How I Became An Investor

It Wasn't By Accident, But It Wasn't Planned Either

I'm not a great investor. I'm no Warren Buffett or Charlie Munger. My portfolio would tell you that. At best, I'm a speculative kind of investor putting in small amounts to long shots and long positions. I do it the way I do it because it works for me. I came to this in the wake of the GFC like somebody taking up a craft . If you read back this blog all the way back to August 2007, you'll see the early inklings of me thinking about how low the market will go as a result of the unfolding financial crisis. I followed the indices all the way down to the bottom, which turned out to be March 2009, and it was then that I bought my first shares through my bank's website. 

Prior to that I only saw the Dow Jones and All Ordinaries and all the other indices on the news and paid scant attention to them, except for the big falls. The notable big falls in my youth were in October 1987 and 1989, and then the Dot-Com Bubble in 2000. Each time I would see the indices do a swan dive and wonder about the people with money in the markets and how they felt watching their holdings lose 20-30% of their value. Then I noticed something weird. A few months after the Dot Com Bubble burst and indices went south, the All Ordinaries in Australia were going for about 30% up from the previous peak. And realised a fundamental truth about markets - that they are volatile and if you can work around that, you could may be make some money. 

So when the GFC bottomed out in March 2009, I was able to pluck up some courage and start buying because I could easily figure the bottom was indeed the bottom. The rest of it weirdly, was all upside. 

All this happened a decade before Meme stocks, Robin Hood and Equity Bros and Spending the Stimmies on Stonks. Like the bros that started with USD600 stimulus cheques, I started with about AUD1000 and dicked around buying and selling stuff. I got to the first 10k on the back of a company called Boart Longyear and promptly lost half of it thanks to the end of the mining boom. I learnt a few tough lessons about the hot money that flows in and out of Australia on a seasonal basis, and I learned that no stock is safe from sudden turns in fortune.  

At the end of the day, putting money in equities as an activity is mostly about speculation. I might think I'm investing and there are moments where it looks like investing, yet in essence I'm placing bets on people, things, and money.  I'm not exactly gambling rent, but there are days I feel like maybe I am just gambling at the Casino Capitalism. 

The Speculative Impulse

I've had time to ponder the nature of my own spec-i-ness (so to speak).

When I was young I lived in Western Australia. We didn't play Cops and Robbers or Cowboys and Indians as we roamed the newly developing suburbs. Instead we played this game called Gold Miners. The idea was to find a mound of sand - these seemed to be everywhere where they were building a house - and we would "stake a claim", then start digging into the pile of sand. And at an appropriate moment somebody would yell "gold!" and hold up his hand holding some stone he found. We would all gather around him and slap him on the back and 'celebrate' with a big cheer. It's quite absurd when I look back on it, but we used to do it after school every day. Consequently I never really wanted to be a Cop or a Cowboy with a gun. But I always wanted to try my hand at a gold field. 

When I think about it, my whole life's been kind of speculative choices made, one after the other. I've never been in love with the daily grind of going to work to do the same thing day after day. I quit university to play in a rock band - and people don't do that unless they're speculating on success. Same with my time at Film School. I chucked in my regular paying job at the ABC to go be a film maker in the hopes that I'd end up successful as Steven Spielberg. My innate spec-i-ness has featured in all these bad decisions. Even today I think up harebrained ideas for start ups and angles on things. In a way, playing the markets is very tame as a preoccupation, especially since I only play with my own money. It has certainly cured me of wanting to play at casinos. 

I don't recommend these kinds of life choices to people. The share market is for a certain kind of fool. Some people are wired for the real estate market, others are for bonds, and others still are for cryptocurrencies or antiques or art or collectibles. Each to their own - I'm not arguing in favour of equities. For equities, you need a bit of optimism, intuition and an eye for a narrative. Details are important, but then, there's nothing on the planet where the details don't matter. I like equities more than real estate simply because your time frames are shorter and moving in and out of positions is easier. If you have a rental property and it turns 5% p.a., and you get your negative gearing going, sure that could be attractive with the ever-rising real estate market, but you don't really know how much that capital gain is until you sell it, and selling it is a pain in the ass. In some ways you're better off just having bank shares that pay a 5% dividend and ride the capital gains. At least you can see just how much the capital gains are every day as a concrete number. 

Where Are We Now?

