I’M FREAKING OUT!

Hi Scott,

I’m sitting here watching my portfolio plummet. The stock market is down 4.75%, and my portfolio is down 5%. IN ONE DAY. I have only been investing for a couple of years and I am freaking out. What should I do?

Louise

Hi Louise

I feel your pain.

Now, as Warren Buffett would say … actually bugger that! All the Mr B quotes in the world can’t prepare you for your first drop in the market.

Here’s how I deal with it.

First, I don’t invest any money in the share market that I think I’ll need in the next five years.

Yes, the interest rate I’m getting sucks, but not as much as seeing the money I need evaporate in a sell off, right when I need to spend it. If you put short-term money in stocks or (god help you) crypto, you really need some time in the contemplation corner.

Second, I have come to think of my share portfolio like my farm. It’s there to provide me with a golden harvest of dividends over my lifetime. Some years there will be bumper crops, other times there will be droughts. That’s just how the world works. Yet over the long term, owning the farm makes sense (especially when I don’t have to drive a tractor to get the income!).

Finally, how do I react to savage sell offs like we had last Monday?

Well, I don’t. I feel the same way about shares falling as I do reading a newspaper headline that says ‘farm prices are down 5%’. Sure, it’s a bummer, but what can I do about it?

Call up a real estate agent and sell?

They’d be very happy to claim the commission, but would I be any better off?

Of course not!

I’m now invested in broad based, low cost index funds, and my golden rule is this: ‘never sell the farm’.

And so if I never plan on selling, what do I care about the price?

Scott.

The Hyperfund

Scott,

Some colleagues at my work are retiring quickly in their thirties and forties after investing money into Hyperverse. They are trying to sign everyone up to it and they are earning anywhere from $150 to $1,500 a day just in the Hyperverse that was originally called the HyperFund. Any help would be muchly appreciated.

Belinda

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Hi Belinda,

It’s all pretty exciting.

While you’re eating the cake from your co-worker Darren’s retirement send-off, here’s what I’d like you to do:

First, head back to your cubicle.

Then, google “Hyperverse + Hyperfund + Scam”.

Click on the first reputable link, from the Australian Financial Review, entitled: “Collapse of crypto platform a cautionary tale”.

Scan the first paragraph: “Around 200 investors are understood to have lost as much as $10 million in this little corner of the investment world’s Wild West.”

Hmmm, the article talks about the previous business of the Hyperfund founders.

Have another click, this time to an article in the West Australian which talks about their new venture: “The promoters of Hyperfund have created a multi-level marketing scheme that promises big returns … the pitch to investors includes incentives to sign up more people so they can prepare their network for a $300 billion stock market float.”

Holy crypto, Belinda!

On those numbers the Hyperfund could be worth more than BHP and Telstra combined!

My view?

Avoid the hype. If you’re going to get into multi-level marketing, why not just try flogging Amway? That way at least your friends will have bought some laxatives off you, which could help them when the bottom falls out of this investment.

Scott.

What’s Wrong with My Index Fund?

Hi Barefoot,

I followed all the advice in your book – cleared everything, saved up, paid off my mortgage and invested a lump in a low-cost index fund. And since August 2021 it has gone backwards and I’ve lost $4,000. They are down 2.96%. Is it just my fund or are they all doing badly?

Gutted of Oakleigh

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Hello Gutted of Oakleigh,

Buying an index fund isn’t as simple as grabbing a box of Rice Bubbles.

Let’s think about what’s happened in the last six months since you made your investment:

We’ve had runaway inflation in the US, and in most parts of the world.

We’ve had the threat of rising interest rates in a world awash with debt.

We’ve had the Chinese property market imploding.

We’re still dealing with the pandemic (China is still locking down millions of people).

We’ve had commodity prices surging, and food prices at record highs.

We’ve had ‘once-in-a-century’ floods in NSW and Queensland.

Oh, and then we had the war in Ukraine.

All things considered, I think you’re doing pretty well! I’d suggest you learn to take a longer-term view.

It’s not all snap, crackle and pop, my friend!

Scott.

The luckiest guy around

Today I want to talk to you about a hero of mine.

His name is Steve Edmunson and he’s a famous American fund manager.

He manages the $82 billion Nevada Public Employees Retirement System Fund, which has been in the top 10% of large US super funds over one, three, five, seven and 10 years.

Steve has a unique investing strategy that has allowed him to single-handedly outperform most of the biggest fund managers in the world, who employ an army of analysts.

And today I’m going to share with you his secret.

