AI Adopters

Last week I wrote about the different ways investors can participate in the enormous opportunity presented by artificial intelligence. While much of the attention is focused on companies developing AI models and building the infrastructure to support them, I believe some of the most attractive long-term opportunities will come from businesses that already exist. Companies that can use AI to become more productive, more efficient, and ultimately more profitable.

These businesses don't necessarily need to develop their own AI models or spend billions building data centres. They just need to adopt the technology and use it to improve what they already do. For established businesses with large customer bases, extensive operations and strong competitive positions, even relatively small improvements in productivity can translate into substantial increases in profitability.

Consider Caterpillar, a company best known for manufacturing the heavy machinery used in mining and construction. Caterpillar has been developing autonomous equipment for decades, and its driverless mining trucks have already transported more than 11 billion tonnes of material. AI, robotics and machine learning are extending these capabilities into increasingly complex environments. Machines that operate more safely, work longer hours and reduce operating costs create enormous value for customers. For Caterpillar, that strengthens an already formidable competitive position.

McDonald's is another example. With more than 40,000 restaurants worldwide, the potential benefits from automation are significant. AI can improve inventory management, predict customer demand, reduce equipment downtime and simplify restaurant operations. Over time, I expect robotics to automate most, if not all, of the food preparation process. McDonald’s doesn’t need to reinvent itself to become a major beneficiary of AI. Improvement in efficiency across such a huge network will have a big impact on profitability.

JPMorgan Chase has a different advantage. It possesses vast amounts of proprietary financial and customer data accumulated through decades of banking relationships. AI allows the bank to extract greater value from that information, improving fraud detection, credit assessment, customer service, and operational efficiency. Its AI-powered investment research platform has already reduced the time required to turn manual research into actionable insights by 80%. Importantly, its competitors cannot simply replicate those datasets. The technology is becoming widely available, but the information used to make it valuable is not.

Walmart presents a similar opportunity in retail. Its enormous distribution network, purchasing power and customer data provide the foundations for AI-driven improvements in inventory management, logistics and supply chains. With thousands of stores and an extensive global supply chain, improvements in forecasting, stock availability and distribution efficiency can deliver substantial savings. For a business operating on relatively thin margins, even small improvements can have a meaningful impact on earnings.

What attracts me to these businesses is that their investment cases do not depend entirely on AI. They already have established operations, substantial revenues and competitive advantages developed over decades. AI provides another opportunity to strengthen those businesses rather than being the sole reason for their existence. They don't need to win the AI race. They simply need to benefit from it.

Adopting AI does not automatically make a company a good investment. The benefits must eventually translate into earnings, and the price investors pay for a company's shares still matters. Some businesses will struggle to implement the technology, while others may find their competitive advantages weakened rather than strengthened. There will be winners and losers, even among the most established companies.

For investors, the opportunity is not only to identify which companies will use AI, but which can convert it into a lasting competitive advantage and higher earnings. Businesses with scale, proprietary data, strong balance sheets, and established market positions are particularly well placed to do so. As AI becomes more widely available, the technology itself may well become less of a differentiator, while the ability to deploy it profitably becomes more important. Over the coming decades, I think some of the best AI investments won't look much like AI companies at all.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The Only Game in Town

Artificial intelligence seems to be the only game in town these days, and to a certain extent, it is. I believe AI represents one of the greatest technological advancements in history and an investment opportunity that will unfold over decades. But what exactly is an AI company, and how should investors approach the opportunity?

There are the chipmakers developing the processors that power AI, the hyperscalers such as Microsoft, Amazon and Google, the companies developing AI models and the robotics businesses that will eventually bring AI into the physical world. Then there are the energy providers supplying the electricity needed to run it all, and the businesses that will benefit from adopting AI to improve their own operations. The opportunity is enormous, but not all these businesses are created equal. Some offer compelling investment opportunities, while others carry substantial risks. AI is too broad and diverse to treat as a single investment category. Investors need to understand the different layers of the industry and the quality of the businesses operating within them.

One group attracting attention is the emerging neocloud sector. Companies such as CoreWeave, Firmus and Nscale provide specialised computing infrastructure that helps power AI. Their emergence reflects an imbalance between demand for computing capacity and the industry's ability to supply it. Even the world's largest technology companies are struggling to build infrastructure quickly enough to satisfy that demand. Increasingly, they are turning to specialist providers to bridge the gap.

But being essential to the AI revolution doesn't necessarily make them good investments.

The recent withdrawal of Australian company Firmus's proposed IPO highlights the risks. Its proposed valuation raised serious questions, particularly given the potential for existing shareholders to sell down their holdings. In South Korea, neocloud provider Elice recently listed following high retail demand, only for its shares to plunge 32% on debut. The stock has since recovered somewhat but remains below its issue price. Meanwhile, British provider Nscale recently had Microsoft withdraw as a customer for one of its major projects after delays in securing electricity supply. These are businesses making huge commitments to infrastructure that can take years to deliver.

Another concerning example is CoreWeave. Its massive growth has been fueled by substantial debt, and the bond market is beginning to question the risks. The yield on its debt maturing in 2032 recently approached 15%, reflecting growing concerns about its financial position. For a business dependent on continued access to capital, that really matters. Higher borrowing costs can quickly undermine the economics of new projects, while an inability to refinance existing debt could threaten the survival of the more heavily leveraged operators.

There is an interesting dynamic at play here. The hyperscalers are investing enormous amounts in their own infrastructure, but increasingly they are relying on other companies to finance and build additional capacity. In doing so, they are transferring some of the capital requirements and financial risks to businesses with considerably weaker balance sheets. The hyperscalers still have substantial financial commitments, but they also have highly profitable established businesses supporting their investment. Many neoclouds do not.

For our clients, the distinction is important. We want exposure to the extraordinary long-term opportunity in AI without taking unnecessary financial risks. That is why we continue to favour established businesses such as Microsoft, Amazon, Alphabet, and Meta, alongside energy producers and, increasingly, businesses that will benefit from adopting AI.

AI will transform the global economy over the coming decades. But not every company helping to build that future will be a good investment.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

November Rain

The next few weeks leading up to the US midterm elections on 3 November could be particularly volatile for investment markets. At the centre of the political battle is an issue far more immediate to American voters than foreign policy or government debt. It is the price of fuel, particularly diesel, and the growing financial pressure on the industries and communities that depend on it.

Farming, construction, mining, and transport are all heavily dependent on diesel. When prices rise sharply, the consequences flow through almost every part of the economy. These are also communities that have traditionally provided strong support for Donald Trump and the Republican Party. Rising fuel costs threaten that support at exactly the wrong time. With control of both houses of Congress at stake, the Republicans can’t afford to lose voters.

Trump understands the political consequences. His determination to bring energy prices down was highlighted on 9 October when he announced an extraordinary agreement with Vladimir Putin for Russia to supply diesel to American and global markets. The agreement involved Washington easing sanctions imposed on Russia over its invasion of Ukraine. Regardless, it is a remarkable reversal of policy and it demonstrates the political urgency surrounding energy prices.

But there is another side to this equation. Iran has its own reasons to want Trump politically weakened. With the conflict between Iran and the United States continuing, sustained pressure on global energy supplies serves Tehran's interests. Higher oil prices hurt American consumers, damage business confidence and increase the political cost of the conflict for the administration. Whether Iran is deliberately seeking to influence the election is impossible to establish, but the potential political consequences are difficult to ignore.