The markets this year have been choppy. May, June and July gave me heartburn. Even then I had this stubborn faith that things would turn around simply because the flow of hot money does that. Every year, the hot money flows out of Australia in April, and then mysterious arrives back for the late year run towards a Santa Rally. After a while you get a feel for these things. Sure enough, things have been heading up again since the new financial year. That's a new pattern. The pick up used to be from mid-August or so. 

We're in a strange kind of race this year. One part of the race is to get through the reporting season with all the good consumer spending showing up as profits. That makes everybody feel good and shares go up. One part is this business in Russia and Ukraine. Thanks tot the war and the sanctions, supply chains have been screwed up beyond repair. This has led to a supply-side inflation that is prompting rises in interest rates so everybody is looking to see what the US Fed will do in October. The other race is to do with China and its bursting property bubble. They will try and re-inflate it with more debt but God only knows if that would even work. It's not a fix for what ails them. So after 13 years of everybody banging on about the Chinese property bubble, we'll finally see what impact the burst Chinese Bubble will have on the world economy. On the one hand there are reasons for bourses to go high well into later this year. On the other hand there are reasons why they could collapse. All those reasons seem to converge in late October. 

If I put on my realist hat, I would say the US markets will be good until it decides to freak out about interest rates; but then it freaked out abut inflation and how the Fed wouldn't move initially, so that's not saying much. The war in Ukraine will necessarily drag on into winter. There are no choices there, good or bad. And realistically Xi Jinping will win his third term as China's paramount leader, and probably turn on the money spigot to rescue his economy. When you add that together, we'll probably just muddle through. People are complaining it will be like the 1970s again with stagflation. If only. I'd take a Jimmy Carter Leonid Brezhnev kind of world over whatever the hell is happening with Biden, Trump, Putin, and Xi. I'm telling you, things were peaceful back then. 

Property Bubble Blues

Property And Me

Back in the day when I was young and dumb, I had this foolish notion that property was not something to sweat over. As crazy as it sounds I had my rationale and it went like this: Australis is a very big country with a low population density. Not matter how bad things get, I figured, property possibly couldn't get as expensive as New York as Tokyo in the late 1980s. Fast forward 30 odd years, and of course I was proven resoundingly wrong. It kind of begs the question how this might have come to pass - but I've already written a bunch on that topic so I want to discuss something else. What I do want to talk about is how incredibly contrived this housing crisis that is unfolding, and how it's still best to look at Australian property prices with the eyes of a cynic. 

The kind of money a family is being asked to fork over for a house in any Metropolitan area in Australia us now higher than what somebody might pay for a Greek island villa. It's been that way since the GFC however, even as villa prices have recovered, Australian residential real estate has climbed faster. Granted you can't commute to your job in say Parramatta from a Greek island, but I'm pretty sure any of these Greek villas would be nicer than the 3 bedroom house in say, North Parramatta. If I didn't have to earn a living, I know which one I'd choose at the drop of a hat - it's not Church Street Parramatta, walking distance to the Temasek restaurant ("and other amenities"). 

Yet cities the world over have this problem now, where thanks to the deflation exported by China for a whole generation, nobody's wages have risen enough to keep up with the inflation in house prices, and it just so happens rents and house prices don't factor into CPI. You pretty much have to wait for your parents to fall off the perch and share in the inheritance. And really, that's no way to live. If you're unfamiliar with it, maybe you should read 'Of Human Bondage' by W. Somerset Maugham.  The main character stands a good deal of the latter part of the book waiting for uncle William to die so he can get his money. It's grim.

The stark reality is that real estate is totally overpriced everywhere, and in a really weird way, everybody in the market is committed to the idea that sky high prices are normal, oblivious to the social effects this is having. Not to mention the old adage that a market will remain wrong and uncorrected a lot longer than you might think. The social process involved makes even the best of us somehow 'downwardly mobile' according to some. 

There's a part of me that thinks "you are not your house, you are not your farm, you are not your high-rise penthouse". In all honesty, you're not - but you need shelter. It's completely absurd that you spend your entire life working to pay for a place, you live in it til you die, and then somebody else inherits it. Surely one's life should be more important than to exchange it for a financial asset in one block. 

I did used to have a mortgage back when I started this blog many years ago. The run of events was a life lesson in of itself. I worked for a company that exported video content to the US Education market. When 9/11 and the War on terror got rolled out, the American government cut back on its education budget to pay for the military. Around the time of the Iraq invasion, it became evident that the company I worked for had lost revenue drastically, and so it was time to wind it up. My boss, the late John Davis sold out the catalogue and retired, which had knock on effects. For me, I had to sell out from my place because I couldn't find the next job fast enough. And just like that I was out of the property game. 

