Hello and welcome to the Australians Money Puzzle Podcast.

I'm James Kirby.

Welcome aboard everybody.

This is the last regular show for the year and just a little teaser about what's coming up over the holiday season.

I do have some things lined up for you next Christmas Week.

Our special holiday edition is wait for this because it's quite different.

It's about money and movies.

Okay, it's the best money movies.

And I'm sure you all of movies, and I'm sure you all of money movies.

I sure do.

And I got the Australians film critic Steven Roma to come and do a show about the best money movies.

I think you love it.

That's Christmas Week.

I'm also having some replays of our most popular shows from the year and you'll hear them come out over the middle of the holiday season.

We're back with you then in early January, where I imagine you will all be back like me, ready ready to return to making successful investments now before it's too late and I forget.

I want to thank in particular my producer Leah Samuelu, who does a great job every week behind the scenes producing the show that you get to here and let me tell you, folks, you don't know about this, but things go wrong on this show just about every week and she fixes them.

We have so many issues, as you can imagine, because we are talking to guests from all over Australia and they're often in different places at different times, which is marvelous that we can do it, but it is actually quite a chance.

So thank you, Leah, and thanks also to our guests through the year, and of course, most importantly thanks to you listeners.

I'm delighted to say that the audience for the show has grown again this year.

And most of all, what I like about that growth in the audience I'm getting we are getting on the show is that it's not volatile.

It's like the best investment.

It just grows reliably as we keep building out our following.

So thank you all folks very much.

Indeed, okay, now you ask what on earth is he going to do on the show this week?

We are going to look at how you did this year, what happened this year, and what on earth is happening just now as we enter the final stretch where unfortunately some of the numbers are going the wrong way to join me, is our most regular guest I think on the show, James Girard, How are you, James?

I'm doing great.

Thanks for having me on, James and listening to a little preamble.

Next week, I hope you cover a boiler Room, which is a classic two thousand movie about this company that shills Penny Stocks has got Vin Diesel and ben Ethlete.

That's one of my favorites.

Oh really, what as you like?

Oh?

What was it one with Jordan Beillfort.

Yeah, the Wolf of Wall Street.

Wolf of Wall Street.

How you can't go past that?

That is fabulous, isn't it?

Well, folks, that's yes, Wolf of Wall Street, boiler Room.

You know what else do we have?

Well, we don't just restrict ourselves to the narrow gen that might be the business movie.

We look at The Social Network, for instance, which is a terrific movie about Facebook.

There will be blood.

We go all the way back to the nineteen fifties with the Treasure of Sierra Madra, directed by John Houston, which is about gold, which happens to be their very best investment this year.

You see, so you can see how it all links.

Actually, James, let's just have a look.

First of all, I think it's interesting, and I can remember years where this happened.

If we had done this show even a month ago, I think things would be looking a lot better than they are.

That's not to say things are looking bad, but folks, as we wrap out the year, I think there's a clear sign that the markets, the investment markets are foltering in this last lap.

So, just to bring you up to date our ASX, which I suppose is still so important to everybody, the AX two hundred is barely straggling along at eight percent really for the year, maybe four and a half for something on price appreciation, in three and a half on dividends a little bit more, but you know, eight which is actually not quite the average that you would expect historically.

So not wonderful really.

But of course the US has been a terrific operator as a market through the year, and then the other things, I think, the things gems that really pulled it up are surprises.

Tell us first of all, tell us your impressions about that.

What does it look like?

Do you think we're going to end up with a pretty average year for the market.

Here looks that way.

Yeah.

So while the US has gone up a lot, double digits like mid teens.

The Australian market has sort of fizzled out.

It's gone down five percent over the past month, and so as you say, it looks like we'll get a return of four ish percent on price appreciation, and then we do get good dividends, which is fortunate, so that does help bring the total return up.

But the issue for our market is it's really concentrated across banking stocks in the resource sector, and the resource sector has been mixed.

You know, some companies have gone up ten or twenty percent, but then others have come down the same amount, and the banking sector overall has only gone up four five percent.

Having gone up quite lofty prices, investors are realizing that, all right, well, there's mean reversion around that price to earnings ratio thing.

So as companies get more expensive, they're eventually going to hit a point where the future earnings don't support the current prices.

And as we're saying, the prices come back down again, and so given the weighting of the financial stocks on the ASX, that's led to where we are now.

We're only barely keeping up with inflation.

With the gains on the share market for this calendar year.

It's yeah, it's I think maybe, I imagine many of our listeners.

