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In today’s bonus snippet, Paul dives into the MOST common question he faces about personal finance: What’s the “magic pill” to wealth?
Also discover his candid thoughts on property investment, the human tendency to buy in booms and sell in busts, and the simple yet powerful principles that lead to long-term financial stability.
For more nuggets of gold from the “Money” Man himself, tune in to the full episode here: Episode 200 | Paul Clitheroe – Timeless Wisdom from the Original “Money” Guru
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Transcript
Ben Kingsley:
What are some of the more common questions that you constantly get asked about that you just don’t feel is dropping from an educational point of view? Like, you know, what’s the Q&A that you have to do all the time? That they’re just asking that same question like, “please, please” that we can get out to the viewers and the listeners.
Paul Clitheroe:
The magic pill. People want the magic pill.
Ben Kingsley:
They want to get rich.
Paul Clitheroe:
So the most common; had (this) two or three times walking down York Street. Not people being impolite and yelling; just people are lovely, actually. That, and I like this in Australia, is that people respect your privacy. So people give you a glance and say hello. But, you know, generally, people are polite. If you stop for a coffee, the person in the queue will say, they always want a hot tip. And I’ve got a couple. I say, “Look, don’t stand in a canoe and be nice to your mother”. They are both qualified, very helpful, quality pieces of advice. So the reply I always give is: Why do you think I’m still working now? Why do you think I don’t have a 300-foot boat in the Mediterranean, for heaven’s sake? And so the thing for me is that the absolute constant is just spend less than you earn. And look, you guys know as well as I do when you get times like this (where you see property going backwards for a while), you just think, hang on a sec, where’s this going? And you go, okay. Population’s growing, population’s living longer, population’s wealthier than ever.
Paul Clitheroe:
You think to yourself, all the downturn in property can mean it’s a good time to buy. That’s all it can mean. Yep. How many of these will we live through? I’m much older than you two.
Paul Clitheroe:
So when do you buy? When do all humans want to buy? During the boom. When do we want to sell? The only thing, one of the things I do love about property, by the way, is that in a downturn, it’s hard to sell. See, I got really, really cranky during the GFC, you might remember (and) I’ll use Commonwealth Bank as an example. It was only, what, a decade ago? When did Australians sell the greatest number of Commonwealth Bank shares in the history of Commonwealth Bank? When it hit about $23.40. So one of the funny advantages of property is when the market turns to crap, which it always will, it’s a bugger of a thing to sell. I call it a self protective mechanism, because, again, we just know that humans always want to buy in a boom and they always want to sell in a bust. And you say to yourself, why is the bust happening? Well, if you told me the Australian population was shrinking in size, our economy was going backwards, wages were going backwards, and we’ve got population shrinkage, then sell your property as fast as you humanly can for anything you can. It is worth nothing. You guys are property experts, not me. It’s a supply and demand asset. It’s pretty simple stuff, isn’t it? We’re going to have 35 million people in this country in the next 27 years. We will probably continue to be one of the richest people on earth. And with no death duties and stuff, we will preserve that wealth.
Ben Kingsley:
Touch wood, touch wood.
Paul Clitheroe:
Now, one way of stopping the rich getting too rich, buddy. Yeah, I know, I’m going to make you cranky, so I better be careful here. We might have to debate about that.
Ben Kingsley:
We might have to take that one offline.
Paul Clitheroe:
But basically this simple money stuff, and this is why I can’t give you a hot tip. But, you know, my two adult kids have been in the market for a while and this decent little downturn, particularly where we live in Sydney, I said to both the adult kids: “Wow, you know, this is your moment”. And my son in particular is an economist; he works at PIMCO. My son said, “Gee, but dad, it’s going to get worse than this, you know” and I said yeah.
Paul Clitheroe:
But if you find the place you like and you get a decent discount on what it used to be, I actually agree with you. I think it will be worth less in a year. But like we’re talking about a ten-year deal. And, you know, he’s a smart kid. And he said, well, you’re quite right. He said, in ten years time, the population where we live in Sydney, it’s growing by, you know, half a million people every blahdy blahdy blah unless the economy goes backwards, or the population shrinks, or we get hit by an asteroid.
Paul Clitheroe:
And so I find it very funny that we get this mass panic: the lemming thing. “Oh, the market’s going down. We’d better sell.” “Oh, the market’s booming. We’d better buy.” I’m not sure how we ever train people out of that fundamental human instinct.
Ben Kingsley:
I wish we could.
Paul Clitheroe:
Well, but the evidence is so. I love stuff because I do love my economic history. If you want wonderful examples in history, you go back to when there was nearly a 99% collapse in property prices in Venice in 1328, 30, 35 or something. Don’t quote me.
Bryce Holdaway:
That’s what I thought, too.
Paul Clitheroe:
Yeah. Bubonic plague killed nearly exactly 55% of the population in one year.
Ben Kingsley:
There you go.
Paul Clitheroe:
And when you kill half the population, it’s a bugger for property prices. So if you’re telling me Sydney is going to be 2 million people, you know, I really think property is going to be a truly shocking investment.
Bryce Holdaway:
Yeah, well, that’s the conversation that we’re trying to have with people via this podcast. It’s a cash flow issue, not a balance sheet issue. Because the only thing that takes you down during, you know, a perceived bust is if you can no longer hold the property.
Paul Clitheroe:
Correct.
Bryce Holdaway:
So if you’ve made a decision to buy and your cash flow is still okay, don’t worry about paper gains and paper losses, because if you’re playing the long game, it’s fine. But like you, it’s the advice that you’re giving your kids: “now’s a great time to be buying great assets.”
Paul Clitheroe:
Well, but the point you see, is this question all came from: “What is a hot tip?” I don’t have one. Vicki and myself are quite happy with what we’ve got now. I’ve got a couple of fintech companies I’m involved in, where I’m really hoping we can do well out of those because I’d love to put that money into our foundation, which is part of Vicki and my personal legacy. And the kids and our directors, you know, we’d love that. We’d love the kids to be able to keep giving money away when we’re gone as well. So I would love to actually have another business success so I can top up our charitable foundation. That would be absolutely fantastic.
Paul Clitheroe:
So in a sense, I am concerned about making money for that purpose. But I can’t do it in one, three, or five years. And all I know about money is that if I pick a trend, and the most valuable trend you have, is the fact that every one of us is an economic miracle. You know, basically for each Australian who is born, who comes to this country: they buy bread, they buy milk, they buy petrol, they buy a car. We are, you know, it’s called the aggregate economic effect and each individual is just a little economic miracle. It’s one of the reasons why those (and I get all the population pressure stuff and I’m not going to get into a political debate, but one of the issues that I do know, putting aside the political debate and population pressure), one of the things I do know is every person who arrives in Australia or is born in Australia actually adds to the economic wealth of this nation. And so that’s why I’m a bit balanced on the population growth issue, and that’s why the only hot tips I can give in the short term are: spend less than you earn. That is the only hot tip I can give you.
Paul Clitheroe:
Because if you spend less than you earn now, I don’t give a tuppenny toss because the next question is: Do I buy shares or property? I don’t care. And the reason I don’t care is there is no evidence that either asset is particularly better than the other. So if you come to me with a bunch of properties, I would encourage you to buy a few shares. If you come to me with a bunch of shares, I would encourage you to buy a property. But the idea is that when people say: “Give me this hot tip” and I say, look, guys, let’s be serious, it’s about, are you creating? Do you have surplus income? If they have surplus income, then they get very excited about shares or property. They get quite upset when I say: I don’t care, just do something.