And I've been outside ever since. I've rented instead, and I invested the difference I'd pay if I had a mortgage, into equities. Now I have to move and I'm thinking I would like a modicum of control over that side of my life. So now I'm on the lookout for a place to buy - and boy they don't come cheap anywhere any more. When I tell my friends that's what I'm doing, they all have this enthusiastic response saying it's important to get into the property market, get on the ladder, and that ownership of a place is the be all and end all. Somehow I'm still ambivalent. 

There is a government report that says retirees who retire without property do it much tougher than those who own their own place. And at this point in history, I have to consider that factoid. Australia has become the land of landlordism. The gap between the haves and have-nots grows on the back of the absurd property market. No government has addressed this in the last 30 years because either the politicians are themselves invested in property, or because they're ideologically invested in inequality, or both. Even as I look for a place to buy, I have to say this all makes us all the poorer.  

Anyway, I'll write more on this later. 

    

Running With Scissors

The Old Life On The North Shore

Here's something. It features my best impression of Steve Howe's lead guitar style. 

It's also about growing up Gen-X on Sydney's North Shore and the odd characters you used to run into. They're all gone now. Scattered to the four winds. 

Last night I had a dream I made peace with somebody from my past. I think my subconscious is way ahead of my conscious self because consciously, I have no intention of making peace with said person. It's happened a couple of times lately and I wake up weirded out by my own generosity and magnanimity. In real life, there's no way I'd give an inch. 

View From The Couch - 07/Aug/2022

Six Problems Over Which To Lose Sleep 

As the war drags on in Ukraine, we're starting to see all kinds of problems poking their heads over the horizon. These problems were latent problems of the world, but thanks to the war, they have become blatant problems of the world. 

No.1 with a bullet for the Europeans is what they're going to do for heating in winter. Too many European countries are dependent on natural gas from Russia. This used to be a vague hypothetical problem, but this northern winter, it's going to be very real, front and centre. There are no easy answers for this because it's not like there are substitute sources, and it's not like there's an alternative fuel to replace it. 

No.2 is the grain export problem. Both Russia and Ukraine were major exporters of grains. Now those exports have been hampered by the war. The last time there were major issues with food in North Africa, it brought about the Arab Spring. That is to say, if you're a dictator in North Africa and your country is dependent on imported grains for food, then this is not a good situation at al. 

No.3 on the list is fertilisers. Russia is the biggest exporter of potash and now that's off the market. Agricultural inputs are pretty unforgiving so growers the world over will make changes to what they plant next year which means globally speaking, we might not have enough food sometime soon. China would be in the shit if that happens because, they are major food importers. And as with the dictators sitting on a hungry population in No.2 above, Xi Jinping's China stands to be in trouble the most over this problem, when it has the problems of its own (more on that below at No.6). 

No.4 is crude oil. We've already seen the oil prices sky rocket and with it inflation. While the immediate peak has passed, oil is going to remain high because Russia was the largest exporter of crude just before the Ukraine invasion. now with sanctions, Russia theoretically can't sell their oil. In practical terms, they're probably keeping their pipelines open to North Korea, but if they stop the oil pipelines, that's it. The pipeline is dead. Meanwhile the world without oil can try and accelerate towards alternative fuel sources but are we geared towards accomplishing that? If we're relying on China to produce the cheap solar panels going into the future, we might be in for a rude shock. 

No.5 is the new model of war that America seems to be trialling in Ukraine. After spending 20 years fighting in Afghanistan, trying to bolster any kind of state there only to see it fall in a week, it is clear the Americans were leery of fighting anywhere to bolster any state. If you add in the chances of a nuclear war, America has had the best reason not to engage in direct fire with the Russians. That said, unlike the Afghans, the Ukrainians have fought hard to keep their state and sovereignty, which has given the world a window to operate. What the Americans have opted to do is give arms to the Ukrainians to fight their war, but have decidedly kept their troops out. This may work well for Ukraine and in the end if they do defeat Russia, it will have worked very well with America. Because success in this model means America will have a new way of managing their wars - they don't send troops and ships, they just send the weapons. It signals a retreat from Pax Americana. 

