Author archives: Alex Jamieson

What age is the correct age to retire?

Two weeks ago, I attended a medicate specialist appointment with a neurologist to discuss a CT scan of my brain and check everything was ok.
 
Despite his enormous IQ, his bedside manner certainly needed some improving. Lets just say my 4 year old son had better social skills than this medical genius! As I walked into his consulting suite, his opening remarks were a smart statement and question around why was I not retired if I was a financial planner? I looked at him a little surprised as I was there to speak to him about my health rather than discuss financial planning matters. However, I pushed aside my urge for normal pleasantries, as I could tell quickly that he was wanting to engage in some type of banter. So I replied…. …..If I was to retire at my current age, then I would look to sit on the couch for the next 49 years based on my current life expectancy…..that’s a lot of TV watching don’t you think?….I think I might get bored! Thankfully the neurologist didn’t have another smart comment to reply, but it certainly raised an interesting question when it is time to retire?
 
In a couple of weeks time I head off to the annual general meeting at Berkshire Hathaway to hear Warren Buffet speak and provide some valuable insights about the economy and the markets etc. The interesting thing about Warren Buffet’s board of directors is that of the 13 board members Warren is 83, Charlie is 90, David Gotesman is 87, Donald Keough is 87, Thomas Murphy is 88, Ronald Olson is 72, Walther Scott is 82, and the rest are aged between 50 and 60 years of age. Even if I look at the next generation of successful entrepreneurs like Eton Musk who is aged 43 and has a net worth of $8.2 billion, why does he not throw it all away and sit on a couch and watch TV for the next 44 years? The names I have listed above in the eyes of this medical specialist would each have sufficient resources to buy any island in the south pacific and live out their remaining years basking in the sun….so what really causes these people to work when financially they don’t need to?
 
The answer is simple – they enjoy their work! Buffet often remarks that he feels 20 years younger than what is stamped on his drivers license and he skips to work each day!  In other words one could say that he truly enjoys his life’s purpose and has so much more to give! If you are not into the high powered executive life, you only need to travel 10 hours to Japan for another example.
 
The community called the Okinawans are a rare group of Japanese people with more people aged over 100 years than anywhere else in the world. The fascinating finding here is that most of the Okinawans work well into their 90’s doing traditional work like fishing and faring etc. Retirement can be defined (yes I actually looked it up) as to ‘remove’ or ‘withdraw’. As such, is it possible that one might just not want to remove or withdraw from what they do? What if one was enjoying the ride of life and work and didn’t want to get off? Similarly, what if we put this in the perspective of a musician that never wants to stop playing their music and the thought of never playing agin would bring them great sorrow. Are musicians meant to stop once they are at a certain point or certain age? No, its a part of them. Equally for those listed above, working is exactly the same as it is their passion.
 
So next time you are thinking about retirement, you may start to think differently now to the opinion of my neurologist as its only time to retire when you feel its time to withdraw from what you are doing. If you need help too in defining what the next phase of your life might look like, feel free to contact AJ Financial Planning. Oh….by the way, my results came back all clear  – just a false alarm!
 

Go…. no stop… no go, no I mean let me get out!

There has been a saying when it comes to investing, a lot of people expect to do exceptionally well when they first start investing.  The reality with most early newbies can often be a mixed experience and a mixed result, if proper preparation or guidance is not provided.

When it comes to investing in shares, it is always easy to enter with very few barriers.  You can open a basic share trading account and trade for as little as $1 in brokerage.  When a newbie starts investing they think about the millions they are going to make, but few think about the exit strategy and what that might look like when things don’t go according to plan.  The major obstacles in most cases in the psychology of crystallising a loss or potentially being wrong.

A long time ago before kids, when time was plentiful and in no shortage, I used to play golf.  I often found that the game was a great equaliser.  You might hit a perfect round one week and leave the course believing that you had finally mastered the game.  Then, the very next week, you would turn up expecting to replicate the similar magic, only to have a horror round.  As such, the game quickly brought you back to reality.

