QAV 544 CLUB

Cameron  00:06

Welcome back to QAV, Ladies and Gentlemen, TK. This is episode 544. Timestamp Tuesday the eighth of November, 1:13pm in Brisbane, 2:13 pm in Cape Schanck. How are you, TK?

Tony  00:23

Good. Weather is great down here now. This will be the shortest podcast recording in history and I’ll be out in the golf course afterwards.

Cameron  00:30

I’m surprised you’re not hitting the balls off the deck while we’re talking. Well, you know, get it in while you can, because it’s the US midterms tomorrow and according to some of our friends over there, the world’s going to come to an end if the Republicans win one or both of the houses. It will all be over. The end of democracy as we know it.

Tony  00:51

That’s a certainty, isn’t it? The Republicans are almost a shoo-in to win both houses, which we see every midterm, which the stock market will like, because the Biden administration can’t pump any more money into the economy. Everything will go into a halt government wise, fracking is back on the agenda, oil pipelines are back on the agenda. The stock market will go nuts.

Cameron  01:12

How’s that good for the stock market? The Biden administration’s pumped $70 billion into Ukraine aid, which really is just all going into the US economy. Isn’t that good for the economy? War is good for the economy. That money is just getting pumped back in.

Tony  01:26

Well, the Republicans will probably want to pump more when it comes to military?

Cameron  01:30

Well, they say they’re going to pull it back, but I can’t see that happening. By the way, at the end of this episode I’ve invited Dennis to record a little bit of an update.

Cameron  01:40

Yeah, great.

Cameron  01:40

He’s back in Kyiv. Well, no, not great. He’s back in give Kyiv. I just saw the mayor of Kyiv warning all the citizens to be prepared to leave town because they have been having blackouts and water shortages, but it looks like it could get worse according to the mayor. So, hopefully Dennis is still there and still okay and still able to record something for us today. But anyway, I’ve asked him to give us a eagle eyed update, an eyewitness update on what’s going on.

Cameron  01:42

Wow, good luck, Dennis. You should be fine for the next day or two, because apparently all the Russians are working on the American election.

Cameron  02:18

Putin’s chef is saying that, “yes, we have interfered, we are interfering, and we will continue to interfere very strategically.” Good on him. Speaking of bad news, I don’t know if you remember Mick Stanek? I don’t know how early you started listening to G’Day World, but I found out a couple of days ago the guy I started podcasting with, my original co-host Mick Stanek — back in 2004 we started G’Day World, the first Australian podcast, a few months later we started The Podcast Network, the first podcast network in the world. I hadn’t spoken to him for years and years and years, we had a falling out, and I Googled him to see what he was up to. I was thinking, well, we’re coming up to the 20th anniversary of podcasting in Australia, maybe we should do a reunion. Found out he died early 2020, passed away at age 51, he had early onset dementia. And it was shocking. Shocking that it had happened, shocking I hadn’t heard about it. He was one of the founders of podcasting in the world, along with myself, and he died and no one told me. There you go.

Tony  03:25

So, I’ve got about fifteen years until I’m driven crazy by this and get early onset dementia?

Cameron  03:30

Yeah, I wonder if working with me had anything to do with it. Yeah, so any who. There you go. Life moves on. The dismal science, Tony, what’s the dismal science do you think? Which one of them is the dismal science?

Tony  03:44

There’s only one: economics is the dismal science.

Cameron  03:48

There’s a great article in the Fin today, yesterday actually, a Joe Aston column Stephen Mabb sent us a link to. I’m going to read it because it’s fun. I think our audience will like it. “Commonwealth Bank of Australia chief economist Stephen Halmarick had some pungent feedback for the Reserve Bank of Australia last month. In a research note released in October 28, he portrayed the institution as a closed shop, recommended an overhaul of its board structure to include external economic expertise and in relation to Philip Lowe’s unfortunate declaration that interest rates would remain at the emergency setting of 0.1% until 2024. He said the RBA’s forward guidance should never be calendar based, either implicitly or explicitly.” And he went on talking about the damage to the RBA’s reputation, but then says “let’s go back to August 2020 when Halmarick predicted the Australian recession would extend through that current quarter, a third consecutive quarter of negative growth. Nearly eight weeks through that quarter he could make this prediction with proprietary confidence. Courtesy of the large role the Commonwealth Bank plays in the Australian economy, we can see the most recent deterioration in the labour market. Of course, when the national accounts landed in December 2020, we learned that the Australian economy had grown by 3.3% in that quarter. Halmarick also predicted that the Australian economy would not return to its pre-COVID-19 size until the second half of calendar 2022 at the earliest. It actually reached its pre-COVID size in the first quarter of 2021. We give you the dismal science.” And he goes through and basically smacks him and a few other guys around. So, you always say about predicting…

Tony  05:28

Well, you can’t predict. Economists are flogs. They can tell you what happened and why it happened, but they can’t tell you what’s going to happen. No one can. It’s a fool’s game.

Cameron  05:39

I can’t remember who it was now, Howard Marks or one of those guys said, “those who live by the crystal ball will end up eating broken glass.”

Tony  05:49

That’s a great one, isn’t it. I think it was way back in time, who was the guy? I’ve forgotten. He said “there’s two types of forecasters: those that know they can’t forecast and those that don’t know it yet.”

Cameron  06:03

Yeah, so we don’t try to forecast, we just play it day by day.

Tony  06:07

Yeah, exactly. I mean, just think about the logical fallacy here; if anybody could forecast, if they could do it accurately, why the fuck are they working for the Commonwealth Bank? Seriously, why don’t they own the Commonwealth Bank?

Cameron  06:26

Yeah, good point. They’d be selling their tips for a million dollars. A billion dollars.

Tony  06:34

Yeah. Or just back themselves.

Cameron  06:38

Well, I’ve got another AFR article I’ll read a little bit later on, but before that, let’s do a portfolio update. The QAV dummy portfolio has been running since the second of September 2019. Last week on the show, we talked about benchmarks. Steven Mabb again had suggested we changed to the BetaShares 200 ETF, which we did, and you didn’t like it, so I changed it back to the SPDR 200. Now, I remember last week when we were doing this segment, our portfolio since inception was up about 15/16% versus the ETF, which was up 1% for the same period. I was like, well, that’s obviously wrong. That’s broken. So, I switched it back to the SPDR 200 fund as the benchmark. Today, since inception, our portfolio according to Navexa is up 17.00% per annum CAGR versus the SPDR 200 which is up 0.62% per annum over the same period. It’s even worse or better, depending on which way you’re looking at it.

Tony  07:43

Yeah, I think the SPDR 200 is probably not an accumulation index fund, or accumulation benchmark, to use. It doesn’t include dividends. I’m not 100% sure…

Cameron  07:55

It is, though. Well, I looked this up when I was talking to Steven about this a week or two ago, I’m pretty sure. Let me read what it says in Invest Smart. STW is the code for this.

Tony  08:12

Sorry, STW does. You’re right. Oh, so you’ve gone back to STW. Sorry, I thought you’re using something else.

Cameron  08:20

No, it’s STW. We’re outperforming it by roughly seventeen times.

Tony  08:28

Well, we should just pack up and, you know, stop giving tips. Just keep backing ourselves, because we are predicting the future.

Cameron  08:40

Like, our goal is to beat the market by double, to double it, to beat it by two times. We’re currently beating it by seventeen times. That’s never happened in the three years we’ve been doing this. We’ve been three times a lot in the last year since the collapse. But seventeen times?

Tony  08:59

Doesn’t make any sense, does it?

Cameron  09:01

No, it’s ridiculous.

Tony  09:03

Yeah, it’s got to be a short term horizon or something that’s causing the problem.

Cameron  09:06

Or Navexa.

Tony  09:08

Or Navexa’s CAGR could be wrong, because you said it was 15% last week, and now it’s 17%. That sounds a bit fishy as well. It’s gone up 2% per annum in the last week. But even if it’s 15%, your points still hold.

Cameron  09:21

It’s just, It’s outrageous. I mean, well, look, we’re good. You’re good. The system is good, don’t get me wrong, but most people wouldn’t believe is if we said on average, we beat the market by two times, let alone by seventeen times. That’s just ridiculous.

Tony  09:37

I think the problem is that the market’s using too many economists to forecast where to invest.

Cameron  09:42

They’re listening to the guy from the Commonwealth Bank.

Tony  09:44

Yeah, that’s right.

Cameron  09:47

Anyway, whatever it is, we’re doing okay, I guess. In fact, we’re doing okay, across the board. Since the market crashed in April there was a period there where I was saying, “well, we’re underperforming the market. We have been underperforming the market.” That has changed. We’re no longer underperforming the market, which we’ll get into when we tell one of our listeners stories a little bit later on. We’ll talk about that. Speaking of things that have changed: gold is a buy again, I think, TK. Have you had a look at the gold charts in the last day or so?

Tony  10:20

I have not.

Cameron  10:22

Alex pointed it out to me yesterday that she thought it was a buy and I had a look, and I think she’s right. It’s ticked back up, I think I can draw a second buy line, and I think it’s probably good to go. Not that there’s anything to buy, necessarily, no gold stocks were on my buy list yesterday, I think they’re all Josephine’s still, but gold itself is back to being a buy.

Tony  10:48

Yeah, that makes sense. I haven’t looked at that chart but sounds right though, because I noticed all the gold miners jumped yesterday — some as much as nearly 10%.

Cameron  10:56

Right. Yeah, I noticed some were bumping up, too. So, maybe as of today they’re no longer Josephine’s. I haven’t gone through and looked at the buy list yet today.

Tony  11:06

Yeah, I’m just trying to do it now. No, I can’t do it easily now, sorry. I’ll have to fiddle around with the chart a bit. But I would trust Alex, she comes from good stock. She’ll know what she’s doing.

Cameron  11:20

“Comes from good stuck.” Well, it’s true.

Tony  11:26

By the way, she won her volleyball championship on Sunday night. I drove back from Cape Schanck to Melbourne Uni to watch them, they did very well.

Cameron  11:33

Oh, fantastic.

Cameron  11:34

Congratulations, Alex. I’m referring to her as The Master now as per our discussion last week. She said she hasn’t been given her Master’s yet, but I was like, “yeah, you come from good stock. You’ll get it.” Melbourne dinner update. So, for people in Melbourne, we were talking about doing something for lunch down at Cape Schanck. Not enough people could make it because, sadly, they still have real jobs. So, we’ve moved it back to Prahran, however, Andy who owns the venue where we were planning on holding it emailed me today and said he’s not sure he can make it, which probably means his office won’t be available. So, he’s going to confirm with me later today. So, by the time this goes out, people should know, but hopefully it will be on at Andy’s place in Prahran where we’ve done it before on Thursday night.

Tony  11:34

Yeah, her and Sean.

Tony  12:20

Yeah, so I think the Facebook group said six o’clock, but I’m gonna struggle to get there by six. So, maybe seven o’clock as the start time.

Cameron  12:27

Okay. Because of your horse?

Tony  12:29

Yeah, Caster’s running on Thursday at Packenham at five o’clock, which I only found out today. So, sorry for stuffing things around.

Cameron  12:35

Are you riding it?

Tony  12:36

If I was riding it I wouldn’t back it, that’s for sure. I’d be riding overs. No, the person who rides it has got to be 56 kilos or less.

Cameron  12:46

Just one of your legs, you could throw over.

Tony  12:49

Yeah, exactly.

Cameron  12:52

56 kilos. Oh, my God.

Tony  12:54

it’s hard to find an adult that light, isn’t it?

Cameron  12:56

I haven’t weighed 56 kilos since about 1982, I think.

Tony  13:00

How old were you then?

Cameron  13:02

Twelve.

Tony  13:03

Yeah, I reckon I would’ve been about that. Yeah, I was always the tallest kid in the class, I would have been about that probably when I was twelve as well.

Cameron  13:12

All right, I want to talk about this email we got from a QAV club subscriber a couple of days ago. I’m not going to mention his name, we’ll call him Bob just so we have something to call him. Not his real name. Its a very nice email, very, very polite email, but he said he’s been doing QAV for a year and it didn’t go well for him, and so he’s quitting, cancelling his subscription. But he did send me all of his explanation why and his charts and everything, his table with the performance, and it was fascinating. It was really interesting and it highlighted a number of things, but the most important thing, and the main point I took away from it, and I wanted to talk about on the show, is for anyone listening out there, if you’re a QAV club subscriber and you’ve been following this system for some time, diligently, and you don’t think your performance is where it should be — and the metric for that, I think, is our dummy portfolio. So, if your performance isn’t at least as good within a margin of error as our dummy portfolio over the same timeframe — obviously, you haven’t been running from three years, but over like a three/six/twelve-month period, whatever it is — if it’s not within margin of error, please let me know. Contact me. Say, “hey Cam, I think something’s going wrong here, can you have a look at this with me?” Because when I looked at Bob’s, it was immediately obvious to me why his performance wasn’t what it should have been. Now, this is no attack on Bob. Again, very nice, very thoughtful email. He thanked us for all of our time and effort and the podcasts etc., just said it didn’t work for him. Now, his twelve months return concluding in November — he started in November, concluded in November — was negative 39% versus the ASX 200 which was negative 8%, he said. Now, this surprised me because our dummy portfolio over the same period of time, over that same November to November twelve month period was down only 5% versus the 200, which Navexa tells me was down 9%. He said 8, I said 9, whatever, split the difference. So, we, you know, we’re down over that period, but only half as much down as the benchmark, which is a win. We can’t affect what the overall market does, our job is to outperform the market, and if we don’t drop as much as the market that’s an out performance, and we only dropped as half as much, roughly, as the market. So, we’re on target there. Definitely a big difference between dropping 5% and 39% over that period. Now, I just had a quick look through Bob’s results that he sent me and there were a couple of basic errors that leapt out at me. The first was he had a lot of sells that he classified as rule one sells, but a lot of them were well over 10%. They were 16/18%, I think one was 21%, before he sold, and he called it a rule one sell. Now, look, there are going to be instances where I don’t sell exactly on 10%, might be 11, might be 12. You know, I leave it to the next day and then… I can think of one instance in the last year where something plummeted the morning before I could sell it. I think it was like a scandal of some sort, a CFO suddenly resigned, or contract was lost or something, I can’t recall the details. And there’s been one or two instances where it was completely my fault. There was one just recently where I missed the alert until the next day and I got distracted, didn’t see it and by the time I got to it, it had dropped down a lot more than the 10%. But it’s only been a couple. Usually, I mean, I check my alerts every day and if something’s getting close, if it’s getting to 8% or 9%, you know, I’ll be paying attention to it the next day and as soon as it goes over the 10, I’ll execute a sell on it. But you know, there’s not many instances where I’ve sold more than 10 or 11%. And I sent Bob a reply about this, and I said, “well, it looks like you weren’t really rule oneing.” He was complaining that he didn’t think rule one worked. He said “yeah, well, to be fair I did leave it a little bit long sometimes.” Sometimes he felt they had plummeted too quickly for him to sell on rule one, but that hasn’t been my experience. Secondly, one of his big losses was on GRR, Grange Resources. He bought it around about the same time we did, January this year, and we sold it early September when iron ore became a commodity sell. And we lost about 1% on it. We bought it at 77 cents the same as he did, we sold it at 76.5. He sold it in October, like six weeks later, when it had massively plummeted as iron ore had plummeted. So, he took a bath. I think that one was 21% he lost on that. And then I also said to him, “well, are you holding on to any stocks that have gone up over that period of time that balance it?” Because everything he sent me were all sells, there was nothing… He said “no, I don’t hold anything anymore. I bailed out in September. After I’d done a bunch of rule ones I bailed out.” Now go look at the awards for the last twelve months, the bottom of the All-Ords was September, and then in October and November so far, it’s been a choppy upturn, but it’s been an upturn. There was quite a significant upturn in October/November. So, by bailing out ten months into his twelve-month experiment, he happened, unfortunately, to miss the last two months of rebound in the market as well. And you know, you’re always banging on about staying fully invested because you never know when it’s going to turn around. You can’t predict it unless you’re the chief economist of the Commonwealth Bank. You can’t predict it.

Tony  19:17

You’re sure that’s not Bob’s actual day job?

Cameron  19:20

If it’s not you, he should apply for it.

Tony  19:23

Well, that’s called capitulation, though, Cam, isn’t it? The hour gets so dark before the dawn that he’s sold and packed up and gone home. And then, of course the market turns.

Cameron  19:32

And again, I’m not having a go at Bob. I understand it’s been a brutal year for investors and particularly new investors who don’t have the benefit of…

Tony  19:44

Well, we’re playing with house money, right? Even the dummy portfolio. It’s been up long enough so that even though it’s been down in the last twelve months, it’s profits that we’ve been playing with. We haven’t been losing our original capital.

Cameron  19:56

Like a year ago we were up 40%, now we’re up 17%. So, you know, it’s come back a long way. But you know, that’s how it works, right? We go up, go down, you know, it balances out over time.

Tony  20:08

It is how it works. But the psychology comes into it, so I understand where Bob’s coming from. He’s given it a go, it’s a particularly bad time to start, markets been going down, interest rates rising, blah, blah, blah, turbulence, Ukraine war choppiness, and it hasn’t worked for him. And look, it’s not going to work for everyone, Cam. You’re pointing out that he perhaps wasn’t as diligent as, you know, someone who’s going to adopt QAV needs to be. That’s going to be an issue and it’s not going to be for everyone. So, he’s, you know, he may be doing the right thing. If he can’t master the process, monitor the alerts, be diligent in selling and then staying in the market, then he’s better off probably not doing it himself. Or the alternative is using something like QAV light to get a regular update on what to do.

Cameron  20:57

Yeah. And even that requires selling when I send out an email saying it’s time to sell or buying when I say it’s time to buy. The system is only as good as the people who follow the system. I know there is a bunch of rules, you know, there’s a learning curve, we all make mistakes. I continue to make mistakes. As I said, just recently I missed a sell alert.

Tony  21:21

Me too.

Cameron  21:22

We all make mistakes, even TK, and he’s part machine. And the other part is ice.

Tony  21:29

Washing machine.

Cameron  21:34

But you do have to follow the rules if you want to get the sort of performance that we get. But my main point, the main thing I just wanted to stress is if there’s anyone out there listening who feels like they are following QAV diligently and your performance isn’t roughly what ours is… Because everyone’s performance should be roughly the same. It’s going to differ depending on what stock you buy at what time, and all those sorts of things. If you’re large caps and small caps and all that kind of stuff, yeah, but it should be within a rough band.

Tony  22:09

A standard deviation. Yeah.

Cameron  22:10

That’s fancy talk. Don’t hit me with your fancy talk at this hour of the morning.

Tony  22:15

it’s the afternoon.

Cameron  22:16

Don’t kiss me with that mouth. Sorry, we were talking about strippers off air before. My boys are in Vegas at the moment, and I’ve been hearing some horrifying stories that I was sharing with Tony, I’m not going to share on the show. We don’t know who’s listening, sensitive stomachs and that kind of stuff, I don’t know whether or not you’ve just eaten. Let me know. And to Bob’s credit, Bob had emailed me a lot over the last year and asked a lot of questions, questioned rule one, and we’ve asked a lot of his questions on the show. He was sceptical about rule one. Now I know why he was sceptical about rule one, because he wasn’t actually doing rule one properly. But that’s the thing, I’m just saying to everybody, please. And I say this to everybody who signs up, I say, I’m here to help. Email me any time of the night or day, any question, that’s what I’m here for, that’s my job, is to answer your questions and help. But please, please, please, if you don’t feel like your performance is where it should be, don’t keep losing money and then capitulate and then say QAV doesn’t work. Email me and let me see if I can figure out where you’re going wrong. Because look, here’s the thing, I’m an idiot. Anyone who’s listened to this show for any period of time knows that, particularly when it comes to investing and economics and the market and spreadsheets, I’m as dumb as they come. But it works for me because I can follow a system, you know, relatively well. I still screw up, but I’m the proof that this thing works. Because if it works for me, it can work for anyone. I’m as stupid as they come. If I can make it work, anyone should be able to make it work.

