Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

'Huge fan of your work. Very impressive!' - Scott Pape, The Barefoot Investor, Australia's #1 bestseller.

'Must-read, must-follow, one of the finest analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Business Insider.

'I've been investing 40 years yet still learn new concepts from Pete; one of the finest young commentators' - Michael Yardney, Amazon #1 bestseller.

'The most knowledgeable person on Aussie real estate - loads of good data & charts...most comprehensive analyst I follow in Oz' - Jonathan Tepper, Variant Perception, 2 x NYT bestseller.

Tuesday, 16 December 2014


Snowball Investor

I have a new book due out in 2015 which discusses the 3 golden rules for multiplying your results from property, shares, business and life.

There are three key themes which run through the book which I've termed "golden rules". These three golden rules can be used to multiply your results - not only when investing in property or shares, but also in business and indeed, in all areas of your life.

The premise of the book is that if you can master and continue to apply these three golden rules, what you can achieve may be almost limitless.

The 3 golden rules are:

  • Golden Rule #1: The 80/20 Principle - most of your results will be derived from a handful or ‘vital few’ of your decisions and actions;
  • Golden Rule #2: Snowballing your results - understanding and using compound growth to your advantage; and
  • Golden Rule #3: The Pleasure-Pain Principle - what you link pleasure and pain to will determine the way you act and thus ultimately shape your results.
Keep an eye out for it on the shelves in the second half of 2015.

2014 Nearly Over!

Another year is drawing to a close and what an interesting year it's been! Still to come this week will be our monthly macro housing market update for December and our 2015 property market forecasts by city.

We thought it would be interesting here to take a look at how Australia has changed over the past 10 years. Just think what an awful lot of water flows under the bridge in just one decade!

Back in 2005 in Sydney we had ugly riots in the Macquarie Fields estate, and then later in the year rioting on a larger scale down at Cronulla beach.

In 2006, Steve Irwin lost his life with thousands of us travelling to Beerwah to sign the books of condolence.

Meanwhile the Beaconsfield Gold Mine in Tasmania suffered an earthquake and subsequent rockfall which resulted in a tragedy and an amazing escape for two of the miners, Brant Webb and Todd Russell. We later took the ferry over to Tasmania to visit the mine museum to hear their amazing story.

In 2007 we walked over the famous city "coathanger" to celebrate the 75th anniversary of the beloved Sydney Harbour Bridge which was a wonderful day out, and Sydneysiders also turned off our lights for Earth Hour.

We even had a 2007 tsunami warning in Sydney which shut down Sydney Ferries for an afternoon if memory serves correctly, though my missus was comfortably safe enough - she was out at sea off the coast of New Zealand at the time!

In 2008 there was also a horrible boating accident on Sydney Harbour which claimed five lives.

By 2009 the financial mood had soured following the fallout from the subprime crisis in the US and Prime Minister Rudd announced that he would offer a fiscal stimulus of cash payments to 13 million Aussies. Lots of televisions were bought that year!

Yet by 2010 things in Australia were looking up once again and PM Rudd was considering a new way to tax the "Super Profits" of our mining companies before he was defeated in a leadership spill by Julia Gillard. 

Elsewhere 16 year old Jessica Watson completed a solo voyage around the world and we welcomed her back into Sydney Harbour and watched what turned out to be one of Rudd's final speeches as PM.

Tragically the small cap mining outfit Sundance Resources (SDL) lost its entire board in a tragic plain crash in Africa.

2011 was a troublesome year for Queensland which suffered from terrible floods and we headed up close to Innisfail to work as volunteers on the Cyclone Yasi "Kiss my Yasi" clean-up.

The US debt-ceiling crisis of 2011 and the so-termed "Fiscal Cliff" were compounded by a sovereign debt crisis in Europe of 2012 leading to some unprecedented daily stock market moves in Australia and plenty of worries and wobbles for share market traders!

2013 was a year of many Prime Ministers in Australia within which we ended up with the incumbent Mr. Tony Abbott, while Holden at last announced that it would cease manufacturing in Australia by 2017.

And here we are in 2014, a year in which Toyota has followed Holden in announcing that it will no longer manufacture in Australia.

Of course, these are only a few on the events that immediately spring to mind, and there was much more besides.

The Decade in Charts

Let's take a look at a few charts from the past decade in 6 short parts.

It was a decade through which a great deal of wealth was created in Australia to the extent that we are now the richest nation on the planet in terms of our household wealth.

