The Barefoot Investor

My Sunday morning ritual starts by being woken up (by the panting of my
labrador retriever, Buffett), pulling on a tracksuit, grabbing The Economist
magazine from my front lawn, and heading to the beach for a read.

The prestigious weekly, which has been around since 1843, is required
reading for key decision-makers (and everyone else) throughout the world.

A recent edition carried an article called ‘Competitive Failure’ which
discusses consolidation in the global funds management industry, which as
you’d expect is quite a dry subject, making quite a boring article. That was
until I got to the following paragraph, which states, quite
matter-of-factly, exactly how fund managers rob billions of dollars a year
in management fees from people like YOU:

“Retail fund managers compete on past performance rather than price (fees).
Alas, a good performance one year tends not to be repeated the next; but the
fees carry on. [And] because of their inertia, retail investors tend not to
buy funds; funds are sold to them.

Fund managers must pay banks and brokers to distribute their products, and
they claim back that money from investors. As a result the bestselling funds
often have the highest charges; other things being equal, they represent the
worst deal for investors.”

I’ve long understood that the ’wealth management’ industry is fundamentally
about transferring wealth to the manager through fees, and complicated
performance rewards. That’s why I’ve long advised investing in traditional
Listed Investment Companies (LICs) and index funds (a whole universe is now
available - the best trade on the New York Stock Exchange).

Yet since travelling through the US and meeting Buffett (the investment
legend, not the dog swimming in the beach on a 9 degree day), I’ve changed
my approach — slightly. Like me, Buffett is a critic of fund managers and a
fan of index funds, but he also advocates directly investing in good-quality
companies that are selling at a reasonable price, and holding on to them
forever.

This is, after all, what allowed him to start with nothing and amass a
multi-billion-dollar fortune in his lifetime.

I’ll email you soon with more on the evolution of a Barefoot Investor.

Tread your own path!

Last night on my regular gig on ABC radio’s Nightlife I was joined by my good mate, consumer property advocate Neil Jenman.

Top of the bill was discussing the recent property predictions that house prices are set to increase 20 per cent over the next few years.

It was always going to be a fun show.

Jenman’s a man who speaks his mind so freely that his wife has made him promise he’ll only be sued for defamation once a month.

As a twenty year property veteran, he has built up a multi-million dollar property portfolio over his career — much of which he is now in the process of selling, because he believes that property prices are overvalued.

Across the country people called in to get our advice, from first homebuyers to property investors. For an hour we had perhaps the straightest discussion on property you’re likely to hear:

http://www.abc.net.au/nightlife/stories/nightlifepodcast.htm

(Tuesday Nightlife - Barefoot Investor)

Last Sunday’s newspapers ran the story that Mark Philippoussis had run out of dough, with a finance company seeking $1.3 million, costs and possession of his home after he served a few faults on his mortgage.

The playboy, who between sets lived in mansions, drove Ferraris, Lamborghinis, and Paris Hilton, apparently didn’t see that his wayward spending would soon catch up with him. OK, so a sports star flushing his dough down the dunny is a cliche - The Poo wasn’t the first and he certainly won’t be the last. That said, there were a couple of learning lessons for all of us.

The Dumb Person Advantage

In the interview Philippoussis was quoted as saying: “I didn’t understand that maybe I should ask questions about this or that or check things”

One of the wealthiest guys I know has a strategy he calls ‘dumb smart’. In any form of financial negotiation, he doesn’t try and impress the other party with how much he knows (which is generally always a lot more than the person he’s talking to). Instead he’ll say things like “Sorry, I just don’t understand, can you explain this to me really simply?”, or “What do you think is the worst that could happen here?”

Doing this takes the pressure off him and puts it straight back on the other person. The more they talk, the greater the chance they’ll say something stupid, and reveal the ace they’re trying to keep up their sleeve.

Income Doesn’t Equal Wealth

The most important lesson to be learned from the Scud saga is not to confuse a high income with wealth. My job puts me in contact with people who earn mega incomes, but they also have mega expenses. In many instances these people are poorer than the administrative assistants who do their dirty work and earn $40,000 a year.

Now at the age of 32, The Poo has had ‘game, set and match’ called on his estimated $10 million fortune.

He’d be wise to get a copy of my first book, The Barefoot Investor:

It contains a solid, reliable, no-nonsense plan for managing your money that anyone can start immediately today.

Tread your own path!

Last night I had my regular gig on ABC radio’s Nightlife program, where I spend an hour talking about money issues, and taking talk-back from listeners live right around the country.

This week I spoke about the First Home Buyers Grant (FHBG), and in particular the sucker punch it will soon send to some first home owners who can’t see the sub $500,000 market for what it is: one of the biggest false bubbles in property history, that will soon come crashing down and take many unsuspecting, over leveraged young people with it.

It’s not a popular view.

Politician’s love it because, well, they’re the one’s who are dishing out (our) dough — and hopefully picking up a few votes in the process. Banks love it because they make money lending money. Builders love it because they take our tax dollars and put it in their pockets. Real Estate agents love it because they make their commissions flogging property.

Last night the head of the Real Estate Institute of Australia called up, live on air, to complain about my take on the boosting of the grant. For a few minutes I listened to him waffle on about why the grants were a success.

Then I lost my cool.

‘You’re talking rubbish’, I told him. ‘Tell me, how has throwing money at something ever made it cheaper?’

To hear his answer, and my advice to first home buyers check out the podcast of last night here:

http://www.abc.net.au/nightlife/stories/nightlifepodcast.htm (Tuesday Nightlife)

Tread your own path!