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.