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Thursday, 24 November 2011 09:34

A Life Transformed

PUBLISHED: 24 Nov 2011 PRINT EDITION: 24 Nov 2011
Jill Margo
It was a socially awkward moment. Simon Eldridge was standing in a circle of friends at Christmas 2008 when someone made a funny remark. As he laughed, the contents of his mouth sprayed over the woman standing next to him.

Fortunately, it was only water, was easily dealt with and the party continued. But Eldridge stepped back in puzzled embarrassment. He didn’t know he was losing muscle power in his lips and that soon he would have difficulty holding them closed. Nor did he know this was an erratic early sign of an incurable disease that would put him in a wheelchair two years later.

At the time, Eldridge seemed indestructible. He was 44 and in his prime.

The financial markets were in a slump and, as managing director of Credit Suisse’s Australian equities sales trading, he had been staying in Sydney while his wife Sheila and their two sons took their annual break at the family’s holiday house in the Hunter Valley. He commuted on weekends.

When Sheila called him at work, his voice was intermittently slurred and she inquired if he had  been to lunch. He hadn’t. While she put it down to fatigue at the end of a tough year, he said it was odd and his tongue felt heavy.

Gradually, other things began happening. At night, Simon’s left arm began to twitch and cramp. Was it the way he was lying? There were pins and needles in his hand. Thinking his wedding ring might be restricting blood flow, he took it off.

As other symptoms developed, they went to their family doctor, who referred them to a neurologist. By now Sheila had been exploring Google and had narrowed Simon’s condition down to two possibilities; multiple sclerosis or motor neurone disease (MND). She kept this to herself.

In May 2009, when the neurologist said the situation was grave and they should get their affairs in order, Sheila went to water.

She knew what was next but didn’t expect to hear that MND would disable Simon so quickly that he would be unable to work beyond Christmas. There was no cure and he would just grow weaker and weaker. They found their way back to the car, sat inside and wept. Eventually, Simon said: “Well, I guess we can sell the house in the Hunter. We could also sell the wine cellar.

“No way! I am going to need that,” Sheila replied.

They laughed, and rather than facing anyone, went for a quiet walk on Chinaman’s Beach, down from their house in Mosman. Then they turned for home, where Simon called his mother and his sisters while Sheila called the boys’ school to ask the counsellor for advice on how to guide them through this rapidly deteriorating situation.

Later, Simon went to work and told colleagues. Still reeling, his intention was to confront his circumstances as directly as he could. Nothing should be hidden. The Eldridges subsequently received a second opinion from an expert who softened the predictions, put Simon on medication to slow the progression and introduced him to a multi-disciplinary clinic where all aspects of his disease could be managed.

Relieved to have found the best care, and feeling almost upbeat, he and Sheila composed an email to friends and family disclosing their predicament (see below). To cope with what was surely coming, Simon began anti-depressants and has remained on a fairly even keel ever since. He’s engaged in the world and, as it is now an effort for him to speak, he carefully articulates what needs tobe said, conscious that it should be concise and intelligible.

Although difficult to understand, his mind is razor sharp and he is without illusions. He knows his body is declining inexorably. “Knowing where I have come from in the last two years, I have a pretty good handle on the future,” he says.

“On a daily basis the deterioration is very gradual but on a monthly basis is it pretty powerful and I know I am heading to paralysis. Three months ago, I could undo my pants and take them off. Now I can’t.”

“Mentally I am still capable of being an MD of our global investment bank, but physically I can’t do it. My computer chip retains all its memory but I am trapped inside a machine that is corroding.” Simon knows this disease will see him out but also knows some forms of it allow for longevity. The celebrated theoretical physicist, Stephen Hawking, was diagnosed at 21, is soon to turn 70 and is  still working.

The release of the iPad was well-timed for Simon because he can use the touch screen to manage his reading and correspondence, which he gets in abundance. He is genuinely surprised at the ongoing support he is receiving from colleagues. The esteem in which they hold him was reflected in a  celebration in March this year to mark his 30 years in the industry.

