SPEAKERS: Scott Pape, The Barefoot Investor & Michael Kemp, IQ Investing

LOCATION: Melbourne Investor Hour

DATE: 7 March 2012

ASX INVESTOR HOUR

How to compound your wealth

DISCLAIMER: The following material was presented at ASX Investor Hour. The views, opinions or recommendations of the presenters are solely their own and do not in any way

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How to Compound Your Wealth

Scott Pape & Michael Kemp

The 3 stories of Compounding

Frank’s story

6 years ago, Frank retired

$1 million

S&P/ASX 200 Accumulation Index

January 1980 – October 2006

Post GFC

Growth of $1k invested from 1980 to 2012

Compounding - reverse

The story of the 50 year disease

S&P/ASX 200 Accumulation Index

January 1980 – October 2006

The 50 Year Disease

PHIL

What could Phil have done to prevent it?

IT’S A NO BRAINER

Historical Perspective on the value and cost of housing

Terry Toner

(Oregon, USA)

Property

Established house price index and CPI (Base year: 1986 = 100), source ABS

Professor Piet Eichholtz

(Herengracht, Amsterdam)

- Long term - 345 years NOT 20 years

- Same houses

- 345 years of meticulous records

Herengracht Study

Annual Geometric Capital Gain 0.2% real

Growth Irregular Periods of 2X or 1/2X 1855 – 1955 ↓30% (real)

Inflation

Recent Returns atypical

Geometric Return – Real Capital Growth 0.2%

Property Prices have doubled in 345 years (in real terms) 3.6% ? 199,120 times Purchase price REAL !

The property Downturn has already begin

Index – Broad based portfolio

Dividends 5.4% “Capital Gain” 1.6% 7.0%

10,000 Shares in Woolworths in 1993

$2.60 a share = $26,000

Dividends: 12c per share = $1,200

10,000 Shares in Woolworths in 1993

$26.00 a share = $260,000

Dividends: $1.22 per share = $12,200

Walter Schloss

15.5% compound return

“I just try and buy cheap stocks”

“I just try and buy cheap stocks”

CKF = $1.19

$???

Australia’s largest KFC operator

- Junk food: A defensive business

- Long-serving, strong management

- An incredibly strong brand

- Pirate equity

Headless Chickens

- Floated at $2.50

- Nov 2011: Profit downgrade

- Price went from $2.00 to $1.20

Sept 2011 Feb 2012

Our recommendations

- Smart investors make big mistakes

- You rarely hear about the losers

- Over-time, good-quality businesses fall out of bed

My 5-year plan

• Take a short online course

• Subscribe to the Investor Update e-newsletter

• Play the ASX Sharemarket Game

• Watch another Investor Hour presentation

KEEP LEARNING

VISIT www.asx.com.au/education