their value at some point so it's um if you think you're just going to consistently pick great companies it is possible but the odds are actually quite heavily stacked against you so if you don't have the time or inclination to be analyzing companies uh then well you don't need to you can own the whole the whole index or the whole sector so from that perspective um the world has opened up a lot for mom and dad investors um to manage their own money so you can minimize the um we call it the three c's of managing your own money it's cost and choice

Starting point is 00:46:54 and control because um sadly uh the financial services industry their goals aren't necessarily always aligned with your own um we always say that the first rule of managing your own money is just don't lose money you know the old warren buffett quote rule number one um and if you if you must be a stock picker and pick your own uh companies and we still do some of that um you'll generally find that it's a lot you do a lot better to look for the big systemic companies that just pay off strong dividends proven over many cycles um so from from a personal perspective this is not advice i should stress but uh in the past month i've been picking up companies like bp and shell they've been absolutely hated over the past year or two because of the esg

Starting point is 00:47:46 tsunami so a lot of fund managers have had to get out of the so-called unethical stocks but the dividends that those those companies will throw off over the next 30 40 years will just be immense and the big systemic companies aren't going anywhere it's very tempting to try and pick the next big uh you know the next amazon or the next microsoft but statistically speaking it's very hard to do and it's even harder to hang on to them when they go through the wild swings that growth companies always do yeah absolutely i've always said that good investing is is is boring and it's it's like what watching paint dry if you're exciting you you're probably not making any money um no and if you look at um buffett's great genius over the

Starting point is 00:48:32 years i mean all these a huge amount of what he's achieved has simply been to have the patience to wait for good prices and when price when everybody else is selling he just mops up a huge company so he's been uh companies like apple and suncor and more recently some big oil companies and kraft heinz and probably not the best example but you know what i'm saying is that he's just he understands that the bulk of your returns can come from dividends over a very long period of time uh so as long as you buy the right price uh you don't need to be trying to pick the next big thing you can actually pick some old proven systemic companies and they'll just deliver for you year in, year out.

Starting point is 00:49:17 Yeah, absolutely. No, really solid suggestions there, mate. And I'll stress that for those listeners, we're not giving advice. I'm certainly not licensed to give advice and I'm assuming you're probably sitting in the same barrel as far as that goes, Pete. But as someone who walks the talk

Starting point is 00:49:36 and actually does what you're talking about, just some insights personally on our thoughts around that. We can't do stock picks for people on a podcast because obviously it's different for people at 25 or 75. Everybody has different goals and circumstances. So we're just talking general principles. But yeah, I guess coming back to your overall point, valuations over the next year or two will be much more attractive than they were in 2017, 18, 19. So yeah, every recession brings around new opportunities. Yeah, 100%.

Starting point is 00:50:13 And I guess the other thing that I would suggest people take advantage of now is to actually step – if you're just poking money into super hoping that that's going to get you where you need to get to, then you're pulling in for a bit of a surprise. And I think there's a need for people to increase their own knowledge and be a bit more proactive in that regard. What are your thoughts around that, mate? yeah look um so obviously again individual circumstances differ i mean the great benefit of super is that it's such a tax efficient vehicle but i guess the the system isn't really set up for people to win i think this is the problem um the the goals of a super fund aren't really to maximize geometric returns they're really just to maximize fees under management and to smooth out the journey so um that may be fine if you've got no interest in money or no

Starting point is 00:51:09 um financial knowledge at all but um if you want to actually do better than the average super can still be a good place for people to max out their contributions because it's tax efficient but um the reason we talk about the three c's i mean think about the fees that the super fund charges uh let's say for the sake of argument it's one percent but it every year as your balance increases hopefully that one percent becomes the bigger fee so and it's not just the fees themselves that are the killer although they're bad enough it's actually it's the compound growth that isn't allowed to flourish as a result yes so one or two percent may not sound like a lot but if that's coming out of seven or eight percent returns well gee whiz that could make all the

