Sharesight Blog

All the latest updates from the Sharesight team

Hands up for a Capital Gains Tax

Posted by Tony Ryburn on July 29, 2011

Hopefully you all got your tax returns done on time.

I sent mine in at the last minute as usual despite having all the hard work done for me in the Sharesight tax reports. Being able to export all my share-related data from Sharesight into Xero is also a huge time-saver when it comes to preparing the annual accounts for my Family Trust. It’s a great example of the real benefits that cloud computing can deliver.

I get caught under the Foreign Investment Fund (FIF) regime and I shudder to think of the time I would have wasted on this if it were not for the Sharesight FIF report.

Accountants (the ones not using Sharesight) hate FIF reporting as much as their clients because it is simply not possible for them to do the required work for a fee that either they, or their clients, would consider reasonable. National seems to be reluctant to get rid of this ridiculous tax and Labour seems hell-bent on making things worse.

Fortunately the likelihood of a more comprehensive capital gains tax is the same as the likelihood of Labour forming a Government after the next election. That is not to say that there aren’t some good reasons for introducing a capital gains tax. But let’s remember that our experience with FIF shows how real the objections to a capital gains tax are:

1. It’s expensive for taxpayers (in time and/or accounting fees)
2. Complicated (hands up all those who understand FIF!)
3. Avoidable (avoid buying shares caught under the FIF regime)
4. Does not eliminate bias
5. Not cost-effective (there is no simple solution that will raise significant tax in the short-medium future)

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Sharesight and Direct Broking

Posted by Scott Ryburn on September 22, 2010

We are delighted to announce that Sharesight has partnered with Direct Broking Limited (www.directbroking.co.nz) so you can choose to have share trading data automatically recorded in Sharesight.

Located in Wellington, Direct Broking is a wholly owned subsidiary of ANZ National Bank (New Zealand’s largest financial group) and is a leading online share broker in New Zealand. Direct Broking provides an efficient, easy and affordable DIY share and bond trading service to thousands of investors in New Zealand. Direct Broking provides access, by phone or internet, to share markets in New Zealand, Australia and the US and UK.

Once the connection is set up, any trades placed via Direct Broking will automatically be recorded into your Sharesight portfolio. This eliminates the need to have to manually record your trade data into Sharesight each time you buy and sell shares!

If you are a Direct Broking customer you can click here to log in to your Direct Broking account and follow the simple online process to connect your Direct Broking account to a Sharesight portfolio. If you are not already a Sharesight customer you will be able to subscribe to Sharesight as part of this process.

If you are not a Direct Broking client and don’t want to miss out on these benefits, click here to request a Direct Broking application pack.

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A good tax budget but a pity about FIF

Posted by Tony Ryburn on June 8, 2010

In a June 2008 I criticised the introduction of the foreign investment fund tax regime. At that time I said:

“A good tax system is a simple one – right? Well all I can say is that someone forgot to tell the Government which has created a nightmare of complexity for FIF taxpayers. The Government was no doubt aided and abetted by its advisors who should surely have known better”.

I noted that the new regime would result in a huge amount of unproductive time and cost and I provided a horrendous list of things investors would need to know and things they would have to do, to meet their tax obligations. At Sharesight we came to the rescue of our customers caught under the FIF rules by giving them a FIF report that provided the information they needed automatically.

I concluded my June 2008 blog post by asking:

“So what’s the answer? We can but hope that if there is a change of Government, this piece of lunatic legislation will be repealed. But don’t hold your breath!

Now two years later we have had a change of Government and Terry Hall advises that ‘officials are studying ways to remove it’. See Dompost June 7 2010 NZ Grass may be looking green for tax weary Brits.

My mind boggles at the phrase ‘studying ways to remove it’ – surely all they have to do is scrap it!

Then we can stop holding our breath.

A copy of a disclosure statement for Tony Ryburn and Sharesight is available here. This is provided in order to comply with our obligations (if any) under the relevant legislation and is not a representation that either Tony or Sharesight is an investment adviser.
Nothing contained in this blog is intended to be investment advice and neither the writers nor Sharesight accept any liability for reliance on information or opinions contained in this blog.

