Tony Kynaston - Situation Normal
Welcome back to shares for beginners UNFIL- mascatello listening to this. Podcast will be aware that I normally discuss topics of a general nature only with guests. We don't talk about market conditions happening. However I know there's a lot of fear emotional turmoil game on at the moment so let's pour some oil on troubled waters of US Coniston from the Qa podcast to come back on so that we could ally some of those fees tiny feel faithful at the moment. So I emailed Tony yesterday and mentioned difficult times and Hema email back saying situation normal hence the name of this episode. There's also a few moments at the end of this podcast from Rub Gilmore about the oil prostitution because it's not all about the corona virus. You may remember rob as the first guest ever on this. Podcast dropped around this morning to give us insight into the oil price. What's volatile and why it has an effect on markets so we're recording this on Wednesday march eleven at ten. Am The markets are just opened? We're having not having a look at this before that at this stone. I look at it that often. I guess at this time I look at it. Maybe two or three times a week so on Monday the ASX two hundred. The top two hundred shares on the Australian Stock Exchange dropped seven point three three percent that was after dropped around thirteen percent in the previous wakes the moves on the New York Stock Exchange of being similar yesterday the ASX. Two hundred closed up about three percent after opening three point. Eight percent lower overnight the US is up nearly five percent. These gyrations quite funky and wild yet tony. You're remained sanguine. Why well I think what's happening with. The market's going up and down at the moment in particular is people reacting to stimulus to what Elliott is assigned. What's happening with light as reports of spread of Corona Vars? So they're acting to news and we can't lose sight of the fact that the share market is a market it's people trading with people and therefore subject to human psychology. Which is the study of behavior? And we we need to have a framework to deal with that and the framework which says this is how I approach investing on buying shares in companies and. Yes they tried it on and isn't subject to psychology so I have to have that framework operating in that kind of real environment but I can't be blowing sided. Bought it by human psychology. And I think that's what's happening in the market at the moment is is people are I guess because the news tends to focus on share markets at this time it is becoming top of mind and people's awareness. It's a bit like we've all worked in offices where there's one person who always begins a conversation with have you heard the lightest and that kind of person is kind of dominating the market at the moment and we need to be polite to that person we need. Basically in there will be times when there's big falls and we have to decide whether we're borrow seller and there'll be times when those big Roy's is and we have to decide whether we were borrower seller but that's part of being an invest up and before the podcast go talking about Warren Buffett. And he's quite we need to be fearful when people are greedy and greedy people fearful now. We had the faithful when people are greedy activity last year and they were having the greedy when people are fearful top event this year. I'm not saying that people should be buying into the market at the moment but should have an idea of what will be a situation when they'll bind to the market and I have a framework. I guess I need to put a caveat ramble. I'm talking about here. I'm trying to give people a boss. I'm trying to tell people do and that's different. I think whether you fall is up to you and what we're all about on air podcast. The podcast is to teach people how to think for themselves and to deal with markets. And I have a framework and the framework used to look look for the quality companies and look for them when they're at value and at the moment there are lots and lots of companies in that situation. But what we're doing is well on on waiting for the sentiment around those companies to start to turn. That might not be. It might be tomorrow. It might be in six months time in twelve months time but That's that's what I'm looking for and we talk about what we call a three point. Trend Line graph. Some people talk about moving averages so basically it's when the short-term sentiment in the market overtakes the long-term sentiment in the market and when we see that starting to happen then we'll we'll be a bar in this market but there are plenty of opportunities to to boy. So what would you say to someone? At the moment. I mean it's a psychological thing and because of all the headlines and because of all the media making a big deal about it and Italy's in lockdown if your new to the market and you're not sure what's going on. This is probably a learning experience for you because this kind of corrections happens. Every six or seven years. It's basically wants the sokoll event in the shamrock. So I get used to it as we said before situation normal. These things happen. I think the last one happened like there was a ten to twenty percent correction about December. Two Thousand Nineteen so so. I don't panic. I guess as the message by the same token if you're scratching your head saying okay become during this process but I don't know what to do then I would be hesitant to start trying to guess and trying to put money into the market if you really don't know what you're doing this Nairobi. The learning point in price for a new sharing vista. Maybe I don't know what I'm doing. I don't have the stomach for this gone. By Elicit Investment Company Anita or put my money in industry super fund or or a life fund off think. That's a very legitimate tyke out to have from this the last two weeks in the market and I think that's a very smart thing to do if you're feeling at all squeamish or at sea or not confident with what you're doing you can. You can