I recently received a facetious Twitter response to one of my daily tweets about a story I’d just posted on my Switzer website. I had written on why I wanted to hold good quality, dividend-paying stocks, which were exceptional value for the long-term investor (and still are!).
The Great Depression economist, John Maynard Keynes, once observed, “The market can stay irrational longer than you can stay solvent”. And while that is wise advice for anyone who is an active player of the market, it doesn’t apply to a long-term investor who has a balanced portfolio and isn’t in a desperate cash flow situation.
I recently interviewed the founder of Cape Lambert Resources, Tony Sage, who reportedly had lost $17 million since the GFC, and when I brought it up with him on my SWITZER program on the Sky Business channel, he replied, “That’s only on paper and as I am not a seller, it is not a big deal.”
I’ve seen analysis of some 1,200 ten-year periods for the Australian stock market (yes – 1,200!) and never once would an investor have lost their capital over that period of time. The repeated historical average of share returns on a per annum basis over a ten-year period continually comes up with gains of about 10-12%; and if that kind of history repeats, our money doubles every six to seven years or so. This is just a rough patch, which always looks shocking on a daily basis — it’s like getting a stubborn tooth pulled out without a shot!
But back to the Twitter response. The smart alec looked at my worldly wisdom on investment and tweeted: “That won’t make me the richest guy in Australia.” And he’s right.
That was a lesson I taught myself on a beach in Sifnos, Greece in June 2008, a few months before Lehman Brothers failed and we were thrown into a worse version of what we are seeing play out in Europe right now.
Being ‘the money guy’ I’m billed to be, I wasn’t reading Wilbur Smith or Tim Winton, but the latest BRW Rich List issue. As a little survey, I read each story of top 100 richest people in the country to see if there were common themes to explain their success – and there were.
First, many had made their money by starting businesses, which ultimately became listed. Think names such as Packer, Lowy, Pratt and many more who fit this pattern. The second theme for wealth success was a high exposure to property and the connection between business success and property often showed up.
Few people apart from some executives on improbably big salaries, performance bonuses and payouts could link their wealth to shares.
Shares won’t make you the richest guy or gal in Australia, but they are a conduit through which you can tap into the wealth of business builders. You can become a co-owner in a business and the better that business does, the wealthier you will become.
I always argue that we aren’t just buying shares when we invest in the stock market; we’re buying companies. The best goal for most of us who will never become the richest person in Australia is to aim to be the wisest investor in Australia, and if you aim for that, you’ll build some seriously impressive wealth.
By the way, Nabi Saleh, the guy who built Gloria Jean’s Coffees into an international success story, always aimed very high. He said by doing that, even if you missed out on what you really wanted, you would still be in a pretty good place.
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Also in the Switzer Super Report