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The 2025 Taskforce

Posted by Tony Ryburn on July 28, 2009

As investors in the NZ share market we should all applaud the appointment of Don Brash to head a task force to improve NZ’s productivity. If we do see an improvement, that should lead to improved share market returns and a better standard of living for all New Zealanders. Few would complain about that.

But I do have a few complaints. For a start, the stated aim of the task force is not clear. It has been variously stated as:

• Matching Australia’s productivity by 2025
• Bridging the gap between Australia’s living standards and ours
• Matching average Australian incomes.

Whatever goal we choose, it needs to be precise. How exactly do we plan to measure productivity/living standards/incomes? For example, are we talking pre or post tax incomes? Are different living costs going to be factored in?

And when we talk blithely about closing the gap, let’s not fondly imagine that Australia is going to hang about marking time and waiting for us to catch up! Our target will be a moving feast. Cynics might say that is exactly what the Government wants because if they fail, which I fear they will, no one will be able to actually figure that out.

Why the heck would we want to compare ourselves to Australia anyway? Rodney Hide says it’s because we love beating Australia. How pathetic is that? This is not about envy or beating anyone. NZ is far more likely to prosper if we cooperate with Australia rather than trying to beat them. As our major trading partner, the better Australia does, the better we are likely to do.

Performance measurement experts often warn that a focus on inappropriate targets can lead to perverse outcomes and a focus on beating Australia is a good example of exactly that. If the taskforce focuses on beating Australia rather than on the improved products, services and benefits the Government wants to see delivered to all New Zealanders, my prediction is that it will do more harm than good.

So, we have a new taskforce with an unclear, imprecise, inappropriate target that is focussed on the wrong thing. It couldn’t get worse than that could it? Well unfortunately it can and it does – the target is not relevant either. What is the point of trying to compare our economy based primarily on dairying and forestry with an Australian economy based primarily on mineral wealth?

Maybe we can rely on Labour leader Phil Goff to bring some sanity to proceedings? Don’t hold your breath folks. Phil reckons the whole thing is about privatisation and right wing ideology!

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NZ Shareholders Association AGM

Posted by Scott Ryburn on July 20, 2009

Sharesight is proud to be sponsoring the NZ Shareholders Association AGM this Friday 24 July at the James Cook Hotel in Wellington.

The event will feature the following guest speakers:

Morning Session:

The Hon Bill English on Creating an Ownership Society. Bill is the Deputy Prime Minister, Minister of Finance and Minister of Infrastructure.
Tim Brown on Preserving Shareholder Value in Difficult Times. Tim specialises in financial structuring at Infratil. He is also a director of Wellington Airport and NZ Bus.

Afternoon Session:

Oliver Saint on Using Z Scores to Rate Companies. Oliver is a Chartered Accountant and a former merchant and investment banker. He now works from home as an equities fund manager.
Rodney Dickens on Recessions and Investing in the Share Market. Rodney is Managing Director and Chief Research Officer of Strategic Risk Analysis Limited and has worked in the share broking industry for 12 years as an economist, strategist and head of research.

For members of the public the cost is $20 each for the morning and afternoon sessions or $50 for the full day including lunch. For Further information please visit The NZSA Website

If you are a Sharesight subscriber we have some limited free spaces available at the morning and afternoon sessions, please email contact@sharesight.co.nz before 4pm Wednesday 22 July if you are interested.

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Who needs economists?

Posted by Tony Ryburn on December 15, 2008

I agree with Chris Worthington’s contention (Dom Post 13/12/08. Super fund has no room for nationalism) that a Government directive to the NZ Super Fund would set a dangerous precedent.

But I question almost everything else in this article. Economics was never my strong point however, so maybe that’s why I have a few questions.

Is diversification the great free lunch of finance?

See my thoughts on this.

Is it really true that over the long term, investment in NZ assets would have underperformed diversified international investment?

As Chris himself admits, this has certainly not been true over the last 5 years and I doubt that it has been over the last 50 years either.

Are small countries unusually vulnerable to country-specific shock?

The country specific shocks of the last year or so have generally hit larger countries the hardest. (I admit that Iceland is an unhelpful exception to my contention!) But if you look back over history I think you would be hard-pressed to come up with persuasive evidence that small countries are particularly vulnerable.

Is there really a rule-of-thumb that the correct allocation towards NZ assets should be less than 1% because our share of global assets is less than 1%?