The way to look at it really perhaps is with ETFs, because ets is very handy to use as a big picture instruments.

So if you have an ETF, for instance, on the ASX two hundred, well that's what you're going to get, folks.

Eight percent, as we call it today.

We're to close off the markets today, which is kind of just a little below average.

It's not great.

You're depending on the dividends.

Again, if you had a US ETF an S and P FI five hundred, ETF making seventeen per well, that market made seventeen percent, and to get that, of course you need to have a hedged one, wouldn't you, James.

That's the thing that the that it's one of those years where the currency did hit us.

But the point I spoose is that those US markets, you know, seventeen percent on DAK, fifteen percent on S and P five hundred, twice as good as our market yet again yet another year.

Should we accept that is how it goes?

I think we have to, and I guess you have to think about why why did our market only go up a few percent, and why did the US markets go up so much?

And all I can put it down to is the simplistic argument around AI and technology stocks.

The US has the biggest technology companies in the world, and video Apple, Microsoft, Amazon, Meta, Tesla.

You keep going on from there and or they've all done pretty well with it this year, and as this whole AI boom is taken off, that's lead for the US markets to just keep pushing ahead, whereas we don't have that same AI focus on our markets.

Where a mining share market, where a banking share market.

So we haven't had those AI tel wins like overseas markets have.

No, we haven't, but then we haven't had the scares either.

So you can see that they're starting like that fifteen percent was better a few days ago, folks, even a week or two ago.

That overall return from the US market is falling in this last few days, and there are some serious sell offs going on.

Oracle, for instance, Big US.

Everyone knows Oracle that is seriously down because they took a big AI bet and that is seen to be too risky and has not convinced the market and our own AI sector.

Next TC for instance, you know it was actually gone nowhere this year where you would have thought it would have shot out the lights, but it didn't.

So there is that there is there is a softness.

Maybe it's just a pocket and air pocket, or maybe it's the beginning of a rolloff.

We just don't know.

We can only tell you what's happening so far.

But just sticking to that notion of having ETFs, well, I mean, the great thing is that you can go and buy things.

So you could buy NASDAK, or you can buy s and P five hundred, you can buy emerging markets.

If you had an emerging markets ETF, you'd be up about twenty percent.

So that's an excellent I suppose the example, isn't it of diversification, which is this thing we say on the show you need all the time, don't you.

You need to have that across and this is a time for example it pays off.

The other one was gold Lacrosse James sixty twelve months.

WHOA, yes, do you have the equivalent in Melbourne?

In Sydney we've got Martin Place and there's one of the larger gold companies in Martinplace, prime position, and at the peak of the gold fever, there was lines out the door every day, which just reinforced this fear of missing out mentality around getting gold.

Did something similar happen in Melbourne?

I don't think there's a highly visible gold shop like that, actually so so.

But hey, we saw the stills on TV, we saw the cues outside Martin Place, and as you say, it paid off, didn't it.

I mean, gold really paid off this year fifty six percent.

So there was a fear of missing out on that occasion.

It was actually accurately placed because it was the trade to be in this year.

And bitcoin then, on the other hand again and another way people will listen to the show might get into an area would be to get it.

Just get a bitcoin ETF to sort of play in that space, and that's been flat.

So I think at least that this year puts the debate over gold and bitcoin to rest.

That the idea that bitcoin is some sort of digital gold, I think, personally forget it.

This year shows that I think fifty six percent today on gold minus seven percent on bitcoin.

What does that tell us, James, I think.

That tells you that investors are looking for the next shiny thing, and for the past couple of years, it's been bitcoin, but you look at the past month and a bit, it's fallen by thirty percent in value, and it's over the twelve month calendar year it's down twenty percent or a bit over twenty percent.

And why because it's not shiny anymore.

AIS come along and that's where people are placing their bets.

I can't tell the amount of people that I speak to who have said I've put money into Nvidia.

And actually I have one client who where transitioning his portfolio that he manages over to me, and I'm looking at what he purchased, and he bought two thousand dollars worth of Nvidia, which is now where.

Fifty six thousand dollars.

So yeah, people have made a decent amount of money to chasing this new shiny ball of AI.

So yeah, I think that's why people have sold bitcoin, is to sell bitcoin, which was previously the in a vogue thing and move over to AI stocks.

So for the conservative investor, I mean, you're not supposed to do this.

You're not supposed to chase the new shiny thing.

You're supposed to take a diversified, steady, reliable approach and build where steadily that is the best way to do it.

