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Tuesday, June 15, 2010

Aussie Shares vs International

I loved the comment that was left after my last posting (thanks anonymous :) ) because there's no easy answer and I love a challenge! The question was “if I was to start investing, how would I go about that? Am I best off investing in Australian shares or looking to countries that are currently struggling?”

So while I was cooking dinner last night (Braised Pork Spare Ribs from Masterchef – yummo!) and watching The Tudors, I had a bit of a think about the best way to answer this question.
Firstly, I am a HUGE fan of Aussie shares. We have some fantastic listed companies in this country, with some amazing minds running the businesses. Domestic direct shares are a major part of my portfolio, and quite a passion for my Accountant partner, Mick. All that said, there are a number of important issues to take into consideration:

- there are great companies, BUT there are also some pretty crappy ones; you need to be able to spot the difference;
- the Australian sharemarket is VERY restricted, we don’t have much in the way of sector diversification.
When it comes to managing the risk of your portfolio, diversification is absolutely critical;

- Australia only represents about 2%-3% of world sharemarkets, so again, a real diversification concern.

In support of international shares, you only have to look around your own home to see some of the big brand companies that jump straight out at you – check out your television, your oven, your computer, your razor, your hairdryer, your stereo… There are some AWESOME investment opportunities available. But again, there are some issues to take into consideration:

- if we’re talking about “countries that are currently struggling” then the first question that pops to my mind is why are they struggling? If it’s because of high debt levels, then I’d be wanting to know a lot about the measures that are being taken to reduce the debt and how quickly it can be done;
- There’s a key difference between companies or countries that are struggling, and those that are under-valued. If they are struggling because of poor management, high debt levels, inefficiencies etc, then you’d probably want to steer clear of them. If it’s a case of the market simply not recognising their value because of the current environment then, they may be worth a good look for future performance potential.
- it can be quite difficult to physically buy and sell international shares directly. In most cases, I personally look to expert fund managers for my overseas exposure.

If you can be bothered, and you have a spare hour, you could check out a webcast by Hamish Douglas Chief Executive Officer and Portfolio Manager for Magellan Financial Group. They have an award winning international fund, and an investment philosophy that I really like. Hamish (a smart guy and entertaining speaker) gives his views on the European Sovereign Debt Crisis, the outlook for the US and an impending slowdown in China so might be worth a peek  By the way, that’s definitely not a recommendation to invest in Magellan, but I like to be able to pass on information that you may not have access to otherwise.

So what the answer to the question in the end? After all that, it’s fairly easy:

1. I believe that both Australian and International shares have a place in a well diversified portfolio.
2. If a company or country is struggling, make sure you know why before you invest. Just because the price is low doesn’t automatically make it a sensible investment – it might be a dog. The basic fundamentals need to be strong to be well-placed for recovery;
3. Always, always, always, get quality, personal, professional advice. I just can’t stress that enough. There’s no one-size-fits-all solution for everybody (even though some institutions that will remain nameless seem to provide advice as if this is the case), and you need to be sure you understand how a strategy might meet your objectives, the risks involved, and the commitment you’re making (if I’m geographically convenient and you want to get in touch with me personally, you can email me at, otherwise go to  for someone in your area).

Talk soon,

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