The rules we didn’t follow

Firstly, full credit to Kristine Hayes for this idea. I wish I could say that I thought of it on my own.

Kristine wrote about her buying and selling of houses that didn’t fit the accepted “rules of thumb” for personal finance. I was reflecting on my own financial path thus far, and ways in which we have strayed from the recommended path. Two in particular stick out.

All in equities

My wife and I were lucky to have good jobs straight out of university. With the compulsory superannuation system in Australia, our retirement savings started from our very first pay. Because we working for healthy wages in the mining industry and had very low living expenses, we both contributed more to our “super” than the required minimum. Without knowing it at the time, we both had a wonderful financial head-start.

We also recognized that we had a very long investing timeline, so could be aggressive –  100% in equities. Now both in our fifties, we are still basically 100% global equities. As we near retirement we may pull some of that money into fixed interest to cover a few years of living expenses. But other than that we will likely remain all-in on global equities.

Lots of financial discussion seems to assume 60% equities / 40% bonds, or some similar variation, as a somewhat default position. I can understand that people would seek this particular allocation for several reasons. In particular, either aversion to volatility or nearing retirement and seeking to ensure that they are not selling equities during a down market. But for many people in their 20’s, 30’s and 40’s (and maybe older) it would seem to me that 100% equities is well worth considering.

Part of the issue seems to be conflating volatility with risk. Volatility is fine, as long as you don’t need to sell during a downward cycle. If you likely need to sell when the market has tanked … now that’s risk.

Buying a business

Over the last decade we bought and operated two businesses – an automotive workshop and a carwash. Both were beaten down and unloved. According to all the good advice, we should have walked away.

Net profit was very slim, if there at all. Some of the figures appeared a bit rubbery. The premises look tired and drab. Luckily we were ignorant and naive, and went ahead anyway.

Both business required lots of hard work. But I regard the last 9 years as some of my most rewarding and satisfying. They were also financially fruitful.

When I read advice offered to potential business purchasers, there always seems to be a very long list of information that should be considered. Detailed profit and loss statements, balance sheets, stocktake records, tax returns. In the carwash industry, common recommendations are to get water use records, along with sitting outside the site counting cars all day. I’m sure that these are all good rational things to do. But if a business ticks all these boxes, it will likely attract a particularly high price. And high loan repayments.

My experience has taught me that there can be great value in the down-trodden business, on life support but still hanging in there. No-one wants to advise buying a business in that state, because it’s risky and difficult. But sometimes risk and challenge generate the brightest results.