Why you shouldn’t be satisfied with ‘muddling along’

Tuesday, 19 September 2017
Melbourne, Australia
By Bernd Struben

  • How does 3,100% in four months sound?
  • Management, management, management

Imagine this.

You’ve been in the same job for nine years. You work hard, get along with your colleagues and make sure to arrive on time. The feedback you receive from your supervisors is always positive.

The end of another year arrives and your employer has good news and bad news for you.

The good news? You still have a job.

The bad news? Your pay rise amounts to $3. Not per hour mind you…per week. Try not to spend it all in one place!

This is not simply a depressing exercise of your imagination. Unfortunately, it’s very much a reality for many Australians, across most industries.

According to the Australian Bureau of Statistics, average weekly income has grown by just $27 since 2008. In other words, a $3 weekly pay rise every year…for nine years.

How do you cope with nine years of virtually stagnant pay?

One way is to borrow more. Aussie interest rates have never been lower, after all. And the result has seen many households take on crushing debt burdens…often three or more times their annual income. And their ability to repay these loans is increasingly in doubt.

As Bloomberg reports:

‘…despite their stagnant wages, just over a quarter of Aussies have amassed debts equal to three times their income — mostly as housing surged during a central bank easing cycle designed to cushion the end of the mining investment boom…

In addition to the pincer effect of record debt and low wage growth, households are in line for sharp increases in utilities prices…

One thing is certain: with rates already at a record-low 1.5 percent, monetary policy can’t do much more for the economy. Households have already done their bit by borrowing to buy properties and are generally maxed out. For businesses, a reluctance to take on debt may reflect their uncertainty about where demand will come from.

As a result, it seems likely that Australian households will just have to battle through in coming quarters.

We’ll continue to muddle along”, said [Justin] Fabo [a senior economist at AlphaBeta in Sydney].’

Now I must ask, does borrowing three times your annual paycheque ‘to muddle along’ sound like a good big picture plan for your household? Me neither.

But if borrowing to the hilt isn’t the answer to combat nine years of stagnant wages, what is?

Greg Canavan has one compelling wealth building answer to that question here.

We’ll get back to that, after the markets.

Markets

Overnight, the Dow Jones Industrial Average gained 63.01 points, or 0.28%.

The S&P 500 added 3.64 points, or 0.15%.

In Europe, the Euro Stoxx 50 index finished up 11.19 points, or 0.32%. Meanwhile, the FTSE 100 gained 0.52%, and Germany’s DAX index rose 0.32%.

In Asian markets, Japan’s Nikkei 225 index is up 344.79 points, or 1.73%. China’s CSI 300 is down 0.21%.

In Australia, the S&P/ASX 200 is down 3.70 points, or 0.06%.

On the commodities markets, West Texas Intermediate crude oil is US$50.00 per barrel. Brent crude is US$55.52 per barrel.

Gold is trading for US$1,309.30 (AU$1,641.34) per troy ounce. Silver is US$17.20 (AU$21.56) per troy ounce.

One bitcoin is worth US$3,979.85.

The Aussie dollar is worth 79.77 US cents.

How does 3,100% in four months sound?

In yesterday’s Port Phillip Insider, I told you that the average return on initial public offerings (IPOs) in Australia last year was around 31%. And the average return for tech IPOs was even better, at 69.5%.

Investing in the right IPOs then, is certainly one way to beat the stagnant wage and high debt trap. And I say ‘the right IPOs’ because plenty of newly listed stocks see their share prices head downhill after going public. That gives you an idea of how well the right IPOs did. Well enough to see average returns of 31%.

Of course investors who bought shares in PT Pelayaran Tamarin Samudra Tbk [IDX:TAMU] when it first listed in May this year — or better yet before it listed — are scoffing at humble figures like that.

Have a look at the graph below.



chart image

Source: Bloomberg
Click to enlarge


Oil and energy stock TAMU is up a staggering 3,091% since its initial share sales in May.

Now granted, TAMU is listed on the Indonesian stock exchange. So let’s have a look at how Aurora Labs Ltd [ASX:A3D] IPO did in Australia last year.

Investors with special access got into the stock at 20 cents in August 2016. That was before a single share ever traded on the ASX. Below you can see what happened over the next six months.



chart image

Source: Google Finance
Click to enlarge


Investors with access to priority shares made a stunning 1,905% gains. That certainly beats a $3 weekly pay rise!

Since its peak on 10 February this year, however, things have been mostly downhill for Aurora Labs. At a current share price of 65 cents, it’s still well above the 20 cent entry level offered to investors with special access. Yet it’s taken a massive 84% tumble in just seven months.

Clearly then, knowing when to get out of even ‘the right’ IPOs is just as important as having access to priority shares to those IPOs before the stock lists. Not that every IPO will follow this pattern. Some will keep trending higher for years.

This is precisely why Greg Canavan spent over a year putting together his new premium investment service, Greg Canavan’s Exclusive IPO Investor.

He only recommends what his exhaustive research indicates will be the best ASX listed IPOs to his subscribers. More than that, with the help of his broker mates, he gives you access to priority shares. These are shares usually reserved for ‘insiders’ and big hitting institutional investors.

Most retail investors will never have a shot at getting special access to any of these companies before they go public.

And if one of the newly listed companies begins to look like Aurora Labs did in February this year, Greg is there to help subscribers lock in the potentially massive early gains before the stock flounders.

Greg launched the service in June this year. At that time, it was only available to our Alliance members. But this week, until tomorrow night only, Greg Canavan’s Exclusive IPO Investor is open to any paid subscriber of Port Phillip Publishing. (Details here.)

Management, management, management

When it comes to analysing companies that have yet to go public, you have to take a different approach than you do with stocks with a lengthy trading history.

For one thing, the available data won’t support any in-depth technical analysis. Fundamental analysis, then takes on an even greater importance. And management comes in at the top of that list.

That’s an idea embraced by Steve Baxter, of Shark Tank fame. As The Age notes, ‘The entrepreneur, investor, start-up millionaire and Shark Tank star says when he casts his eye over a business he’s really looking at people.’

When I asked Greg what he looks for before diving deeper into his analysis of companies looking to IPO, he emailed me the following:

The main things to look for are the business model, the company’s reason for IPO’ing (vendor sell down, need capital to expand, etc.) and the price you’re paying to get a piece of the business. 

In many cases, though, small companies are not earning profits yet so you need to get a good feel from the owners…you’re really backing them to grow the company into a profitable investment. 

For example, I met with engage:BDR management on a number of occasions and had plenty of email discussions to get an understanding of the business. After doing that, I had a much better feel for their passion for the business and that gives me confidence to back a company. 

On the other hand, I saw another company last week. I sent off a bunch of questions following our meeting and haven’t heard back three days later. That’s not a good look and makes me think poorly of the set up.’

engage:BDR is a US tech company that will list on the ASX later this month in a $6 million float.

Aside from his high confidence in the company’s management (the two top managers were involved with the rise of Myspace, before the social media giant crumbled) Greg has studied the company inside and out.

And he’s managed to secure priority shares of engage:BDR for his subscribers.

To get in on some of those shares, or if you just want more details on the company and the service, you can do so here.

But as I said, we need to hear from you before midnight tomorrow.

Cheers,
Bernd