Since when has there been any evidence that asset allocation based on share of global assets has any relevance at all to investment performance? Quite apart from this, an investment strategy based on such a ‘rule-of-thumb’ would be totally impractical.

Is it really true that if NZSF invested more in NZ this would crowd existing investment into foreign markets?

Evidence please Chris. And if it is true, why would that matter?

Are NZ assets really less desirable to the NZ Government than foreign assets, all else equal?

Really? What precisely are all the things that have to remain equal? Will they? And if they don’t does that mean NZ assets aren’t less desirable for the NZ Government after all?

We all agree that we are in difficult times at present and if we are going to get things sorted, we need more than platitudes and perceived wisdom from those who, unlike me, do understand economics – if anyone does!

And what we don’t need are experts who have a bob each way. In October I questioned Rod Oram’s contention that the doomsayers have got it wrong. In this article Rod claimed that ‘other countries are rejoicing at the stability similar schemes (to NZ Government’s bank deposit scheme) are bringing to their banking systems’. Now he is now telling us ‘we don’t yet get the gravity of this crisis’.

Are you any the wiser?

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What Does the Economic Future Hold for NZ? (Have the Doomsayers got it Wrong? part 2)

Posted by Tony Ryburn on November 2, 2008

For those of us with an interest in the share market this is an issue of some importance. We all know that when the markets take a tumble they will rise again, but it would be great to get a handle on how long it will be before we see an upturn and how strong that upturn will be.

Here’s my take on the situation. Caveat: I might change my mind next week!

There is no doubt that there is going to be a major reorganisation of credit globally. In my last blog I said that the consequences of such a massive change that will embroil the Government (and quasi-government organisations) so extensively in the financial markets, are impossible to predict. I hold to this, but I also think that while this process is occurring, the productive sector will quickly get back to something approaching normalcy. In other words the players will soon stop obsessing over the score and concentrate on the game.

Clearly NZ will not escape the impact of the credit crisis (particularly as our household debt is so high) or the recession that is likely to hit most of our trading partners. But there are good reasons to believe we will be less severely affected than most. Unlike many countries we have not had major bank collapses, our financial system has not been hijacked by out-of-control derivatives trading and the Reserve bank has more latitude than its overseas counterparts to provide further stimulus via interest rate cuts if necessary.

All this suggests to me that the NZ economy is likely to be less severely affected than most (in marked contrast to the situation that prevailed after the 1987 share market crash). Reduced demand as a result of the looming world-wide recession should keep the lid on oil prices for some time and further aid NZ’s recovery. In addition, renewable energy and sustainable food production are likely to become watch-words and NZ will be in the vanguard in both these vital areas.

So back to our share market. What might all this mean? I believe it will be good news. Our economy will recover more quickly than most and be less severely affected. This will enhance NZ’s reputation as a sound place to invest and re-stimulate investment in our share market from both local, and more importantly, offshore investors.

This is not to say it will not be tough going in NZ for a few years but here’s another bit of good news. I believe that the full impact of current downturn in the NZ economy is already fully reflected in the NZ share market and then some.

Not convinced? Consider this quote from Michael Hill http://www.stuff.co.nz/sundaystartimes/4745815a6445.html “I’ve given up looking at my own share price because it doesn’t make any sense to real life at all. I mean if I looked at it I’d think there was something gravely wrong with the company, which there is isn’t. I mean it’s bloody stupid.”

So how long before an upturn and how strong will it be? I don’t know but I have certainly persuaded myself not to give up on the NZ share market.

How about you?

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Have the Doomsayers got it Wrong?

Posted by Tony Ryburn on October 28, 2008

Wouldn’t it be great if we could buy Rod Oram’s argument that the doomsayers have got it wrong about the Government’s bank deposit guarantee scheme? (Sunday Star Times, 26 October). Oram has the powerful forces of wishful thinking on his side but it would be nice if these forces could be armed with rational argument.

Oram says our alarm at the bank guarantee scheme is ‘one of the weirder NZ responses to the global credit crisis.’ He contrasts this with other countries that are ‘rejoicing at the stability similar schemes are bringing to their banking systems’. Maybe I’m on a different planet but I don’t see any sign of rejoicing and no sign of stability either. And even if I’m wrong about this any rejoicing would more likely be because these unnamed other countries’ banks have been falling over like nine pins. This is not the case with our banks which Oram admits are ‘conservative, well-capitalised and good judges of risk’.