certainly keep learning and maybe even running a paper portfolio during this process and see how you went and that's part of the learning process but if you are answer and don't don't take a risk put the money into a into a fund because this has been a very recent event. I mean people might have been buying an ATF three weeks ago. Yeah and this is. This is the first time they've been hit with it. So it's just a learning experience really. Isn't it something to think about and really stick with it? Yes Oh exactly want shouldn't think this would deter people from being ashamed. This is what I'm saying. Is this happens? This is normal for a shame market but if you are feeling squeamish or unsure what to do maybe maybe direct investing isn't for you but maybe in the future and so keep keep at it and learn through this process but I remember I call the GMC my my University of course in in share investing. And before that when I first started investing and did everything wrong. That was my my school of investing. So you always learn through these prices and experience does does help us give you the framework to keep calm and in buffet as we said before said you don't need anarchy over one hundred fifty to share investing need to become impatient and and that's exactly what we're seeing at the moment and other buffet saying years. Mr Market is a manic depressive. Knots your door every day and says on the by Your House. And here's the price it's up to. It's up to you whether you sell or or by his house next door. He'll keep coming to you or show. Keep coming to you with a price. It's up to you with the process. Did you enjoy his latest news and a couple of weeks right? What's your really recommend people go to the Berkshire Hathaway site very simple side. It's really just the list of the past twenty years of newsletters and start to read them fantastic and there's also actually all posted in the blog. Post this episode. But they he did an interview to our interview with CBS. Okay interview if you've seen that excellent interview. I mean the guy's rock solid is rock solid in the way he looks at looks at things and and I have a framework. I have a way of doing things and white for the market to to be in the right condition before I act so W- no one can predict the future but there's a lot of talk about that. Australia is going to go into a recession this year. How would that does that? Have any effect. I guess it doesn't have any effect on the way that you think about things or just changes the the timeframe of your investing now. It doesn't have any any direct effect and I guess I don't WanNa say I'm flippant I mean people will be hurt. If there's a recession people will be hurt. In particularly with the corona virus going through people will die so. I don't want to sample these various series topics we're talking with but in terms of how they impact don't have I invest. They just part of the general hilly billion the market I said before I have a framework of looking at companies individually. I look at the quality metrics and I look at the price and and decide whether it's their value or not and as Alaska the screen and look to see what the market's doing and with that company using an upswing or a downswing before I decide to pull the trigger and by that will be affected if again to a recession I expect that the list of companies looking at will grow but a and it might mean that anything for six months or twelve months Siberia and they all hang onto the ones. I've got and I would add a word of caution here to anyone out. There has a portfolio that they might want to consider reducing some of that gearing especially if it's a margin line when some of the shares can be at call. I don't think people have any idea of what a recession is like. I mean you and I were through several. I'm sure and that's kind of a market man. That's true I have at the back of my mind when when these kinds of events occur is that you know. I've lived through the ninety one recession through the Gulf wars of invested through the Dot Com crash the ninety eight long term capital management meltdown the Asian financial crisis the GMC. All these things you survive. And if you if you take the longer term view and look at the sham one hundred years the graphs dots in the bottom left hand side of the shape of the piece of paper and that goes to the top right hand side of the piece of paper. We'll always do that. I ever longer turn. We just have to keep that uppermost. Yup I'm talking to my daughter at the moment because she hasn't started investing it and she's got no idea doesn't want to do it she just wants to spend money and have a great time. She's at that age and But I tell her that his absent are available. These days which can help you get started investing like rays. Have you heard of rose? I haven't anyway what it does to basically it just rounds up every purchase on your own and that gets invested and I'm saying to a look. This is a great time to get started when markets down. Your dollar cost averaging in by getting in the best possible time. Is this the way that you would see someone? I starting in the market right now absolutely only gets Tom to start in the market anyway. Anyway possible yeah provider. You can stomach at going further down to help that price as you say is Duller cost average so if you've been dollar cost averaging into the market allows twelve months for example you've been buying lists is in the last twelve months now you buying more shares and so overall you're going to get a decent performance and you're not really worrying about where the market is you or you're trying to work out with them on by more or less the same number of dollars every month and I'm GonNa signed by twenty year old daughter who's asking us of the good time to start so we are starting with her the night. Perhaps we should explain what dollar cost. Averaging is here at this point sure so if someone for example to me and say I've just inherited one hundred thousand dollars. What do I do with it? The lasting ties him has gone. Put