This creates a difficult situation in the lead-up to the 3 November vote. Trump has a strong incentive to contain energy prices and avoid further disruption before the election. Meanwhile, Iran has little reason to make that task easier. I suspect the recent escalation by the Iran backed Houthis in Yemen, including attacks on Saudi infrastructure, are directly related to this political calculation.

What concerns me more is what happens after 3 November. Once the election is over, the immediate political pressure to contain fuel prices diminishes. I think Trump will feel considerably less constrained in his response to Iran, particularly if he believes a more aggressive military campaign could bring the conflict closer to a conclusion. Further air strikes, attacks on critical infrastructure or a broader escalation of American military involvement are all possibilities. After the midterms, if Trump believes a more aggressive approach to Iran is necessary, I think he will be prepared to accept considerably higher oil prices as a consequence.

None of these outcomes is inevitable, but the political calculations will change quickly once the votes have been counted.

For investors, this matters because energy prices influence inflation, interest rates, corporate profitability, and economic growth. Another significant disruption to oil supplies would arrive when financial markets are already dealing with considerable uncertainty.

My concern is that investors may be concentrating too heavily on the election itself and not enough on what follows. I see a meaningful risk of higher energy prices in the months ahead, with consequences extending well beyond the oil market. The greatest risk may have less to do with how Americans vote than what happens once they have, regardless of the outcome.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Busy or Productive?

Being busy has become a strange measure of modern success. People complain about it but also wear it as a badge of honour. A full calendar suggests that they are in demand. There is always somewhere to be and something that needs their attention. Somewhere along the way, we have come to associate being busy with being important. Perhaps they worry that without all that activity, they might not be.

We are conditioned from a young age to work harder and do more. Effort is rewarded, which is fair enough. But working hard at something worthwhile is very different from filling your days with tasks and activities that achieve very little. People spend so much time trying to get everything done that they forget to question why they are doing it.

In my own case, I prioritise being productive over being busy. I find there are a lot of things I just don’t need to do. Saying no to an event or a meeting that does not fit your core priorities is a good place to start. An invitation might be interesting, but unless it's very worthwhile, I am just not going. You can appreciate being asked and still decide your time is better spent elsewhere.

I go to very few industry events. In fact, I go to very few events generally. Some are worthwhile, and I enjoy seeing people. But I deliberately avoid being busy because it eats into the quiet space where I do my best thinking. I like having time to research and read about investment markets as and when I want to, including following an idea further than I had planned.

That time matters to my work. I want to work out where best to invest funds given everything going on in the world. That requires reading widely and thinking independently. Talking to other investment people can be useful, but I don’t want to do what everyone else is doing. Often, it's better to do the opposite and have a different view. The focused work that matters most to me rarely comes with an invitation, so unless you protect space for it, other people’s requests will fill the day.

The same applies to life outside work. People become so caught up in being busy that they lose sight of what makes them happy. Every spare hour becomes available for another commitment. The days fly by, and suddenly another year has passed. Doing less gives us a chance to enjoy an afternoon without watching the clock or thinking about where we need to be next.

By the same token, the answer is not to turn life into an elaborate exercise in optimisation. There is plenty of advice about ice baths, perfect routines, and extracting more from every minute. That nonsense becomes exhausting too. We do not need to manage ourselves like a production line. Keep it simple. Use your common sense. If something adds little value and you don’t enjoy it, stop doing it. But if something is fulfilling or creates real productivity, then keep doing it.

There is no right answer for everyone. We all have responsibilities and commitments. But we do get to choose more than most people are willing to admit. I want to do my work at a very high level and have time to enjoy my life. Being busy tells me very little about whether I’m achieving either. I’d much prefer to be productive.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

When Risks Converge

There are several significant risks unfolding across the global economy. Higher oil prices from the war with Iran, persistent inflation, pressure on central banks to raise interest rates, rising bond yields and stress in parts of private credit. Each is a material concern in its own right. My greater concern is what happens as they begin to reinforce each other.

Oil is the most immediate pressure point. Its influence extends well beyond the petrol bowser. Higher energy costs flow through freight, manufacturing, agriculture, and the logistics behind almost everything we consume. Businesses will either absorb those costs or pass them on. Either way, someone pays. Margins fall, household purchasing power weakens, and an economy already dealing with stubborn inflation faces another obstacle.

That puts central banks in a difficult position. Higher interest rates don’t reopen a shipping route or produce more oil. But they will reduce spending elsewhere in the economy. If higher energy costs become embedded in broader prices and inflation expectations, central banks may well hike rates further, even as growth slows. The risk is that controlling inflation ends up delivering more economic pain than markets have allowed for.

Bond markets add another layer. Rising yields increase borrowing costs for governments and businesses, while also placing pressure on asset valuations. They also make refinancing more difficult. A business might manage its existing debt today but face a very different calculation when that debt matures. These pressures take time to work through the system. The absence of an immediate crisis does not mean the consequences have been avoided. There are material problems brewing here.

Private credit deserves particular attention in that environment. Many borrowers face interest costs that rise with market rates, making them vulnerable when financing becomes more expensive. If earnings also weaken, the squeeze comes from both directions. This is a sector I have long been concerned about. The economic conditions now emerging will likely expose more of its underlying weaknesses.

That does not mean every private credit fund is in trouble, that a bond crisis is imminent, or that a global recession is inevitable. An easing of the conflict could also relieve energy pressure and improve the outlook. But with the US midterm elections approaching, political calculations on both sides could complicate efforts to resolve the conflict.

The point is that the risks to the global economy are not only mounting, but they are also converging and beginning to reinforce each other. Higher oil prices sustain inflation. Persistent inflation keeps interest rates elevated. Higher borrowing costs weaken cash flow. Weaker cash flow increases credit stress. If lenders then become more cautious, businesses find it harder to access capital, adding another constraint to growth, potentially creating a downward spiral.

We do not need to predict a specific breaking point to recognise that the margin for error is narrowing. Individually, these risks are significant. Collectively, they threaten the global economy because each can make the others harder to manage.

For investors, this is a time to remain disciplined and manage your portfolio prudently. Strong balance sheets, low levels of debt, reliable cash flow, and sufficient liquidity become far more valuable when conditions tighten. While markets appear to underestimate these risks, we continue to take profits on selected stocks and build our cash holdings.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The End Game

When the war with Iran began, I wrote that the market was treating it as a short conflict. My concern was that Iran had a different end game: create another 1979. An energy shock would spread through the economy until the pressure to end the war not only became impossible to ignore, but it would also serve as a warning for the future.

Nearly seven months on, we are approaching the pointy end.

The Strait of Hormuz has been severely disrupted for months. Saudi Arabia’s east–west pipeline helped keep oil moving around it, carrying roughly four million barrels a day to the Red Sea. Then that pipeline was attacked, just as the Houthis intensified their activity around the Red Sea. Saudi Arabia has since restarted the pipeline, but that event shows how exposed the alternative route really is. Iran and its allies have shown how much of the world’s energy supply they can disrupt. It leaves the world with little room for further setbacks.

Countries around the world continue to draw down on their strategic reserves. The International Energy Agency estimates that observed global oil inventories fell by 507 million barrels between the start of the war and August. Meanwhile, Europe is heading towards winter, when heating demand puts more pressure on supply. In the United States, the midterm elections are just over five weeks away. The price of fuel at the pump will influence the election.  That could give Iran an incentive to escalate if they want to apply real pressure. This makes the next three months critical.

