The Valor Blog.
Investment News and Views, Direct from Our Team.

Dumb things versus smart things

When there are more dumb things to do than smart things to do, it is time to proceed with caution.

The list of dumb things to do:

1. Buy an “investment” property with a 2% net rental yield
2. Buy Spanish, Portuguese or Italian bonds and get paid less than 3% for your risk
3. Buy Spanish mortgage backed securities at 4% yield
4. Buy biotech or tech companies at 20 times sales
5. Buy mining companies at the end of the commodities boom
6. Buy Aussie banks at twice the price of any other bank in the world betting that house prices will never go down
7. Buy hybrids with debt returns and equity risk at the top of the cycle.
8. Buying Japanese bonds at 0.55% with the promise of inflation of 2%.
9. Buying anything dependent on China borrowing 30% more than their economic growth to keep their 7.5% target.
10. Betting heavily on the stock market when the market capitalisation to GNP is higher than 2007 and 1929 and approaching 2000 highs.
11. Buying anything highly dependent on interest rates never rising.
12. Buying junk bonds and getting paid 5.75%
13. Bet that there will never be another recession in Australia
14. Bet that LNG prices in Asia remain significantly higher than the rest of the world.
15. Believe that the stupidity of negative gearing is not only good for our economy but is permanent.
16. Buying listed investment companies which are exactly the same as their unlisted funds at 1.3 times NTA
17. Buying great businesses that are growing only moderately but priced to perfection. (Greater that 25 times earnings)
18. Buying Chinese VIE’s (Variable Interest Entities) listed overseas. Some of the worst accounting of all time!!!
19. Letting the fear of missing out outweigh the fear of losing money

List of rational things to do:

1. Buying wonderful companies at a fair price (the list of companies at a fair price is very short)
2. Getting a reasonable proportion of your money out of Australia assuming China is not going to borrow 30% more than its economic growth forever. Captain Glenn is correct that the Aussie dollar must go lower by “more than a few cents”
3. Build up cash balances