put it onto the market. Tomorrow I would say for example. Maybe take ten thousand dollars a month for the next ten months and every month spend ten thousand dollars buying into the market. And it's easier if you're buying an ETF listed investment company or putting it into US manage fund. You just keep putting ten ten thousand dollars in each up but what that means is that at the moment. Your ten thousand dollars goes twenty percent further. Then if you're doing it last year where you're buying list with that ten thousand dollars but I have a time. It evens out. You're buying market average. We haven't really discussed listed investment companies. But I just said this. We've got an episode that we've already recorded where you're explaining companies which will be coming up in the future. Sorry go into that. We've got that one to look forward to it anyway. Maybe we have discussed that. So if you've been holding off buying and you've got some cash is now something time. The people should stop thinking about it absolutely. Yeah I mean. The market's down twenty percent from its highs in my good answer this. I saw the overpaid told US dollar cost averaging to stop buying but yeah. This is sort of Tom. We're not going around looking at. How much undrawn facilities have in terms of debt? And whether I have any cash that Can pull together and start to put into the market the Koran Avars Heffler you of Karan Avars unfaithful of catching myself personally. And as I said before that one of the be flippant people will die from the virus on a macro style and economic scale it will disrupt supply chains if I sort of go through the risks of what could happen. I'M GONNA I'm GonNa say them as risks but they may not happen and I think yeah the management saying your hope for the best plan for the worst is a good one to keep in mind at this time but as you said before. We haven't seen the recession since nineteen ninety-one and it's we haven't seen what's caller supply recession for much longer than that so supply. Cyber session means that people can't get access to goods so for example. A bill to get access to howdy plank or something like that that they use to build a house with and that has two problems one. It means the house doesn't get built so there's this money going into the economy and the building has to put their their labs off but to also means that they'll be someone out there who can produce howdy plank in limited so the amount but the process go up and so we started to see inflation comeback into the market and so that the risk with with corona virus around the world is that people start having to pay more for like a buy cheaply either from China from from somewhere else that starts around of inflation and that's always bad for share markets because it's all the process of going up that means why we'll have to follow to pay for things Which means the economy go up. And that's a drag on business and the drag on the ship. All the shame marker and suicide tougher for people because they suddenly having to battle having to ask for more money and battle with the budget to try for everyday items groceries and clothing and things like that. You must be the person that sees inflation as a risk of this stuff. But I'm talking about real inflation. I mean we've lived through periods when inflation's be running at a high single digits and that's that's a pretty tough time to be to the an investor to to really get about an economy early Okay because Everyone else every pundit that I hear saying that we're going to be having low interest rates for a long long time. I'm a bit of a contrarian film and everyone says one thing I expect the opposite because no one can see the future and we're not a consensus in the market. It usually means it's already happened. Regret the turned the corner so the other side of the problems at the moment is to do with the oil prices. Well it's not just and we'RE GOING TO HAVE ROPE. Gilmore's I mentioned a bit lighter on just giving a brief review of that hetty say the oil price situation as it is developed. At the moment. I'll give you my opinion. And that's all it's it's you know. It's worth two cents really. I have my two cents. I did use to work for the Shell Oil Company so I have a little bit of experience in the world but not much to be able to shit any sort of certainty on. What's going to happen? I guess the fact is you need to consider out savvy. Arabia has just launched Aramco which is probably the biggest company in the world. Now it's seeing Russia's a as a major competitor so it's it's taking on Russia and doing some strange things to try and grow market share because Russia's economy the that's the main money earner Russia. It's one of the big ones it'd be only years. The energy oil. Guess yes. That's right so I can see tussles going on between Russia and the Ramco which is driving the prostate at the moment. I don't know when that will shake out. It'll be a game of bluffing. And who blinks first? I think I think the more important thing for the global economy is that if you Ara an oil company you have lots of debt your GonNa face a very tough time going forward. And I think it's the fallout of what happens to all companies in the financial community which is probably just as important or more important to awesome busters because there are some where we still applies out there especially in the. Us liberal leverage means that they've got some did got lots of debt. Yeah and so if I if I can't if they're showing all of the loss and thirty dollars a barrel they'll be some out there. Who are they will have to either refinance in which case that puts even more stress on the company and draws the shape process or or if they can't refinance and then if money to banks and those banks feis payment losses may become less profitable and this day and age all the banks are very interconnected site so banks realize that they shouldn't have all the eggs in one basket so they want just just be solely learning to the oldest straight dog often. And we'll take you take thought