Oil recently climbed back above US$100 a barrel, although it has since eased as hopes of diplomacy and the pipeline restart brought some relief. The number I am watching even more closely is diesel. US diesel and gasoil prices passed US$200 a barrel in early September; European diesel futures reached US$210 a barrel. That is the wholesale price, not the pump price, but the pain is already reaching businesses and households.

Diesel powers the trucks that move goods, the machinery that plants and harvests crops, and much of the work done in mines and on construction sites. A farmer cannot just stop harvesting because fuel costs have risen. A freight company still has to deliver food. Those costs move through supply chains, often with a delay, until they appear in the prices everyone pays. At the same time, businesses facing higher bills may postpone investment or cut back elsewhere.

To me, we are still in the first of three distinct stages. First an energy shock, then growth shock, and ultimately economic shock. Higher prices squeeze consumers, while higher operating costs squeeze businesses. If both last long enough, recession becomes a real possibility. It is the same danger I have been writing about since the beginning. We are seven months in, and the energy shock phase is still playing out.

There is now talk in the US of restricting diesel exports to ease domestic prices. I understand the political appeal, particularly before an election. It might provide temporary relief at home. But an export ban does not create more diesel, and countries that rely on American supply would be left competing harder for what remains. The pressure would move elsewhere rather than disappear.

Markets still broadly seem to expect that somehow everything will return to normal soon enough. I think the opposite is likely true. I think Iran has been strategic and deliberate from the day they were first attacked. I still hope diplomacy provides an exit. But I do not expect it.

The risks I outlined at the start of this war are now coming into focus. Ultimately, the timing rests on how long the world can absorb an energy shock before the economic damage becomes the force that determines the wars end game.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Who Wants to Be a Millionaire?

If you have children or grandchildren in their twenties, this might be worth sending to them. Right now, they have an enormous financial advantage that they will never have again: time.

The idea is simple. From the age of 25, invest $1,000 a month into a diversified portfolio of shares and continue doing it until you are 65. Don't try to pick the next great company or predict when markets will rise and fall. Just invest every month and give your money 40 years to compound. It may sound boring, but it is extremely effective.

To put some reasonable numbers around it, Australian shares have returned around 9% a year over the 30 years to June 2026, including reinvested dividends. US shares have done even better. Past returns are no guarantee of future returns, but let's use 9% as our long-term assumption and allow for inflation of 2.5%.

It is important to talk about the result in today's dollars. Telling a 25-year-old they could have $5 million or $6 million in 40 years sounds impressive, but it doesn't tell them what that money will actually buy. So in this example, we assume the $1,000 monthly investment also increases with inflation over time, meaning they are always investing the equivalent of $1,000 today.

Do that for 40 years and the result is around $2 million in today's money.

That is a significant outcome. They will have personally contributed the equivalent of $480,000. Compounding does the rest. This is before considering their superannuation, their home, any additional savings as their income increases, an inheritance, or anything else they accumulate during their life.

Of course, $1,000 a month might be difficult at 25. If it is, start with $300 or $500 and work towards it as your income grows. What matters most is starting, because the one thing you cannot make up later is time. Someone starting at 25 has 40 years of compounding ahead of them. Wait until 35 and a quarter of those years have disappeared.

Financial independence doesn't necessarily require earning an extraordinary income or finding an extraordinary investment. Sometimes it comes from doing something quite ordinary for an extraordinarily long time.

For parents and grandparents, I think this is one of the most valuable financial lessons we can pass on. For anyone lucky enough to be reading this in their twenties, don't underestimate what you have.

You have time.

Invest $1,000 a month, give it 40 years, and create financial freedom for the future.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The National Security Economy

Back in early 2024 I wrote about the three major themes we were focused on from an investment perspective. The first was AI, the second was energy, and the third was more complex: a world preparing for war.

At the time, I explained that preparing for war was about much more than increased defence spending. It was also about changing supply chains, reshoring manufacturing, securing critical resources and reducing dependence on countries that may not always remain friendly.

More than two years later, I think that theme has become broader still. A better way to describe it today is the national security economy. This is about the economics of sovereignty, security and resilience in a more uncertain world. Governments and companies are increasingly asking, what happens if the system we depend upon suddenly stops working? It’s no longer simply about the cheapest and most efficient way of doing something.

For several decades globalisation was largely built around efficiency. Manufacturing moved to wherever it could be done most cheaply. Supply chains became longer and more complicated. Inventories were reduced. Energy was sourced from the most economical supplier. It worked well, as long as everyone continued to cooperate. That can no longer be assumed. Efficiency still matters, but security matters more.

The infrastructure that makes a country resilient is surprisingly broad. Defence is part of it, but so are electricity grids, data centres, ports, water infrastructure, agriculture, energy production, semiconductor manufacturing and critical minerals. These are not just industries; they are also matters of national security.

Artificial intelligence provides an interesting recent example. Earlier this year the US government designated Anthropic a supply-chain risk following a dispute over how its technology could be used by the military. Then in June, citing separate national security concerns, the US temporarily restricted foreign access to Anthropic's newest models.

Whatever the merits of those decisions, it highlights a much bigger issue. AI models are becoming embedded into the everyday operations of businesses and governments. If your organisation becomes dependent upon one of them, who ultimately controls your access to it? The same question increasingly applies to cloud computing, payment systems, satellites and communications infrastructure. Access to technology itself is becoming a matter of national security.

National sovereignty is starting to extend well beyond borders.

We already understand this when it comes to oil, rare earths and semiconductors. Taiwan Semiconductor Manufacturing Company is perhaps the clearest example. TSMC is an extraordinary business that I would otherwise love to own. But for me there is one major problem. I believe that at some point China will make a play for greater control over Taiwan. I don't know when or exactly what that looks like, but if it happens, the value of TSMC becomes extraordinarily difficult to assess.

That is one side of the investment equation. The national security economy creates risks for companies sitting on geopolitical fault lines. But it also creates opportunities for the companies helping countries remove those vulnerabilities. Some of the biggest opportunities will be in areas far less glamorous than AI or defence.

Water is one. Food is another.

A country can survive without the latest smartphone. It cannot survive without reliable electricity, clean water or food. It is not just food and water themselves that matter. Everything required to produce and secure their supply becomes strategically important. Fertiliser, irrigation, agricultural machinery, water treatment, storage and transport all become part of the national security equation. As governments think more about resilience, security and strategic independence, more investment in this critical infrastructure will inevitably follow.

The world spent decades optimising for efficiency. We built very sophisticated systems on the assumption that goods, energy, technology and capital would continue flowing relatively freely across borders. The next decade will be about building greater self-sufficiency, stronger contingency planning and eliminating single points of failure. That will be expensive and at times inefficient. But that is the price of national security.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Markets Are Priced for the Best Case

While markets remain optimistic that President Trump will find a way to get Iran to reopen the Strait of Hormuz, the longer this goes on the more concerning this becomes a global economic catastrophe.

In the past, such as the introduction of tariffs in April last year, Trump has managed to push and pull the information flow to address problems as they escalate. This time he is trying to do the same, but he is learning the hard way that Iran was in a stronger position than he realised.

From an investors perspective this situation needs to be fixed quickly. The global economy needs the Strait of Hormuz to be reopened urgently. For Trump to do this it will require either massive concessions from the US via negotiations, regime change or a significant escalation.

