Meet David: He's got a message for you
With many of the world's major indices heading for (or in) correction territory, it's easy to see why investors may be fearful, if not struggling, right now. But like everything in life, it's important to have perspective.
That's the message from our latest investor, David, who encourages readers, like you, to remember that money is just that - money. It is not life or death. At the end of the day, life is short and precious, and we should enjoy every last second of it.
"I've lost a few friends in the last few years. And the older you get, that cycle of loss of friends or family through serious illness becomes more prevalent," he says.
"When I was looking at retiring, I spent a lot of time with one of my former chief executives, a very smart guy and economist, and he pointed out that you get to a certain age and then you've got a limited number of really good years ahead of you. When you've got your health, the inclination to do things, and the money to do stuff."
After losing friends, David realised that "life is a lottery" - people can get struck down long before their time.
"A lot of people are still working because they haven't figured out when enough is enough, to walk away and do something else," he says.
"And I often ask people, "If you weren't doing what you're doing now, what would you be doing? What would you like to do?" Figure that out. Go and do it. Because tomorrow may never come. Or if tomorrow comes, it might be a horrible tomorrow. You can do it."
Unsurprisingly, I loved speaking to David. He's incredibly open, fabulous at mimicking accents, and as you can see above, remarkably wise. Having grown up in Cheshire, south of Liverpool in the UK, he moved to Australia in 1982. He's been investing for a good 30 years, and worked in sales and distribution for major asset managers like Mirvac, Barclays Global Investors and eventually UBS during his working life.
He's been travelling around Europe on a converted commercial barge with his wife over the past decade. And while the COVID-19 pandemic may have put a dampener on their travel plans (and ability to come home), he's not wasting a single moment of his retirement.
In this wire, you'll learn about some of David's biggest portfolio holdings, as well as how he deals with losing positions, his favourite contributor on Livewire, and his hopes for the future.
I hope you enjoy reading this profile as much as I did.
Livewire investor profile
- Name: David
- Age: 66
- Employment status: Retired
- Years investing: 30
- Investment goals: Generate sufficient Income to comfortably fund retirement while preserving capital.
- Products used: Shares, Managed Funds (Domestic & International Equity, Fixed Income) ETFs, Unlisted Property Funds, REITs.
- Biggest portfolio holding: QVG Opportunities Fund (8%)
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How old are you and how long have you been investing?
I’m 66 and I’ve been investing for some 30 years. I began investing seriously when I entered the financial services industry back in 1989. I’ve always thought about funding for the future but until then didn’t really have enough to get started. I’d joined a property funds management business, Mirvac.
I got an early lesson in how fast things unravel when the housing market crashed amid fast-rising interest rates that peaked around 17% and all the knock-on effects in the broader economy that came with it. It was a very scary period to be entering investment markets.
I started out by seeking professional financial advice and have done so ever since starting investing inside and outside of superannuation. Working full time often with long hours and, with limited knowledge of markets at that time, having professional help in selecting investments and setting out a sensible strategy were key elements that have proved to be the test of time regardless of market movements.
In a previous life before moving to Australia, I’d worked in hospitality and then moved into more sales orientated roles. But to be honest, until 1989, I lacked a sense of real direction. The asset management industry opened my eyes to many things including taking a greater interest in companies and the businesses they operated.
I met my wife while on a diving trip to the Barrier Reef and she was just one of the treasures I discovered at the bottom of the ocean! We share similar interests in food, wine and travel and had often talked about having a holiday home in Europe. After renting a smaller craft on the Canal du Midi in France, that idea morphed into buying a floating home and like a snail, taking our holiday home with us.
With zero experience of converted former commercial vessels, it was a steep learning curve initially, but it's amazing how quickly one adapts. For the past 10 years, we’ve navigated more than 21,000km across inland rivers, canals and lake systems, and passed through 4,300 locks in France, Luxembourg, Belgium, Netherlands, Germany and Poland. It’s been a total joy all the way, but like investing, it can carry some risks from time to time!
What is your investment objective? (What is your appetite for risk, are you still working etc)
In 2009, I became what I like to call ‘superfluous to requirements’ at my employer, which given the market turmoil at that was an incredibly stressful period. In truth, it was a valuable wake-up call to re-assess retirement. I did some consulting work in the ETF sector for a couple of years after that while finalizing our retirement plans. With neither of us continuing to work the main objective centred around generating sufficient income to live on comfortably while still investing for growth to fund future needs like health care, increased travel plans and so on.
We’d set up a SMSF in 2008 after moving away from a master trust structure as we wanted more control, to reduce our costs and get access to a wider range of investment opportunities.