We know that, we have a million surveys to prove that.

How does it investor with that frame of mind approach this market, which is volatile.

Doesn't really quite capture it, but it's the best word for it.

In other words, it's an unpredictable market.

We talked about the ASX two hundred been disappointing.

Small caps on the ASX are up eighteen percent, and small caps is an area where people can lose money quite easily.

But this year has been very good.

Similarly in the US, yes, they've had a marvelous run, but it's volatile.

So for instance, and as we moved to Christmas, there's really signs of that market folding.

And you mentioned Telsla.

I mean a lot of Tesla is about what time you went in.

I mean, it's had great periods, it's had dreadful periods.

I mean you could have just got it completely wrong on timing it.

You've taught right to time you're buying and selling in Tesla.

So how does the average every day investor approach this market?

So I'd say that firstly, it's never been a better time to be an investor because you have so many ETFs available to your disposal to build such a great portfolio.

Go back five six years ago.

You can build a basic portfolio with ETFs.

But now if you want Korean share market exposure, if you want lithium only companies, there's so many little narrow avenues that you can buy segments via ets it's fantastic.

So coming back to well, how do you deal with all this constant change.

The way that I think about it is that you have a large part of your portfolio where you have long term discipline to it.

So you're buying low cost ETFs that have exposure to the ASX two hundred, the s and P five hundred.

So they're the cornerstone, the building blocks because you know that on average you're going to get close to ten percent return if you just hold this thing and ride out.

The cycles ups and downs.

But then you have a part of your portfolio where you go, I'm happy to rotate and I'm happy to chase themes.

So that's what we call it the tactical part of the portfolio, and that's where we're chasing the shiny ball for you know, maybe it might allocate five percent of the portfolio for shiny ball chasing, so it might have gone from bigcoined over to AI and then you may decide to overweight certain themes as well.

So you set a percentage of a portfolio to say that this is not the core.

I'm happy to move this around it and chase the theme to try and outperform what my base call long term portfolio is going to achieve.

That's really interesting.

Just tell us a little bit more about that and why you think that that notion of that it's the best time to be an investor, because obviously the point you're making is you have access to everything where once upon a time you didn't.

Where once upon a time you would hear about spectacular companies in Europe or the US or Japan, and you just couldn't get them.

It was extraordinarily difficult.

Now you can just say I want to put ten grand into Japan and you can literally just buy an idio of Japan.

Is that what you're driving out.

Absolutely, there's more access, there's more number of investments, the administrations a lot less as well.

So go back twenty years ago, when I was a junior, I was filling out paper application forms for managed funds.

You don't need to do that anymore.

If you want to manage fun, you go buy it on the share market, or you can set up at a very low cost what we call platform to access thousands of different managed funds.

So yeah, it's really easy for someone to be an investor.

But I guess that's a double edged sword as well, because it's easy to get set up and invest, but then it's easy to not have discipline and just chuck everything at AI, or chuck everything at technology in Australia, or pick some little narrow niche of investment that could go very wrong.

But also the other thing which I'd noticed, that there's so much information out there.

Like twenty years ago, there wasn't the money puzzle podcasts around, so people had to go to a professional advisors to go get advice, whereas today they can listen to fantastic publications like this and learn and educate themselves.

So education plus access is there.

That's why it's a great time to be an investor.

I like that, and I think it's substantially true.

You know.

I think of when I would talk to people previously, fifteen years ago, something about markets, the people who knew about them, or they didn't basically, and it was, you know, it was a very significant sort of journey to really get in and understand it all.

But I've talking to a guy actually last night at our Christmas party, young guy, and he that's exactly what he was doing.

He was playing the market.

He was he didn't know everything he needed to know about markets, but he knew the fundamentals and it was through ETFs, which was which is a very interesting way to play it, certainly to have it as your core and as you say, you can move out from the sides.

I suppose the issue is that the ETF will will really only do moderately well or moderately badly.

So if we have a bad year, you will, you will, it will be reflected in your ETAF for a good year similarly.

But the thing is, I suppose you're missing when a stock comes right, it comes so right, and this is so good when you have like anyone, even the CBA might have rolled down a bit this year, but anyone who has CBA for a long time will tell you that is a stock at it at.

Its most, at its best.

It's so splendid because you get this capital growth, you get strong dividends and they do bttfs out the door.

Let's have a break and come back and talk about shares this year and what happened and what we need to know.

Hello, Welcome back to the Australians Money Puzzle podcast.