No.6 is China. China probably deserves an entry all of its own but it can be broken down into three components. The first is political. The concentration of power Xi Jinping has managed to accrue makes China a dictatorship with no checks or balances. China might make the unfortunate call to invade Taiwan and if they do, it would be because one person wanted it, and not necessarily the polity of China. The second is its management of Covid where it is still in the Zero Covid method that was more common before there was the vaccine. China is still doing these because their Sinovax doesn't work. The third component is the property bubble bursting. It's so bad there have been bank runs. China is not going to be the growth engine of the world economy as it has been for the last 30 years. It's probably not even going to stay as the underpants factory of the world. Globalisation is retreating and the combination of the above three component problems mean it is leaving from China the fastest. In this global context, the rise of Xi Jinping, unreformed-Maoist-Totalitarian, is most unfortunate.  

On The Future of Popular Music

The Future Sound of Nothing-Nowhere

The future of popular music probably isn't too good. This isn't one of those music was better in my youth kind of rants because frankly even if that were true, it's not a point I exactly want to litigate here. While it might be seen as taking that same line, I would posit that there are far more technically accomplished musicians working in popular music than at any time in history. Even allowing for that, popular music's future is very bleak. 

The historical trend on artistic complexity seems to be that over time, complexity is reduced as the form of the music gets reified. In once sense, music is moving towards fewer players per ensemble - from orchestra to Big Band to quintets and quarts and then trios, and duos. The ultimate is the solo artist who accompanies themselves with a computer or karaoke device or looper pedal. As more contributing players are shed, the simpler the music becomes in structure. While there are plenty of jaw-dropping players working in this kind of format, it is still a lot simpler than music played in larger groups. 

Songwriters themselves have reduced the range of harmonic content in their songs. They are structured more simply than any time before. The proliferation of songs with just one chord progression with no variation has overtaken all the other kinds of songwriting. In that instance it is hard to tell if it is the retreat of complexity or the advance of simplicity. There is the information theory whereby if you want to reach more people, you have to reduce the complexity of your message, so it stands to reason songwriters have taken an axe to such concepts as a verse being different to a chorus, or that there might be a middle 8 in-between the verse and chorus. After all they are playing to a generation that fast-forwards through the guitar solo. 

And yes, there is the crux of the biscuit right there. What kind of hare-brained asshole fast forwards through the guitar solo? What kind of absence of mind does that? It is not a matter of taste - it's a matter of failing to understand what a guitar solo is. Yes, there are some terrible solos out there - some of them played by your truly right here - but you can't be fast forwarding through all guitar solos on principle without incurring the observation that it's not guitar solos that are the problem, but the people who can't appreciate them who are the problem. 

Contrary to all the amazing guitar players plying their trade on Youtube, guitar solos have been phased out of popular music. All these new songs without a change in chord progression from verse to chorus, also seem to come absent the guitar solo. 

Now don't get me wrong. It's not all about the guitar solo. It's that fact that there's a young audience out there that doesn't connect to guitar solos. Surprisingly there's a whole generation or two of kids who just don't view music the way the previous generations did, and this has turned into time bomb. As Rick Beato rightly points out, kids today have a whole eco-system of stuff to indulge themselves. Music simply sin't enough. So while there are some amazing players doing their thing on instagram and TikTok and Youtube, the general population is pulling away from music as fast as the Baby Boomers and Gen-Xers ran towards music. If music itself is losing value in the discourse as we go forwards, then you can't expect it to be in better shape in the future. 

This Does Need A Bit More Explaining For Future Generations

Skip this bit if you're an old fart like me - older readers know what the hell it used to be like before the internet. The people in the future will have no idea. Hence my need to write it down here.  

So this is a sketch of the old world before the internet: Before the internet, information used to be hard to come by and when we got it, it wasn't cheap or free. And we accepted this condition as capitalism. So we paid for newspapers and we paid for books and subscriptions to magazines. We paid to find stuff out in most part. You would be lucky to find stuff in libraries. If you were looking for granular information on something of a minor field, your school library or council library was not going to cut it.  

It so happens music was one of those information formats. It wasn't clear to us growing up, but music was in of itself a kind of information - we only found that out when things went digital with compact discs. In one sense, we had to put our money down to obtain the information that was music, just as we did with everything else. The record store then, was sort of an information exchange, and you can see that in the loving portrayal in the movie version of 'High Fidelity'. In turn, music, was the communal space that connected a global audience. World tours by big bands, whether that be The Police or Dire Straits  were culturally significant moments.