His career break came because he was tall for his age, and over the summer holidays the Melbourne stock
exchange was looking for a chalkie tall enough to list the price moves.
Simon, the son of a plumber, applied, got the position and went on to spend 26 years with McNab Clarke, now
Credit Suisse.
For the past 13 years, he has led the Credit Suisse Australian equities desk. For the celebration,  Credit Suisse took the extraordinary step of donating half its brokerage commissions from March 30 to the Eldridge Trust Fund and to nominated MND charities. Other brokers contributed too and $800,000 was raised.

Simon says about $300,000 went to three MND charities and the remainder to a trust fund for his sons and to help him with equipment and carers. He and Sheila made radical changes. First, their large federation family home, with its swimming pool, tennis court and period furniture, was sold with all its contents.

They scaled down to an apartment renovated for optimum wheelchair access. As he would be spending much time there, Simon wanted a large terrace, with a open view of the harbour and Chinaman’s Beach.

Simon traded his convertible for a vehicle that can ferry a wheelchair and he and Sheila continue to make the effort to go out. With his youthfulness and healthy glow, outsiders find it difficult to grasp that his life is slipping from him.

“Initially, I was in a bit of denial, but now I have come to terms with dying from this godforsaken disease,” he says. “My aim is to take as much pleasure out of life as I am capable of. I have to do whatever I can today because tomorrow I may not be capable of it.”

One pleasure is watching Fred, 16, and Henry,14, play sport. “They won’t have me in later life as I had my father and my greatest wish is that their education is assured so they continue to grow into the fine young men they are becoming.”

For Sheila, the only good thing about the experience is that they had time to shed debt and organise their finances. “Simon was finding bits everywhere that I would never have known about.

I used to pay the bills, but I didn’t know where it all came from. We’ve had that luxury of being able to prepare and it has made many of my friends sit up and think about their own situation,” she says. If Simon has one piece of advice, it is “never underestimate life insurance”.

The Australian Financial Review

Monday, 07 November 2011 04:15

Shares And The Long Term

A few weeks ago, after producing a graph showing shares outperform cash and bonds over the long term, I was asked a question along the lines of  “if shares outperform other asset classes over the long term, how come over the last decade equity-dominated balanced funds (which returned  4.5% per annum [pa]) have underperformed cash (which returned 5.4% pa)?”. The same issue was alluded to in a recent Bloomberg observation that in the US, bonds have beaten shares over the last 30 years. While one can quibble over the details, given these observations it is natural to think maybe it’s time to give up on stocks and switch to cash and bonds.

Stocks do outperform over the long term
The first point to note is that over the very long term, shares have provided higher returns than cash or bonds. The next chart is the one referred to earlier and shows the total returns from Australian shares, bonds and cash from 1900. Despite numerous disasters along the way, such as the World Wars, the Great Depression, the stagflation of the 1970s, the 1987 share crash, a major Australian financial crisis in the early 1990s - A$1 invested in Australian shares in 1900 would have risen to A$287,087 by last month with a compound return of 11.9% pa. By contrast, the compound returns of 4.6% pa and 6% pa for cash and bonds would have seen A$1 invested in these assets rise to only a fraction of this.

Shares beat cash and bonds over the long term - Australia

Source: Global Financial Data, Bloomberg, AMP Capital Investors

It’s been a similar story in other comparable countries. Following is the same chart for the US. Not quite as impressive but still the same story.

Shares beat cash and bonds over the long term - US

Source: Global Financial Data, AMP Capital Investors

The long-term outperformance of stocks over bonds and cash is as would be expected – the greater riskiness of shares is rewarded with higher long-term returns.

However, even in the long term there is a cycle

The following chart shows a real accumulation index for US stocks since 1900. The trend line represents a real rate of return of 6.2% pa.
Whenever the index is rising faster than the trend line, stocks are providing above trend returns. Vice versa when it falls relative to the trend line.