Oram suggests the Government bank guarantees are a ‘massive regulatory shift’ that starts to bring NZ back into the ‘global mainstream.’ He implies that this is a good thing. All I can say is that the ‘global mainstream’ is a turbulent, muddy, cesspool that everyone is frantically trying to get out of. Why it is weird for us to be reluctant to dive in to it is beyond me.

I share Oram’s concern about the NZ banks’ offshore borrowing but surely this adds weight to the uncomfortable thought that the doomsayers have got it right: not wrong? To think that a Government bank guarantee will forestall or alleviate any problems that this offshore fund-raising might cause is wishful thinking.

I agree that a challenge (although not necessarily ‘the central challenge’ as Oram suggests) is to ring fence the guarantees so they benefit only the NZ banks and not their Australian parents and shareholders. This is more than a challenge – it’s an impossibility. Any benefit to a wholly owned subsidiary will surely also be a benefit to the parent company.

There are also other challenges that cannot be ignored. When it comes to fund-raising, any action that favours one segment of the market (banks) will have adverse consequences for the rest (managed funds, share market and any others that cannot avail themselves of the guarantee). This is patently unfair and could have serious adverse consequences for organisations whose only crime is they are not one of the banks that Oram says have ‘made a mockery of monetary policy’.

The consequences of such a massive regulatory shift that embroils the Government so extensively in the financial markets are impossible to predict. However history suggests that anomalies, distortions, loopholes, exploitation and ever increasing complexity and cost will rule.

Do you think the doomsayers have got it wrong? I would like nothing more than for someone to convince me they have.

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Who’s to blame for the financial meltdown?

Posted by Tony Ryburn on October 7, 2008

As an investor in the share markets, I’m keen to discover why such a serious meltdown has occurred in the world’s financial markets and I want to gauge whether the US government’s rescue package will work. Dr Gareth Morgan has had a lot to say recently about the financial meltdown and, as he is well-qualified to assess the situation, I have been reading his views with interest. Maybe it’s just me, but I soon found myself getting some pretty contradictory messages.

Dr Morgan advised that an increasing predilection by the world’s central banks to “save the world” whenever the going gets tough can singularly (my emphasis) be blamed. He then opined that “what‘s behind the current crisis is an orgy of debt – an unrestrained appetite for lending and borrowing, no matter the risk of the transaction”.

This seems like a bank problem to me and it made me wonder whether there might be a dual rather a singular source of blame. But Dr Morgan explained that a message has been sent to the effect that, in the event that an institution over-stepped the mark, it was odds-on that the Central bank would step in. This points the finger at the Central banks with the implication that they have made financial institutions irresponsible by their apparent willingness to bail them out. However in the next breath Dr Morgan suggested that the Central bank might have done no more than aiding and abetting the suicide of the financial sector. This seems to redirect the finger at financial institutions.

The suggestion that financial institutions indulged in an ‘orgy of debt’ because they believed the central bank would bail them out does not sit well with me. I do not for a moment believe that staff in any financial institution anywhere in the world have done shonky deals on the basis that if they go wrong that would be ok because the Central bank would bail them out. That point aside, financial institutions want to succeed not suffer the ignominy of a collapse or a bail out.

The multitude of finance companies that have failed in NZ after indulging in an ‘orgy of debt’ certainly had no expectation of a bailout by our Reserve Bank or the Government. On the other hand, management at the ANZ undoubtedly realise that ANZ is too significant in NZ for the Government to allow it to fail. Despite this there is no suggestion ANZ has indulged in an ‘orgy of debt’.

There is little point in trying to assign blame unless it is part of a process to identify the source of the problem so that it can be fixed. To my mind the primary, if not singular, source of the problem is the lending institutions themselves, not the Central banks. And they have been aided and abetted not by the Central banks as Dr. Morgan suggests, but by the derivatives market.

Derivatives are highly risky instruments with no underlying asset to support them. They started with securitisation (the selling of parcels of loans) and moved on to include credit default swaps (a type of credit risk insurance). These instruments were relatively straight forward initially but variations on them (derivatives) were developed over time allowing them to be used as a tools for financial speculation. At this point things got absurdly complex and the rot set in.