That’s because last week, on a whim, I googled his funds’ generic help email address and lamely asked if there was a chance I could interview him.

A few hours later I received the following reply:

“Hi Scott,

My calendar is pretty open this week and next. Let me know if you have some times that work

Steve”

No gatekeepers. No personal assistants. Just a dude managing $82 billion with an open calendar.

So I sat down to interview him. My first question was, “What’s your edge?”

“Well, I don’t do a lot”, he deadpans.

He’s not joking.

There are days, months and even years where Steve basically sits on his hands and does nothing.

No frantic buying or selling. Just sitting and holding.

“I think in the world of investing the spotlight goes to the latest hot new strategy, but there isn’t much emphasis on what you don’t do. And if you’ve got a long-term horizon, like we do, the best thing to do … is usually nothing.”

Yet Steve’s real edge comes in the way he thinks about fees:

Every dollar the fund spends is a dollar that can’t go into his retirees’ pockets.

So, when Steve joined the fund 17 years ago, he sacked all the highly paid stock-picking hedge fund managers and replaced them with ultra-low-cost index funds. He has 88% of his portfolio invested in index funds and 12% invested in private equity investments.

“I worked out we couldn’t control the investment returns … but we could control our costs … so we keep ours extremely low. And being a lot cheaper than other funds gives us a big head-start.”

This is important: finance is the only industry in the world where the less you pay, the more you get — and the less you do, the better your returns. (I know it sounds like a Dr Seuss riddle, but Steve’s track record proves it’s true.)

Yet here in Oz that message hasn’t cut through. Australians pay more than $30 billion a year in super fund fees, which, according to CPA Australia, are among the highest in the world.

In contrast, for the past 17 years Steve has worked diligently by himself in a small suburban office, bringing leftovers to work and eating at his desk. He drives a second-hand 2006 Honda and, by his own admission, he and his wife live in a tiny home.

“Enough!” I said. “When you manage $82 billion and you shoot the lights out you’re supposed to be a big swinging d …ude! Has it ever bothered you that you’re stuck with the responsibility for managing billions of dollars, for thousands of people … yet you earn less than a fresh-faced kid straight out of college working at a pension fund?”

“Not at all”, he shot back. “Yes, it’s an enormous responsibility, but it’s that part of the job that makes it so fulfilling. I get to work at a job that helps firefighters, and teachers, and police men and women … good working-class people.

“I’d say I’m the luckiest guy around.”

Tread Your Own Path!

The Bonking Fund Manager

Hi Scott,

One of the funds I invest in is the Magellan Global Fund. I’ve since found out that the guy who was running it was bonking someone he shouldn’t have been and now the company has turned south. Do I hold tight or jump ship with everyone else?

Hayley

Hi Hayley,

That was actually another fund manager, not Magellan.

Though Magellan has had a couple of bust-ups: they lost their CEO, and then the founder (and star stockpicker) revealed he was getting a divorce, and then went on indefinite ‘Eat Pray Love’ leave.

Not surprisingly, Magellan Global’s performance is in the toilet.

So what should you do?

Well, to answer that let me tell you about a totally different fund that was coincidentally also called Magellan (well, Fidelity Magellan):

It was an investment legend – averaging a 29.2% annual return, the best 20-year history of any fund, ever.

That meant investors’ money was doubling every two-and-a-half years.

Yet get this: the average investor in the fund actually lost money.

How?

Instead of just leaving their money there … they traded in and out … just like you’re thinking of doing now.

Finally, let me tell you how I deal with this personally:

I invest with a robot.

It has no feelings. It doesn’t bonk anyone. It’ll never retire. It simply and automatically rebalances my portfolio each year (dud companies out, growing companies in). And it consistently achieves higher term returns than 80% of star stockpickers. Even better, this top-performing robot fund is dirt cheap.

It’s called an index fund.

Scott.

Let Me Entertain You

At the park, my kid started playing with his kid, so we began chatting.

He told me he was in the ‘lifestyle marketing’ business. I told him I was in the ‘fat lambs’ business.

Meanwhile, his wife appeared to be working very hard on taking photos of their kids.

“Instagram”, he nodded. “She’s got quite the following”, he added proudly.

“That’s interesting. I think I have 500,000 followers on Facebook”, I said.

At that point he stopped talking, turned, and stared at me like I was a fat lamb.

“Really?”

“Really, though I haven’t really posted much for a year … or maybe two.”