Tony  24:10

Well, you’re pausing there for me to say “no, Cam, you’re not stupid.” I just want to add a couple of things. It’s like baking a cake. We’re following a recipe. You’ll get better at baking cakes as you keep following recipes, and occasionally, the souffle won’t rise. But over time, if you do it diligently, it’ll work. I mean, a couple of things. I want to thank Bob for writing in with these details. That was interesting to go through, I understand completely where Bob’s coming from, and I think Bob’s approached it in the right way, strangely enough. He’s talked about not putting all his money into QAV, he was running it as a trial, gave it twelve months and worked out it wasn’t for him. So, I think he’s done everything right from that point of view. The second thing I want to say, Cam, is just be careful that we’re not giving personal advice. So, we’re happy to guide people and say, you know, “this is how you apply rule one” or “this is commodity sells,” or “pay attention to alerts.” But if people do email you, we can’t pick over what you’ve done and tell you what to do on a personal basis. So, it’ll be general advice. But what you’re saying is true. We’re all busy in other things, and it’s probably become more my primary focus over the years, although I have other things going on. But for a lot of people, investing isn’t their primary focus; they’ve got day jobs, they’ve got families, distractions, whatever. And so they do miss alerts or whatever. So, it could help, I think, to touch base with someone like yourself every six months or twelve months and say, “hey, how am I going? Could I improve?” I can see some benefit in that. I think, you know, it was interesting and a bit sad reading Bob’s emails, but I think he approached it in the right way. I think he’ll do fine in the longer term by approaching things that way, and he probably learned a bit about himself and his risk tolerance and what he needs to do to secure his own future via investing,

Cameron  26:06

As you said earlier, and I know Buffett says this and I know Benjamin Graham said this, you know, this style of investing isn’t for everybody. It takes a certain amount of, you know, risk tolerance, it takes a certain amount of discipline, willingness to trust a system, follow a system, all that kind of stuff.

Tony  26:25

There’s so much psychology going on here, which is why we systematise things, so we don’t fall for the psychological traps. But you know, like even Jenny, my wife who’s far smarter than I am, has held very senior roles in multinational companies, she’s open in saying she couldn’t do what I do. She’d get freaked out by it, she has a lower risk tolerance than I do. I’ll often sit down beside her and go “shit, I just lost a million bucks.” And she’ll go “I don’t know how you do what you do.” I shouldn’t say I often do, I have from time to time said that to her. She just couldn’t do it. And that’s the same for a lot of people. It’s a bit like being inoculated; you build up resistance as you go along and become better at it.

Cameron  27:10

Yeah, it’s actually my goal to lose a million bucks and to be able to tell Christy about it and laugh it off.

Tony  27:17

Really? Okay.

