This week on Equity Mates

Hey there Equity Mate,

Australian financial news is focused on government budgets at the moment. Last week we saw two states report, going in very different directions:

• Victoria reported growing government debt, now at $126 billion and with projections to grow to $188 billion

• Western Australia reported a $3.2 billion surplus, largely driven by - you guessed it - mining royalties.

However, both of these state government budgets are just an entree to the main course being served up tomorrow. The federal government budget will be handed down on Tuesday with all eyes on how Jim Chalmers walks that fine line between supporting families struggling under cost of living pressures while not stoking inflation.

We’ve already seen some big pre-budget announcements in the past couple of months:

• Changes to the stage-three tax cuts

• Reversing the 7.1% indexation of HECS/HELP debt in 2023 to 3.2%

• A major transport infrastructure package for Western Sydney

• As well as Anthony Albanese’s pet project: Future Made in Australia (a big package of spending to bring future-facing manufacturing industries to Australia)

To keep up to date with everything happening, keep an eye on this email, the podcasts and our social media. We’ll be covering it all.

Here’s what were releasing on the podcasts this week:

Equity Mates Investing (Spotify | Apple | YouTube)

• Monday - Woolworths 4 day workweek, Pimp my Portfolio & small tech stocks are back

• Tuesday - Ask an Advisor: Dylan Pargiter-Green - When can I retire, is private school worth it & screwing up in your 30s

• Thursday - Expert: Dion Hershan - Avoid the Mundane 7

• Friday - Expert: Catriona Burns - Investing in AI outside the Big 7 | Wilson Asset Management

Get Started Investing (Spotify | Apple | YouTube)

• Tuesday - Highlights of Warren Buffett’s 2024 Berkshire conference

Your questions, answered

Nathan asked via email:
“What are your thoughts on buying property with your super?”

We put Nathan’s question to Dylan Pargiter-Green, advisor and director of Bold Wealth.

Book a free call with Dylan and the team.

As with any investment decision, it depends. Property in superannuation can be a fantastic asset in the right structure. However, buying property in super should be thought about a little bit like buying property at all. The benefit of property is leverage and being able to build your returns on a multiplied base, using debt.

When we talk about property in superannuation, we often suggest a balance of at least $500,000 is required. This way, we can ensure we have a diversified asset pool, use an appropriate LVR (70% or below) and build the asset as part of a greater investment strategy. Don’t put all your eggs in one basket!

Commercial property for people that are self employed is a commonly used strategy, where you will generally see higher rental income, long term stable leases and greater capacity to cover the costs over the short and long term.

It’s important to recognise that holding property in superannuation will generally mean that your fees, alongside the running costs of that property, are higher than the average fund. You will need to pay annual accounting and audit fees, advice fees, insurance before you even consider the repayments on the property. If you do not have relatively high contributions to cover these costs and are relying on the property alone, it may not be as good as having an investment strategy without the headache. As always, seek advice and model the two options out - you may be surprised by the results.

If you have a question you’d like answered, hit us up at [email protected] 

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What we’ve been reading

Where did all the stocks go?

In 1996, there were a little over 8,000 companies listed on the US stock market. Today, that number is around 4,600. Where did all the public companies go?

There are a few explanations given for this phenomenon.

• Additional regulations and accounting standards have made it too onerous and too expensive to go public, so companies are opting not to

• Private equity has taken companies off the public market and into their own funds instead

• As venture capital has gotten bigger, startups have been able to stay private for longer and keep raising bigger and bigger rounds from VCs (see Stripe, SpaceX and Canva as three examples of companies that would’ve already gone public 25 years ago)

We’re sure all of these factors have contributed to the declining number of publicly-traded companies. However, this article suggests there has been another reason - Big Tech ate them.

Three researchers from the American University in Washington DC coauthored a paper in 2023 that suggested mergers and acquisition was the main culprit of the listing gap. In their paper they suggested that many of the companies that would’ve gone on to list, were instead acquired by Big Tech.

Obviously not all of these acquired companies would’ve made it to the stock market. In fact, many of them are acqui-hires (when a startup is struggling and a larger tech company buys them for their people). But if you look at the list of acquisitions there are plenty that would’ve been big companies in their own right: YouTube, LinkedIn, Instagram, Fitbit, Whole Foods, DoubleClick, Skype, Audible, GitHub, Beats and Zappos.

Read the article summarising this paper at the link below, and if you want the original research paper from Journal of Finance Markets - check it out here.

Drought is driving olive oil prices to staggering new heights

Last month it was cocoa, this month it is olive oil. It seems like every month there is a new food item hitting ridiculous all-time highs.

The reason for this spike is that the price of olives have almost doubled in the past two years, as fire and drought have damaged successive Spanish olive harvests.

Spain is the world’s largest olive supplier and is home to 40% of the global crop. The country normally produces 1.3 million tonnes a year, however, reports are that extreme weather has cut output 30-50%.

While cocoa is grown in West Africa and olives are grown in Europe, there is something that ties the stories of these price rises together. Climate change. Both harvests have been impacted by extreme weather and scientists are warning that we’re only going to hear more of these stories in the coming years as extreme weather events and unusual weather patterns become more common.