though. If they lie money to the oldest rate up probably gone borrowed from another bank to try and offset that line and balance out their portfolio which is the indicate by the financial markets. Were and we're back where we were with. Ge where you don't know if all company I goes down which bank follows it and which bank money which other bank and how that impacts back onto the banks in Austria and so you got this same slow situation of unknown risk in the finance system and that will also see the cogs of the economy starts to grow into a hole. Was there anything in the united that you wanted to say because all my questions exhausted fit my fears. I think probably the the last thing I'd say is that it's it's times like these when I like to watch and listen the people with long respect because again. I don't give advice but they have conversations like this and people like Roger Montgomery on your show recently. Montgomery's when I listen to you I've been watching rating lot of his stuff. Very calm very. He's an excellent devote. Jeff Wilson Formosan Asset Management Ellen Cola and weekly briefings and. He's PODCAST is good and obviously Warren Buffet. And Charlie Munger when they come out and speak as well. It's always with into and you can't feel quite isolated if you're an investor city by yourself so having these people talk to US cider speak even I might read. It came to be a good way of keeping you on track Ellen Collar and the money cafe it is skype podcast every week as well enjoying Thursday afternoons competitors. We shouldn't talk too much about competitors but They've got a nice lighthearted touch to the way that they trade in that does help make you feel better as well. It does not see you as a competitor for see them as a competitor Rogers role on the same wavelength of trying to help people to to learn about investing and to eventually break the shackles of pain. So many fees for forgiving people their money. That's probably the most important thing of of of that's why I do. And that's probably the most important thing I can contribute to this. Podcast US INTO OUR PODCAST. But please form your own opinion and working at what styles. It's you the best and work out. Where the you had to have the temperament and stomach for personal investing. And if you do great and if you would look for look for something with life as to invest you my and and also to the world goes on this is we're all about investing to improve our quality of life if it makes us if it keeps US awake at night and means that we can't enjoy it's not worth we need to allow through this whole process as well and continue to enjoy our laws trying to trying to be good investors fantastic. Thank you very much for dropping in China or I could feel and we'll just cut now to rob Gilmore. Who's GonNa give us his thoughts on oil prices and what's happening with oil at the moment as well Well it's not just the virus. It's the oil price and while the market's being trying to come to terms with the impact of the Koran of our outbreak for the last week and a half unsuccessfully mind you it was almost like the market took a king hit last weekend when OPEC filed to come to an agreement with regards to production cuts. Now we're going through a phase in the oil market where demand is dropping off because of a coronavirus and pick were trying to agree production cuts in order to could supply while demand had fallen now. Opec these days includes Russia and let me Putin decided not to cut production trying to go against basically what Saudi Arabia were pushing and the reason for that is because wants Roy. Us Shell oil to go out of business and he feels the best way to do that is to crush the oil price which is below the cost of production of US Shell oil and basically make them to fold on their debt and curb supply that way. During which time Russia Ken gain market share and ultimately prices rise and they profit from it so Saudi Arabia wasn't too happy with this and so they came to the Party and said right. Well if you're not going to cut supply we're going to increase it and we're going to drop the price so essentially what you've got now. He's a price war between the Russians and the Saudis by both have very low costs of production but how long can sustain this sort of price? War is is the big question. It's bad for share markets because any any shock causes uncertainty and volatility when you see the price of a commodity like oil full thirty percent. It has a dramatic impact on currencies. It has a dramatic impact on a lot of industries and a lot of industries that do depend on on oil and if you look at the ramifications of a lower price just on the US shall industry alone that has knock on effects into credit markets if they default on their debt then that causes further in credit which can potentially create some sort of contagion if you take the US shale oil industry the pots of that industry where companies are heavily indebted issued bonds. And if they default on those bonds that then has issues cause issues in in credit markets. And if you think about other industries that feed off the oil industry in the US like employment life. The contractors there are further ramifications in not only in the US but other parts of the world when you see dramatic fall in the oil price. It has a flaw in effect to Australia. Throughout gas produces where the price of gas is fixed oil so immediately your your product. Profitability of these companies has been effectively decimated because the cost of what they're producing has just fallen by thirty percent ships for the Guinness for information and educational purposes on. That isn't financial advice. And you shouldn't via Cellini investments based on what you put any opinion or commentary is the view of the speaker on the beginning. This podcast doesn't replace professional advice regarding personal financial needs circumstances. Oh Karen situation thanks to Christopher SUE MOSS FOR MUSIC PRODUCTION WITH THAT SPECIAL CURRICULA SHIPS FLAVOR REMEMBER. Musical wise flows even when the money went.