Long-term bull and bear phases in US shares

Source: Global Financial Data, AMP Capital Investors

Long-term bull and bear phases are evident, and the bear phase over the last decade is not unusual. This pattern also exists in other countries. The following chart shows the rolling 10-year return difference between shares and bonds. Every so often shares have lengthy phases where they underperform bonds, e.g. in the 1930s, 1970s and more recently.

Shares periodically go through a decade or so where they underperform bonds

Source: Global Financial Data, AMP Capital Investors

This suggests that at any point in time, the experience of the past 10 to 20 years is no guide to the long term. An investor in US stocks at the end of the 1960s would have been wrong to project the above average returns of the 1960s into the 1970s (when actual real returns averaged -0.7% pa). Likewise the bad 1970s were no guide to the 1980s (when real returns averaged +11% pa). In other words 10 to 20 years is not the long term when it comes to shares. So the fact that US shares have underperformed bonds over the last decade doesn’t mean they will over the next.
In fact, what’s evident is mean reversion. 10 to 20-year periods with above-trend returns and above-average returns relative to bonds and cash tend to be followed by weak 10 to 20-year periods where returns are below trend. The table below shows the top performing asset classes (out of equities, bonds, cash and property) for each decade over the past century in the case of the US, the world and Australia.

Top performing asset classes by decade

Source: Global Financial Data, Dimson et al, AMP Capital Investors

The 1982-2007 bull market in Australian shares arguably spoilt investors and we have simply forgotten that the superior longterm performance of shares comes with a cost, which is that there are sometimes lengthy periods during which shares can perform poorly.

The 10 to 20-year return cycle in shares reflects fundamentals.

It’s no guide to the ‘long term’. The 10 to 20-year secular cycle in shares appears to reflect a combination of factors including:

  • Starting point valuations – US share prices were high relative to trend earnings (i.e. the price-to-earnings ratio) in 1929, the late 1960s and in early 2000 (after which followed the secular bear markets of the 1930s, 1970s and 2000s) and low in 1949 and 1982 (after which followed two decades of strong returns);
  • Underlying economic developments – depression in the 1930s and inflation in the 1970s were bad for shares, whereas solid economic growth, disinflation, economic rationalism, globalisation etc. in the 1980s and 1990s were great for shares. Right now it’s deleveraging in the private and public sectors in the US and Europe which is proving to be bad for stocks.
  • Technological innovation – rapid technological innovation helped push stock returns above trend in the 1920s (electricity, mass production), 1950s (petrochemicals, electronics) and 1990s (IT).

Perhaps the most important point is that the starting point matters. Ten years ago US stocks were offering a dividend yield of just 1.5%, but the 10-year bond yield was 4.6%. This made it much easier for bonds to outperform shares as indeed they have over the last decade. But it’s now going to be harder for bonds to outperform over the decade ahead as their yield has fallen to less than 2% whereas the dividend yield has increased to 2.2%. This is still low, but even if share prices do nothing over the decade ahead, shares will outperform bonds. Likewise in Australia, 10-years ago bond yields were 5.6% and dividend yields were just 4.3% so it was comparatively easy for bonds to do well. Today though, bond yields are 4.2% and the grossed up dividend yield is 6.8%. In other words, it’s currently easier for shares to outperform bonds over the decade ahead as bond yields are quite low relative to dividend yields. This is also highlighted in Australia with the dividend yield grossed up for franking credits now running well above bank term deposit rates which are now falling. In fact, on this basis the grossed up dividend yield of 6.8% compared to term deposit rates of around 5.5% imply shares are paying out 1.3% more cash per annum than term deposits.

The Australian dividend yield is up, deposit rates are down

Source: RBA, Bloomberg, AMP Capital Investors

Concluding comments
The historical record suggests:

  • Over the very long term stocks do outperform most other asset classes;
  • However, there are 10 to 20-year periods over which this is not necessarily the case. In this context the recent experience in share markets is not unusual; and
  • The outlook at any point in time in part depends on the starting point. After a decade or so of above-average returns a period of slower returns is likely, and vice versa.

