One of my dreams …..

Most traders or investors have heard of Warren Buffett chairman and CEO of Berkshire Hathaway. Buffett is a legend in the US with hundreds of articles, TV and documentaries spotlighting his strategies over the last 50 years.

There is no question of the performance of Buffett or Berkshire Hathaway, returning nearly 20% p.a. on average in book value increases since the 60’s. The only problem is that Berkshire Hathaway Type A  shares are trading at nearly US$258,000 each, which puts them in a league of there own.

If you could afford to buy BRK.A, there are no dividends, not one cent has been paid to shareholders – ever – so the only way to benefit from ownership is to sell your asset and lock in your gains.

In 1998, Berkshire Hathaway created a Class B share, the difference between Class A and Class B shares is twofold; 1 – the price, at listing in 1998 the BRK.A shares were trading at around US$78,000, the BRH.B shares listed at US$52.50 and 2 – Class B shares are non voting. They both benefit from the same management and performance.

Currently BRK.B shares trade around US$170, not cheap by Australian standards, but a pittance compared to BRK.A shares. BRK shares are managed very well but they are still at the mercy of the US sharemarket, during the GFC falling around 50% and during 2015 nearly 16%, this short term weakness has been easily eclipsed buy longer term performance.

So how can i gain access to BRK and limit the downside risk of normal market forces?

Vested equities have partnered up with Sequoia, the leader in structured products in Australia to create something very special. This product allows you to borrow the money for BRK.B using the value of the shares as collateral and receive a coupon payment each year based on the performance of BRK.B – the rate on the borrowing is approx 6.7% p.a. very competitive for investment loans – this is paid up front for 3 years so for around $11,000 AUD you get exposure to US$50,000 worth of BRK.B

With leveraged products (those that you borrow money for) have the tendency to allow you to lose more money than you put into the trade, not this one – the most that you can lose is the upfront cost (which is your interest and establishment costs) – this is achieved through a Limited Recourse Loan.

Given the average increase in book value of around 20% p.a (unleveraged), the return on a 100% leveraged BRK.B asset should be quite spectacular.

If you would like to invest directly with Warren Buffett’s Berkshire Hathaway, gain exposure to the strong US market feel free to contact me directly on for some more information and a copy of the PDS

Company Background

Berkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States. The company wholly owns GEICO, BNSF Railway, Lubrizol, Fruit of the Loom, Helzberg Diamonds, FlightSafety International, Pampered Chef, and NetJets, and also owns a large holding in the Kraft Heinz Company, and significant minority holdings in American Express, The Coca-Cola Company, Wells Fargo, IBM and Apple . Since 2016, the company has acquired large holdings in the major US airline carriers and is currently the largest shareholder in United Airlines and Delta Air Lines and a top 3 shareholder in Southwest Airlines and American Airlines. Berkshire Hathaway has averaged an annual growth in book value of 19.0% to its shareholders since 1965 (compared to 9.7% from the S&P 500 with dividends included for the same period), while employing large amounts of capital, and minimal debt. 

According to the Forbes Global 2000 list and formula, Berkshire Hathaway is the fourth largest public company in the world, and the 9th largest conglomerate by revenue. Berkshire is currently the 7th largest company in the S&P 500 Index by market capitalization and is famous for having the most expensive share price in the world.  (

Oil — Supply / Demand / Storage

Oil as we all know has had dropped just under 75% over the last 7 quarters from $105 to $26usd per barrel, the issue is just oversupply and lower demand, pretty simple in economic terms. However this is creating another issue that’s about to get pretty interesting. If current production/usage rates continue, storage is about to become a pretty big issue with oil producers, which may force a critical turning point for the industry.

So the logical conclusion is that unless more storage is created around the globe for the surplus, producers will have to either cut production or to find additional storage which in the short term.

World Oil storage is sitting at around 96%. The large stores of oil currently would indicate 1 of 2 things – either; more storage facilities need to be created around the world to increase the current holdings of excess or the oil providing nations will need to engage tankers as a temporary overflow as they wait for a buyer. If the latter is the case then the very expensive floating storage costs will be borne by the supplier (rather than the purchaser which I assume is the case now). Now that is very black or white, but in reality they are the only choices.

I feel that the combination of oversupply, lower demand, the reduction in available storage, may be the critical point for the oil producers. Future production should lower in North America with the shale oil producers being squeezed out (or at least scaled back), though I’m not sure how much of a change in global supply that will create. One thing that’s pretty certain, is that there is too much oil, not enough buyers and a lack of additional storage.

2016-02-11 21_10_54-oil storage

The chart above shows current holdings and storage capacity – currently they are running just under 96% capacity hence storage rates rising 10% since August, or 29% over the last 17 months. The chart below is the current storage costs in relation to the oil price. Considering the change in percentages in the last year between the commodity and the storage, this has got to be squeezing someone.

2016-02-11 21_12_03-oil storage costs

Looking at the forward futures charts from Thomson Reuters, based on known variables the TR computers have come up with the following forecast curves on oil prices over the next couple of years. This is fluid data and forecasts will change with given conditions. But any producer with a $40 barrel cost is in for a long period of pain, I’m not sure I could get long oil or gas with this data, until something changes. 2016-02-11 21_12_51-oil cost curve


(Charts taken from Thompson Reuters Eikon 11Feb2016)

Happy investing

2016 — A year of ……….