The military might of the US is not in question. But Iran is clearly in control of the Strait of Hormuz. Trumps rhetoric around winning the war and ongoing negotiations with Iran seems to have placated investment markets so far. Markets are down slightly. But there is a general expectation that Trump will get a deal done, the Strait reopens and away we go. The concerns for markets will be if they stop believing Trump and realise that if he could have reopened the Strait by now, he would have.

If the Strait of Hormuz takes weeks or even months to reopen, then we are in for a severe 1970’s style energy shock that will reverberate through the global economy. In that situation you get rising prices across energy and food, interest rates rising, slowing global growth, falling company profits and rising unemployment.

In the late 1970s and early 1980s in the United States, oil prices more than doubled, inflation pushed above 13%, interest rates peaked near 20% under Paul Volcker, unemployment rose from around 6% to over 10%, and equity markets delivered negative real returns of roughly 50% over the broader period. In Australia, and across much of the world, the pattern was the same, high inflation, rising unemployment and weak real returns.

There is so much more downside risk than upside opportunity in the share market right now. The S&P500 and ASX200 are both down a little over –7% from their highs. So, if everything is reopened tomorrow that’s about the extent of your upside. But if this drags on the downside is significant, easily another –10% to –20% or even more. A global recession would wreak havoc with the economy and the share market. And the longer this goes the more likely that is.

Markets are underestimating the level of control the US has over this situation. But they are also underestimating the supply chain and second order effects. Investors have become so conditioned to the market recovering quickly after a crisis and buying the dip that they underestimate the potential of something deeper.

I usually describe myself as cautiously optimistic. However, as more time passes my approach is becoming increasingly cautious and far less optimistic. If Trump somehow conjures a deal, the US facilitates regime change or Iran willingly reopens the Strait of Hormuz, then markets will celebrate and away we go. But in the absence of the Strait reopening then markets will quickly adjust for what is ahead. As we’ve seen repeatedly in recent years, markets don’t price risk like they once did, they move once an event occurs. From here, outcomes for markets diverge sharply depending on what happens next. That’s the gap investors should be thinking about.


General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions. 

Positioning For War

For much of modern history, war and markets moved together in predictable ways. Conflict meant panic. Panic meant falling markets.

Yet the past few years have challenged that assumption.

Investors have lived through a remarkable sequence of shocks. The global shutdown of the COVID-19 Pandemic. Russia’s invasion of Ukraine in 2022. Rising trade tensions and tariffs between the United States and China. Each episode initially rattled markets. Each one, in time, faded into the background.

The pattern has been strikingly similar. Markets fall sharply on the news. Investors assess the damage. Then, almost inevitably, the recovery begins. Within months the narrative shifts from fear to opportunity, and markets move on to new highs.

Against that backdrop, the emerging confrontation between Iran and the alliance of United States and Israel has so far been treated in much the same way. Investors appear to be assuming that this will be another geopolitical shock that ultimately proves temporary.

That may well prove correct.

But there are a few caveats this time.

The first is escalation. War has a habit of taking on a life of its own. Once events begin to move quickly, the range of possible outcomes expands dramatically. Supply chains can be disrupted, alliances can shift, and energy markets can react violently. In those circumstances forecasting becomes far more difficult. Markets dislike nothing more than uncertainty.

The second risk is duration.

For markets and the global economy to remain resilient, this conflict likely needs to be short and sharp. A drawn-out war lasting many months would create a very different economic backdrop.

Energy sits at the centre of the issue.

Roughly a quarter of the world’s oil and gas supply moves through the narrow shipping corridor known as the Strait of Hormuz. Any disruption there would ripple through the global economy almost immediately. Oil prices will quickly push well beyond US$100 per barrel.

But the real problem is not just price. Energy is a physical commodity. When supply is disrupted, it is not simply a matter of paying more and carrying on as normal. There is literally less energy available to power factories, move goods and fuel transport networks.

That scarcity feeds directly into inflation.

Higher energy prices raise the cost of almost everything. Businesses pass those costs through where they can. Consumers feel it in fuel, food, and transport. Central banks, already wary after the inflation surge of recent years, are forced to keep interest rates higher for longer.

Growth slows. Confidence weakens.

In short, a prolonged disruption to global energy supply would materially change the economic outlook.

Yet there is also a counterbalance to this pessimism.

If the past few years have shown us anything, it is that the global economy has developed a surprising level of resilience. The shock delivered by the COVID shutdowns was arguably the most severe economic interruption since the Second World War. Entire industries stopped overnight. Borders closed. Global travel collapsed.

Yet the system adapted.

Supply chains reorganised. Governments deployed unprecedented fiscal support. Central banks flooded markets with liquidity. Within a remarkably short period the global economy found its footing again.

That experience has reshaped investor psychology. Markets now tend to assume disruption is temporary unless proven otherwise.

There is also a political dimension to consider.

Much of the timing and trajectory of this conflict ultimately rests with Donald Trump. If history offers any guide, markets play an important role in that calculation. Trump has long treated financial markets as a barometer of political success. When markets are strong, the narrative is working. When markets fall sharply, the pressure to change course increases.

For that reason, it is difficult to see a scenario where a prolonged conflict that significantly damages markets is allowed to continue indefinitely. At some point a declaration of victory, however loosely defined, becomes politically convenient.

This may not be conventional diplomacy. But Trump has rarely followed conventional scripts.

In that sense markets may already be assuming an implicit floor. A conflict that escalates too far risks undermining the economic backdrop heading into an election cycle. That is not a position any administration would welcome.

For investors, the implication is relatively clear.

The base case remains that this conflict proves short lived. Markets will wobble, volatility will increase and then attention will gradually shift back to the underlying drivers of the next cycle. Chief among those remains the extraordinary investment wave unfolding in artificial intelligence and advanced technology.

If that scenario plays out, periods of weakness are opportunities.

However, prudent investing always requires acknowledging the alternative paths. If the war escalates or drags on for months rather than weeks, markets could experience a more meaningful correction as energy prices rise and growth expectations fall.

That is why positioning matters.

We are selectively adding to our preferred companies, particularly those aligned with the long-term technology and AI themes that continue to reshape the global economy. At the same time we remain mindful that volatility may create even better opportunities ahead.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions. 

Historical Performance Disclaimer: Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions 

The Scale Game

There is an uncomfortable paradox that plays out every time technology takes a leap forward. The companies that end up shaping the future rarely look sensible in the moment. Their valuations seem to be inflated. Their cash burn looks reckless, and their ambitions appear unrealistic. But history tells us that the biggest and best tech companies succeed because they win the scale game.

In the age of artificial intelligence, this dynamic becomes even more pronounced. Elevated valuations will feel normal because we are trying to price something that has not fully arrived. Much of the future value is bound to technologies and applications that do not yet exist. Productivity gains that have not yet been created let alone measured. Industries that have not yet been created. The market is being asked to look ten years forward even though most people struggle to see ten months ahead.

AI is a multi-year tailwind. It will be volatile. It will overshoot. It will disappoint at times. But over the course of the journey, it will lift both growth and productivity across the global economy. In that type of cycle, buying the dips will matter more than trying to call the top because the structural direction is up. The growth is exponential.

This is also why OpenAI, even as an unlisted company, keeps dominating headlines. People are fascinated by the numbers. A valuation in the hundreds of billions simultaneously burning billions of dollars in cash annually. The debate tends to stop right there. But the real question to ask is what those numbers actually mean.