Transparency went out the window along with trust. The linkages back to the security of the original asset were broken and this created great uncertainty about the value of the assets the financial institutions are holding. In some cases this value is less than the value of the financial institution’s loans which, in the minds of many, is a pretty good definition of insolvency. No one is too sure which financial institutions are insolvent (apart from the ones that have already fallen over!) and this has made financial institutions wary about dealing with each other. Interbank trading is a crucial part of the financial system so it is not surprising that this has triggered a catastrophic chain of events.

So I think to fix the problem we have to start with financial institutions and find ways to monitor and control the derivatives market. This is what the US Treasury is planning to do and they have to be applauded for that. But whether they are going about this task in the best way is another question entirely.

One last thought. Maybe the real culprits are not the financial institutions, or the central banks or the derivatives market. Maybe we need to blame the borrowers. If they had not borrowed excessively in the first place none of this would have happened. Or would it?

We at Sharesight would be interested in your views. What do you think? What are the implications for the Australasian share markets?

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A seriously flawed business model

Posted by Tony Ryburn on August 1, 2008

In my previous blog I highlighted the need to invest in companies with a sound business model that is sustainable in the long term. Sounds good eh? But what the heck is a business model and how do you know if it is sound?

Well, and I’m sorry if you think this is a copout, the easiest way to answer the question is to discuss a business model that is demonstrably not sound. For example the one under which many, if not most, finance companies operate.

Finance companies do the same thing as the major trading banks – they lend money. So why have the big banks in NZ survived for many decades while finance companies fall over at regular intervals and have unacceptably short life spans? It’s all to do with the business model under which they operate.

In essence the major banks adopt a business model that calls for a risk profile that gives them a good chance of surviving a 1 in 50 or 1 in 100 year business downturn. On the other hand one could be forgiven for wondering whether some finance companies have any sort of risk strategy at all let alone clearly articulated business model. If they do, it is obviously calibrated, whether they realise it or not, to survive a 1 in 5 or 1 in 10 year downturn but not much more. This is just not good enough.

A number of finance companies demonstrated their inadequate business models very graphically in the late 1980’s and early 1990’s by collapsing and, for reasons best known to themselves, a further 20+ finance companies have decided to prove that history does repeat by collapsing over the last 2 years or so.

Put simply, the finance company business model involves lending money in circumstances that the major banks deem to be too risky. It is profitable business when the economy is booming but it is a recipe for disaster when one of the inevitable low points in the economic cycle arrives.

If you doubt what I’m saying look at the excuses finance companies trot out when the proverbial hits the fan. For example ‘Hanover, a New Zealand business with the size and strength to withstand any conditions’ is at a “standstill.” Apparently this is as a result of a number of factors, including a loss of investor confidence in the finance sector, a weak property market and the global credit crunch. These things have occurred repeatedly in the past and will do so again and, despite what the finance companies claim, they are not the problem. The problem is that their business models have not been designed to cope with them.

Hanover is not the only failed finance company to blame the property market. Some finance companies have a large percentage of their book exposed to property development. Others have a huge exposure to second-hand cars. And it is not uncommon for them to have 30-40% of their lending exposure to one or two clients.

Compare this with a major bank whose business model would severely restrict, if not totally forbid, any exposure to property development or second-hand cars and would not countenance an exposure of even 1% of its book to a single client let alone 10, 20 or 30%. And if the Banks do finance property development, you can bet your bottom dollar their business model will require first ranking security: not the second or third ranking position finance companies seem happy to accept.

Another crucial thing is that Reserve Bank demands that the major banks’ business models include sufficient equity to cover the losses that might occur in a serious downturn. This is not demanded of finance companies. It will be interesting to see whether the Hanover shareholders, who have the personal resources to inject enough equity to cover investor losses, actually do so.

There’s a lot more to a comprehensive business model than what I have mentioned of course. But the point is that, almost by definition, finance companies are likely to have a flawed business model with an unacceptably high credit, liquidity and operational risk profile. Otherwise they would end up in the same space as the major banks where they simply would not be able to compete.

I know it is a bit late now to say don’t invest in finance companies but if you are lucky enough to still be around for the next finance company boom in 10 years time or whenever, you will see history repeat – again. My advice is don’t be tempted to join the high flyers: keep your feet firmly on the observation deck.

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