James Kirby here with James gerard Offinancial Advisor dot com dot au.

Okay, James, Now we did talk about sort of the big picture of the market and what's happened and concealed.

I think behind those sort of bland numbers of maybe an eight percent for total return on the ASX two hundred and maybe sixteen percent with their one point three percent dividend on Wall Street, the S and P five hundred, there is quite extraordinary divergence inside the share market throughout the year.

In our own market, I suppose the big theme of the year, James, has been the banks really rolled off, didn't they Combank, Macquarie Bank.

I think there was If they had held up, we would have had one hell of a year, but they were sought off through the year.

And you said at the start of the show, this is a local market which is heavily based on banks, financials and miners.

Why do you think those big bank stocks were sought off in the second half of the year.

I think there's been a lot of optimism.

We had a bit of a hiccup in share markets around that March April period when Trump came out with the trade tariffs, and that caused markets to drop, But beyond that, people have been looking forward saying that we're in a growth market.

They're happy with company evaluations.

They've been buying into these growth companies, and that's meant that the value stocks, the blue chips, which the financial sector, the banking sector is part of, they have become out of favor with investors as investors have chased these more sexy technology in AI based stocks.

And so we see this with our data.

So we run multiple portfolios.

We run a growth portfolio and we run a value portfolio, and the growth portfolio has far outpaced the growth of the value portfolio.

But that said, I think that we could be in for a bit of a change next year because if these big companies, mainly in America, the technology companies, don't hit their earnings forecasts very quickly, we're going to see a big drops in those markets.

That said, you look at some of the big banks, JP Morgan, Goldman Sachs.

They're both saying that they think the S and P five hundred is going to be ten percent higher by end of calendar year twenty twenty six.

Yes, yes, well we have to take that seriously.

We also have to know the history that they say that most years, because nobody knows, folks.

I'd love to tell you that we know, but we don't, and not do JP, Morgan or anyone else to tell you whatever they may say is going to happen next year.

Well, they're just guessing.

It's an educated guess, but it's a guess.

I'm just going to take a look quick look at some winners this year, James.

Interestingly, Real twenty percent.

Look at that against the market, that's that's what did we see?

Four and a half percent?

So Real one of the few big blue chips that really pushed it out this year.

The minor some of the reeds Murvak very strong, some traditionals like coals in the teens, so sort of really mixed bag.

There isn't there of miners, reats.

What do you think that tells us about where we're going from here?

It's a very chopping market and so that's that's one of the benefits of buying ASX two hundred is that you get in this blended return against some of the outperformers that you've mentioned, against some of the underperformers.

You look at see itself down thirty five percent, and.

That's a shock, isn't it.

That is a show that was our biggest stock for a couple of years, big bigger stock on the market.

So what did you see a thirty percent plus?

Yeah, yeah, it's down massively, and a couple of others treasury wines down similar amount as well.

So if you're an individual stock picker, great time, because there's a large divergence there of some that have shot the lights out and others with which haven't.

But if you're more ever a passive investor or more focused on I just want the average return of the market.

Eachs a great place to be at the moment.

And as you mentioned, the small cap and microcap stocks that have done really well, and I called that as being a theme earlier in the year for newsletter, because you just see the prices of these large caps, particularly the banks, and you think it has to go back to a normal price, and you look at these small caps, and they're all hovering on very low valuations, so they had room to grow, and I still believe they have more room to grow as well.

So overall, you know, if you say the market's going to do a ten percent return next year, you're probably not going to be wrong most of the times, as you say, because that's the average return of the share market of a long periods of time.

Taking no risks saying that, yeah, okay, I'll hold some want to get into small caps beyond an ETF where you know it's fine to say small caps for up eighteen percent, that means you know, roughly two thousand little companies where are up on average by eighteen percent, and there will be extraordinary divergence within that.

What do you think?

Now you're opening the philosophical door to passive ETF versus active managed funds.

So if you're an active small cap fund manager, you're going to argue that small cap ETFs always underperform.

Why because the small cap ETF will buy the whole small cap market.

But once you take away the ETF manager fee, you're going to get lower than the market average.

Whereas the ETF manager will say that go for passive because research shows that ninety percent of active fund managers will underperform just buying the index over a ten year period, so it's really about having it.

In my opinion, we do a blend, almost a fifty to fifty blend.

We go, all right, we're going to place our bets in fifty percent passive because we want the average return, and then the other half we're going to do research and find that top quarter manager that's consistently outperformed the index net of their fees.