The first few days of 2016 have started with a stumble. Around the world we have seen the US DJI down 6.83%, the UK FTSE down 5.94%, the German DAX down 8.65%, the Japanese N225 down 8.66% and the Australian XJO down 7.41% all of which pale in comparison to the Chinese Shanghai SE Composite Index, which is down a massive 15.47%. (as at Jan 12)2016-01-13 12_39_12-Quote List

Looking at the table above comparing the 1 month, 3 month and 12 month results – the overall returns look a little different, but still not a great result.

Often we see some weakness early in January, following the “xmas rally”. Though this year may be different to any other year in recent times. We have the very immature Chinese market going from boom to bust on a daily basis, the constant underlying instability in the middle east and record low prices on just about every commodity.

Leading the chaos is Oil.

Unseasonably warm weather and rising supply will keep the crude oil market oversupplied until at least late 2016 and could push the price below its current 12-year lows, the International Energy Agency said on Tuesday.

The addition of Iranian supply to a market where production looks set to outpace consumption for a third year in a row could not come at a worse time for crude oil exporters, who are grappling with prices at their lowest in more than a decade.

Brent crude futures LCOc1 have fallen to their lowest level since late 2003, tumbling below $30 a barrel, after OPEC said in December it would not cut output to halt the price slide despite global oversupply.

The IEA, which issues regular reviews of the health of the energy market, said more price weakness could lie ahead as a result.

“Although we do not formally forecast OPEC oil production, in a scenario whereby Iran adds 600,000 bpd to the market by mid-year and other members maintain current output, global oil supply could exceed demand by 1.5 million bpd in the first half of 2016,” the agency said in a monthly report.

One thing that we can count of for 2016, all the doom and gloom of lower commodity prices, will subside – somewhere, one day this will just become the new normal.

Providers of all commodities will restructure their businesses to adjust to lower income or they will stop producing. The key for investors is not to be on the wrong side of the line. Investing in any commodity at the moment is a pretty risky strategy. There is loads of money to be made (and lost).

The underlying losers in this oil price war are the alternative energy producers, the lower the cost of oil – the harder it is for any alternate technology to grab a foothold.

If there was any genuine relationship between oil prices (per barrel) and the price we pay at the pump, a lower oil price would actually be stimulatory for our economy. Somebody in the fuel chain in Australia is cashing in on low oil prices – but it certainly isn’t the consumer.

Investing for Total Return

Over the last few years there has been a significant move towards investing into yield. This may be because of the lower interest rate environment we are in or perhaps its just my clients moving closer (as a group) towards retirement. Either way, it is a large shift from the pre-gfc investment environments.

So as an investor is it better to look for high yielding or high growth opportunities or would it be better to look at total returns?

In March 2009, which in hindsight was the bottom of the GFC. The ASX S&P200 (XJO) was trading at 3145. Currently it is trading at just under 5300 (this follows a recent fall from near 6000 in Mar15). Using a pure capital growth calculation it has regained an impressive 2155 points or provided an increase of 68% if you were lucky enough to have purchased at the bottom. Unfortunately if you bought at the top of the peak (6748 in 2007) you probably still have losses.xjo v xjoai

If you look at the same time frames on the Accumulation index XJOAI, which is the ASX S&P200 plus dividends reinvested. In March 2009 the XJOAI was 21298, its last price as 47385. This is a gain of 26087 or 122%.

The chart on the right shows a 10 year comparison between the 2 indices. The XJO after 6 years has failed to reach the highs of 2007, but the Accumulation index shows us a completely different result.

asx sectorThe companies listed on the ASX are predominantly made up of Banks (financials) and Miners (materials) combined they amass over 60%.

So for our market to rise in its current form we will need strength in these sectors. With current pricing in commodities we are unlikely to see another mining boom in the next few years, yet better value in commodities is more likely – and the banks are in a pattern of low growth. Considering these facts, unless the sector weight changes happen for our top index we may struggle to get back to the 6000 level where it found resistance earlier in 2015.

2015-11-18 16_38_19-Monitor 4

From the table above, you can see just a couple of stocks in the top 200. Both CBA and TLS have the highest yield but the overall return for 12 months is negative – Where the other 3, have a low or modest yield but the 1 year returns are very impressive.

So the moral to the story is, unless you are investing for pure yield (meaning you need the income to live off) you will always be better off trying to focus on total returns rather than just the dividend.

Diversify or Suffer the Consequences

In today’s global investment environment, equities, fixed interest or property from around the world is very accessible. bhp-rioThis means 2 things – some part of the world will always be performing better than another and any investment has a true diversified alternative.

bhp-anzDiversification is measured by the correlated move of 2 investments – for example if BHP changes its value (up or down) there is a high probability that RIO will move in the same direction. So the 2 investments do not offer much diversification, they may vary a little but from the chart to the right similar issues will effect both companies.

A lower correlation would occur between BHP and ANZ being from different market sectors, but still the same fate may be born if the Australian share market is struggling.

