What Warren Buffett wants us to know+ Why so eggspensive? The cost of eggs

Hi everyone,

The Federal election is done and dusted, a new Pope has been elected and 94-year-old Warren Buffett - who I think is the world’s best investor - is retiring at the end of the year.

A lot has happened this week, so let’s get into it.

In this newsletter:

• A tribute to Warren Buffett - what we can all learn from the great man.

• Crazy tax time deductions.

• Ray White’s chief economist, Nerida Consibee’s take on Labor’s housing policies - What will they do to the property boom?

• Trump’s “historic” impact on the sharemarket.

• The cost of eggs around the world.

The key investment learnings from Warren Buffett

Arguably the world’s greatest investor, the ‘Oracle of Omaha’ Warren Buffett announced this week that he will retire as CEO of US investment giant Berkshire Hathaway at the end of the year. Now 94, Buffett took over the then-textile company in 1965 and transformed it into one of the world’s most successful investment conglomerates.

Regular readers will know I’m a huge Buffett fan and love his investment philosophies and strategies. I’ve often written about the importance of adopting investment mentors and learning from them - be it a savvy relative, local fund manager, or billionaire Warren Buffett.

Gaining insights from the experts is a key to good investing.

Over one Christmas break, I devoured Snowball, the 900-page biography of Buffett, and found it a fascinating read. From his open and very close relationship with his first wife and mistress to his obsession with Coca-Cola and burgers, he’s certainly unique.

From an investment point of view, he built his empire on the back of trawling annual reports and investment journals for what he calls “cigar butts”. These are boring, unfashionable companies valued at well below the worth of their assets and cash.

Contrary to the myth, Buffett has made plenty of mistakes, usually due to backing the wrong people in the right business. His greatest successes came from companies with strong CEOs who wanted to work with him.

I hadn’t realised how influential Buffett was on Bill Gates, despite his initial reluctance to invest in tech.

Throughout his career Buffett has loved to teach others about investing. His reports and annual meetings for Berkshire Hathaway shareholders are legendary.

Buffett also regularly invites a group of business students to spend a day with him where he talks about investing. His words of wisdom to these students are worth bottling.

Here are a few of his most valuable insights:

On models and spreadsheets

Buffett feels the portfolios of financial institutions are so complex that no-one really knows what’s in them or how safe they are. He also distrusts complex financial models.

At Salomon Brothers, he noted that elaborate spreadsheets often failed (“The worst thing you can have is models and spreadsheets.”).

Instead he says reading the DNA of the chief executive officer is key. They are the chief risk officer for the company. In other words, a good chief executive runs a good company and that’s worth investing in.

On reading the market

“I always say you should get greedy when others are fearful and fearful when others are greedy,” says Buffett.

Think about it… this is one of those little investment gems to live your life by and very appropriate at this stage of the investment cycle.

On playing the long game

Buffett feels investors should never base their decisions on what they read in the daily news.

Daily news shouldn't drive investment decisions. “Even if you could predict the economy, you wouldn’t necessarily know what was going to happen to the stockmarket,” he says, adding, “They can’t pick stocks which are better than average.”

Buffett recommends, and always has, buying a cross section of strong companies across a range of industries and then giving them time to grow.

On ‘efficient market theory’

Buffet reckons the current economic climate makes a mockery of the so-called ‘efficient market theory’ (which everyone learns when studying economics and investing). The theory is that markets and investors act on the same information at the same time - there is a perfect level playing field of information.

Buffett believes the markets have become even more irrational over the years and as such, the theory doesn’t ring true.

“When people panic, when fear takes over, or when greed takes over, people react just as irrationally as they have in the past,” he told students.

On index funds

Most people shouldn’t be active investors. Instead, Buffett suggests low-fee index funds - where success is more about avoiding bad stocks than picking winners.

See? We all need a dose of Warren Buffet on a regular basis, particularly when it seems things are getting out of control. He is just so sensible.

But what I really love about him is that he’s worth billions and has basically given most of it to Bill Gates's charitable foundation to give away. He reckons Gates will do a better job of using it wisely than him.

In the end his sharemarket decision making is based around five fairly fundamental questions:

1. Do I understand the business? Think back to your biggest sharemarket mistakes and how many times have you failed to answer this very basic question. How many times have you invested in a company which you didn’t quite know what it produced, mined or provided? Warren Buffett only invests in companies where he’s clear on exactly what they do.

2. Is it run by people I admire and trust? A big mistake we often make as investors is to refer to a company as a ‘corporate entity’. We forget a company is made up of a bunch of living, breathing human beings who make decisions and work to produce a product or service. Leading the company is a board and executive team who set the culture for the rest of the workforce, make the decisions and guide the business. Often it’s the quality of that board and that executive team which underpins success or failure.

3. Does it have a sustainable competitive advantage? Standout investment returns are produced by standout companies, which often have a standout advantage over competitors. It may be a superior or unique product or service, a delivery system, a marketing strategy or brand … It could be a whole range of factors. But in today’s business and investment environment, it’s that edge over competitors which translates into success.