A big number without context means nothing. Most people cannot conceptualise the difference between a million and a billion, let alone a billion and a trillion. One million seconds is around twelve days. One billion seconds is more than thirty-one years. One trillion seconds is more than thirty-one thousand years. The mind boggles. Investors backing OpenAI are not confused by this. They are not funding short-term profits. They are funding the race to scale.

We have seen the exact same story before.

Amazon lost money for more than a decade. For years investors rolled their eyes at the billions pouring into data centres, fulfilment networks, and cloud infrastructure. But Amazon understood what others did not appreciate. First you scale. Then you monetise. Profit is the final step, not the first. The benefit became obvious when AWS emerged as one of the most profitable business models in the world.

Meta followed a similar path. Heavy spending on data infrastructure, algorithm development, machine learning, and global distribution. Huge amounts of cash that looked irresponsible from the outside, some of it probably was. But from the inside it was the only way to win. The company that scales first becomes the company that sets the rules and controls the market. Monetisation becomes a strategic choice rather than a desperate scramble. Now Meta’s ad engine is a global monopoly.

OpenAI is not profitable because profit is irrelevant at this stage of the journey. They are building foundational infrastructure for a technology that will power the next decade of economic expansion. They are racing to scale because scale determines who survives. When the market shakes its head at the losses or scoffs at the valuation, what they are reacting to is discomfort because the future is difficult to value.

When the market cannot value something clearly, the instinct is to assume it is overpriced. But the early stages of a platform shift work differently. The pricing is not about current earnings. It is about capturing the optionality of every future application that can be built on top of the technology. That is why the smartest investors focus on the direction of scale rather than the quarterly burn rate.

This does not mean every AI company wins. Far from it because many will not. But the ones that do will define the next generation of productivity and wealth creation. They will pull forward years of economic efficiency, and they will reshape entire industries. That is why valuations look high today and why they may look cheap in hindsight.

If the next decade belongs to AI, then the next decade belongs to the companies that can scale faster than anyone else. That is the game right now. It is why buying the dips during a structural tailwind becomes one of the more rational decisions an investor can make.

Profit comes later. Scale comes first.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Do The Hard Yards

There are moments in life that remind you that time isn’t slowing down for any of us. Watching my youngest daughter, Rachel, and her partner of five years, Danny, buy their first home this week was one of them. Anyone with adult kids or grandkids knows the feeling. That first property isn’t just a financial decision; it carries their hopes and dreams for the future. It’s exciting, but it can also be overwhelming and emotional. As a parent, your role shifts. You’re no longer steering the wheel; you’re there to guide them along the way.

What made me proud was how Rachel really owned the process. Paula and I were there for advice when they needed it, but they drove everything. They saved their deposit. They liaised with the mortgage broker and negotiated with the real estate agents. They worked with the conveyancer on the details and reviewed and signed the contracts.

There are always government incentives and schemes in the background, but none of them replace the need for discipline and a genuine deposit. Banks still assess serviceability the same way. You still need stable income. You still need to budget. Anything happening on the policy front might help around the edges, but it doesn’t replace the habits that build long-term financial confidence.

The journey really starts with saving the deposit. My parents always told me, “We won’t give you money, but you’ll always have a roof over your head if you need it.” I passed the same message on to my kids. You make your own way. For Rachel and Danny, that meant moving out of their rental and moving in with Danny’s mum for almost a year so they could save more quickly. Over 12 months they were able to save a sizeable deposit.

That’s what building wealth for the future looks like. It’s a collection of decisions and even sacrifices that might not be very “Instagrammable” but really matter for your future. Whether you’re saving 5% or 20%, the behaviour is the same. Live below your means and build through saving and investing.

As they saved over the 12 months they started to become familiar with the property market in the areas they liked. It’s critical to understand what fair prices are. During this time they met with a mortgage broker to understand their borrowing capacity and obtain pre-approval. Pre-approval is one of the most underrated parts of the process. It gives you clarity around what you can borrow, what your real price range is, and what bank policies apply to you. Without it, everything else is guesswork. With it, every home open inspection and negotiation becomes real. This was an important process for Rachel and Danny to go through. Once they had pre-approval they went from dreamers to serious buyers.

Understanding the market is important because the more you inspect, the clearer the patterns become. Recent comparable sales. How long properties sit on the market. The gap between guide price and reality. The more time you spend listening and watching, the easier it is to understand what an agent says, what they don’t say, and what they really mean.

Understanding the process is just as important. Once it’s explained clearly, it isn’t complicated: save the deposit, get pre-approval, inspect properties, request the contract and strata, engage a conveyancer, negotiate or bid, exchange, and settle. The overwhelm comes from not knowing what's next. A good mortgage broker and a good conveyancer turn that uncertainty into structure.

Negotiation is where most first-home buyers feel out of their depth. It’s emotional for them and methodical for agents. That imbalance is where people overpay. The rules are simple: know your walk-away number, don’t negotiate against yourself, ignore noise you can’t verify, and move quickly when the right property appears. Rachel and Danny negotiated on multiple occasions and did walk away from properties when it would have been easy to let emotion take over.

Watching them navigate the whole process reinforced something important for me. Buying your first home teaches you discipline and sacrifice in a way nothing else does. It is great to see kids today doing the hard yards. Working hard. Saving consistently. Going without. Rachel and Danny did all of that, and the lessons they learnt along the way might be more valuable than the keys they’ll collect on settlement day.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Take the emotion out of it

Over the years, I’ve learned that some of the most costly investment mistakes aren’t caused by economic forces; they’re caused by emotional ones. The subtle emotion that shows up in the hesitation to sell, the urge to chase, or the fear of making the wrong call. Markets are indifferent to all of it, but your portfolio isn’t.

I see this most clearly with clients who become attached to the stocks that have treated them well. On 27 June 2025 I wrote that CBA was massively overpriced. Objectively overpriced. It had nothing to do with the quality of the company, just the valuation sitting way above where it made sense. While clients trimmed their holdings, very few cut as much as they should have. The emotional history was too powerful. When a stock has delivered for more than a decade, people expect it will deliver forever. With CBA falling to $158.38 on Tuesday, it’s obvious in hindsight. Bias feels safe, but it doesn't help the outcome.

Wesfarmers is another good example. Being from WA, I’ve had many conversations over the years with farmers who held outsized positions in WES for generations. Their families built their livelihoods alongside the company long before they had portfolios. When a stock becomes part of your life, taking profit starts to become a question of loyalty. Sometimes people just couldn’t bring themselves to sell it even when the price was stretched beyond logic, or the concentration risk was too high.

This emotional pull isn’t limited to financial markets. My daughter is in the process of buying her first property, and while she has handled the transaction herself, it's been great talking through the negotiation process with her along the way. There’s always a point where you fall in love with a place, but you need to stay detached enough to keep your power in the negotiation. I emphasised to her that the ability to walk away from a deal is everything. If you can’t walk away, you lose your leverage and end up paying whatever it costs. She took that onboard, and it clearly helped her as she progressed.

A different challenge emerges when founders decide to sell their company. The real tension isn’t just the valuation, it’s the shift in control. A founder spends years calling every shot, setting the pace, shaping the culture. Then suddenly a buyer or investor enters the picture, and the power dynamic changes. I’ve seen founders hesitate not because the offer was wrong, but because they weren’t ready for what came after: stepping back, letting someone else steer, or adjusting to being part of a larger machine. It’s not a financial obstacle, it’s a psychological one.