Keep in mind what opportunities there might in the decade ahead, particularly with "Golden Rule #2" in mind, being the principle of snowballing or compounding.

Like the rolling of a snowball from the top of a hill, where a constant rate of return is achieved on an investment portfolio, the gains grow larger and larger with each passing year or period of time.

Part 1 - Headcount

In just 29 days time Australia's population clock will tick past 23,750,000 (we'll have the latest figures by state for you here on Thursday).

Over the past 10 years the population of Australia has increased by a massive 3.7 million or 18.4 percent.

The rate of growth got a bit faster, then a bit slower, then a bit faster again...but the direction remains clear enough and it will in the decade ahead too.

Most of the population growth has been experienced in Greater Sydney, Melbourne, Perth and Brisbane/south-east Queensland. 

Sydney's population growth has accelerated of late and we'll likely see some unprecedented population growth figures in the harbour city in due course.

Expect similar levels of population growth in the decade ahead.

This of course creates huge opportunities for investors who can isolate demographic trends and spending patterns.

Part 2 - Labour

Despite endless talk of possible recessions for at least the past eight years, we have not had a recession in Australia for well over two decades (see the early 1990s on the below chart) and the labour force has increased by around 1,965,000 or 20 percent over the past decade.

Over the last five years, the huge bulk of the jobs are being created in just those same four capital cities plus south-east Queensland. Regional Australia outside Queensland has not been creating jobs in aggregate, a trend we expect to continue. 

The headline rate of unemployment fell as low as we have seen in modern times by 2008.

Later in that year doom and gloom forecasters predicted up to 20 percent unemployment as a result of the financial crisis, but in the event the rate peaked for the cycle with only a "5 handle".

We are now seeing relatively high levels of regional unemployment as the mining construction boom unwinds.

The unemployment rate in Greater Sydney already appears to have peaked for this cycle at a shade over 5 percent, but interest rates will likely still need to fall due to weaknesses elsewhere in the economy.

Part 3 - Pay

Wage price indices have increased by 45 percent in the private sector and 48 percent in the public sector over the past decade.

In the earlier years of the past decade the mining states led the way, now other states are playing catch-up.

Part 4 - Economic Growth

GDP in Chain Volume Measures terms has increased impressively by more than 30 percent.

The economy grew quickly, then a bit slower, then more quickly again, and then a bit slower. 

But it kept growing.

Australia's GDP per capita in constant prices terms has increased healthily from around US$33,300 to US $37,500 since 2004.

Part 5 - House Prices

Our chart packs haven't yet quite gotten up to December 2014 for dwelling price indices.

As is typical for cyclicals such as real estate there were several distinct periods where dwelling prices were declining in real terms but, over the long term well located capital city dwelling prices continued to increase.

Unfortunately there have been some unusual recommendations as to where to buy and what type of property to buy over the years, but for anyone who has invested wisely in well-located capital city property dwelling prices have increased significantly, resulting in steadily compounding returns on investment.

Part 6 - Share Markets

Those of a negative bent will always take the line that the share market is "only at the same level as it was in 2008" (or whatever the case may be), by tracking back to a recent time when valuations were as high as they are today.

While this may be technically true, it is also disingenuous since it deliberately ignores the point of share ownership or stock market investment, that being the compounding income component (to be fair in some cases pundits also just don't know what they're talking about).

The index is up by around 25 percent in any case and a dividend-rich portfolio has more than recovered any losses that may have been incurred during the 2007-9 crash. On an accumulation index basis in other words, the ASX touched new highs in recent months.

By way of an example of why this is important a $30/share investment in Commonwealth Bank (CBA) has almost completely returned the initial principal invested in fully franked dividends over the past decade. 

Despite ongoing hypothetical discussions about banks going bust that same initial investment is continuing to grow and compound income returns above and beyond the initial $30/share investment in perpetuity, while of course today those same shares are also trading at well above $80/share.

In approximate numerical terms, despite the impact of the global financial crisis $100,000 invested in CBA has returned almost the same $100,000 in fully franked dividends and the same investment is worth well over $250,000 even without the dividends re-invested.

That's compounding in action.

The Wrap

Of course, depending on your outlook on life, you can say "yes, but..." against each of these points and charts. This rather depends on whether you are a "glass half full" or "glass half empty" type of person.

It is ever thus. Where optimists see opportunity and abundance, pessimists see problems and risks.

Over the next decade and over the longer term, successful business owners and investors will continue to compound their wealth just as they did in the last decade and the decades before that, provided that they invest sensibly and wisely in income-producing assets.