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The Telstra lesson

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by Peter Switzer

The case of Telstra this week made me think of the great Aussie comic Dave Hughes and rams home one of the most important money making messages you can ever read, see or hear — don’t be too smart, don’t be too cocky and don’t be too scared.

Another supporting message is select an investment strategy that works and stick to it.

This is where Dave Hughes comes in but I will get to that later.

The don’t knows

Why is Telstra so relevant? Well, the very confusion it has created with the Rudd Government bouncing it to split itself up punches out so many take home messages for anyone trying to get wealthier via the stock market.

The first point is that Telstra has now become a speculative play because we don’t know what changes will happen. We don’t know if the Government will compensate taxpayers for the intervention but they will have to.

We don’t know if the new Telstra with the good assets — mobile, Foxtel, etc. — will be a better company without the infrastructure it has always sat on and partly-rented out to its rivals.

We don’t know what rivals will do against a weakened Telstra and we don’t know if Telstra will become more competitive and innovative without its dominant ownership of a big chunk of the telecommunication landscape.

Guessing game

When the news came out, the share price fell but it has risen ever since. Smart investment banks have put a $4.50 price tag on the company, so if these guys are right there’s 30 per cent plus to make on a company that pays a great dividend.

But I asked Justin O’Brien from Morgan Stanley Smith Barney on SWITZER on Sky News Business Channel whether the dividend would last under the new Telstra and he pondered, said “not sure” and that guessed no!

It’s the guessing that’s the worst when it comes to making money. However, there’s always a bit of guessing and if you’re not a living on the edge trader/investor, then you need a reliable, historically sound investment technique.

Hughesy’s lesson

And when it comes to matters of reliability and responsibility, one name you might not instantly think about would be Dave Hughes but over the post-Lehman Brothers collapse year he brought out a great lesson for investors.

When most commentators were preaching doom and gloom, I was talking to Hughesy on the Nova breakfast show in Melbourne. I was arguing that things were bad but there was a lot of over-the-top negativity and that we could dodge a recession.

He and his co-host Kate Langbroek were talking about the best investment strategy and I was arguing that the banks are attractive and great brand name Australian companies that pay good dividends.

Beeee Aitch Peeee

I was trying to give good and cautious advice but Dave would not have any of it and kept blurting out: “Beeee Aitch Peeee” in the only way he could emphasise BHP.

I think he said he told his brother that he should just buy “Beeee Aitch Peeee!”

Kate asked me if this was a good idea and I said the company was a good buy — it got as low as $21.10 in November last year — but buying only one stock is very risky, I explained.

But all Dave would say was: “Beeee Aitch Peeee!”

It was 10 October and BHP-Billiton was around $27. If he was true to his word, he and his brother might have made around 44 per cent in one year. You might say — what an investor! But you should say, what a punter!

If Dave had said BHP, CBA, NAB, ANZ, Westpac, Leighton, Woolworths, Westfield, JB Hi-Fi, QBE and other great names, we would have been on, as Paul Keating might say, a unity ticket. By the way, that’s political speak for agreeing with each other and running together.

Aussie companies

The final point is that if you liked the great name Aussie companies and say you bought them every quarter, no matter what, you would have lost money when the crash happened but you would have made a lot of it up when the rally kicked in.

With shares, you have to be a long-term investor. You need to have other assets such as fixed deposits where you can get seven per cent or better safely, and property. You buy great assets and you hold them and occasionally you might change and that’s where an adviser, broker or some other expert or website should be in your investment toolbox.

What about Telstra?

When it comes to Telstra, some people will hold it as a speculative play but others might use the Warren Buffet tip of dumping it because it has become too much of a big question mark.

If you had $30,000 in Telstra shares, the question is would you make more money out of ANZ or CBA or Leighton?

If you’re not too smart, too cocky and too scared, you will end up making a decision that’s likely to be really rewarding in the long-term. Sure, you might do no better than Dave Hughes in 2009 but in the long run you will end up having the last laugh.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Friday, September 18, 2009