Cameron  27:19

Yes, must be a nice place to be. Well, speaking of risk bias, that leads me to the second AFR article I wanted to talk about. I saw this this morning. This one is called “How your loss aversion bias is losing you money.” Subtitle, is “the reason you overreact to market drops and forget about the good years.” This is from Ben Smythe, contributor. “If you’ve recently started a self-managed Superfund and are experiencing your first bear market, you might be questioning that decision. All major asset classes have suffered negative returns in 2022. Equities are down 20%, bonds are posting their worst annual return in thirty years, property which is meant to double in value every ten years is falling, Bitcoin is worth 60% less than twelve months ago and gold, once seen as a safe haven is dropping in value,” except for today. “In these unusual times, the next logical question is when will returns turn around?” Just ask the chief economist of the Commonwealth Bank and then do the opposite, he says. No, I’m kidding. He doesn’t say that. That’s what I inserted. “Forecasting the future when it comes to the investment market sits within the story telling realm. It’s great to hear and read what the experts predict will happen next, but the evidence shows that these papers and reports should really be filed in the fiction section. What SMSF investors can do is to be more aware of their investment biases, which if managed and minimised, can save them a lot of money. Identifying behavioural challenges can stop you making an impulsive decision that could take years to correct. History shows that over the long term, the stock market averages a negative return once every four years. Investors often forget that what this means is that three out of four years are then, on average, providing positive returns. For example, the US S&P 500 index is down about 20% for the 2022 calendar year, however, consider previous returns of 29% in 2021, 18% in 2020 and 32% in 2019. The average return for the US S&P 500 index over the past five years including 2022 is still averaging a little over 10% a year. Why then do investors panic when that negative year hits? The reason that positive returns of previous years are often forgotten when markets fall is because most investors have what is called a loss aversion bias. Daniel Kahneman, the Nobel Prize winner known for his work on the psychology of judgement and decision making, notes that investors tend to experience twice the amount of psychological pain from losses compared with the psychological pleasure from gains.” Pretty sure you’ve mentioned that statement from Daniel Kahneman in the past on multiple occasions, hurts twice as much to lose money as it feels good to make money.

Tony  30:09

Which is perverse, but it’s true.

Cameron  30:11

Yeah. “Essentially, this means that you feel the pain of losses in your portfolio much more than you enjoy the good years. In the good years, you expect the market to deliver positive returns. But when markets fall, you beat yourself up and convince yourself that you should have seen this coming and done something to mitigate the paper loss. This then leads to the next bias when markets are falling, and that is an action bias. This means that investors believe that taking action will improve their overall investment return. When markets are falling, this becomes more pronounced, because coupled with a loss aversion bias, investors feel compelled to act to stop the pain. Whether this action is trading in and out of asset class positions or cashing out completely, the evidence is clear in almost all cases, that reacting to falling markets by taking such actions will not result in higher investment returns. The do-nothing advice in times of volatility should be seen as a positive action based on the information and evidence rather than a negative action by someone who can’t forecast the future. Superannuation by implication is a long-term game. What we do know is that investment markets provide great returns for long term and patient investors. By getting out of the way of the market and being alive to the inherent investment biases that we all face, you will give yourself the best chance to enjoy these positive years and rationally interpret the negative years. Ben Smythe is a partner and Principal Advisor of Minchin Moore Private Wealth,” not associated with Tim Minchin, who’s the focus of Australian story this week. Read a little bio on him in the ABC this morning. Fascinating, really interesting story. Fascinating guy, still married to his high school sweetheart.

Tony  31:55

I mean, great article, thanks for reading it out. And I liked some of the phrases, like “don’t get in the way the market,” just stay out of the way of the market. It is true. I mean, like, we have been trading a lot more than we normally do, so perhaps I’m guilty of a system that does trade more in a protracted downturn, trying to predict our downside with rule ones and three-point trend lines. I think what we’ve done would be no worse than holding on rather than applying those rules, and I think probably a little bit better.

Cameron  32:28

And you don’t change the rules during a downturn, they’re the same rules that we apply all the time. So, it’s not like you’re taking action, you’re just doing the same thing you would do at any time, right?

Tony  32:38

Yeah. But look, I get it. I mean, when the markets going up and your portfolio’s going up, you put your hands behind your head and your feet on the desk, you don’t really question what you’re doing. You think it’s gonna last forever. And then when the market turns down, it’s like, “Oh, my God, what could I have done better?” You know, should I have sold out last year and shorted the market? Well, yeah, possibly. But we didn’t know. You apply an all-weather system, I guess, as Rudy would say. And yeah, the system’s going to work and be largely unchanged. I mean, it is good to go back and review it from time to time and try and improve it. But yeah, it’s not letting the psychology get in the way, which is probably the biggest benefit of a system, whether it’s QAV or any system, really, that allows you to keep making decisions in turbulent times without being affected by your emotions.