When up is down and down is up

May 31, 2022
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Guest blogger: Peter ThornhillArticle published by RJS Wealth Management Pty LtdAlthough unpalatable to some, I am a sometimes follower of the Darwin awards. These recognize individuals who have supposedly contributed to human evolution by self-selecting themselves out of the gene pool via death or sterilization by their own actions. The GFC has been my microcosm for examining the self-selection by some out of the pool of successful investors in the financial world.It is now 6 years since the 'tizz' that was the GFC derailed the global economy and I feel more confident in my belief that history repeats itself. It is all well and good me delving into history books to find examples to quote but, sadly, they are history so can be ignored by many. However, having a number of these events occur in one's own lifetime does help confirm the proposition. I have no doubt that, like me, someone in the future will be seduced by the 'this time it is different' brigade until eventually, during their lifetime, events will remind them that it isn't different.China, "stronger for longer"? Yeah right. I seem to remember similar stupidity associated with a property bubble in Japan dressed up as an economic miracle during the 60's - 70's. I attended strategy meetings where we wore headbands printed with the word 'kaizen' which was the new 'religion'. When the property bubble burst we realised it had nothing to do with 'incremental improvement' or literally 'good change'. It had all to do with inflated property prices which, inevitably, deflated. As is again apparent pre and post the GFC, property is again the source of much that is good and evil. Sadly, the positive outcomes from the incremental improvement of industry over the last few centuries continues to be subverted by the speculative approach to property by individuals, corporates and governments. However, I digress.We have watched the price of iron ore soar on the back of insatiable chinese demand and we now watch as it has steadily declined from $200 a ton to less than $70 a ton. As we import 80{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of our automobiles has anyone noticed the price of these cars falling by 70{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357}; which is good, a falling or rising price?The world is again in a 'tizz' as the price of oil tumbles. I remember the world being in a similar tizz back in 1973 when the price of petrol doubled from 5c a litre to over 10c a litre by 1977 and had increased fivefold by 1983. The resulting 1973-74 sharemarket corrections have, collectively, not been equaled in the last century.The current commentary has also prompted me to again examine my collection of financial 'pornography' for a precedent and, lo and behold, what popped up from 2004:6/10/2004 6:55:29 AM US blue chips downIn New York, US blue chips edged down on Tuesday as crude oil climbed to a fresh record above $51 a barrel.FOLLOWED THE NEXT DAY BY:7/10/2004 6:55:45 AM US stocks advance on oil jumpIn NEW YORK, US stocks advanced on Wednesday as record crude oil prices above $52 a barrel boosted energy stocks like Exxon Mobil Corp.I do wish they would make up their minds!As time goes by I become more enamoured of the splendid chart I initiated shortly after joining MLC in 1995. It tracks both income and capital from an index of Australian industrial companies and I am indebted to David Hutchison for his recent speedy updating for 2015 which I am now able to present below.


Can I firstly highlight the similarity between the post 1987 period and the current period?Although being positive about shares during and post the GFC I found few who were prepared to accept my enthusiasm. Whilst the outcome has been sad for the faint of heart, the impact for investors has been 'positively' staggering.As is clear we have, after a short hiatus, resumed the steady growth of dividends since the GFC. Having commented at some length in previous newsletters regarding the initial dip and subsequent recovery I won't go into the background again (refer website for previous 5 editions).It would be remiss of me not to mention the 'tizz' that a number of high profile individuals are in as a result of these dividend increases. This is apparently a 'blight' on the Australian economy as companies, having no foresight, are paying dividends to shareholders and returning excess capital to shareholders when they should be spending this money to increase economic activity (whatever that means)! Doing just what was prescribed by these commentators, Rio would be a standout contra example having destroyed billions of dollars of shareholders' funds in the recent past.Having said that I would like to update the data on two of my less gung-ho favourites, CBA and Wesfarmers, who must be at the top of the naughty list for not p*****g shareholders money up the wall to satisfy the zealots.Wesfarmers purchase price in the 2008 rights issue was $13.50 (having fallen from over $40.00) and the total dividends paid since that purchase amount to $9.30; 70{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of the purchase price has been returned. In addition, those shares are now worth over three times amount paid. The last annual 12 months dividends total $2.00 which puts them on a current yield of 14.8{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} on the original purchase price.Similarly with CBA; the purchase price in 2008 for the share purchase plan was $26.00 (having fallen from over $60) and total dividends paid are $18.24. Again, 70{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357} of the purchase price has been returned. The shares are now worth three times the amount paid and the last 12 months dividend was $4.01 putting this parcel of shares on a current yield of 15.4{89774503f1dc5a8067a215bf11c503ad6eecdd9fbdfb7beae4875fba6258e357}.I know not what lies ahead but remain comforted that wherever we end up, we will have been there before and I will relish again the opportunity to acknowledge and benefit from Darwinian behaviour.This blog has been prepared by RJS Wealth Management Pty. Ltd. ABN 24 156 207 126. RJS Wealth Management Pty. Ltd. is a Corporate Authorised Representative (No. 438158) of Modoras Pty. Ltd. ABN 86 068 034 908 an Australian Financial Services and Credit Licensee (Number 233209). The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals personal circumstances have been taken into consideration for the preparation of this material. Any individual making a decision to buy, sell or hold any particular financial product should make their own assessment taking into account their own particular circumstances. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Pty Ltd recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this fact sheet can change without notice. Modoras Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication.

June 1, 2022

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