Safe As Houses

I recently attended an investment forum lined up with a bunch of bond and equity managers pitching their great ideas. It was held in Crown’s Palladium, and the room was full. I can’t imagine what it cost these folk to get a guernsey for the day – but I know who’s ultimately paying for it (and I’m sure you do too).

Our industry is full of smart people and not so smart people. It’s dominated by cool charts, engaging narratives, long disclaimers, Italian neckties and hand bags, and fancy lunches and dinner. Whatever can be controlled will be controlled, all in the pursuit of influence – one way or another.

There was one presentation by a stock market fund manager that confused me slightly. Yet it provided me with such clarity.

The confusion

The gentlemen was speaking about the ‘over-inflated’ property market, at the same time presenting the audience with a number of convincing PowerPoint slides. He then went on to explain why Australian shares, specifically the Australian banks, provided investors with far better value. This was difficult for me to follow. As an investor and avid market follower, I am fully aware that the Australian banks have their fair share of exposure to the property market. I mean, this is how they make their money, right? So I decided to run the below chart. It shows Australia’s real house prices (blue), and CBA’s share price (orange). Can you spot the trend?

On one hand we’re being told not to invest in Australian property, yet on the other, we’re being told to invest in ‘blue chip’ Australian banks. Can you see the reason for confusion?

The clarity

What was made very clear to me was that the stock market guy or stock market gal is going to plug their asset class by torching others. It’s sad, but true. I guess you’re not going to be sold a Holden when you walk into a Toyota showroom, right?

What’s worse is that investors are being fooled into a narrative that lacks evidence and substance. The pitch also got me wondering about the extent to which investors undertake analysis about their own investments. Where am I allocating my money? What is the underlying investment? What is the investment influenced by? What am I really investing in? Investors really need to be peeling back the onion.

Secure debt is another example. Investors hear the words and shake their heads, that’s too risky. Yet they’re very comfortable to take an equity position in a business that does this very thing. Where am I allocating my money? What is the underlying investment? What is the investment influenced by? What am I really investing in?

If you haven’t seen this before, it’s a simple table that shows you the lowest risk (senior secured debt) investment to the highest risk (equity) investment.

Next time you are reviewing an investment opportunity, ask yourself these questions. Take the time to truly understand what and where you are investing. Filter the noise and start to make informed and educated decisions about where you allocate your capital.

Those investments, make sure they’re safe as…houses?