Share Club #2—John Berry and Mary Holm

November’s Share Club was held in Auckland at GridAKL. We sold out in less than 40 minutes—a big thanks to all you speedy people who registered!

This month, we hosted John Berry from Pathfinder Asset Management, and respected personal finance writer, Mary Holm.

John Berry—Why should we invest responsibly?

In October last year, we added two socially responsible funds to Sharesies—Pathfinder Global Responsibility and Pathfinder Global Water. John Berry is the CEO of Pathfinder Asset Management, who manages these funds.

John got the room thinking about why we invest. Do we look for profit, or do we base our decisions on inherent values? The majority of the room chose the latter.

Values-based investing is becoming more prevalent because it’s the “right thing to do”. The old way of investing was to invest in anything (munitions, tobacco, fossil fuels etc) and to maximise your profits. The new way is to invest in a company that has long-term resilience with a social perspective.

Pathfinder uses an environmental, social, and governance (ESG) score to ‘pick’ the companies they invest in. Companies that have a social purpose look to benefit their stakeholders—their employees, shareholders, and communities. Their sustainability is based on a 10-20 year outlook, rather than a 2-3 year profit-driven outlook.

John used Facebook as an example of a company that they haven’t invested in, as it scores low in governance. Mark Zuckerberg is both the CEO and the chair of the board—in John’s opinion, Facebook exists only for Mark Zuckerberg, not for the shareholders, employees or community.

Volkswagen’s reputation suffered after the fiasco where they made false claims about the emissions on diesel vehicles. For that reason alone, they score low on their environmental score (E score). Their share price tanked at the end of 2015 and has made only modest gains since.

The Norwegian Sovereign Fund (similar to New Zealand's Super Fund) grew on the back of oil and gas. It’s worth over $1 trillion dollars. Recently, they’ve been selling their oil and gas stocks because they know there’s no sustainability in keeping those investments.

In Europe, some banks are refusing to offer financial advice to companies who aren’t investing sustainably or ethically, and are refusing to loan money to companies who have no regard to the environment, or their employees and communities.

John was keen to stress that individually, we might feel like we can’t change how a company behaves in the world. But as a collective, together, we can influence the direction and values of a company.

Mary Holm—How to stay cool when the markets are misbehaving

Mary Holm is one of the most well-known and trusted financial writers in New Zealand, with decades of experience and first-hand knowledge of investing. Only a week before, Mary launched her book: Rich enough? A laid-back guide for every Kiwi. Chapter 5 in her book is about staying cool when the markets are misbehaving—a perfect topic given the recent market dip.

Mary started by giving us a bit of a rundown on the markets over the last 50 years or so, and explained that markets always go up, and always go down. Sometimes NZ stocks have a better return than international, and sometimes it’s the other way around. The thing is, we never know when that’s likely to happen, so how can we protect ourselves against it?

Mary reckons there are five things you should do as an investor, whether you’re experienced or not.

Spread your risk

Diversify your investments, across a whole lot of industries and sectors. For example, you could have a mixture of shares, bonds, and property. Invest with a geographical spread, as investing only in NZ shares can make you vulnerable to one-off shocks—like a natural disaster or an agricultural event that could affect our exports.

Match your investments to the time period you can invest for. If your horizon is greater than 10 years, then shares could be a good option. If you need your money back sooner, then you might consider having a mixture of shares and bonds.

Should you invest in gold? One person in the audience thought so, but Mary was quick to point out that you should only do this as a small part of an overall investment strategy. Gold differs from any other investment in that you can only make money if the price goes up, whereas with shares, you can benefit from a price increase, plus get dividends.

Largely, ignore past performance

It’s inevitable that share prices will go up and down. “This time it’s different”—Mary has heard that over and over again since she did her MBA in 1986. The lesson to be learned from this is that it’s nigh on impossible to play the market.

Investments can go from best to worst, and vice versa in a matter of years. Countries can go from best to worst, then back to best, too. New Zealand in 1986 had a 111% return on its sharemarket. The following year it was -44%. In 2008, India had a -56% return, then in 2009, they had a 94% return.

Don’t try to time the market

You’re good at picking the right funds until you aren’t. In Mary’s experience, timing the market doesn’t work—there’s a heap of data that shows that people who trade frequently don’t do as well as those who buy and hold. There are more fees for buying and selling (not on Sharesies) which erode gains, and there’s also a likelihood of a capital gains tax being imposed on people who trade regularly.

Never be forced to sell

Before you decide to invest, do a worst case scenario. If your investment halved, how would you feel? You need to be prepared, emotionally and financially, to lose money and then wait for the market to recover. If you think your personal circumstances mean you might need the money sooner, then reconsider what your investment strategy is, and adjust to suit.

Selling when the market is low is the biggest way to lose money. So, if you can help it, don’t do it. Ride it out. The longer you have an investment, the better.

Sit back and relax

Investing should be like watching paint dry. Keep investing regularly, and leave it there regardless of what the market is doing.

Mary had a real-life example of a person who experienced a -5% return on his KiwiSaver investment after moving the money around different funds, based on which fund had ‘performed the best’. If the person had left the money in the original fund, they would have had a 9.3% return. They should have sat back and relaxed.

So drip-feed money into an investment, keep reinvesting dividends, check your fund only occasionally (so you’re not tempted to change your strategy) and reap the rewards at the end.

Buy Mary’s book, or visit her website www.maryholm.com.

If you’ve got any feedback, we’d love to hear from you—especially if you have suggestions for speakers and topics. Send an email to [email protected].

Thanks to GridAKL and Six Barrel Soda Co. for the love.

See you next time!