As the format of the information evolved the vendors of the information saw fit to raise the prices on the information. Thus, in Sydney in the mid 1980s, LPs and Cassette tapes were priced around $10 but Compact Discs were $30. As a student working late night shopping and weekend jobs, you were making $12-15 and hour at best. The calculations would then go, do you exchange roughly an hour of your worked time with 1 album on LP or do you instead swap three of those for something with higher fidelity. Kids who were in to music were exchanging their blood sweat and tears into their music collections. 

And there was a cohort who grumbled loudly about the prices of Compact Discs all the time. 

Then the internet came along together with compressed data. Suddenly people were 'ripping' CDs and file sharing them in .mp3 format. Naturally this got record companies very upset and the rest of it is history. The internet devalued the entire music industry and denuded it of profits. A lot has happened since that moment in history but essentially there is music everywhere for free, if you just choose to look. Kids today don't have to necessarily exchange their blood sweat and tears for mere music.  In turn the monetisation of music has changed radically in response to the internet. 

The point of all this is that the music listener of the Boomer and Gen-X vintage had skin in the game. This is why they have the wrong opinions they have, and in turn this is why there's a lot of judgemental put downs by these people towards Millennials and Gen-Z. Is this fair? No - but you should know why this happens. The judgement is coming from a place of heavy emotional investiture. This is not to say Millennials and Gen-Z don't have heavy investment in music themselves. It's just that in the scheme of things, it most likely won't be their main emotional investiture simply because of where they are in history (and to be totally frank I don't judge the younger generation harshly for that fact).

The bad news for music and those with heavy emotional investment in music, is that the Boomers are finally dying out in droves. Even Gen-Xers are starting to pop off, kick the bucket and fall off their perches. This means that in the future, there are fewer people invested in all of this than there are going to be more. As the demographic changes, it is evident that things that hold meaning are changing hands. With the dead, goes the past. As ever, the living inherit a world they cannot fathom. 

Just what can be done about this for music?

Meaning As Social Construct

Back in my own formative years, something that got pounded into me by a philosophy major (read, Mr. Pharmakeus) was that a great man called Ludwig Wittgenstein said that 'meaning' is 'socially determined'. There are a lot of ways to come at this statement but one of the ways is that the more people who engage with a subject matter provides more meaning to the subject. 

This is evidenced by say, Wikipedia, where ever more people have come to add ever more knowledge and opinions across so many topics. You can probably rely on an article that has passed through the oversight of thousands of people, more than something with a short entry that was agreed upon by 5 people, but in most part Wikipedia represents the sum total of volunteered knowledge and opinions of internet denizens. While Wikipedia probably won't match the kind of epistemological reliability of a peer-reviewed study, it can get close in some matters. In turn, it has raised the curtain on the process whereby we can ask whether peer-reviewed studies are exactly what they're cracked up to be, and whether Encyclopaedias like the Britannica and Americana ever could have matched the breadth and scope of of Wikipedia. 

The point of the above paragraph is that the more people you have participating in a field, you have a way of achieving more and deeper meaning. The more people working a field and contributing to it, the more likely you are to achieve a higher granularity of knowledge as well as a greater pile of it. This in turn means the more people there are playing rock guitar, then, the better the chances are of rock guitar continuing into the future in a meaningful manner. Ultimately, an artist is not some point that exists in a sea of meaninglessness but a representative of a demographic of people working in an area. This is how you get not just The Beatles, but also The Rolling Stones and the entire British Invasion in the 1960s; and a generation later, not just Nirvana and Pearl Jam, but the entire Grunge movement. 

In once sense, if there isn't a critical mass of a critical, mass listenership, popular music is not going to gain the kind of meaning it once possessed. With the advent of the internet, it may never again reach the height of importance it once held. 

So What Happens Now?

Without the critical mass of the critical masses, popular music will fail to form the kind of meaningfulness it once possessed. In a sense, it is going to be more meaningless than meaningful - and there's going to be a lot of the meaningless stuff over the meaningful stuff. It's not exactly a joyous future, but there is an upside. Thanks to the same technology that destroyed social meaning, it is also now dead easy to make your own music. In as much as there will be people making their own music for their own meaningful experience, music will not die out. There will be meaningful music in a sea of meaningless music. People are just going to work very hard to find it and get to it. 

If you want meaningful music to exist in the future, then you'd better start participating in it.