Starting point is 00:51:57 difference to your net worth over 20 30 40 years so um the other problem is that really the goals just aren't aligned um there will never ever be a bad time for a super fund to invest it doesn't matter if um valuations are off the charts like they were last year they'll just keep on investing so yes there's there's a certain benefit i suppose in that people stay their course but if you experience a um a 20 percent drawdown um well you need to make 25 percent just to get back to where you were and uh yeah heaven forbid if you lose 50 percent um well that could be a very long time because you need to double your money just to get back to where you started so that's why we always say um that choice and control as part of the three c's well if you think stock markets

Starting point is 00:52:49 into the speculation, rampant speculation phase, as they clearly were, well, you can take some risk off the table and pile up some cash because you know that better opportunities will come around. Yeah, very good advice. Just to put some colour in your comments there around the impact that fees can have on the compounding value, in my own book, The Freedom Formula, I more apply it to the property side, but I talk about the difference in a, you know,

Starting point is 00:53:17 because some funds will charge up to 3% and a 3% difference coming off the growth, if you had an investment worth 400 grand, for example, and you held it for 20 years, that 3% difference is a 75% impact on the nest egg at the end of it. So massive impact and it's a thing that very few people look at is what are the actual fees that are being pulled out of there, Super, and are they aware of the impact that that's having.

Starting point is 00:53:48 So, yeah, great commentary on that. Thanks, mate. Mate, let's sort of bring it back to the here and now. And given there is a lot of fear and a lot of anxiety and there's a lot of people pretty scared of what's happening and concerned about what it's going to do to them, given the conditions that we've sort of touched on, can I get your thoughts on what it's going to mean

Starting point is 00:54:14 and what people should and shouldn't do in various categories. So if you just summarise your view for investors. So I think for what we just touched on, equities markets, I think just be patient. You'll get plenty of opportunities to deploy your cash over the coming years. I think for property investors, at this point, it's mainly about risk management, keeping your tenants on side. um the worst cases we've talked about payment holidays but just to remember we will come out

Starting point is 00:54:48 the other side so i think um i think it's a good time to be cautious but um yeah it's mainly just a risk management exercise because these downturns do come around and um i suppose being british uh we've been through uh several i mean brutal recessions and it never feels like fun when going through it but one thing i have learned is that uh the darkest hour is before the dawn and you do come out the other side so australia has been lucky in the sense that we've had 30 years without a recession that run is now going to be broken but it doesn't mean that it's the end of the world and uh whether it's six months or nine months we'll come out the other side and things will get better yeah enough to spot on if we if we look at uh homeowners and we you know

Starting point is 00:55:34 We've got a disproportionate number of homeowners here in Australia, mate. What does it mean to homeowners that you see it? Yeah, it's mainly just, again, just keeping a buffer and just making sure that you stay afloat. There's not really much to be done for homeowners. I expect a lot of people who are planning renovations or extensions will put those on hold, but mostly it's just keeping the show on the road for the foreseeable future.

Starting point is 00:56:03 I don't think it's a great market for people looking to sell into. There's always an argument for upgraders if they can get a deal, but for the great bulk of homeowners, it's not purely an investment asset. So for most people, it's just keeping up with the repayments and keeping a buffer as well as you can. Yeah, no, spot on. You sort of touched on sellers, on buyers in the current market. Yeah, I think there are still buyers active,

Starting point is 00:56:32 we have a buyer's agency arm and there's still people transacting i think as you said valuations may be conservative so you do need to be a little bit cautious and certainly don't overextend and as we always say you don't want to take advantage of people uh but on the other hand in the current market you're probably facing a lot less competition than you were um say in october or November. So from that standpoint, you can focus on buying some high quality assets. But just be aware that things can get worse before they get better. So just be a little bit cautious. Yeah, good advice. So just sort of bring that to a head then, in terms of what the average hardworking Aussie should and shouldn't do, mate. Can you summarise your thoughts around that?