And at that point he began licking his lips. He was about to smother me in marketing mint jelly:

“You could get paid … like … fifteen hundred bucks for ONE POST. You have a brand, so all you need to do is engage your audience each day with a mix of inspirational content and sponsored posts. The key is to be aspirational. Post lots of videos and pics of your family. With that follower count you’ll have advertisers beating down your door”, he gushed.

“Well, that sounds absolutely … horrible”, I said.

Look, there’s a reason I don’t post much on social media: the only thing I dislike more than social media influencers and so-called celebrities is the social media companies that profit from them.

After all, leaked internal research from Facebook (now Meta) found that most users feel worse when they see celebrities and influencers in their feeds … because they compare themselves and come up short.

So let’s you and I take a look at a traditional social media status-anxiety-inspiring post:

“Let me entertain you! Robbie Williams shows you through his $50 million Hollywood Hills mansion.”

On Instagram, superstar Robbie Williams showed his fans through his Hollywood mansion. Wearing a cowboy hat and leopard-skin undies, the singer strutted us across his 20 acres of manicured gardens, with pools, tennis court, and home that’s so humungous it has 27 toilets.

The takeaway?

Robbie’s rich, famous, cool enough to pull off budgie smugglers in public, and is altogether living a fabulous life … and you’re a loser, schlepping around your dump (with one loo) in your trackies.

Okay, so here’s what living ‘the good life’ looks like in reality.

On the ‘This Past Weekend’ podcast, Robbie was candid about the realities of owning the mansion:

“What I didn’t take into account is that house insurance is $700,000 a year. Taxes are $400,000 a year. And I need two gardeners, three housekeepers, a house manager, security detail, and two nannies. I walk into the kitchen and there are eight people there … and none of them are my family. It’s a life tax … a head tax … you just can’t enjoy it.”

Later in the podcast Robbie admitted he suffers anxiety and depression … and rarely leaves his home.

In other words, while you sit on your throne scrolling through your feed, poor old Robbie is anxiously trying to take a dump in a different dunny each day to get his money’s worth.

Okay, so that’s Robbie. You don’t compare yourself to him. Yet it all filters down on social media.

Case in point: how much do Aussies think they need to live ‘the good life’?

According to a News.com.au article, it’s $326,900 per year.

That’s five times the average Aussie wage.

Worse, one in four respondents said they’d need five hundred grand a year to stop feeling povo.

That’s totally out of whack.

My view is that life is infinitely better when you tune out of toxic social media. The only influencer opportunity I’m focused on right now is being a good dad to my kids.

Tread Your Own Path!

Top of the World

Hi Barefoot,

I’m in the fortunate position of being about to receive a windfall on the sale of my business of $10 million. This is great but I don’t want to stuff it up from here! I’m only 45, with a wife and four kids, and I don’t know how to invest this. I’ve been badly burnt by financial advisors in the past so I’m reluctant to hand any of it over to some random to control. What should I do? Our only asset is our family home, worth $1.4 million with a loan of $700,000. What should I do?

Tom

Hey Tom,

Great stuff!

With ten big ones (well, call it nine-and-a-bit after you pay out the mortgage and buy some fancy stuff like cars, holidays and thermomixes), you need to have a strong understanding of what tools you need. Otherwise the finance industry will be very happy to sell you expensive magic wands.

With that in mind, here are a few things to think about:

Getting rich is different to staying rich:

You got rich by stacking all your chips on one business, but to stay rich you’ll need to spread your chips across thousands of businesses – preferably by investing in low-cost domestic and international index funds.

Don’t sell the farm:

Think of your share portfolio like a farm that provides you with a golden harvest of dividends each year (in your case around $300,000 a year!). Spend the yearly harvest, but never, ever sell the farm.

Get yourself a lawyer, son:

Even if you spend all your dividends, your kids still stand to inherit a $30 million (or more) fortune in the future. A family trust can help both protect your assets and minimise their taxes. You’ll need a lawyer for this.
Finally, keep working:

You need to find something that gets you out of bed each morning. This time round you don’t need to do it for the dough, though. Do it to make a difference.

Scott.

My latest phone trick

Liz walked into the bedroom with tears in her eyes.

I glanced up at her and my heart went into my mouth: she was waving a stick at me with two lines.

“You’re pregnant?! Again?!” I screamed.

“No, I have COVID!” she screamed back.

“Oh, well thank god for that” I said, visibly sighing.

(Which in hindsight was not the response she was looking for at that moment.)

Little did we know, the next week was about to get much worse.