I’d say we’re pretty risk tolerant overall and recognise that markets fluctuate and at times those down periods can be extended, but if you have confidence in where or who you’ve invested with, and the fundamentals are right, those assets should recover. I believe that timing markets in and out is a risky strategy, as is holding cash long term.
What products do you use to execute your strategy? (shares / funds / ETFs / property)
We’re currently invested approximately 55% in equities, 25% in property, 13% in alternatives, 5% in fixed income and 2% in cash. We invest in direct shares, managed funds, and index or semi-active ETFs in both domestic and international markets and across large and small cap stocks, unlisted property funds and REITs both domestic and overseas, and the same for fixed income funds. We maintain a widely diversified approach increasingly to international and alternative markets though domestically the support of imputation credits helps provide the income yield we need.
How would you describe your strategy?
Risk management is always an important consideration, so as our portfolio has grown over the years, we’ve increasingly diversified across domestic and international markets, between large and small cap securities, investment managers, and between active and passive index funds. We generally try to avoid large holdings in any single stock or fund (though what constitutes a large holding will likely vary a lot from one investor to another).
We’ve always maintained a buffer of cash and liquefiable assets sufficient to fund at least two years of pension requirements. We’re also increasingly looking to add to existing positions in stocks or funds where we have confidence in management when weakness in markets provides the opportunities, especially in small caps, and private equity.
We try to avoid businesses or investment strategies that we simply don’t understand such as hedge funds, which are typically opaque at best, expensive and hard to fathom.
Could you please share your top 5 holdings in % terms and tell me a bit about why you hold each of these positions?
QVG Opportunities Fund - 8.3% - We first invested with managers Tony Waters and Chris Punty in 2011 when they very successfully ran the Ausbil MicroCap Fund. In 2017, seeking fewer constraints and to run their own funds business they started QVG Capital launching this product and later a long/short fund. Someone once said it was better to back the jockey than the horse, so we followed Tony and Chris to this Fund. They both have solid experience in the small and medium-cap sectors of the market and we like funds where the manager co-invests their personal wealth alongside the investors. They also communicate well with investors when outperforming or underperforming, which gives a lot of confidence and understanding of what to expect. We would expect to add to this holding over time.
Russell Investments High Dividend Australian Shares ETF (ASX: RDV) 5.9% - RDV - This fund came to the market in 2010 and we were among the very first investors at the time. As a low-cost ETF with a focus on delivering a high dividend yield, this was a diversified portfolio exactly designed for our income objectives. This is a process driven approach using consensus broker forecasts for earnings, and it’s managed to avoid typical dividend traps, for the most part, and is better placed to spot when companies might be about to cut their dividends. We continue to be comfortable holding this as part of our core domestic equity portfolio. It's currently on a grossed up yield of about 5.3%.
Partners Group Global Value Fund - 5.5% - Private equity investments have long been a desirable but difficult sector for retail investors to gain access to until more recent times. Launched in September 2017, this fund is a ‘feeder’ fund, investing into a larger international fund through an Australian unit trust structure. Management has a long and successful track record and we like it because it provides the opportunity to access an alternative asset class uncorrelated to equity markets.
Macquarie Group (ASX: MQG) - 4.99% - This has been a frustrating stock holding for me since I first bought it in 2005. I traded in and out until 2012 when the stock was $26.22. It’s been one of the consistent strong performers in the Australian banking sector for years and we should never have sold it down. It has a current grossed up yield of about 5.4%, so attractive on that score also. We’ve since bought back in 2020 and will look to add to the holding in times of market weakness.
Charter Hall Direct Industrial Fund No 4 - 4.5% - We first bought this fund in 2019 and added to it in 2020. Currently yielding approximately 5.2%, it forms part of our income generating portfolio. We have invested in a number of previous Charter Hall funds, which all performed well. Management capabilities are strong and boast a long-term depth of experience.
Is there a standout product, asset class or fund manager in your strategy?
QVG Capital is an obvious choice for us as they tick all the right boxes. They’re experienced and have a long track record of delivering strong outperformance. They know their sector of the market well, which is not well covered by the broader analyst community, thus allowing them to identify opportunities others don’t. As mentioned above, we like their communications with investors, especially during periods of underperformance, which to date have been few.
I’d add another team that operates similarly, though in a different sector of the equity market, and that’s Ophir Asset Management.
Could you tell me about your worst investment?
Valad Property Group (ASX: VPG) was, without doubt, the worst, having lost six figures in this investment. Valad had been on an active and aggressive growth curve for some time but was heavily geared and when the GFC hit in 2007/8 it struggled to pay down the debts. The shares dived with little time to exit and we took a big haircut on that. It hurt.