High stakes situations amplify this. In sport, the champions aren’t the ones who feel the most; they’re the ones who manage their emotions best. Final-quarter plays, last second shots and penalty shootouts aren’t won with adrenaline. They are won with calm under pressure. Politics is no different. Leaders who react emotionally get swallowed by the moment. Those who stay outcome-focused shape events rather than being shaped by them.

Investing requires the same discipline. Biases like the endowment effect, familiarity bias, loss aversion, and recency bias work against you precisely because they feel so natural. They offer emotional comfort, but not financial clarity. If they influence too many decisions they can gradually steer your choices away from what’s best for your long-term wealth.

Emotion is part of being human, so you’ll never remove it entirely. But in important moments like selling a stock, buying a property, negotiating a deal, exiting a business, you need to separate feeling from judgment. You can feel the emotion. You just can’t let it make the decision.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Pest Control

Jamie Dimon, CEO of JPMorgan Chase, raised eyebrows recently with a warning about cracks emerging in the private credit market. After the collapse of a few sub-prime car-loan lenders linked to private credit funds, he said: “My antenna goes up when things like that happen. And I probably shouldn’t say this, but when you see one cockroach, there are probably more. Everyone should be forewarned on this.”

Dimon’s point was deliberate, it was about awareness. When isolated failures appear in a system built on confidence, it’s rarely an isolated problem. Private credit has expanded at a breathtaking pace globally as investors chase yield in a low-rate world. In Australia, it’s now a $224 billion market. That includes $132 billion in corporate and business lending and $92 billion in commercial real estate. The sector’s rapid growth has now drawn the attention of regulators.

ASIC chair Joe Longo warned this week that private credit faces major problems if complacency continues. The regulator’s surveillance report found opaque fees, aggressive marketing, and inconsistent valuation practices, with some behaviour “close to illegal.” I’ve downloaded the report and read it today and it reinforces all the concerns I have about the sector. As Longo put it, “In times of prosperity when money flows freely, no one worries about liquidity. However, it’s the first thing everyone will miss in a crisis.”

The problem isn’t that private credit is inherently flawed. Done well, it fills a legitimate gap between banks and borrowers, supporting business investment and economic growth. But when the focus shifts from quality to scale, risk management becomes an afterthought. In too many cases, loans are made because they can be sold, not because they should be made. No one is incentivised to say no.

The real test comes when the repayments stop. That’s when investors discover what these portfolios are truly backed by. Some loans are secured by property, but many rely on looser definitions of “assets”, anything from invoices and raw materials to plant or machinery. They look great on a spreadsheet, but in a downturn, those assets can be difficult to value or sell. A theoretical asset is not the same as a liquid one.

Defaults are a normal part of credit markets, but in this corner of finance, the safeguards vary widely. ASIC’s findings revealed that some funds even define “default” differently, making true comparisons impossible. In a benign environment, that inconsistency is overlooked; in a stressed one, it magnifies contagion risk.

History tells us these cycles rarely end neatly. A few isolated losses are rationalised, confidence holds, until it doesn’t. Then the feedback loop between leverage and liquidity tightens. The pattern may not mirror 2008, but the psychology is familiar.

At some point, private credit will face its reckoning. It will separate lenders built on discipline from those built on momentum. That’s why I’ve avoided the sector despite its popularity. In too many cases, investors are taking equity-like risk for bond-like returns, a trade-off that only looks good in fair weather. The bigger concern is the systemic risk presents to the broader economy. When growth outpaces governance, and confidence replaces caution, risk hides in plain sight.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Does the US Government Shutdown Matter?

Every few years the US government runs out of money. It’s not that America is broke, it’s that Congress has again reached the debt ceiling, the legal cap on how much the government can borrow. Both sides know it will eventually be lifted, but they use the process as leverage. The result is political theatre with real-world consequences.

The US spends far more than it earns. The budget deficit this year is roughly $2 trillion, with $5 trillion of income and $7 trillion of expenses. That shortfall adds to a national debt now above $36 trillion. Before the country can even start paying that back, it would need to balance the budget through higher taxes or lower spending. Neither is politically possible. Instead, the debt ceiling has been raised or suspended more than a hundred times since 1960.

Shutdowns happen when negotiations stall, and funding expires. Workers are stood down, services freeze, and government departments grind to a halt until a deal is reached. Economically, the damage is limited. Each week of shutdown shaves about 0.1% off GDP, but growth usually rebounds once back pay and spending resume. Markets barely react because they’ve seen it all before. The real risk isn’t the short-term disruption, it’s the erosion of confidence in the system itself.

That confidence used to be rock solid. US Treasuries are considered the safest asset in the world. But the world is changing. Governments everywhere are now competing for capital as debt levels rise and interest costs bite. When too many borrowers chase too little capital, not everyone will be funded on favourable terms. Although Fitch downgraded the US last year over fiscal governance concerns, many other nations face a similar problem. Bond yields show investors are quietly recalibrating the idea of “risk-free.”

What’s different this time is the intent behind the shutdown. Trump and his team have reportedly seen it not just as a negotiating tactic, but as a way to reshape the federal workforce itself. By letting agencies go unfunded and contracts lapse, they could use fiscal gridlock to force structural change across government. To his supporters it’s long-overdue discipline after years of bureaucratic expansion. To critics it hollows out the machinery that keeps the world’s largest economy running. Either way, it introduces a new kind of uncertainty: weaponising dysfunction for reform.

Viewed in isolation, a government shutdown doesn’t matter much. Viewed as a pattern, it matters a lot. It reflects a system where short-term politics consistently override long-term responsibility. America can still borrow easily because of its size, its credibility, and the dollar’s dominance. But every cycle of brinkmanship chips away at that credibility.

The rest of the world is watching. Many advanced economies now face the same problem of too much debt, too little discipline, and no political will to fix it. For now, markets still reward inertia because no one wants to believe the system could crack. The question isn’t whether the US can keep borrowing, but how markets will price that privilege in the years ahead.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

The Art of the Tariff

There are a few layers to the tariff conversation that are worth elaborating on given the recent ‘Liberation Day’ tariff announcements and the subsequent share market reaction. Firstly, there's no scenario where you introduce tariffs, and it directly results in better global growth. This is not a positive for the global economic outlook. The share market and company share prices are falling because the prospect of sustained tariffs and potential trade wars are negative for economic growth and business conditions. Investors are no longer under the illusion that Trump is just posturing.

By applying tariffs across the board, he has laid the foundation for every country to effectively renegotiate their existing deals on his behalf and make a better offer. So, in the first instance that is an efficient way to conduct a bulk negotiation. Much simpler than going from country to country one at a time. The tone has been set. Some countries are more in need of the US than others and more amenable to doing a deal. I expect those countries to be rewarded and highlighted to set the tone. Others will simply be opportunistic. Those who retaliate will be penalised.

His policies are changing the shape of global alliances. Europe understands that they can no longer rely on the US and will massively boost defence spending. When there is someone else to do the heavy lifting others will happily take a step back. But once there is not then they become surprisingly capable. So, Europe will be okay with or without the US. The implications here are far reaching and bring into question the USA’s willingness to help allies who have always assumed that they have the US protection if needed. That extends to Australia too.