That’s because everyone in our family got struck down … well, except me.

What are the chances?

By Wednesday I was strutting around like I’d won first prize on Survivor. Liz had a hunch and suggested I get some ‘proper testing’ at a drive-through.

So I did.

After a long wait, I wound down my window, took off my mask, and smiled at the nurse.

“What brings you here today?” she asked politely.

And then she threw herself back from my car and started screaming at me to close my window.

I could see the terror in her eyes as I madly fumbled to close my window.

At that point one of her colleagues ran to her aid, and then she too started screaming at me.

For the next 15 seconds it was total pandemonium. I had no idea what was going on because (a) my window was up, and (b) they were both screaming and pointing at me from behind their face masks and visors.

Did I have a new super-weird mutating variant?

What the hell was getting these two so steamed up?

And then I saw it:

A giant huntsman crawled down from the roof of my car to my window, then back on to the roof.

“I’m sorry, I have a spider phobia” said the nurse, her eyes darting frantically around the roof of my car.

The poor woman was terrified. As was I. After all, it’s not the calmest set-up for someone who’s about to push a stick up your nose and down your throat.

Of course, she’s not the only one who’s been getting the shakes lately … investors have been seeing a hairy huntsman or two crawling around their stock portfolios, with the market falling in January.

So is this the start of a major sell-off … or just a temporary blip?

You’ve probably got a hunch.

So, given it’s my first week back, let’s test your gut:

Where do you think housing, shares and Bitcoin will be at the end of the year?

(For reference, last year housing was up 22%, Aussie shares were up 16% last year, yet fell by roughly 5% in January, and the price of Bitcoin is currently US$38,000).

It’s easy to be a hero in hindsight (“I knew 2022 was going to turn out like that”), much tougher to do it in real time.

So, take out your phone and read this script:

“Hey Siri/Hey Google/Hey FBI,

“On the first of January 2023, at 8am, remind me of the following predictions I made today:

“Aussie shares will go up/down XXX%.

“The Aussie housing market will go up/down YYY%.

And Bitcoin will be trading at $ZZZ.”

Go on, do it now!

Postscript: after a very long week, the family was raring to get out of isolation and head to the beach for a holiday. Just to be sure I took a RAT test. Bad news. I was pregnant.

What are the chances?

Tread Your Own Path!

My Son is a TikTok Star

Hi Scott,

My 15-year-old son owes a lot to homeschooling. He became super creative and started a TikTok profile @tcezy uploading weird, dark and mysterious content. He has amassed a huge 5.7 million followers in just over a year.

We get daily emails from all sorts of companies wanting him to promote something but so far he has only agreed to one and it made him a staggering $10,000 . Now that could be it. But for the moment what should he do with it?

Jackie

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Hi Jackie

So I just spent way, way, way too long watching your son’s videos.

Then again, that’s the point right?

He’s got more engagement than any prime-time television show, and unlike the idiot box, his ads won’t be a signal to duck off to the dunny.

In other words, this is a genuine business (though his business partner is a super creepy Chinese Artificial Intelligence company that is manipulating its users).

Still, if your son can continue creating great content he’ll have hit the jackpot: a well-paid job he’d gladly do for free!

As for what to do with the $10,000, I’d ask him to think about his saving goals:

Will he want a car in a few years?

If so, he’s better off saving it in an online saver.

However, I’d encourage him to invest the bulk of it in shares (there’s plenty of apps that can do it at a low cost), and only check the price every few years.

What an adventure. You should be proud!

Scott.

The Bitcoin-Plated Coffin

Hey Scott,

We are starting up investment bonds for our child’s future (and plan to have more kids too). I noticed the provider also has a funeral bond option. Is it worth it for a guy in his thirties? Or should I put, say, $10,000 of cold, hard cash per person in my fireproof safe to cover such an event? As we know, Mr Death is awaiting his timeslot.

John

Hi John,

All this future planning has got you fired up, hasn’t it, mate?!

Well, you do not need to invest in a funeral bond.

Here’s why: any money you put in can only be used for your funeral. You can’t take it out earlier.

So, if you sink $10,000 into a funeral bond today, and let compound interest do its thing, your funeral in 50 or 60 years’ time will be absolutely epic! With the eventual bereavement bounty you will have you could afford to be carried out in a bitcoin-plated coffin as the Rolling Stones play a live acoustic set. (Oh wait.)

According to MoneySmart, funerals cost anywhere from $4,000 for something basic to around $15,000 for something fancier. Somewhere in the middle seems about right, right?