4. Is it the right price? We’re talking about money here. The best company in the country can be a bad investment if its price is unrealistically high as investors bid up the value to unsustainable levels. Warren Buffett’s patience is a key plank to his success. He’ll identify a good stock and then patiently wait until its price realigns to a sensible level.

5.  Answered ‘yes’ to all the above? Then do the deal. In the end it’s all about sticking to quality and spreading your investments over a range of companies on the right track.

Tax time is fast approaching …

The start of May means our accountants and tax agents start to focus us on the end-of-financial-year and tax time. Particularly when it comes to claiming work-related expenses.

Chartered Accountants ANZ (CA ANZ) has asked its members for the most unusual claims made by clients. That is, the cheekiest tax claims that inevitably got rejected by the ATO.

One respondent said their individual client was claiming monthly salon haircuts, on the basis that their hair grows during business hours.

There were many more dubious claims related to health, wellness and personal aesthetics, including one for the cost of a gym membership, as the individual needed to be strong and fit to renovate their rental property. Another related to a Pilates reformer machine purchased to help an office worker who had a sore back.

They also noticed a trend of big-ticket luxury purchases passed off as business and work expenses, including one who tried to claim a family trip to a tropical island was related to their earthmoving business.

Another claimed a luxury yacht as a work expense - because they might have some business to do on the islands.

Other respondents said they had clients, both individuals and businesses, try to claim:

• Vet and food bills for pet dogs to protect them even though they work in an office

• A pool

• School fees

• An engagement ring!

The advice from Chartered Accountants: "We understand that some Australians might be tempted to push the boundaries, but let's avoid making dubious claims this year."

Indeed.

The Bank of Mum and Dad (plus grandparents) is booming

Australians have relied even more on the bank of parents (and grandparents) to save money amid cost-of-living pressures, according to the latest research by Compare the Market.

The consumer comparison experts' annual survey of Australian parents and grandparents found one in six have helped purchase clothes, toys and essential items (15.9 per cent) for their children or grandchildren in the past year.

This was closely trailed by gifting money (14.5 per cent) and providing free care (13.7 per cent).

Compared to research from 2024, a higher proportion of Australian parents and grandparents admit to financially supporting their younger generations in more. cost-of-living areas than in the past – at 93.3 per cent compared to 73.3 per cent last year.

A recent Compare the Market survey of Australian renters also found a quarter believed they will not be able to purchase a home without the financial support of their parents or grandparents (25.8 per cent), while nearly half of renters do not plan on buying a house altogether (42.3 per cent).

The study has again demonstrated that older Australians are supporting individuals and families weathering increasing cost-of-living pressures.

Baby Boomers are often blamed by fuelling inflation with their spending. After all, we haven’t faced the same intense cost-of-living pressures that have made the ‘Great Australian Dream’ seemingly feel impossible today.

But in fact, 93 per cent of parents and grandparents now support their younger generations in some way to combat the rising cost of bills, groceries and other essentials – a 20 per cent increase compared to last year.

Whether it’s simply cooking for them or contributing money, this intergenerational wealth transfer is proving to be an essential ‘third income’ for many Australians to save hundreds – if not potentially thousands per year.

Of course, not everyone can access this benefit. As intergenerational wealth is passed down to the lucky among us, we could see a widening gap between the haves and the have nots.

That’s why it’s so important for governments to funnel the lion’s share of cost-of-living support to average Aussies who really need a leg up.

Does Labor’s election win mean the housing market will enter a new boom?

It was a big win for Labor at last weekend’s election. Now they can get started on fulfilling their election promises. When it comes to housing they promised a lot to boost supply and help first home buyers get into the market.

Ray White chief economist, Nerida Conisbee, has produced a great rundown on the promises and the impact they’ll have:

Deposit scheme expansion: a double-edged sword

Labor's signature policy - extending the 5 per cent deposit scheme to all first home buyers regardless of income - represents a fundamental shift in housing accessibility.

Under the expanded program, approximately 80,000 Australians are expected to enter the property market annually, up from the current 50,000 who access the income-capped version.

By removing the substantial barrier of lenders' mortgage insurance and the need for a 20 per cent deposit, the policy dramatically lowers the entry threshold to homeownership. For the typical Sydney property, this could mean the difference between needing a $200,000 deposit and requiring just $50,000 - potentially saving years of saving time for aspiring homeowners.

However, economic fundamentals suggest this policy is likely to drive price growth in the short term. The Productivity Commission's research on first home buyer incentives consistently shows that measures increasing purchasing power, without commensurate supply increases, typically lead to price escalation in targeted market segments.

With more buyers able to enter the market simultaneously and competing for the existing housing stock, upward price pressure becomes inevitable.

Supply challenges amid construction headwinds

Labor's ambitious target of building 1.2 million new homes over five years, including the 100,000 dedicated first-buyer properties, represents an unprecedented construction challenge.

