We Answer Your Money Questions

Some years back, when I lived in Britain, there was an unusual story about a guy making thousands of pounds a month selling potatoes with messages.

A very simple business. You go to his website, purchase a potato, specify a message to be written on it with a vivid marker. And then have him send that to your loved one, friend or enemy.

There have been copycat businesses springing up.

Who would’ve thought a business selling personalised potatoes for up to £5.99 each could be potentially worth more than a hundred thousand pounds?

Was this a peculiar British thing? It has since spread.

Yet, the real the story is the initial media publicity spurred much of the further sales growth — not the potato concept itself.

Sometimes people don’t know they want something, until they learn of it…

Source: brickorpotato.co.uk

Financial research involves a not dissimilar hunt for the truth behind economic events.

We look in-depth at the financial events, crises and opportunities that could impact your wealth and investments. Then explore their causes, impacts and long-term ramifications.

Today, I wanted to take a moment to deal with some of your spuds that have come over the transom. Some of the questions and comments that have been coming in from readers.

Will the trade war continue to pull down stocks?

The US v. China trade spat has escalated far more than we expected. Less than a month ago, it seemed the sides were ready to talk and make a deal. Now the US is accusing China of manipulating its currency. A deal could still get done. It’s not a time for overreaction. And there could be some deals on the table for savvy investors.

The markets see plenty of short-run threats, though.

Commodity stocks supplying the Chinese manufacturing machine are being short-sold. Companies exposed to Chinese business — like a2Milk [NZX:ATM] and Tourism Holdings [NZX:THL] — were down earlier this week

As always, watch the numbers…

China has far more to lose than the US due to the deficit size. But stocks and countries like ours exposed to China are in vulnerable territory.

That’s why, in our new research service — Lifetime Wealth Investor — we’ve moved some of the focus to global and defensive stocks.

Where can I invest in New Zealand to capture the 5G trend?

5G promises opportunities in self-drive, Internet of Things and many other areas. It could better connect and power rural communities.

Here in NZ, we’re still in the rollout phase.

One of the most exciting, recent developments has been the announcement by Vodafone. They’re launching a 5G network in Auckland, Wellington, Christchurch and Queenstown in December.

Nokia Networks is the technology partner, avoiding the delays of politically troubled Huawei. And getting the jump on Spark [NZX:SPK].

For those of you who are Infratil [NZX:IFT] shareholders, this will be pleasing news. The acquisition of Vodafone with Brookfield Asset Management was a leap for the company. But upside comes from these types of investment where capital can be developed.

As a shareholder, I was happy to take the rights allocation recently available. And might be looking for further opportunity in this stock.

And to answer another subscriber — yes, we need to update on Infratil’s progress with Longroad Energy.

Infratil and the New Zealand Superannuation Fund own 80% of this US-based renewable energy business. As of the May 2019 annual report, this business is now in profit with an underlying EBITDAF of around $46m.

Where can I find good dividend stocks?

The trade war sell-off could present opportunity to enter businesses at very favourable dividend yields. When it comes to dividend investing, consider dividend cover, company dividend policy and ability for the business to keep paying.

Some capital growth upside is always good too.

We provide detailed dividend stock research to our premium subscribers through the Lifetime Wealth Investor service.

What’s your view on gold and gold stocks?

As I write, the price of gold creeps up. In response to fear in equity markets over the escalating trade war. Bitcoin — ‘crypto gold’ — has risen too over the past week.

Perth Mint Gold [ASX:PMGOLD] is one option a subscriber recently raised. This allows investors to hold a gold investment via their stockbroking account.

The thing to compare with ‘ticker gold’ instruments like these is the storage and certification fees. As opposed to buying and vaulting gold.

Of course, the yield problem remains with gold.

While you’re holding it, you’re not deriving income (although you may be protecting value).

Which is why our focus here is more on equity markets — where growth, income and defensive characteristics can be sought. In exchange for taking some calculated risk.

You’ve been bearish on property…too bearish?

Actually, we like property and have been investors in the past.

But right now, especially in the Auckland market, there are number of forces pushing against residential values. The foreign-buyer ban. Tax and lending moves against speculators and landlords.

The investment upside is there remains a housing shortage in New Zealand. And signs of renewed pressure on rents, with some recent increases in excess of inflation.

As one reader pointed out, residential property is tangible and provides other benefits like alternative accommodation options for owners. And you can generally obtain more leverage on property — as opposed to shares.

Still, as investors, we need to consider the time and effort. I just don’t have time for houses. These days, I find more profit and potential growth elsewhere.

What’s often left out of calculations is the management work and stress in dealing with rentals.

And the societal factor.

When an investor buys a house to rent out, that’s one less available to first-home buyers trying to get a foot on the housing ladder.

Commercial or industrial property is a better proposition in my book. But entry price for a quality property can be be high and there’s vacancy risk.

One less burdensome way to enter property investment might be through REIT stocks (real estate investment trusts). With these, it’s possible to gain exposure to attractive areas of property investment. Like large-format retail parks, childcare centres and medical facilities. And we’re profiling one now in our Lifetime Wealth Investor newsletter.

I have bad memories of 1987 — isn’t investing in stocks inherently risky?

Yes, investing in equities does carry risks. Which is why we spend a considerable amount of time and resources monitoring stock markets.

1987 was bloody unusual.

So many companies overhyped and overvalued. Some selling for 50- or 60-times earnings. And many taking excessive risk with their capital.

New Zealand was hit harder than anywhere else in the world. By February 1988, the market had fallen almost 60% from its peak.

So while good gains and income are possible with stocks — remember: you’re buying into businesses, with all the risks inherent in them. A major downturn, widespread fear and a market crash can wipe out value.

But, mostly, this hits you when you’ve failed to buy — or don’t know how to buy value to begin with.

Nobody is going to be right all the time. We will get it wrong. Your dad will get it wrong. But doing your homework on good businesses, buying at value, diversifying well and investing for the long-term could help see you through the bad times.

Property has its downturns too.

If you want to make money — whatever route you choose — the road to profit is paved with both opportunity and crisis.

No risk, no reward.

So beware of and understand the risk you’re willing (and able) to take. If in doubt, seek advice from an authorised financial advisor.

What are the tax implications of investing in the ASX and further afield?

Franking credits on ASX shares are not generally available to New Zealand investors. There’s a Foreign Investment Fund (FIF) regime for shares beyond Australasia that kicks in for $50,000-plus holders. We have a free tax guide available regarding ASX shares in our Lifetime Wealth investor subscription. And we’re currently preparing another on the FIF regime.

Fear not. We’ll keep you posted on any hot potatoes!

Regards,

Simon Angelo

Editor, WealthMorning.com

Important disclosures

Simon Angelo owns shares in Infratil Ltd [NZX:IFT] and Spark New Zealand Ltd [NZX:SPK]. No recommendation is given.


Simon is the editor of Wealth Morning and has been investing in the markets since he was 17. He recently spent a couple of years working in the hedge fund industry in Europe. Before this he owned an award-winning professional services business and online learning company in Auckland for 20 years. He has completed the Certificate in Discretionary Investment Management from the Personal Finance Society (UK), has written a bestselling book and manages global share portfolios.


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