| Welcome to the August issue of the Dashboard Newsletter. I'll start by giving a big shout out to the New Zealand athletes who participated in the Birmingham Commonwealth Games and brought home a record haul of 20 gold medals. What an effort! Well done Team NZ - you champions!
What a difference a month makes! In last months newsletter, there was very little cheer and a torrent of bad news. Share markets had just endured the worst first half of a calendar year in 50 years, inflation was racing away, and interest rates were rising. Fast forward 1 month, and share markets have had a noticeable rebound, inflation seems to be peaking, and interest rates seem to be stabilising. With this in mind, I'm going to tell you a story that may seem entirely irrelevant. But bear with me - there is a point... In 2013 Harold Varmus, then director of the National Cancer Institute, gave a speech describing how difficult the war on cancer had become. Eradicating cancer - the National Cancer Act's goal when it was signed in 1971 - seems perpetually distant. Varmus said: "There's a paradox that we must now honestly confront. Despite the extraordinary progress we've made in understanding the underlying defects in cancer cells, we have not succeeded in controlling cancer as a human disease to the extent that I believe is possible." One of the missing pieces, he said, is that we focus too much on cancer treatment and not enough on cancer prevention. If you wanted to make the next big leg up in the war on cancer, you had to make prevention the top priority. But prevention is boring, especially compared to the science and prestige of cancer treatments. So even if we know how important it is, it's hard for smart people to take it seriously. MIT cancer researcher Robert Weinberg once described it: "If you don't get cancer, you're not going to die from it. That's a simple truth that we sometimes overlook because it's intellectually not very stimulating and exciting. Persuading somebody to quit smoking is a psychological exercise. It has nothing to do with molecules and genes and cells, and so people like me are essentially uninterested in it - in spite of the fact that stopping people from smoking will have vastly more effect on cancer mortality than anything I could hope to do in my own lifetime." Breakthrough drugs are amazing, and we should cheer them. But few things are as effective at fighting lung cancer as the boring advice of telling people to quit smoking. And here's my point. The same irony applies in investing. When you stand back and look at the share market's performance so far this year, it's easy to wonder (with hindsight) why you didn't see the downturn coming and time your way back into the market as the rebound occurred. And if you take this idea a step further and apply it to individual stocks, it looks even more startling. Tesla's share price started the year at $1,199, then fell 47% to $628 by 30 June, and has now bounced back 41% to $883 today. A similar pattern applies to Amazon, Microsoft, Alphabet (Google), Mainfreight, and dozens of other stocks. If you timed your buys and sells perfectly, you could have made a fortune this year... But the reality is that it's near enough impossible to do this. That's the equivalent of trying to find a cure for cancer in the space of a year. 90% of the solution to financial problems is "save more money and be more patient." Nothing is more powerful or more capable of moving the needle. But it's so boring. It makes you sound like a school kid. Smart people don't want to devote their careers to it. They want derivatives, high-frequency trading, offshore tax shelters and intricate investment strategies. But the reality is that in both cancer and investing, things that are boring but effective are discounted relative to things that are exciting but knowingly less effective. So my boring (but hopefully effective) advice remains this:
In terms of the markets, the past month has seen some material developments. In an encouraging sign, the July inflation print in the USA came in at 8.5% - a fall from the June print of 9.1%, and lower than the forecast 8.7%. Whilst this is still a very high print, it is encouraging to see the direction change downwards, and to beat expectations. It's too soon to tell, but perhaps we've passed peak inflation... On the flip side, the economy in the USA contracted by 0.9% for the June quarter. This follows a contraction of 1.6% in the March quarter. So by definition, the USA is now in fact in a recession (2 consecutive quarters of negative growth). In saying that, it is a very "shallow" recession with only modest negative growth at this stage. I watch with interest. Geopolitical risks remain with the China / Taiwan / USA tensions thrown in alongside the Russia / Ukraine conflict. The China / USA conflict has been present for decades and has never escalated. But it would be remiss to take this for granted - the consequence of escalation would reach far and wide. All said and done, major share markets rebounded from the 30 June lows and are all up between 5% and 8% over the past 30 days, with Hong Kong the only exception down 6%. Mortgage rates came down slightly - a welcome reprieve for families with mortgages. House prices continue to fall though. Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, I am pleased to report than the returns over the past month have been strong (in line with the broader markets). Our fund managers continue to meet our expectations under what are extremely challenging circumstances. I meet with researchers (JIM Wealth) later this month, and will let you know if there are any material developments from this review. Finally, a quick update on our Giving Back program. We've had a slow start to our campaign with Kaibosh, but still hope to make a meaningful contribution to their great cause by the end of the year. To keep track of the Giving Back program visit https://mifinancialplanning.co.nz/giving-back.html As always, thank you for your continued support by introducing friends, family and colleagues to our business as prospective clients - I really appreciate it. Warm regards Dave and the team at Makowem & Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice.