Monday , August 19 2019
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The Royal Commissioner is ready. Your wallet?

We know now

Prime Minister Scott Morrison has reported that the Royal Commission will provide a Financial Services Report on Monday following the end of the stock market.

It is a strange but correct decision. In a parliamentary system, governments are allowed to be seated in reports, days, weeks or months before, notice (pretty) is immediate.

Of course, curator Hayne will give the government on Friday … for the weekend, to prepare their response or announce new rules over the weekend.

Or, as in the case of federal budgets, the content is released selectively.

That's politics. But the report is back.

In The Motley Fool, we hope that the Royal Committee will throw the book in the bank. The evidence has undoubtedly left us that the twin poisons and incentives of a poor culture have surprisingly disoriented disasters, and a dose of salt is needed.

We look forward to what commissioner Hayne says.

So, less than a few days on the market, what should bank shareholders do? Is rumor buying and selling the event? Or is Dodge coming out of the beginning? Or is not it?

There is no reply only. We do not know how advisory Commissioner Hayne will be, nor how PM Morrison or Treasurer Frydenberg reacts. We do not know how the Opposition will deal with the discovery.

It is a great opportunity, as long as political parties and winds break, and while suggesting Commissioner Hayne, some of them seem to be "soft".

Here's an investor's portfolio, however: there is no suggestion from the Commission, or surveys. At least not lonely. What matters the investor think It will happen before politicians do what they do.

In this sense, the race season is a dry one.

Earnings during the season's "hopeful season" & # 39; They can be renamed because the market does not react to profits. Tell me to explain

Let's say, A, grows profits at 15%. That's fine, right? Well, well … but if you expect 25% on the market, the shares will fall and probably fall.

B company, on the other hand, could be a shocker, a 40% drop. So the shares will fall? It's not so fast. If investors were expected to reduce their profits by 60%, we will see the price jump.

It is then a company that represents a growth of 20% when the market was only 15%. Shares rise, right? It's not so fast. 13% drop really. Why? The company has reported to C commerce that it was a tough business condition in January and is expected to fall in the coming years.

As I said, the season of hope.

So return to the banks.

CBA shares fell 12% in the last 12 months. Almost 19% down in May 2017.

NAB are 16% and 28% less respectively, respectively.

I will not continue … you get the idea.

(Aside from that, we do not hear many people say – loudly and publicly – we were a comfortable bank innocent. That's funny.)

How much does the Royal Board and why have house prices fallen and credit growth has stopped? We can not know, of course, anyone guessing. We'll know for sure next week, probably the first thing that comes up on Tuesday morning when the market reacts.

If there is already a disorder and darkness billed, prices will not move. If there is little, we will see a fall in bank ratings. And if the market were excessive, bank shareholders will have a happy bouquet.

What will happen I do not know. He does not have anyone, so they do not speak to their heads.

Everything I know is: at least as it is nowadays, small economic environments recommend buying or storing long-term bank shares, and you're aiming to win the market.

The drop in asset prices and credit grow slowly, how can bank profits be improved significantly? Surely, they can cut costs. We have recently heard that cashier numbers are being cut as people use less. And the branches, mark my words, will be next. There will be more back-office jobs.

But, as you say, you can not go to greatness.

In the end, there are few other options for reducing costs. And like any other business, if you're not on the top line, it's hard to deliver the bottom line growth.

Can you see something you can change soon? No, not me either.

If you are trying to tackle the market, there are many options available to you.

There is a reason to retain the bank, however – if you're looking for income from a diversified portfolio.

Dividend income – and retention of credit credits – are important if you are in a life stage, the net growth of capital will not be important for you. In this area, banks continue to be a tough past, but the fee for your portfolio must be maintained at a conservative level.

In short, banks have current profits ranging from 6% to 8%, which is before the sale. Dividends can decrease by 25% across the board, and probably worth a place in your wallet.

(Some may say that investing in the market profit portfolio and selling part of their assets is to finance retirement, even real ones, and I would not argue against it, but nobody wants to take that view, thank you, horses for the courses.)

We run a box with $ 1 million worth of The Motley Fool, called Continuous income, which uses the first income dividend strategy. I do not think too much of Big 4 and one of these regional banks. Combined, less than 7% of the portfolio. I feel comfortable with the company and our members.

I am not selling this service here, by the way, but it is often the best way to illustrate a vision, in this case with real money.

We do not change anything in front of the Royal Committee, because we do not know about the report. Yes, we had the opportunity to sell it in advance, but we would lose profits if it were very pessimistic in the market. We might not even lose losses if we did not sell them, if the market was not enough. But we can not know, and we are not interested in mere speculation.

In addition, we have measured our positions in a correct way, so the change will not have an unbearable impact on the portfolio. After the issue of the report, we can make changes, up or down, according to the report, and how it responds to the market. But it's probably more.

Banks feel very differently, 30%, 40% or 50% of the portfolio. It has been a long time since the Australian investors, and moreover, suffered a single sector.

They have felt pain in the last 12-24 months.

Of course, there are tax consequences to be taken into account, but if there is more than one wallet, for example, 15% – 20% banks, I am worried. I would sell it, the tax impact would not be so beneficial.

And here's what I would do: I would invest in business, it is likely that it would be better to offer a better return, the market is your goal. I would invest in companies that do not endanger your wallet that is similar to or similar to a rigid bank wallet.

If you are looking for income, there are excellent alternatives that do not have the same profitability, but they help to diversify and compromise the contracted portfolio more closely.

And I'd better sleep a lot.

We'll learn more on Monday. We will receive a report from the Commission and a political response. And we'll tell you what you think we think we should do differently.

But I can predict: we have never said, but I can never imagine being happier with our members or readers than having more than 20% of the sectors, banks or otherwise exposed. You do not take the risk you need.


Scott Phillips
General Investment Manager
Motley Fool Australia

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