And with small cap managers in particularly, you need to be quite conscious of the fees because not only will they charge a base fee, which can be roughly one percent, but they have these things called performance fees.

So if they generate a return more than they sent benchmarks, and sometimes they get cheeky and set the benchmark as the cash rate, so if they do better than cash, they're going to take twenty percent of that excess return.

Which it's pretty easy to beat really at the best of times, isn't it.

That's right, Yeah, So your total fee can end up being two three four percent after their performance fee has been taken into account.

But hey, if they're getting you thirty percent whereas the index got your twenty percent, you're happy to pay them their three percent fee.

But just picking that consistent manager and maybe having a blend of the passive versus the active would be my two cents.

Do you think the fund managers in small caps have a better chance of performing than fund managers and large caps?

I do.

Yeah.

I caught up with a fund manager recently.

He was a former Sydney Swans player turned fund manager, and less, I wouldn't know.

What it is anyway, I don't know any of our sport.

And I said, really, there's small companies like can you add that much value?

And his argument was that, well, yes, because we're a fund manager, we're dealing with these small cap companies.

So the management open their arms to us because they know that if they say the right things to us and we're happy with them, we're going to invest in them.

We could actually move their share price.

So the biggest thing with a small cap fund manager that they say their advantage is access.

They get to meet with the management of these ASEX listed small and microcap companies and really eyeball the CEO, CFO in upper management and then make decisions around whether they not only trust what they're getting through ASEX releases, but what they get in the vibe of the meeting as a meeting with these companies.

Yeah, and I imagine that's very true.

So you take something like PHP results, you know there's going to be forty two analysts sitting on a conference call.

They don't know the CEO.

But if you go to see a company which has got whatever a two hundred million market cap or a ten million market cap, you can get in the door and you pas a manjie as you say, you can eyeball these people who are in charge of the company.

And that is extremely important, which is not something that most not to mention casual investors, but even professional investors get to do.

It's a really good point.

Okay, very interesting.

We'll be back in a moment.

Hello, Welcome back to the Money Puzzle podcast.

James Kirby with James Gerard.

Now, James, a couple of things that just want to on a wrap of the year, and in terms of what our investors which really mattered to them.

I think it was a couple of things that we might just quickly look at.

You talked about still some buoyancy in the share market, some positive forecasts.

Maybe the chance that the small caps it will also outperform again next year.

That's on shares again, that the US will may well outperform the ASX.

Certainly it has done so for twenty solid years in a row or not in a row, but on average, there was a year I think it was twenty twenty one where we did better than them, but it's very rare.

So you got those two things and we can put them on the table.

Then in our local economy as such, I think the big surprise of the year was the change of direction of interest rates, right, so we thought there was more cuts coming.

I think that's over now, so we're going to have potential rate rises.

How would that play out for investors in markets?

In investment markets locally.

It would be definitely a negative for a couple of reasons.

The basic economics of rising cash right, is that it's more expensive for companies to leverage their balance sheet, so more expensive for them to access capital to expand and acquire other companies, so that hurts the profitability of share market companies.

The other aspect is around.

The effect to the economy when interest rates go up, people spend less on discretionary things that go on holidays.

Less, they don't upgrade their cars, don't upgrade their TVs as much, and so GDP comes down, the activity in the economy comes down, so again that that's bad for share markets.

So I think that the Reserve Bank will be somewhat cautious given that we were expecting more rate cuts to happen.

But now if that inflation bumping back up, I think they're going to sit on rates and hopefully it will just remain flat next year, That's what I think, which will then sort of negate any positive or negative impact of share markets.

Okay, all right, I think we might just leave it right there, because I think it's kind of poised perfectly, James, as you see a lot of attention about this changing direction in industry as folks, and a lot of attention to the fact that the money markets and some analysts are saying that there will be a rate to increase.

Perhaps there will be, but maybe we could work on the basis that it's going to be unchanged.

That's certainly going to be unchanged till you come back from your holiday break and I come back for our holiday break.

So I think on that mildly positive note.

We may just draw a line.

Hey, Thank you very much, James Gerard.

My pleasure.

Thank you for another year of having me on.

I look forward to more appearances in twenty twenty six.

We will have you back early.

We will have you back early in twenty twenty six.

I have plans for you, James.

Okay, very good, folks.

Thank you for everything across the year.

Keep the correspondence coming.

I love to see it coming in on any issue that you like, the money puzzle at the Australian dot com dot au.

Talk to you soon,