Safety First Investing

By Rob Shears on January 3, 2022 in Other

Who’s flying your plane? Photo: Frank Abagnale Jr.

Pilots are trained to put safety above all else. A safety-first mindset is ingrained in their DNA. Sadly, attitudes to risk in investment markets are more like the Wild West when compared to aviation safety.
We are currently witnessing a significant shift in markets, where a large number of speculative companies are under pressure. Two-thirds of the Nasdaq is in a bear market and over a third of these businesses have lost over 50 per cent of their market capitalisation. A number of retail investors are realising that investing is a more difficult game than they thought.
During times of easy money, as the last few years have provided, valuations can climb to absurd levels. Being exposed to these pockets of excess can be hazardous to your wealth.

What Does ‘Safety First’ Mean and Who Is It Important For?
‘Safety first’ is about avoiding permanent capital loss, before considering gains. While I highlighted the above stock market falls, it is not the ups and downs of these stocks that are concerning, but rather the fact that many, if not most of them, have no earnings and need to continually raise money to keep the lights on. It is this dependence on capital that can make these falls permanent.
But what if there was another way? As an international pilot and financial adviser, I have developed a unique perspective of risk. I am far more worried about getting our clients’ wealth to their destination safely than the little pockets of mild inflight turbulence.
87 per cent of our growth portfolio has zero net debt and is earning significant and resilient profits (this is compared to the ASX50, with only roughly 17 per cent of companies having zero net debt). There is almost no scenario where these companies will ever be forced to raise capital under duress. In fact, it is often in times of distress that the powerhouse companies with spare cash, like Berkshire Hathaway for example, allocate capital and make considerable gains.
This style of investing is far more important for people who are already wealthy and wish to have permanence in their wealth.
Remember a quote from investment guru Warren Buffett, “It doesn’t make sense to risk what you already have and need for what you don’t have and don’t need.”

Rob Shears is an Authorised Representative of Valor Financial Group (AFSL 405452). This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.