Dear Malcolm, Here’s some advice…

Credit: PROVeni

Apparently, Malcolm Turnbull hates Australia.

Or so you might believe if you’d picked up a copy of Sydney’s Daily Telegraph this morning.

The online version, which is behind a paywall, carries the headline “How PM is profiting on Aussie failure”. The newspaper itself went with the much starker “Mal’s Bet On Aussies To Lose”.


Of course, the Tele also ran with “Australia Needs Tony”, so make of the politics what you will.

But is Turnbull really betting on Aussies to lose? And, far more importantly, does it matter? And is it news?

You might recall the Australian Financial Review ran with a similar story last year, around the time the government’s bank tax was being discussed.

I have no love for shorters (traders who ‘bet’ that prices will fall), for the record. If it was my call, I’d ban derivatives, other than those directly tied to physical products (allowing farmers, for example, to get certainty on prices for the next crop). I think shorting is a bastardisation of what the stock markets around the world exist for.

Yes, I’ve heard the academic — and theoretical — arguments for shorting. I respect them. I just don’t think it’s a net positive for markets.

Now, that said, as long as you’re a long term shareholder, you needn’t fear the shorts. Because, if they’re right and share prices fall over the medium-long term, you’d have lost money anyway.

And if they’re wrong, any temporary fall in the share price would be just that… temporary.

There can be some perverse outcomes: in the past some companies have tied debt obligations to market capitalisation. And it can force out nervous or uncertain investors, only to see those theses go ‘bust’ and the shares subsequently rise, leaving those scared shareholders on the sidelines, and missing out on the recovery.

And some shorters — no names, no pack drill — can cause ructions by going public with the short case, either adding to or causing share price declines. (It’s possible for those who own shares to use PR to push share prices up, too, so it’s not just the shorters who are to blame. But human nature is such that people freak out more about the chance of loss, giving shorters an outsized influence.)

But back to the PM. Does he really hate Australia?

No, of course not. And given his total wealth, and the fact that most of it is almost certainly in assets that stand to gain if Australia does well, do you really think he’s betting against the country?

Again, that’s a ‘no’.

Which is smart. Because history isn’t in the corner of the shorter. Yes, shorting will pay off when markets fall. And, frankly, if Malcolm Turnbull is worried about what happens to the banks if and when the Australian economy stumbles, he’s not alone.

But how often do markets fall? And by how much?

Now, contrast that against how frequently the rise. And by how much.

It’s okay: I’ve done the work for you. Actually, Vanguard has. I’m just taking the credit.

Over the 30 years to June 30 last year, the ASX is up 8.4%, per annum, on average. That’s enough to turn a hypothetical $10,000 into more than $115,000. And that’s despite the bust, the mining bust and, yes, the GFC.

Maybe Mal is smart enough to be able to just buy at the bottom and sell at the top (or short and the top and ‘cover’ at the bottom). Though I’d classify someone who can do that regularly as either lying or lucky. You choose.

He’s not claiming any such thing, of course. And by all reports, he’s investing in funds with good track records of success, and that contain both ‘long’ and ‘short’ investments. It’s not for me, but he’s entitled to make those investments.

Now Malcolm, we’re not allowed to give personal advice. But if a hypothetical Australian Prime Minister was reading this (and why wouldn’t he be), there’s a lot less political pain — and very potentially, more financial gain — in going long and staying long. Yes, there’ll be volatility, but you’ll save on fees, and harness the full upside when things go well — as they usually — and overwhelmingly — do.

So here’s a chance to get the Tele off your back and put history on your side.

You’re welcome.

P.S. It also turns out that I run a market-beating investment service. I’ll bet a membership costs (much) less than the fees you’re paying the fund managers, Malcolm. And I’m beating the market. If you join us, we’ll promise complete confidentiality, and you might just do better than you are now. I’ll even offer you the same deal as I’m offering regular readers of Take Stock . (If you’re not Malcolm Turnbull and you’re reading this, join us! You never know… you might have a certain Point Piper millionaire as a fellow member, soon.)


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