Starting point is 00:57:22 stop reading the news would be a good one because uh i think there's definitely a trend towards the sort of um i think they call it doom surfing you know people almost hooked onto the daily uh doom and gloom news i think it's um it's just a good time to keep a sense of perspective um because um the reality is that economies and businesses do have cycles and um we've had a long run through the mining boom australia relatively unscathed through the past uh through the downturn of 2007 to 9 um but maybe we were due for a recession but um yeah i think people just need to um yeah just keep a sense of perspective and um yeah i think if i was watching a video the other day of um uh jim rohan speaking back in the 1970s and he said i can tell you what the 1980s is going

Starting point is 00:58:18 to bring and sort of everyone was listening up close and he said there will be it will be challenge give some really big challenges mixed with opportunities because he said that was that's what happened in the 1950s what happened in the 60s and the 70s so there's no reason to think that the future will be any different so keep calm keep a buffer uh manage your costs obviously uh but just remember winter seasons as always will be followed by summer Yeah, brilliantly said there's something enduring and unchanging

Starting point is 00:58:51 if you've sort of been in the game long enough you'd sort of expect these periods and then prepare for them I think the biggest challenge for a lot of the Aussies is there's been a generation or more of people who just live through good times so while this seems dramatic

Starting point is 00:59:06 it seems life-threatening and life-ending it's not, this is just another flow-through of the normal cycle and the good news about this one is that the policy makers and governments at all levels are really sticking their hands in their pockets to make sure that they're going to minimise the pain,

Starting point is 00:59:30 which is pretty rare. Yeah, and there's a whole load of things like that that we just cannot control. You can't really, you've got no control over what the government does. The economic impacts in the short term, that's outside of our control as well. I expect when we do come out the other side there'll be a levy so taxes will go up that's also outside of our control so there's a whole load of stuff that we can't influence but the

Starting point is 00:59:54 only thing we can control and change is ourselves so you need to really focus on controlling the controllables absolutely spot on and let's dig in there a little bit because the mindset part of any investing as you and I know and in fact most aspects of life is all about your mindset and your expectations. What do you do to control your mindset and what thoughts do you have for others that are just wanting to try and distill some of the fear and focus on getting things more back in control as far as they're concerned wow that's such a big question i wouldn't even know where to start i think um i suppose look rewind the clock um because people may not be familiar with my background i was working um my professional career i was a chartered accountant i was i worked

Starting point is 01:00:53 in professional practice for many years i was a director one of the big four firms and i i just never it never gelled with me at all and those uh professional practice uh firms they um it's kind of like a pyramid almost you you're on the route to partnership as you get towards the top but you're either in or out at that point and i i was never never on that sort of partner train if you like so for me it just there was no um congruence in what i was doing so so i think in terms of what i learned from that you need to try and find um what it is you are meant to do because i i was i was deeply unsatisfied with my career and that manifested itself in all kinds of other things i was a i was a heavy boozer i was a smoker i was unfit there was a whole lot of things that flowed

Starting point is 01:01:46 on from that so when i i've been self-employed now for about 10 years and uh as you know the um The mindset is really the biggest thing, you know, and so I just work on trying to just to try and improve myself because there's so many things that we can't change, like economic cycles and market cycles. we can't influence those things so i just work on good health exercise i read widely i try to i try and learn as much as i can about good business practices because those are things i can change um so um it's different for different people but try and find what it is you are meant to do that will make such a huge difference and then just focus on improving yourself because that's the one thing that you can always influence. Yeah, and I extremely well said, mate.

Starting point is 01:02:39 And again, I think the busyness of life gets in the road for a lot of people because they'd like to do it but they never get around to it. We've actually got a rare window of opportunity now given that the whole world's been put on pause for a period to actually change some habits and invest some time in exactly those things. So self-health and wealth. for those who sees that opportunity we're coming into some fantastic times to take advantage of that for those who stick their head in the sand and just think that this is all going away and

Starting point is 01:03:11 life's going to go back to the way it was I think they're in for a bit of a surprise so yeah awesome mate so I think we've covered off on most of the areas there any final thoughts on how best to survive and then thrive with the opportunities you're going to emerge yeah i think um i think i suppose just going back to some of those timeless principles i think um there was an old saying that you should try and work harder on yourself than you do on your career and that's not to say that people should be complacent in their jobs and not try hard of course we should always try to be the best at what we do um but i think if you focus on your day-to-day life and career at the detriment of working harder on yourself in the end that that

