Everybody wants to pick a share price winner, and there is no shortage of information. There is a plethora of investment newsletters, stockbrokers always have recommendations and the papers feature share buys and sells continually.
Picking a few winners
I don’t fancy myself as a stock picker which is why over 95% of my portfolio is in managed funds. However, the successes I have had were based on observation. I got into Magellan at $1 a share way back in 2010 when I noticed that every time they ran a session for advisers, there would be double the numbers of advisers present versus the previous time. The six-monthly dividends now from that purchase are more than the original investment.
Then there was Iress, which I bought for $4 a share about 15 years ago. I knew that the ‘Holy Grail’ of the financial planning industry was software and also knew that every piece of software I had been shown was a dud. Then suddenly Xplan appeared and it was a winner. Iress was behind Xplan.
A friend told me recently how he made a nice chunk of money as a result of taking his granddaughter to a morning tea. She told him they had to go to Smiggle to buy some merchandise that was in hot demand by young people. He had never heard of Smiggle but when they arrived, he was astounded to see the long queues of people outside their store. He bought a parcel of shares in Premier Investments which have appreciated rapidly in just seven months.
... but on the other hand
But there is also the opposite. You can dump a share because your dealings with the company are so bad you wonder why they are still are in existence. And this is how I came to sell my Telstra shares an hour before I wrote this.
We have persevered with Telstra for many years despite the difficulty of communicating with them. Earlier this year, when the NBN became available in our area, Telstra rang us continually to convince us to remain with them by switching our Telstra cable internet service to Telstra NBN. We declined and moved the home service to Aussie Broadband.
The Telstra service was discontinued and the associated landline number ported over to a new provider. The problem was that Telstra kept sending us bills telling us that the direct debit to our account would continue.
I rang Telstra where a recorded message told me to use the MyTelstra app on my phone. That was a disaster. Naturally they start the conversation by asking for my full name, date of birth and account number which I duly provided. The next message advised me I was on a contract and there were termination fees. When I asked for a copy of said contract and what the termination fees were for, there was no reply.
What followed was a nightmare. Every time I re-joined the message conversation the cycle re-started with the usual request for name, date of birth etc. and what was I calling about. After having provided the details more than six times, I finally gave up and made my first ever complaint to the Telecommunications Industry Ombudsman. It took three minutes online.
In less than 24 hours after I lodged the official complaint, Telstra had emailed me an apology and promised to refund all the disputed charges. I then tweeted what had happened and within five minutes, Telstra tweeted another apology.
The lesson is obvious – don’t spend weeks fighting with your telecommunications provider. Use Twitter or go straight to the ombudsman. Through either action you’ll get your fast results.
Thoughts on the 2021/2022 budget hype
It was a perfectly crafted election budget: full of goodies for everybody. But let's have a reality check on two measures, downsizing and the first home scheme.
Downsizing
I just don’t get the hype about rules being relaxed to enable people over age 60 to downsize and contribute up to $300,000 each into superannuation from the sale of the house.
Think about it. The work test is being abolished from 1 July 2022 which means everybody will be able to contribute to super in some shape or form up to age 75, whether they are working or not. The only limitation is that once you have $1.7 million in super you cannot make more non-concessional contributions apart from the downsizer special contribution.
But the average retiring couple would be pushed to have $800,000 in super between them, so they could already both contribute $330,000 using the normal contribution rules. They don’t need to access the downsizing contribution. The only winners from the new rules will be the wealthy, who have more than $1.7 million in super now.
Government contributes to cycle of rising house prices
A bigger issue facing Australia is the thinking by both major political parties that 'something must be done' to make housing more affordable. Yes, right now we are in the middle of an extraordinary residential real estate boom, but this has been caused by our Reserve Bank cutting rates to historic lows. Low rates increase the number of people who can qualify for a housing loan, and at the same time turbo charges their loan potential. The rush started as soon as mortgage repayments became cheaper than rent, and of course, once a rush starts, everybody wants to jump on the bandwagon for fear of missing out.
And so it goes on and on.
Every government initiative to help first home buyers simply increases the number of buyers in the market fighting over a rapidly declining amount of residential housing stock. This feeds the vicious cycle of prices going up.
Any asset is only worth what somebody is prepared to pay for it, and how much they are prepared to pay is governed by how much they can borrow.
This budget has also further increased the number of people who are eligible for a housing loan by enabling them to take part in the First Home Loan Deposit Scheme, which is really a lottery allowing them to buy a home on a minimal deposit. This was a disaster in the UK and may well become a disaster here. The interest rate cycle around the world is turning upwards and at some stage homebuyers will face an increase in their mortgage repayments. This will put many under financial pressure, which may well cause a downturn in the housing market.
The Government also announced that more money can be saved in the superannuation system for a deposit on a first home (the First Home Super Saver Scheme, or FHSSS). The maximum releasable amount of voluntary concessional and non-concessional contributions will rise from $30,000 to $50,000. Basically, first home buyers can make additional personal contributions of up to $15,000 a year as a tax deduction, and then withdraw the money when needed to buy their first home. The sting is that the contribution loses 15% going in and is taxed at marginal rates less a 30% rebate on the way out.
For example, someone earning $85,000 putting $15,000 of gross salary into super for a home deposit would save $5,175 in income tax and Medicare levy up front while losing 15% or $2,250 in contributions tax. However, the maximum in the FHSSS has been left at $15,000 a year per person, and it does not start until 1 July 2022, so the change is of no benefit to anyone who wants to buy anytime soon. It’s a relatively small amount to most first home buyers, especially given the huge amount of paperwork involved.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. See www.noelwhittaker.com.au for details or write to noel@noelwhittaker.com.au. This article is general information and does not consider the circumstances of any investor.