Welcome to Finance and Fury. Today’s we’ll be talking about what assets will survive a financial correction. The assets that that people still have confidence in. Confidence is key! In any asset, confidence is what is required.  

 

Why is confidence important?

If a lack of confidence/panic is what causes prices on assets to drop heavily then the solution is in assets that, while their prices may be impacted (short term volatility) they will not go to zero.

 

Human behaviours/emotions pay a significant role

  1. Bubbles (and FOMO) – you see the price going up, you jump in because you fear missing out. This can create overpricing.
  2. Works in both directions – Crash – when people fear a share crash, they sell their shares in a panic, and the crowd follows dropping the price quickly
  3. The fundamentals/intrinsic values of things don’t matter in a financial collapse. People aren’t looking at Fair Value when all they can focus on is 40% losses – they only see the losses
  4. Subjective values – do people value it regardless of intrinsic values

 

Never sell after the fact

  • Hubris to think you can sell out before the market crashes – ‘timing the market’
  • You have to own assets that will survive or become more valuable

 

Asset goes down in value – so what?

Depends on type of asset and what you do, and what those investments are to you

I think of TLS, bank shares are volatile term deposits – not expecting great growth off them, the valuations are almost like a Utility company – but decent dividends

 

When shares do go down in value  

  1. If you sell, you crystallise or realise the loss
  2. They keep going to zero

 

The Solution

Avoid selling early and crystallising losses or losing 100% of the investments that you have

  • Step 1 – Buy good companies, diverse business models, diverse markets and lot of different companies, across asset classes (Diversification)
  • Step 2 – Don’t panic sell

 

Buy alternative asset classes

  1. Gold/Silver/Palladium/Platinum
    • Not on futures contracts or derivatives, but one that holds the underlying asset
      • Not enough gold/silver etc. in world to cover size of ETFs/funds with positions in gold
    • Water
      • I’m looking into this one, I just find it interesting
      • 1lr of petrol is cheaper than buying a bottle of water from the gas station
      • Don’t collect too much – The Government might tax you

 

The Worst Case – you are in a position that you have to sell

  1. Most common cause is leverage /debt – this applies across asset classes
  2. Two-fold
    • The lender wants their money back – they may have someone else to pay, or have lost confidence themselves in getting money back
    • Cashflows – The cost of the debt is too great compared to what you can cover

 

Types of assets to watch out for

  • Shares with Margin Loans
    • LVR levels
    • Run up of leverage causes a lot of bubbles, then corrections
  • Property that is highly leveraged
    • Not PPR – not forced to sell that hopefully
    • But if people are losing jobs, rents may come down or be non-existent
  • Mortgages – MBS, Managed funds marketed as ‘Income Funds’
  • Other ‘debt instruments’
    • Corporate notes/hybrid securities
    • Credit – short term 90-day bank bills – used for short term funding
    • Derivative exposure
      • Warrants (do play some part)

 

Summary – There are assets that, while not retaining the value like you might want (drop in price), if you hold them you can survive

  1. Have a range of investments (not just bank shares)
    • Some physical assets – Gold
    • Shares in companies that people will still use – not fad companies or ones built on people’s discretionary spending
    • Property – ensure that you can hold this long term and not need to sell
  2. Make sure they are quality assets
  3. Don’t sell
  4. It sounds easy – though it’s not easy seeing the value of your assets drop – but it is better than selling out and missing the rebounds due to emotions

How much do you really know about cash and how it works?

Episode 26 How much do you really know about cash and how it works? In this episode we discuss Cash. We will run through what type of asset it is, how the currency system works, and how it can be manipulated! We also discuss: The good old days of the Gold Standard...

Never let a crisis go to waste – Why to watch out for proposed economic solutions after a financial collapse.

Welcome to Finance and Fury, The Furious Friday Edition Today – want to explain why to watch out for proposed solutions to economic or societal issues Last ep – talked about the battleground between the Bankers and Governments back in the early 30s – Was a wild...

(Intro Series) What does your retirement look like, and why?

Intro - Episode 5 What does your retirement look like, and why? What do you normally think about before you go anywhere? Anyone who has ever left the house before has probably had to think about something before taking a step out the front door. Anyone who hasn’t,...

Can identifying as another gender save you money on your insurance premiums?

Welcome to Finance and Fury, The Say What Wednesday Edition This week question comes from Matt - Not so sure if this is your area of expertise or have come across this at all, although I have a question regarding insurance and identification of gender. People know...

What does it look like when a government takes over the control of a currency?

Welcome to Finance and Fury, the Furious Friday. Last episode, we went through the combination of monetary and fiscal policy, larger scale of QE and the quick introduction to modern monetary theory. Today I was going to go through the recovery of the economy today,...

Rome wasn’t ruined in a day! What happens when the population becomes reliant on the government that has complete control over the currency?

I love history – valuable lessons. When looking at us to those in the past - Culturally we are different, but biologically we are not. If any one of us was put back in time to grow up in past civilisations, we would be no different to the local people in that time...

Furious Friday: Could gender pay gap regulations hurt women more than help them?

Furious Friday Could gender pay gap regulations hurt women more than help them? Welcome to Finance & Fury, the Furious Friday edition. Today’s episode is all about the drive to equality. A recent proposal by the Labour Government is to force equality through...

The Weapons of psychology politicians use to win your vote

Welcome to Finance and Fury The election has been set for the 18th of May The marketing has been coming in and it has been pretty forward with the smear campaigns It seems like a lot of it preys off people not understanding how the economy works, and there is nothing...

Securing your Road to financial independence

Welcome to Finance and Fury Everyone has heard of more money, more problems – it is a bit of a contradictory statement It is false as money can cover bills and be used in emergencies It is true as not valuing money can lead to problems How to value money? What is...

Premiums are on the rise…but is Private Health Cover worth it?

Say 'What' Wednesday Premiums are on the rise...but is Private Health Cover worth it? Welcome to Finance & Fury, Say ‘What’ Wednesdays! where we answer your questions on finance and economy. Today’s question comes from Mike – ‘Hey mate, loving the show, what’s...

Pin It on Pinterest

Share This