Pete Wargent blogspot
Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.
4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.
"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.
"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.
"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.
"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.
"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.
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Monday, 11 June 2012
5 good reasons NOT to invest in airlines
Spent all day on planes yesterday so had plenty of time to think about this.
One thing that has improved immeasurably on long haul trips is the in-flight entertainment. There is so much more choice these days, and despite significantly increased taxes, the cost of a long-haul flight hasn’t increased too dramatically over the past decade either.
I took in 6 full episodes of The Office (as always, hilarious), the excellent Senna movie (harrowing) and Justin Timberlake’s Friends with Benefits (also harrowing, but for a different reason: it’s pure dross).
Do airlines make for good investments?
"How do you become a millionaire? Make a billion dollars then buy an airline!" - if past history is anything to go by, the answer is clear - no. It is said that throughout the history of aviation, airline companies have made net losses.
Of course, Buffett cautions us to be wary of past history proofs in finance: if history could tell us everything about future financial trends, the richest people would be librarians.
Even Berkshire Hathaway burned
Famously, even Buffett himself invested in USAir and made very significant losses. This is a very rare outcome for a long-term Buffett investment.
Even the ‘Sage of Omaha’ himself was shocked at the cut-throat nature of the industry.
Tongue-in-cheek, he now claims to have a toll number which he calls to warn him off investing in aviation again: “Every time I feel like buying airlines I phone the toll number and they shout me down.”
Why aren’t airlines usually good investments?
Here are just a few of the reasons:
1 – Competitive industry – remember the demise of Ansett in Australia? Europe has seen a rise in the number of low-cost airlines competing for slots. Some new entrants have been a success (EasyJet), but plenty have been ruthlessly spat out too (Sir Freddie Laker)
2 – Huge aviation fuel and tax costs – governments can raise taxes; likely to increase further in a bid to curb carbon emissions
3 – Anti-monopoly legislation – Brits may remember Sir Richard Branson’s endless campaigning against the British Airways ‘monopoly’ (BA must have been the first monopoly in the history of the world with less than 50% of the market!)
4 – ‘Black Swan’ events can spook the market – for example, the industry suffered an unprecedented setback in the aftermath of 9/11; similarly, the Icelandic volcano in Europe grounded flights across a huge area
5 – Highly regulated – for obvious reasons, airlines are heavily regulated. Safety is paramount for any company to remain successful, and safety does not come cheap.
We recently saw the Qantas share price dip below $1.00 - it's been a very tough couple of years for the flying kangaroo.
If you are interested in aviation, you may well be better to invest in companies which service the airports and airlines rather than the airlines themselves. Better still - be an executive for one of the airlines! Tough industry to consistently generate profits in.