My advice: put your energy and efforts into ensuring that you and your wife have adequate life and disability insurance instead.

Scott.

Losing Your Investment Virginity

Australians have officially fallen in love with the stock market.

And, according to the Australian Securities Exchange (ASX), guess which age group is leading the charge?

The Millennials.

Now there are two reasons why I think so many young people are interested in stocks right now:

The state of the housing market is just so freaking depressing, and stocks (and crypto) have been going up a lot … so it’s a chance to get ahead financially.

According to the ASX, there are 900,000 investing virgins who plan on getting in on the game next year.

So, if that’s you, here’s how to lose your virginity (and not regret it).

1. Go Marie Kondo

Last year — as lockdown hit — you probably watched Marie Kondo on Netflix, then immediately started rifling through your junk.

Here’s the thing: most people get swept up in something new for a brief moment … then forget about it.

(Seriously, go look at your sock drawer today.)

My advice?

Embrace your new-found interest in investing while it lasts. And my very best tip is to scratch your itch by sorting out your super. Seriously, it’ll take you a few hours to hunt down a low-cost, high-growth index fund, yet it is one of the most lucrative things you’ll ever do. While you’re at it, gather up any super funds you may have and consolidate them into the one low-cost fund.

Ask yourself: “Does my super fund spark joy?”

2. Don’t Bet the House

Here’s you: “I’ll boost my deposit savings by investing in the market.”

Here’s me: “Don’t do it.”

If you’re planning to buy a house in less than five years, don’t invest a cent of that money in the market.

I know you want to.

But take it from me: the returns we are seeing right now are not normal, and they will not last.

Case in point: strategists with Bank of America have estimated that, if things continue at the same rate for the remainder of this year, share funds will take in more money in 2021 than in the previous 20 years combined. Heck, Aussie shares just posted their biggest rise in 30 years.

Again, not normal. So repeat after me: “I won’t bet the house.”

3. Be Choosy

If you’ve sorted your super, squirrelled away your house deposit, and are ready to invest … go for it!

Just don’t buy Dogecoin, or you’ll end up with financial fleas. And don’t play games with financial apps that sweet-talk you with ‘super-easy’ $5 and $10 trades. Trust me, whatever you save on brokerage fees you could lose making dumb trades.

Instead, stick with boring, automated, set-and-forget investments. Pearler is a new app that’s doing good things, and the world’s second biggest fund manager, Vanguard, has just dropped its already low fees.

Barefoot says: “You only lose your virginity once. Make sure it’s with someone who’ll care about you in the morning.”

Tread Your Own Path!

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

The ASX Game

Dear Scott,

My daughter recently brought home a consent form for me to sign. She is in Year 12 and, as part of Pathways and Wellbeing (PAW) this semester, the students are learning about investing in shares by playing the ASX Sharemarket Game. They are given $50,000 virtual money to invest over a 10-week period. Since reading your book in 2020, I have been investing in the ASX but not trading. My concern is that it is not focusing on long-term investment. So should I sign the form?

Meg

Hi Meg,

Yes, you should sign the form!

This sounds like fun … and I think your daughter will end up a winner.

Do you know why?

Because she’s going to have a secret helper with the ASX game:

Me!

Here’s how I’d suggest she plays:

Put $25,000 in the Vanguard Australian Shares Index ETF (ASX code: VAS). Or, if she prefers a greener option, the Vanguard Ethically Conscious Australian Shares ETF (ASX code: VETH).

Then put $25,000 in the Vanguard MSCI Index International Shares ETF (ASX code: VGS). Or, again, if she wants a sustainable option, try the Vanguard Ethically Conscious International Shares Index ETF (ASX code: VESG).

With those two investments she’ll own shares in the largest companies in Australia and the world, and all for rock-bottom fees. She can school her teacher and explain that the overwhelming evidence suggests that she’s all but guaranteed to outperform her stock-picking pals over the long run (though I’m talking years ... not weeks).

Then she can use the next 10 weeks to read The Barefoot Investor. In fact, I’ll donate a signed copy to the school library!

Scott.

Reminder: I first wrote about this years ago and highlighted the low costs. Today there are better deals on offer. How do I know? Because my readers constantly email me about them! So before you do anything, do a quick google.

My Saturday night date with Lindsay Lohan

On Saturday night I was watching Herbie: Fully Loaded with the kids.

That’s the one starring Lindsay Lohan, when she was still sweet and innocent and doing Disney.

It’s a terrible movie.