Prioritising the USA’s national security is more real than ever. The initial phase of the decoupling from China in the USA supply chain saw a range of nations such as Vietnam benefiting. Suddenly imports from China fell and the US was importing more from Vietnam. It looked like the risks in the supply chain were being addressed. But simultaneously Vietnam was importing more from China. There was merely an extra link added to the chain not a new chain. The aggressive tariffs on placed like Vietnam indicate that the US is not only aware of this but very serious about genuinely decoupling from China.

Part of the complication is that the tariffs create far reaching implications across every aspect of the global economy. It will take some time for the consequences to be understood and for the second and third order effects to flow through. These areas range from manufacturing and jobs in the US to the redirection of investment capital across the world. There will be impacts on interest rates, inflation and consumer sentiment. I have concerns about stagflation in the US as this plays out.

The rise of anti-USA sentiment across the world will have an economic impact too.  Travel from Canada to the US is down 70% since the introduction of tariff talks. Will Canadians stop buying US cars like Fords and Teslas? Quite possibly. But will the rest of the world stop buying McDonalds or Coca-Cola? Will they stop using Facebook or Microsoft? I think that is unlikely. However, investors need to consider the implications of all these issues on a case-by-case basis.

Trump’s approach is all about extracting better trade outcomes for the USA in the short term and national security and strategically positioning the USA in the long term. This is all about the USA and the USA’s position in the world in the years ahead. The Trump Administration is clearly of the view that where a country benefits from engaging with the US economy then there is a price to pay to participate. When it comes to defence rightly or wrongly, this is also their attitude. As Winston Churchill once said of the US back in World War II “You can always rely on the USA to do the right thing after they have tried everything else."

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

What’s Your Plan?

One of the most fascinating parts of my job is meeting people who have accumulated wealth over many years, often without even realising they were doing it. High-net-worth individuals (HNWIs) and families usually have a cornerstone asset or business that provided the cash flow to fund additional investments over time. But in many cases, they never sat down and mapped out a grand plan. Instead, they bought assets here and there, sometimes opportunistically, sometimes out of necessity, and before they knew it, they had built significant wealth.

When it comes time to think about the future, especially retirement, many people aren’t quite sure how their assets should be structured to provide an income. More often than not, something triggers the need for a serious conversation: an asset sale, a divorce, an inheritance. Whatever the catalyst, the process doesn’t need to be overwhelming. You are where you are today, and you want to ensure your wealth supports you in the years ahead. The key is to put a clear, strategic plan in place to make that happen.

Getting the Right Structures in Place

Structuring wealth correctly is essential, but it’s not as complicated as many people assume. Most families I work with have a mix of entities — companies, family trusts, and self-managed super funds (SMSFs). This is where collaboration with accountants is critical to ensure everything is set up correctly from the start. The right structure depends on several factors, but tax efficiency and asset protection are almost always top priorities.

Superannuation, for instance, is often misunderstood. I hear people ask whether super is a good investment, but the truth is, super is just a vehicle, it’s not the investment itself. The real advantage of super lies in the tax treatment: a 15% tax rate while accumulating assets and a 0% tax rate when converted to a pension in retirement. That’s an incredibly effective place to build long-term wealth.

The Often Overlooked Area: Estate Planning

One of the trickiest but most important conversations I have with clients is about estate planning and asset protection. No one likes thinking about their mortality, and as a result, too many people put off making a proper plan. But I’ve seen firsthand the impact of not having these conversations — family disputes, contested wills, unnecessary legal battles.

It’s not always as simple as writing a will. Families can be complicated, and if you have multiple entities or trusts, getting proper legal advice is essential. Every family has its dynamics — whether it’s a vulnerable adult child or concerns about a son or daughter-in-law who might not have the best intentions. The right structures, including trusts and other protective mechanisms, can ensure that your wealth is passed down as you intended, without unnecessary risk.

Looking Ahead: Projecting Your Financial Future

A big part of what I do is helping people project their financial position into the future. That could mean forecasting where they’ll be at retirement or estimating their financial situation in their later years. It’s a simple equation, understanding the assets and liabilities today, projecting income and expenses, and then mapping out how that looks over time.

For example, if you have an investment portfolio spread across cash, bonds, shares, and property, it might generate an income of 4-5% per year, plus capital growth. If you’ve accumulated $5 million in assets, that equates to an income of $200,000-$250,000 per year. With $10 million, it’s between $400,000-$500,000 per year. Ideally, you want enough exposure to growth assets so that your wealth keeps pace with inflation, or better yet, exceeds it.

The Final Piece: Investment Strategy

Once we have the structures in place and a clear understanding of future financial needs, the final step is shaping an investment strategy that aligns with your risk profile and long-term goals. This isn’t about chasing the latest market trend, it’s about building a well-diversified portfolio that provides both stability and growth. The goal is simple: to give you confidence in your financial future, knowing that your wealth is working for you.

Planning ahead isn’t just about protecting what you’ve built, it’s about making sure your money continues to support the life you want to live, now and into the future. If you haven’t thought about your long-term strategy yet, there’s no better time to start.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Short term pain. Long term gain.

In just a matter of weeks share markets have corrected and there is talk about a US recession. Most of this is just noise as the world adjusts to Trump doing what he said he would do. The most surprising part of all of this is how surprised everyone seems to be. But regardless of how we got here, we’ve had a long overdue pull back. At the time of writing the S&P500 is down 10% and the NASDAQ down 13%. So, what does it all mean, and what should investors expect next?

I think it's worthwhile considering Trump’s mindset. I once asked the former managing director of an ASX listed company his biggest lesson he learned from his boardroom battles. His answer and his candour surprised me. He said, “when you have power, use it and act quickly”. Those words stood out because they weren’t the usual corporate speak; they were a real insight into how you enact change. I am reminded of those words as I see Trump embark on his second term. I think that's exactly the lesson Trump learned from round one, hence the pace of change of his new administration. He has the power, and he is going to use it, and he is going to move as quickly as possible. This is a very different kind of chaos to his first term. This time it seems that he is moving with real purpose.

From a short-term perspective, the tariff idea as a negotiation tool is great it's an effective stick to motivate other nations to act on objectives in other areas. In the case of Mexico and Canada those tariffs don't seem to be intended as a long-term imposition. Using tariffs in that way has been done numerous times by the Chinese on Australian Industries, so it's not a new idea and it can be effective. As a means to rebalance or level the playing field in a specific area there is also merit as it can assist ailing industries at home who are struggling with cheap goods from other nations. No doubt there will be some retaliation, but overall markets adjust quickly and after a period it’s business as usual albeit under the regime of the new normal. This is where investors were about a month ago.

If in the long term the tariff end game devolves into a tit for tat ever higher tariffs and genuine trade war, then that probably isn’t good for anyone. It’s just destructive. In that situation, tariffs are bad for growth and bad for inflation. Stagflation and recessions are suddenly possible. Markets are now reacting to the uncertainty that all these factors represent. While the economic data is generally okay, the uncertainty that exists does have a real impact. Consumers who are worried about their jobs stop spending, and companies worried about tariffs defer investment. That’s the danger of uncertainty.