A lower still correlation may be obtained with BHP and Microsoft.

An even lower still correlation may be obtained with BHP and Government Bonds or BHP and Property. Both of which have an extremely low correlation of a similar move.

So why is this important? — The object of diversification is to create a robust investment strategy that will not collapse if the wind is blowing  the wrong way. The more assets you have in your investment portfolio that are moving in different directions the safer and more robust your investments will be. This doesn’t necessarily lead to a lower return, especially with the correct rotations and reweighting, but it does lead to safer investments.




Are you a Trader or an Investor ?

2015-10-06 16_02_54-photo share market investor - Google SearchOne thing that determines what strategies you need in the market, is whether you are a Trader or an Investor. They both have a goal of making money, but the means at which they approach things is completely different.

An investor should consider his long term goals and structuring investments to achieve those goals. An Investor could be using fundamental information to determine the current value compared to the target value the analysts have on the asset. They may be buying on the way down, in the hope that proper value will return to the asset creating a capital gain. Owning a good quality company which has been under performing is often the goal.  As an investor its important to look at asset allocation for diversification.

A trader will have a set of rules or triggers that cause him to act in the market. This may be very simple (like the crossing of a moving average) or very complicated with multiple rules and conditions. A trader will primarily be using Technical indicators to make decisions on the market.

As a Trader, your rules will determine the duration of your trades – with more aggressive rules, trades will be shorter in duration with faster entries and exits. With more conservative rules, entries and exits will be slower resulting in longer trade duration’s.

More aggressive conditions will trade more often, looking for smaller moves to take advantage of. More conservative conditions will trade less and require more evidence to enter (so will be slower). Its important to think that the speed of entry must match the speed of exit. Entering fast and not taking profit will lead to frustration, as will entering slowly and exiting fast. So entry and exit rules must be reasonably balanced. Think of a golf swing, a short back swing has a short follow through – a big back swing has a big follow through.

Traders and investors may also use different products to increase returns – options, warrants, CFD’s or futures increase gearing into investments as margin loans. As a rule of thumb, higher geared products are generally more suited towards traders than investors.

So which is right – that really depends on your mindset, your discipline, your confidence and your availability of information. Both traders and investors can be active in the market using very different strategies.

Whichever you are, make sure the strategies you use fit in with your goals.

Happy trading/investing 🙂

When disaster hits….

I started this post in September 2010 after a company called Sonray went out of business, left it as a draft and forgot about it – but looking at the subject line it would seem to be relevant at any time.

So you have worked all your life, been diligent with your savings, you have a nice secure nest egg for your years to come — and all of a sudden things change.

Whether we are talking about the GFC event or the collapse of a financial product or business, divorce or even a death, your future may start to look a little different. I have the utmost sympathy for those tied up with businesses that have gone broke, a lot of great people have lost money with supposedly reputable companies, just trying to make good investments, and it really sucks as you are often an innocent party – perhaps just believing in what your Financial Planner or Adviser was telling you.

Let me state that I have never seen any adviser start out with a goal to lose their clients money. Often what happens is that bad timing or bad choices become worse over time. I will cover this in much more detail in another article.


After the initial shock has set in, the worst thing you can do is nothing….

What is done is done, this article isn’t about how or even why, but whats next — how can I recover from this.

Stay calm, rarely is a good decision made when emotions are high. Start to refocus and determine your logical investment goals. They may be very different, but the rebuilding process is very important to your future — so start doing something, and that means now!

Identify your assets, and whether those assets can recover. Remember most quality assets will regain their value over time.

Try not to be a buyer after a major surge in price or a seller after a harsh fall (esp from fear). Do not over commit with leverage, but do become more active, get some help and stay involved. Re-evaluate your strategy often, making sure you see the big picture.

For those in Australia that have lost money to an adviser that feel that they were given advice that was not appropriate, there are legal avenues to pursue. Everyone with an AFSL has a complaint handling process, start there.

Feel free to contact me for further information.

Week in Review



This week in the market saw only small sideways movements dropping 57 points over the 5 day period. Those reading last weeks technicals will notice that we are sitting on the low 4900’s decision point. We could see one of 2 things from the XJO this week – either the prices will fall through the 4900 level and head down towards the 4700 level or it could bounce off this support and head back towards the 5150 level. Either way, we may be in for a wild week. Continue reading “Week in Review”

Week in Review

MetaStock - [Chart2 - S&P AUST INDEX ASX 200 INDEX (Trade Price)]_2013-05-24_16-50-03

This week started out slow and steady, trading in a small range bound to the 5200 level. Wednesday had a close towards the low of its range and then things got a little crazy, closing at 4983 – a drop of nearly 4%.

Thursday and Friday saw the market drop 177 points driving the XJO chart through the rising trend line. At one point today the XJO was trading at 4954, but traded up in the last 90 minutes of the session.

From the chart right you can see that the market is approaching an intersection of 2 lines, a horizontal support line and a rising Fibonacci line, I would expect the XJO to pause and perhaps consolidate at this point. The chart should reach this zone quickly, perhaps Tuesday of next week. Continue reading “Week in Review”