Starting point is 01:03:58 won't help you because you don't um you don't sort of just get paid for turning up at work you don't you don't sort of say right nine hours multiply that by uh fifty dollars an hour that's not how the world works what you really get paid for is how much value you can add and to how many people. So I guess if you're looking for ways to thrive, I think we touched on what investors need to do. There'll be some big opportunities in that sphere. But in terms of thriving and success, well, just remember that you really get paid for the value that you can add. And so if you can add more value to more people, that's where success will come from. Yeah, absolutely spot on. Mate, final question which I ask of all, I guess,

Starting point is 01:04:46 when getting invested these days and very apt for the times that we're now in. If I gave you a microphone that spoke to every one of the 7.7 billion people in the world and I gave you one minute to talk, in the context of our current times, what would you say? So if I was speaking to the whole world and I've got the microphone, uh i said uh filling the nerves there if you've made me feel nervous just even picturing that

Starting point is 01:05:15 idea but uh yeah i would say yeah first and foremost work harder on improving yourself more than your job um you know work hard on yourself and probably secondly uh just remember that these these recessions and winter seasons they're going to keep on coming whether we like it or not so the real trick is learning to handle them and we don't know if it's going to be a three-month recession or a six-month or a nine-month we can't control that um it doesn't matter if it's long or short the trick is learning how to handle those dark periods because we know that they're always followed by summer seasons and um i think there was another old uh adage that said that really in the end thriving and success is really attracted by the person that

Starting point is 01:06:01 you become um and um it's a bit of a cliche but success is really looking for a place to stay so focus on improving yourself and just remember those dark periods will never last forever yeah brinkley said mate and a great way to wrap up the exercise because uh it sounds contrarian but i actually get excited by these times because this is really where the opportunities do emerge. We just need to plan, prepare and be ready for them. So, contrary to the minute, second-by-second, 24-7 reality TV show that mainstream media has made COVID-19 into,

Starting point is 01:06:51 this will be a blip on the screen in the forms of time. I know we've got a lot of landlords listening. And so just a crumb of comfort for you being a Brit who's been through a couple of brutal downturns. I'm just thinking back to January, February, March 2009. It is actually hard to imagine a bleaker time for real estate than that. Nobody was buying, the credit had frozen up, there was runs on the bank, unemployment heading to double digits. There was no sense that we were ever going to come out the other side. It was utterly desolate. And then eventually, markets turned not on optimism, but just on pessimism. You reach that peak point where everyone thinks, oh, we're all doomed.

Starting point is 01:07:38 And then suddenly, for apparently no reason, things started to pick up again. And then we went into another boom. and a decade-long boom so it's uh it doesn't it never feels like fun when you're going through it but eventually we will come out the other side and we'll all be fine yeah no great place to sum it up there mate uh the the new book uh low rates and high returns how how long before that hits the shelves uh so it's selling in now so it should be on the shelves by april or may so Dimex and most good bookstores and yeah it's just that the timeless principles you need to follow so it's not it's not designed for a point in time it's just recognizing that we're probably

Starting point is 01:08:21 going to be with low interest rates now for a decade so you might just need to think a bit differently about how you manage your cash and your investments yeah and very timely in the the context of what the current situation has accelerated us into. Mate, for those that, and there'll be a lot of them, who like what they hear from you, if they want to do some more work with you, how can they and where can they contact you, mate? Yeah, so there's a few different places.

Starting point is 01:08:55 Just my main website is peatborges.com. I do write a daily, a free daily blog just to get all, as you can probably gather, I've got way too many thoughts going on, so I tend to throw those out. So that's Pete Wardgen Blogspot. And if you're interested in coaching programs, it's gonextlevelwealth.com.au. Fantastic, mate. Well, look, always a preacher of your time. There's a lot of gold in what you share with us there today, mate.

Starting point is 01:09:22 voice of reason is exactly what we need to be hearing in these times so very much appreciative and looking forward to catching up again soon always a pleasure mate thanks mate well Freedom Fighters how good was that

Starting point is 01:09:40 to get a summary of all this investment gold in the show notes just email me on hello at khgroup.com.au that's H-E-L-L-O at khgroup.com.au or check us out at www.bussymartin.com.au forward slash getinvested.

Starting point is 01:10:01 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.

Property Hub - Investment Insights & Inspiration - Get Invested: Part 2: How to survive in uncertain times with Pete Wargent

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