So, while the kids munched on popcorn, I fired up my laptop and began looking through reader questions.

A new email pinged ... with the subject line ‘SOS - help me Scott’

Scott,

I should have listened, I read your articles about crypto and I sold mine before the rise. Then I got FOMO and invested $18,000. Now it has dropped ... MASSIVELY. I’m down $10,000. What do I do? I want to sell but I don’t want to lose my money. Seriously. I’m 22 and just quit my job!

Ben

Hang on a minute.

Of all the things a 22-year-old bloke could (or perhaps should) be doing on a Saturday night ... he’s sending a daggy dad a question on crypto?

Herbie goes bananas!

Still, Saturday night was a knife fight for crypto: some coins were slashed by half.

(However — and this is important — it was simply a marker in time. Since Ben sent the email, Bitcoin has rallied 25%, and Etherium 50%, so maybe he made his money back?)

In any event, I do have some advice for you, Ben:

STOP WASTING YOUR TIME.

The money you’ll make in crypto is chickenfeed compared to the life-changing gains you can make if you get serious.

You might think I’m talking about investing — and I am.

But it’s more than that.

See, Ben, you’ve got two things most people don’t have enough of:

Time … and energy.

Now you can waste that time betting on things you have no control over (like crypto) … or you can invest it in skills and habits that will compound for the rest of your life.

That could be finding a mentor, starting a side business, getting fit, or even just reading some good books (my pick: Extraordinary Popular Delusions and the Madness of Crowds — no talk of crypto, though, it was published in 1841).

In other words, anything that you master now will compound over your life and make things exponentially better.

When you’re 22, you think you’ll always be young and that you’ve got plenty of time to get around to all that stuff.

However, I reckon you have just 10, maybe 15, years to really focus on the hustle.

After that, your time and a lot of your energy will likely be diverted by a partner, kids, a mortgage.

I don’t want to scare you, Ben, but one day you’re going to wake up. You’ll have three kids on your lap, popcorn in your pants ... and you'll be watching Lindsay Lohan pretending to talk to a car.

Beep, beep!

Tread Your Own Path!

The Big Short

Investment legend Michael Burry met his wife on a dating website.

His profile read as follows:

“I’m a medical student with only one eye, an awkward social manner, and 145 thousand dollars in student loans.”

She wrote back: “You’re just what I’ve been looking for!”

(In other words, she was looking for honesty.)

Burry was profiled in the book, and later movie, The Big Short, where he predicted the US housing meltdown before anyone else, and made himself a hundred million bucks in the process.

My favourite scene:

Goldman Sachs: “You want to bet against the housing market?”

Burry: “Yes.”

Goldman Sachs: “Why? Those bonds only fail if millions of Americans don’t pay their mortgages. That’s never happened in history. If you’ll forgive me, Dr Burry, it seems like a foolish investment.”

Burry: “Well, based on prevailing sentiment, the market, the banks and popular culture, yes, it’s a foolish investment. But everyone’s wrong.”

Fast-forward to today, and Burry is back making three more ‘foolish’ bets:

First, he’s wagered a massive $680 million bet against Tesla.

Tesla’s share price rocketed 743% in 2020, making founder Elon Musk one of the richest people on earth.

Yet just as the share price was roaring towards its peak last year, Burry said it was ‘ridiculous’ and started shorting the stock (which means that if Tesla’s share price falls then Burry can sell his Tesla shares for a profit). It seems his bet is already paying off: Tesla shares have fallen 40% from their all-time high.

Second, he’s said that he thinks Bitcoin is in a speculative bubble.

(Duck for cover!)

Third, and most alarmingly, he believes that the massive money printing experiment the US is currently doing will lead to hyperinflation and economic catastrophe.

Here’s the point: while the stock market hits daily record highs, Burry is betting on doom ahead.

So, is he right?

Well if you’ve been following me for any time you’ll know how I feel about short-term predictions. Studies have repeatedly shown that they mostly come down to luck. No-one has a crystal ball.

Yet what’s interesting to me is Burry’s psychology: he’s proven that he’s willing to look past the ‘herd mentality’ that grips markets to make his own judgments, even if it makes him look stupid at the time.

In other words, he’s a wolf, not a sheep.

Speaking of which, I met a few young rams the other day … apprentice tradies who were flipping crypto on their smoko. These blokes, and just about everyone I talk to lately, are convinced that making money is quick and easy.

Now, I honestly don’t know if Burry will come out on top, or come a cropper.