Investing, if you are not careful, can have a similar impact, particularly if early on you have a wonderful result in a speculative investment.  Immediately you feel that you have the “midas touch” – the ability to turn everything you touch into gold.  I believe it is at this point in time that you need to be most careful with your mental and psychological approach to the market.

We have often seen people take unnecessary and extreme risks with investments, as they have taken a double or nothing approach.

So when it comes to investing, it is particularly important to look not at only your ‘attack strategy’ -how to capitalise on a particular investment, market or sector, but it is equally as important to think about your ‘defensive strategy’ – how will you behave when things don’t go to plan and what should you do.

Sometimes the best defensive play is to simply just remove the biggest inhabitant to minimising loss.  This might be a little hard to take but in some cases it might just be the you, the investor.  When one loses money the investor’s psychology can run wild.  To date, I have not met anybody who is over the moon with excitement when they have made a loss on their investment.  Crystallising this can sometimes be even harder for some.

The easiest way to sometimes combat this is to simply insert a trailing stop loss each time you invest in the share market.  This does two things from an investing perspective.  The first, and most important, is that it automatically removes decision making around if you should or should not get out.  The second is it provides a reset button on your strategy to review and revisit the approach.

A trailing stop loss simply follows behind a share.  If you imagine a dog walking along, the leash is the share price and the dog racing along in front of you.  The stop loss continues to follow along and enjoy the ride.

If the share price turns and then starts to drop you have the ability to exit the position at a pre-agreed percentage.  The other advantage is that you have protected your profit.

Now like most great ideas there are some elements to consider with this strategy.  For example if you have held a stock forever and sitting on a significant capital gain this could trigger a nasty capital gains tax bill, and you might think twice about this strategy.

Alternatively, if you set your trailing stop loss too tight then you may be bounced out only for the position to turn around and head back up.  It is amazing how many people set their stop loss positions at even number such as $1 or $2.

Like all great investment ideas, if in doubt you, might want to speak with AJ Financial Planning to find out a little more of how to implement such a strategy into your portfolio.

 

 

 

 

 

Warren Buffet’s Biggest Lesson

smoke stake

This week I was driving back from visiting a number of clients who live in country Victoria’s Gippsland area.  On my way back to the office, I passed a large brown coal power plant and I started thinking about this sector…….. and in particular…..  if it is a growing or declining industry?

I realised too that there is a lot of parallels between this industry and Warren Buffet’s textile investment. Let me explain….

Warren Buffet’s company “Berkshire Hathaway” started originally as a US textile mill.  He has been quoted as saying that this was possibly one of his worst investments.  The reason being, is that the textile industry whilst cheap at the time of acquisition, was also in a declining industry in the US. Buffet has also famously said “If you get into a lousy business, get out of it….if you are wanted to be known as a good manager, buy a good business…”

Not surprisingly, Warren Buffet eventually closed the textile mill, however kept the name as a constant reminder of his lesson.

There are a number of lessons one can learn from this experience.  The first might be to act very cautiously around a cheap investment or asset.  It is important that the investment has a future and a prospect for growth in the future – otherwise you may find that although the asset is cheap ,it might also be a “value trap” similar to Warren Buffet’s textile mill.

In many ways, this brown coal power factory I was passing by is in my opinion similar, to the textile industry for Buffett.  At some point the alternative power sources will prove more efficient and more cost effective.  In this industry it is not a matter if it will be replaced, but more a case of when will it occur. In other words it is a declining industry.

It does however raise a larger question about the investments which you might hold.  Are they too in a declining sector?  Most people might quickly respond stating “not mine!”,  however since 1900 in the US there are only 3 companies which remain today.  So I believe it is not a case of if your investments will decline, but more a case of when.  Understanding the date stamp on your investments and the future prospects for growth are very important when managing your investments.