Alan Kohler: The grass is always greener on the other side

Investors are hardwired to compare themselves with whatever is running hottest at the time. When US tech stocks roar, the temptation is to look at the ASX and wonder why we bother. Yet Alan Kohler, one of the most recognisable voices in Australian finance, is entirely at ease with the slower and steadier returns on home soil. And after decades watching market cycles come and go, he has a simple message for anyone feeling twitchy about missing out.

“We probably shouldn’t get too greedy,” he says.

The local market has delivered a modest gain this year, but once you factor in dividends, total returns are north of 7 percent with a month still to run. 

It feels unremarkable only when stacked against the US, where the S&P 500 has surged on the back of an AI-fuelled boom. But Kohler’s view is that the extra sizzle in the US comes with baggage that many investors tend to forget until it is too late.

ASX returns are exactly what you want

Kohler has watched more Australian market cycles than most and the calm in his voice says plenty. The ASX may lag the US on headline numbers, but it also avoids the violent swings that come with speculative manias.

He points to the dot-com era as a case study. Australia participated in the upswing but did not experience the extreme highs, and crucially, it barely participated in the crash.

“We didn’t rise as much but we hardly fell during 2000 and 2001,” he recalls. “Our PE ratio really didn’t change, whereas the US repriced.”

That pattern, he hopes, repeats. Australia might trail in the good times but it generally protects investors in the bad. The composition of the market plays a role here. Big miners and big banks will never generate the same excitement as AI infrastructure or global cloud software, but they also do not collapse when hype unwinds.

Kohler’s view is that mid single-digit capital returns combined with reliable income is a perfectly reasonable outcome.

“That’s what you want really,” he says. “Six and a half, 7 percent including dividends is okay.”

Why he thinks AI is in a bubble

Kohler has been warning for months that artificial intelligence fever has taken on the feel of a bubble. But his reasoning is not the usual “valuations have run too hard” argument. In fact, many of the market leaders sit on enormous earnings numbers. That, he argues, is precisely the point.

“It is arguably an earnings bubble rather than a price bubble,” he says.

The issue is the capital intensity beneath those earnings. The rush to build data centres, buy Nvidia (NASDAQ: NVDA) chips and prepare for an AI-centric world is consuming extraordinary sums. Investors are now beginning to ask whether these outlays can ever be justified.

“How much do they have to make this capital expenditure pay? The answer is trillions of dollars of earnings, which are more or less impossible.”

Nvidia continues to deliver big numbers, but the market is slowly realising that its customers must eventually earn returns on the money they are spending. That is where the rubber will hit the road.

Kohler does not know when the bubble unwinds, but he is clear about his own approach.

“I wouldn’t buy any AI companies at the moment,” he says. “AI is going to be a big business, you just need a very long term view and be prepared for volatility.”

Why healthcare, biotech and critical minerals have room to grow

While the ASX is often criticised for its heavy concentration in banks and miners, Kohler thinks it is easy to overlook some of the sectors quietly building momentum beneath the surface. Healthcare, biotech and critical minerals stand out as areas where Australia already has real depth and global relevance.

On healthcare and biotech, Kohler argues the market has been unfairly distorted by CSL’s (ASX: CSL) recent slump.

“It is a bit distorted by CSL,” he says. “CSL got too expensive given its growth. It was priced like a technology super growth stock but in fact it is a utility.”

Strip out the drag from CSL and he thinks the sector’s foundations are solid. Australia has a long history of world-class healthcare businesses. Names like ResMed (ASX: RMD) and Cochlear (ASX: COH) show what scale looks like, and beneath them sits a healthy pipeline of emerging companies.

“There is a lot of smaller biotech doing interesting things,” he says.

Critical minerals is another area he believes deserves more attention. The newly formalised framework between Australia and the US is expected to accelerate investment into rare earths, battery materials and other strategically important commodities. 

Kohler has spoken to several operators in this space and has come away impressed by the calibre and persistence of the people running these businesses.

“They have been plugging away for years, in some cases decades,” he says of companies like Arafura Rare Earths (ASX: ARU), Sunrise Energy Metals (ASX: SRL) and Latrobe Magnesium (ASX: LMG).

The sector will take time to mature but, in his view, it represents a genuine opportunity for Australia to play a larger role in global supply chains. And unlike the hype cycles in tech, these projects are tied to physical assets and long-term demand driven by energy transition policies.

How Alan Kohler invests

For someone who has chronicled markets for decades, Kohler keeps his own investing approach surprisingly simple. There is no stock picking bravado or efforts to outsmart the market.

“I certainly don’t try to time the markets,” he says.

The bulk of his portfolio is in ETFs and broad index funds. He then allocates a smaller slice to individual companies that interest him, usually smaller or mid-sized businesses where he enjoys following the story. He avoids large caps altogether, preferring to access them through diversified vehicles.

He has dabbled in startups in the past, though he is blunt about how that ended.

“I’ve learned not to do that. That was very unsuccessful.”

Two positive developments for Australian investors

When Kohler scans the changes in investing over his career, two innovations stand out.

The first is the rise of ETFs.

“There is a huge amount of money going into ETFs and for good reason. They are great.”

The second is a less obvious one, but it matters just as much: the shift to non-conflicted financial advice.

The banning of trailing commissions forced advisers to overhaul how they charge, and while the cost of advice is still a frustration, Kohler sees real improvement. He also sees room for more innovation, particularly for investors who want guidance without handing over the keys to their portfolio.

“We need more advice that is a bit like going to the doctor,” he says. “You pay a hundred or two hundred bucks to tell you what you want to know, then you go away again.”

He recently paid $1,800 for a session from an adviser he trusted, a far cry from the $5,000 quotes that often send investors running.

“Eighteen hundred is okay,” he says. “The problem is the statements of advice are too big and too regulated.”

ETFs and more transparent advice are, in his view, the biggest steps forward for everyday investors. They are simple, low-conflict and empower people to take control of their financial lives.