But there’s one I do know: making money (and keeping it) is never easy. And making it quickly is even harder.

Tread Your Own Path!

How Not to Buy an Island

Hi Scott,

A couple of years ago you warned retirees about investing with a company that owned Dunk Island, who were promising high returns. Well, I just read about Dunk’s repossession. You predicted this!

Mandy

Hi Mandy,

Yes, I predicted it … and so did a lot of others in the media.

Collectively we did our best to warn people of the dangers of investing in a high-risk investment that marketed itself as a safe alternative to bank term deposits.

Look, this is my seventeenth year of writing this column, and over that time I’ve seen plenty of outfits come and go promising high returns with low risk. And every time they lure in the financially illiterate, and do a hell of a lot of damage.

Case in point: it’s been reported in the media that Pauline Hanson’s One Nation hosed $500,000 after investing with the cowboys at Mayfair.

Please explain?

Scott.

Barefoot Endorsement, Please

Hi Scott,

A reputable friend has suggested I invest in a CFX project (cryptocurrency foreign exchange). From what I understand it is kind of like multilevel marketing and a type of cryptocurrency. I have looked into it and it sounds good. However, I am hesitant to pay out my hard-earned cash without some endorsement from someone like you. I am planning a baby as a single woman at 45 and I bought my first home only a year ago, so I am looking at ways to increase my income and secure my future. Thoughts?

Lilly

Hi Lilly,

You want my endorsement?

Okay, here goes: No. No. No. Lilly, oh god no. No.

Is that emphatic enough for you?

Now, I’m betting your ‘reputable’ friend isn’t a brand-new home owner who is about to become a mature-age single parent. Lilly, you simply can’t afford to get swept up in this rubbish.

If you want to increase your income and secure your future — and that’s an admirable ambition! — work towards a qualification or skill that you can use when you’re at home with your bub.

Scott

Shares for Kids

“Dad, do you own shares in … Woolworths?”

“Yes.”

“What about Coles?”

“Sure do, mate.”

“What about … what about ... JOHN DEERE?” screamed my five-year-old, his eyes bulging.

“Oh yeah!” I yelled, and then we high-fived.

Listen, as a father, a finance nerd and a farmer, that moment was a bloody royal flush.

It does not get better than that.

These days my portfolio is basically made up of both local and international index funds:

A couple of ultra-low-cost funds hold literally thousands of companies (well, a sliver of each), including the biggest companies on earth. In other words, you name it, and chances are we own it. (What’s more, when my kids get older and they ask me about the latest hot stock, the automatic adding nature of an index fund will allow me to say, “Yeah, I own that too”).

My kids have nailed the working, saving, spending and giving parts of the Jam Jar Strategy. Now I’m slowly introducing the idea of investing some of that money into shares, and learning about compound interest.

And it’s not just my kidlets.

This week I heard from Will, who asked:

“I am five years old and I want to buy some shares. Am I able to buy a share these days where I actually get a share certificate or something in the mail?”

Well, what I would tell Will is the same thing I’d tell my own kids (and what I’m actually doing with them):

As a parent you can buy shares on your kids’ behalf (in your name, but as a trustee for your child, via an online broker) and then transfer the shares to their name via a simple form when they turn 18, without incurring capital gains tax (CGT), as there is no change in beneficiary.

What shares should kids buy?

Well, when I was a kid, my father decided to pay me my pocket money via one share in BHP.

He said: “You now own a share in one of the biggest companies on earth, and they share their profits with you.”

I never got a share certificate … or the actual share come to think of it!?

Yet that day changed the course of my life.

So for kids I’d seriously consider buying either an Aussie shares index fund or an international index shares fund -- or better yet both. That way they’ll own thousands of the world’s biggest companies. Then parents can print out a list of all the companies they own, and put them on their wall: just for the bragging rights.

Tread Your Own Path!

P.S. Want to really compound the gains? Make sure it’s money your kids have earned themselves fair and square.

You’re a Dog, Barefoot

Hey Scott,

I am 23, a medical receptionist, and have been trading crypto since lockdown — and killing it, especially in DOGE (Dogecoin). I read your article on DOGE, and it was a joke. Who do I trust more, some hack from Australia or THE WORLD’S RICHEST MAN — genius Elon Musk? You don’t get rich buying index funds, loser.

Kerrie

Hey Kerrie,

Don’t bite me!

All I was doing was quoting the creator of Dogecoin, who said:

“It doesn’t make sense. It’s super absurd. The coin design was absurd.”