Australia has never achieved this volume in any five-year period, with the closest being approximately 1.1 million homes last decade ... a figure achieved with significant foreign capital investment.

The current construction environment presents substantial obstacles to meeting these targets:

Building costs continue to outpace house price growth, making new construction increasingly uneconomical. For example:

• Industry insolvencies exceed 1,200 annually and continue to rise.

• Labor productivity remains low compared to historical standards.

• Construction timeframes have extended from 6.5 months pre-pandemic to over 10 months today.

These factors severely constrain the industry's capacity to deliver on Labor's housing targets. The expanding gap between housing demand and supply, now approaching 500,000 dwellings nationwide, will likely continue to widen before significant new stock becomes available.

Market momentum building before policy implementation

Labor's victory comes at a time when Australia's housing market is already showing renewed momentum. April data confirmed accelerating price growth across both houses and units nationwide, with house prices nationally rising by 0.4 per cent to reach a median of $917,433, representing annual growth of 5.2 per cent.

This momentum, evident across 13 of 14 regions when comparing recent three-month periods, demonstrates the market's underlying strength even before the implementation of the new housing policies. The widespread acceleration suggests we're entering a new phase in the market cycle, with stronger conditions likely ahead as interest rate cuts materialise.

Markets now anticipate an almost certain cut at the next RBA meeting on May 20, which would benefit mortgage holders significantly and will almost certainly direct more money into the housing market. More cuts are expected to come through the remainder of the year, providing further stimulus to an already strengthening market.

Global uncertainty enhancing property's appeal

The Labor government takes office amid significant global economic uncertainty. Trump's "Liberation Day" tariffs have created substantial turbulence across financial markets worldwide, reflected in the unprecedented spike in the VIX Index - Wall Street's ‘fear gauge’.

In this environment of market volatility, residential property offers several distinct advantages that will likely attract increased investment:

• Greater price stability compared to share markets.

• Tangible asset security with intrinsic utility value.

• Immediate benefits from anticipated interest rate cuts.

• Supply constraints supporting existing property values.

These factors, combined with Labor's buyer-friendly policies, create a perfect storm for accelerated price growth across Australia's property markets.

The paradox: short-term pain for long-term gain

The paradox of Labor's housing policy is that while it risks exacerbating affordability challenges in the short term through price inflation, it may ultimately create the conditions for improved affordability in the longer term.

Higher property prices, while challenging for new entrants, makes it possible for developers to overcome construction barriers and bring new supply to market. As values rise, previously marginal development projects become viable, and the industry gains additional capital to expand capacity.

Labor's complementary policies - including apprentice incentives, Build to Rent tax benefits, and the Housing Australia Future Fund - aim to address supply-side constraints gradually. However, these measures will take time to yield significant results, likely trailing behind the immediate demand stimulus of the deposit guarantee scheme.

Outlook: Prices rising to meet construction costs

The fundamental economic equation that will drive housing supply recovery is straightforward: house prices need to rise sufficiently to match or exceed construction costs.

One of the key challenges plaguing Australia's housing supply has been that building costs have outpaced house price growth, making it more affordable in most parts of Australia to buy an existing home than build a new one.

As house prices accelerate under Labor's policies, they will inevitably reach levels that make new construction economically viable again. This price-to-cost equilibrium is the essential mechanism that will stimulate developers to increase supply despite the significant headwinds facing the construction industry.

The combination of Labor's demand-focused policies, already-building market momentum, anticipated interest rate cuts, and global economic uncertainty points to one clear outcome: accelerating property price growth through 2025 and potentially beyond. While this presents affordability challenges in the immediate term, it creates the necessary economic conditions for substantial new housing development.

Trump’s devastating impact on sharemarket

Financial markets were so excited about the election of a “business-friendly” Donald Trump to the US Presidency, but it looks like they have become quickly disenchanted.

America’s S&P 500 has had the fifth worst start to a calendar year in its history. The index was down 10.2 per cent in the first 73 days of trading due to Trump’s tariff threats.

History shows that among the 20 worst starts to a year, just five have recovered and ended the year in positive territory, while two years finished flat.

The cost of eggs around the world

I know the cost of eggs isn’t earth shattering in the finance world but, if you’re like Libby and me over the last few months, the weekly egg hunt at the supermarket has been a challenge. The impact of bird flu on egg production and prices has been enormous.

At one stage our local supermarket was posting the supply schedule so you could time your shop with a delivery.

So I was fascinated with the below chart showing eggs prices around the world and where Australia ranks.

Swiss consumers pay the most in the world for their eggs at $US7.31 a dozen - that’s nearly double what their neighbour, Italy, pays and a lot more than the $US4.22 Australian consumers fork out. Remember all these comparisons use the US dollar for benchmarking.

Indian egg lovers pay the least in the world for their dozen, just $US0.97.

Overall though, we certainly pay a lot for eggs compared with the rest of the world. It’s eggasperating!