Losses on individual investments like Valad are sobering experiences but eclipsing these by a country mile are the losses that can arise from being over leveraged. We learned this lesson when markets nosedived in GFC 2008/9 generating margin calls and many a sleepless night. We survived that but vowed never to be in that position again. Many other investors were not so fortunate.
How do you go about dealing with losing positions?
Bearing in mind that investing in equity markets is for longer periods, a manager does need to be viewed in context of various parts of the cycle. Clearly regular monitoring is essential if a stock or manager is routinely underperforming. It’s important to know whether it’s just a bad call on a stock that hurt their performance or something more concerning.
Managers reports and updates are important as are ownership and recognition of mistakes. A lack of communication or continued poor reasoning are cause for alarm bells.
When we genuinely lose confidence in a manager we’ll exit completely and it’s unlikely we’d ever return. We think that once confidence is gone you’re better to cut your losses sooner rather than later and look for better areas to recover. If the fundamentals of stock selection are sound but impacted by short term market sentiment, we’re likely to stick with it.
How does Livewire help with your investing process and what tips can you share with other investors about using Livewire?
Investing can be a complex exercise so knowledge is all important, that’s a truism for sure, but gathering a range of views from market participants is key for us in understand how professionals see the world ahead. This can impact our decision making by either re-enforcing or challenging our own views at the time. It’s also useful to see how other views stack up to the advice we receive and where they coincide or diverge, that in turn impacts our confidence in a range of considerations.
Livewire covers a lot of ground from specifics on stocks to manager views on the world around us. I’d advise investors to simply keep an open mind and read as much as possible, it’s often surprising what we find.
Do you have a favourite contributor you recommend other investors follow?
I’m a fan of Marcus Padley. For me, he’s got a refreshing take on the way he pitches his thoughts on stocks and markets based on many years’ hands-on experience as a broker. He’s easy to read and more often than not makes a great deal of sense.
Is there a topic that you want fund managers to write about?
Most market sectors are well covered by market commentators but one area that seems to be lacking is information on who, how and where to access alternative markets such as private equity and funds that focus on disruptive technologies and where these trends are headed.
What can Livewire do better or what do you dislike about Livewire?
I can’t find much fault in the content that Livewire puts out and to be honest, I think the publication time frame is about right - at least for me, as I don’t spend every waking hour thinking about investing.
I guess since there are a vast number of SMSF investors out there, this could be a segment that might warrant more specific articles dedicated to them, especially in regard to but not exclusively strategy setting. There’s a good number of experts in this field and with Government intervention in the field of superannuation, regular often unwanted change, and shifting of goal posts, there’s plenty to keep on top of.
Is there a lesson you’ve learned as an investor that could potentially help others?
There’s a couple of things I’ve learned. I’ve mentioned the risk of over gearing, I’m not saying that leverage doesn’t have a place, but be sure you can withstand any serious shocks as the ability to recover may not always be there.
Greed is a powerful and at times dangerous bedfellow!
The second thing I’d say is to get a very clear understanding of what your annual expenditure needs are, living expenses, travel, emergency contingents and maybe luxury/spending etc. Without this, you have no idea what your income generating needs will be, nor what you need to have in assets and their ability to generate income. This, to us, was a fundamental first step in realizing a path to a comfortable retirement.
Lastly, sourcing sound opportunities whether direct stocks or funds is never an easy task, if you don’t have enough knowledge to do your own research or don’t feel inclined to spend your retirement days doing stock and fund research, then I’d advise seeking out professional advice and guidance. Sound advice is worth its weight in gold, as is setting out a sensible strategy you can stick with.
Clearly if you make a poor investment with low prospects of recovery, you do need to cut it and look for better opportunities elsewhere. On the other hand, trying to time markets is rarely a skilled decision and more often influenced by luck. Even the professionals don’t get it right.
When the Covid pandemic hit, markets reacted quickly to the uncertainty. We elected to increase our cash position to 25% in the belief that we’d reduce our risk. As it turned out, that was a mistake and we ended up buying back into some of our best performers at higher prices when in hindsight we would have been better off riding it out. Lesson learned.
Can you share a personal passion or ambition you have for your future?
It might sound cliche, but we’ve always loved travel and the learning opportunities that come from meeting people from different cultures and backgrounds - travel is the perfect medium for this.
While the pandemic has limited our ability to return home, it hasn’t dented our travel plans. We’re passionate about food and wine and excited about heading down to Burgundy from the Moselle in Germany this season and then down the Rhone back to the Midi next year.
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Ally Selby is a content editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian Group, Your...