It's important not to overreact in these situations because as quickly as Trump implements tariffs and starts trade wars, he will reverse them when he achieves his objectives. Markets will respond to this accordingly and can potentially jump back up as quickly as they fall. We are starting to see countries kowtowing to Trump and making offers to gain favour. I think that's probably a mistake. Trump just wants the best deal, and he will see offers as weakness and hold out for more. So, this process will take time and governments and in turn investors will need to be patient. It won’t be resolved as fast as markets would like and Trump is aware of this. He’s flagged the short-term pain for long term gain to steel the country for the turmoil ahead.

For our investors, their portfolios are underpinned by stocks with solid earnings, and those fundamental drivers haven’t changed. If the economic impact is a recession that will impact everyone, but it's not my base case. The short-term pain in markets is the opportunity we have been waiting for and a chance to buy stocks at cheaper prices. We have plenty of cash on hand to add to our holdings in times like these, and to ensure if markets continue to fall in the weeks and months ahead, we have funds available to continue buying.

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Is Now a Good Time to Consider Selling Your Business?

I’m having an increasing number of conversations with business owners recently where they have asked whether it’s a good time to sell their business. If you run a successful private business, you have probably been approached by private equity firms gauging your interest in selling or taking on a big investor. Anecdotally though, it seems that these approaches are becoming more frequent and the valuations on offer higher than ever. 

The current situation reminds me of 2006 when I saw a surge in people exiting businesses at fantastic prices. Shortly after that, the GFC hit, and it all came to a grinding halt. Obviously, it depends on lots of factors including your age, your industry, your motivation, and stage of life. But subject to those personal considerations, my answer is increasingly, yes, now is a great time to sell a business. 

It starts with the largest investment institutions, big superannuation, pension funds and wealth management firms. With share markets hitting record highs, they are trying to diversify and find better value opportunities. Many of these organizations are mandated to invest these funds regardless of valuations. Increasingly they’ve poured billions into private equity. 

With a flood of money into private equity funds, managers are looking across the country at private companies they can buy or invest in to deploy these funds. What happens in situations like this is there’s more money and more managers competing for the same number of deals. In such a competitive environment they have a choice, pay more than they’d like to or stay disciplined and miss out on the deal altogether. 

Here’s where it gets tricky. Often the funds are deployed even though it puts future returns of the fund at risk. Why? Well, firstly it’s not their money. Secondly, if they don’t deploy the cash their investors will want their cash back. Either way, if they don't find businesses to buy then they don’t get their management fee.  

While many PE firms will be disciplined, many aren’t, and this is when bad investments are made. As the late great investor, Charlie Munger once said, “show me the incentive and I’ll show you the outcome”. So, the deals will get done and this flood of money will find a home. That’s why as the landscape becomes increasingly competitive the price earning multiple on private deals starts to ratchet up. 

In many cases, the profits of these businesses are not increasing dramatically to justify the higher prices private equity will pay, they are simply prepared to pay a higher multiple of the profit. It’s also the reason I’ve completely avoided private equity funds for my clients. They sound great but in this current market, it’s possible you’re paying $1 to buy 80 cents.  

Conversely, it's a great opportunity for a business owner who might have been thinking of selling in the years ahead to bring forward their timeline. Why? It’s because this situation isn’t sustainable. This is the frothiest part of the market cycle. Once the music stops business owners will see these offers dry up and they be leaving tens if not hundreds of millions of dollars on the table. So, is it a good time to sell?  

Yes absolutely. 

The next question I get is what’s the timeline? 

If these elevated prices on offer are not sustainable then when does it end? How long do you have before things change? I continue to be surprised by how high and how long both the share market and property market have continued their rise. The level of growth needed to justify current valuations is very high. This is especially so in an environment where higher rates are taking so long to cause the slowdown they are intended to create. I think we are already overdue for a pullback in share markets and economic growth, so I'd get on with it sooner rather than later.  

Then it's about how to structure a deal when you sell your business. Usually, deals are structured as a mix of cash, shares and an earnout based on hitting agreed metrics in the years ahead. If you think there’s a risk business conditions might deteriorate significantly, then logically you’d want to take as much of the sales proceeds in cash as possible. Signaling is important in these transactions. A founder who wants all cash is a red flag for investors, so you need to temper your enthusiasm in this regard and ensure your selling narrative is for the right reasons. 

Often business owners take more in shares and much less in cash if they feel there is still high growth ahead. But unless you are convinced of the upside growth opportunity a higher cash component is worth considering given you won’t have the same level of control or autonomy over the company post-exit. And no matter how well it starts it’s always difficult for founders to manage with the new regime and increased bureaucracy during the earn-out phase. While a three-year earn-out phase is the norm, if you can negotiate a shorter period, it might be better for you. 

This is, in my opinion, a once–in-a-generation opportunity for business owners to potentially obtain a price that they may look back on in a couple of years and regret not taking. Like 2006 and even 2021 for tech, once the music stops and the downturn is in full swing, these deals dry up and the valuations fall to much more normal or even depressed levels. So, if you have been thinking about selling your business in the next few years, I would strongly suggest considering whether current higher prices coupled with the potential for an economic downturn ahead, make it worth acting much sooner.  

General Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.

Land Mines

From the rapid increases in interest rates to the aftereffects of the pandemic, there are multiple generational events that the global economy is continuing to digest. However, there is increasing evidence of financial problems hidden beneath the surface that are raising some concerns. Investors need to watch their step.

I have been warning for a while now that central banks cannot increase interest rates from 0% to 5% with no consequences. Higher rates impact the entire economic system, not just people’s mortgages and businesses. Large corporations through to entire countries with high debts are feeling the pinch. So far, their impact is taking longer than I expected to flow through and cause a financial or economic mishap, but they will eventually.

There have been a couple of recent near misses. There was the run on the regional banks in the US that brought down Silicon Valley Bank and a close call for the UK pension funds. In both cases, disaster was averted but it is worth remembering that the underlying issues that created those problems are still lurking.

A recent property transaction in New York City highlighted just how much the world has changed in the past 5 years. Earlier this month there was an office building sold in NYC for US$50m. What stood out was that it was sold at a 67% discount to its 2018 purchase price of US$150m.

In 2018 interest rates were low, we hadn’t heard of covid and working from home was unusual. Compared to 2024 with much higher rates and office vacancy rates at much higher levels, the numbers and cash flows look radically different.

The real problems begin when owners in financial difficulty are forced to sell, or worse, the banks seize the property, and are selling. You end up with a glut of properties, no buyers, and increasingly desperate sellers. Prices fall and continue to fall. This leads to even more sales as desperation to get out before you cannot sell at all.

There are other signs too. Many organisations including BlackRock and Charter Hall have suspended or limited withdrawals from some of their office property funds. They are doing this preemptively to prevent investor withdrawals requiring them to sell assets at lower prices, potentially realising losses. This has not raised alarms so far, but it should have attracted much more attention than it has.

There are many of these funds holding billions of dollars of office property assets managed by large and small fund managers for investors. The proliferation of unlisted funds for everything from property to private credit raises real questions for investors as to how they get their money out if markets go the wrong way.

I have not seen a set of circumstances like this since the GFC and here in Australia not since the early 1990’s recession when record-high interest rates created a property and loan default crisis that almost sent Westpac Bank broke. This time around the big banks seem more conservative. The risk may well be with the organisations who filled the gaps.

I am not predicting this for the entire property market, but the office property market specifically has all the hallmarks for a situation like this to unfold. How that implosion, should it happen, flows through to financial markets and the general economy is a real risk. My concern is that the office building in NYC is not a one-off, but that it might be the first domino of many more to fall.

General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.