The long-term cycle in equity markets should clearly be allowed for when setting investment strategy for individual investors. While 10 years might not seem long for me, it is very long for my mother. So, as discussed in a recent note, an outcome or absolute return investment approach may be appropriate for those with a short-term investment horizon or specific investment needs. However, for those with a longer-term investment horizon it’s worth bearing in mind that in an historical context, the turbulence in share markets in recent years is not unusual and doesn’t tell us shares won’t provide superior long-term returns going forward. This is particularly so with dividend yields on shares rising at a time when yields on bonds, cash and term deposits are falling.

Dr Shane Oliver
Head of Investment Strategy and Chief Economist
AMP Capital Investors

The assets of a person who does not leave a will are distributed according to the law.  In South Australia, the following distributions apply to surviving members of the family according to Section 72 of the Administration and Probate Act 1919.

Intestacy is the legal term that refers to someone who dies without a legal will.

We have highlighted 3 of the most common situations that people may find themselves in when dealing with Intestacy and what the law stipulates about the distribution of assets owned by the deceased.


1.    Surviving Spouse but no children


All assets are distributed to the spouse or domestic partner.

A husband or wife is a lawful spouse.  A person may be determined by Court to be a domestic partner if he or she has been living in a close relationship for three years (or has a child from the relationship)


2.    Surviving Spouse and Children


If the total estate is less than $100,000, the whole estate passes to the surviving spouse or domestic partner.

If the total estate is more than $100,000, the spouse or domestic partner is entitled to the following:


a)    Personal Property (including furniture, effects and car)

b)    $100,000 and half the remaining balance

c)    Where the family home is in the sole name of the deceased, the surviving spouse has the right to purchase the home


Children are entitled to the balanced of the estate.  The share of any child under the age of majority (ie under 18 years) must be given to the Public Trustee to manage under trust.

For example a person dies without a will and is survived by a spouse and 2 children.  The assets comprise of a family home worth $400,000 owned by the deceased solely, $50,000 in investments as well as a motor vehicle and personal effects.

The distribution would be:

1)    To the spouse – motor vehicle and personal effects $275,000 (comprising $100,000 plus half the balance which is $175,000)

2)    To the children - $175,000 divided equally between them

On paper this sounds benign, but let’s examine this situation in more detail.  The key question here is how would the children’s share of the estate be funded?  They could receive the term deposit, but then would the house have to be sold in order to provide funds for the children.

The surviving spouse has the right to purchase the house, but how would that be funded.  The surviving spouse may not be employed and therefore potentially unable to secure a loan.

The death of a spouse without a will can result in the surviving spouse having to sell the family home to pay the children’s entitlements under intestacy laws.


  1. Surviving Children only – no spouse


Distribution is in equal shares to the children (if a child has died and has had children, then those children take their parent’s share in equal proportion)

What about assets in joint names?

Joint Tenants

When property is owned as joint tenants, it generally passes automatically to the survivor upon the death of the other joint owner.  As a result, joint property does not form part of a person’s estate.  It cannot be disposed of by a Will or under intestacy laws.

Tenants in Common

When property is owned as tenants in common, the deceased person’s share of the property does not automatically pass to the surviving owner.  The deceased’s share of the property is distributed according to the terms of his or her Will.  If there is no Will, the deceased person’s share of the property is distributed according to the intestacy laws.


Note: Advice contained in this article is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser.  While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding.  The information provided is current as at October 2011.


Understanding Gillard is a Little Taxing (from the book Men are Stupid, Women are Crazy) – published on 1st March 2011 in the Aust Financial Review

When ‘s a tax not a tax? When Julia Gillard says it isn’t. At least that’s what she says about the carbon tax, you know, the one she said, just before the last election, that she would not bring in. So it’s not really a tax. It’s really just a little something Hallmark will be sending out to you to remind you to have a nice day and, by the way, give the government a bunch of your money.