Dogecoin was set up as a joke. It has no tangible value, other than as a gambling chip at a crypto-casino ... which just so happens to have Elon Musk sitting at the table.

Why is he buying Dogecoin?

I have no idea.

Maybe it’s about his insatiable appetite for attention. Perhaps it’s to stroke his own ego. Maybe it’s both.

Yet while Musk is a genius, and the world’s (second) richest man, that doesn’t automatically mean you should take financial advice from him.

After all, his decision to throw millions at Dogecoin is like you or me buying a scratchie.

He’s worth $US190 billion!

He could drop $200 million down the back seat of his Tesla and he wouldn’t even notice it.

Billionaires are different to people like you and me. They don’t have to worry about things like buying a home, or paying off their HECS, or funding their retirement.

Most of us do.

And to achieve them we need to invest intelligently for the very long term. And history has proven emphatically that the most intelligent long-term investment is a broad-based index fund.

No joke.

Scott.

You Alarmed Me!

Hey Scott,

A bit confused about your column ‘Financial Markets Are a Dog’s Breakfast’. Are you saying the stock market is a farce and will fail due to all the extra money printing and zero interest rates? I am a big-time Barefooter who is heavily investing in stocks right now, so would you please explain what you mean?

Harriet

Hi Harriet,

Let me say this right up front: I’m still invested in the share market, and I don’t plan on ever selling.

What I was referring to last week was the frothy end of the market — like Dogecoin. The fact is that money-printing and low interest rates are driving up the prices of everything, and some of that is spilling over to crazy stuff like Dogecoin.

Look, there’s a lot of easy money being made right now (which explains why almost every 22-year-old kid I meet these days seems to be an investment guru.)

Yet history tells me these things don’t last.

So what should you do?

Well, you could follow my lead and do nothing.

As I explain in my book, you should think of your share portfolio like a little apple tree. You’ve planted it. There’s no need to move it, or worry about it. Just leave it to do its thing. And in 20 or 30 years’ time, just like an apple tree, it will produce amazing apples that will feed you and your grandkids.

Finally, to your question: the stock market is not a farce. Over the long term the riskiest thing you can do with the share market … is to not invest in it.

Because at the end of the day, Harriet, she’ll be apples!

Scott.

A dog of an investment (that is rocketing)

Hayley thinks I’m a genius.

The young mum wrote to me this week after reading my Barefoot Investor for Families book.

She’d gotten to the part where I mentioned an investment that has rocketed 1,500% this year.

What was the investment?

Dogecoin.

Here’s what I wrote:

“Maybe you’ve picked this book up at the Romsey Op Shop in the year 2040. Maybe that guy on Twitter was right and the global currency is now Dogecoins. (Maybe not.)”

I was joking, of course.

Then again, so was the Aussie who invented Dogecoin, Jackson Palmer.

He and a mate typed up the cryptocurrency code when they were bored one afternoon in 2013.

“It was a piss-take”, he told the Wall Street Journal earlier this month.

Palmer created Dogecoin as a parody of all the scammy cryptocurrencies that were being launched in 2013. (The text on the Dogecoin logo reads “wow much coin how money so crypto plz mine v rich very currency … wow”.)

Yet that was then … and this is now.

And after a series of tweets from Elon Musk and Snoop Dog, and a riotous ramp by Reddit day traders, today the value of all the Dogecoins is … wait for it … $US10 billion.

Palmer, who gave away all his Dogecoins years ago, clearly wants nothing to do with the mongrel he created:

“It doesn’t make sense. It’s super absurd. The coin design was absurd.”

Woof! Woof!

Look, I kicked off my career twenty years ago at the height of the dot.com boom, and I can tell you it has nothing on the craziness that’s happening today.

Then again, back at the turn of the millennium the world’s central banks weren’t barking mad.

Today the US Federal Reserve has its printing press on overdrive and is flooding the world with trillions of freshly minted dollars. At the same time, interest rates are set at (basically) zero and will remain there for the foreseeable future.

With so much money sloshing around the world trying to find a home, is it any wonder some of it goes to the dogs?

“We are now living through the greatest disconnect between financial markets and the real economy that we have ever seen”, says billionaire and investment expert Mohamed El-Erian.

He’s right.

Financial markets are a dog’s breakfast.

I have no idea when it will end, but I have absolutely no doubt how it will end:

Badly.

Mark my words, there’s a punchline coming.

And it’s only when the joke lands that we’ll work out who finds themselves is in the doghouse.

Tread Your Own Path!