I don’t know what you think about global warming, not having made up my mind about it myself. I mean, I know things are heating up in some parts of the world but I don’t know whether it’s my fault or whether it was going to happen anyway, sort of like the latest Charlie Sheen meltdown. But let’s say global warming is our fault. Well, not ours. It was our parents’ fault. They were the ones who were driving around in those big cars with leaded fuel. They were eating all that red meat from cows that broke wind all over the place and killed the ozone layer. But we should fix it up, right?

So we do it with a carbon tax. Gillard, by the way, has since recanted a little bit, or depending on your view, a whole lot of a real little bit. She now admits she said before the election that there wouldn’t be a carbon tax (nice to know she believes in videotape), but if I’m following her through this, she thinks the situation has changed. What’s changed? Have the polar ice floes reached Sydney? Are you starting to feel a little scammed here?

It reminds me of the time George H W Bush said “Read my lips: no new taxes. You can dress up and disguise a new tax any way you want, but people can spot one the minute you put it out there. Bush tried that trick. He was also a one-term president. Too bad, in a way, because overall he was a better president than his fruitcake son, who lasted two terms.

Gillard will probably get the tax through because it has the backing of the Greens and independents. The Greens never met an environmental tax they didn’t like, and the independents know they’d better go along because it wouldn’t take much to change governments and they’ve got enough trouble just showing up for work as it is. But that’s the high price you pay for having two of the loonier elements in politics propping up your government.

This must have been really comforting to Gillard: Kristina Keneally backed her stand on the carbon tax. Getting an endorsement from anybody in New South Wales Labor on anything is like having Lindsey Lohan appear as a character witness, but Kristina wanted everybody to know she thought it was a hot idea. Great. Any time that anybody from the New South Wales ALP comes up with a hot idea, about five people have to quit their jobs.

Keneally said that households should be compensated for the carbon tax. This is a great governmental solution to any problem that comes up (and that is, as is more often the case than not, a problem caused by the government). When in doubt, compensate. In other words, you’ve just proposed something a lot of people can’t pay for so you have to use your money to pay them to pay you. Makes perfect sense. After all, who’s going to be paying the wacky carbon tax; we’re also going to be helping the people who can’t pony up (and like the rest of us, shouldn’t have to anyway)

Fuel and electricity prices are going up. Retailers all over the country are singing the blues because they’re not hearing enough ka-ching, ka-ching. Now I not the time to be coming up with a new tax most people don’t completely understand to begin with. (Every time I think I’ve got a grip on it, somebody comes along, changes the subject and I have to start all over again.)

It is clear that over the longer term what drives share prices is company profits. It is logical that the more profit a company makes, the more valuable it is and therefore the value of the shares increase.

The graph below shows company profits represented by the red line for the last 30 years. The green line is the value of the Australian share market measured by the All Ordinaries index. For the majority of the past 30 years the pricing of the share market has reflected company profits, until the Global Financial Crisis.

You can clearly see a disconnect between the red line and the green line which means that there is a clear disconnect between company profitability and the current share prices.

Ultimately we would argue that the lines will converge, and the most plausible result would be a significant rise in share prices.

Obviously the short term is dominated by the issues in Europe and the US, but arguably once these issues are resolved it is likely that the All Ordinaries index will once again be reflective of company profits.

We have provided another chart that demonstrates the point that the market is currently trading on fear rather than fundamentals.

This chart shows the Equity Risk Premium of the Australian Share market. Equity Risk Premium is defined as

“The excess return that an individual stock or the overall stock market provides over a risk-free rate. This excess return compensates investors for taking on the relatively higher risk of the equity market. The size of the premium will vary as the risk in a particular stock, or in the stock market as a whole, changes; high-risk investments are compensated with a higher premium.”

Generally speaking higher risk premiums result in lower valuations of assets.

What the chart below outlines is what additional premium investors require to invest in the Australian share market. This tells us that there is a very large amount of risk already priced into current share prices. The chart shows that the Australian share market is currently trading a 3 times the average Equity Risk Premium, which implies that the share market appears very cheap. The last time this chart showed such an extreme was in early 2009 – which was followed by a very strong share market rally.

Note: Advice contained in this article is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser. While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding. The information provided is current as at September 2011.

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