Morningstar’s markets guru Peter Warnes shares the one timeless truth of investing

The financial world has changed greatly in the 61 years from Peter Warnes’ start at a Sydney suburban bank branch to his retirement this week as a top-shelf share analyst and commentator.

Investment choices have grown immeasurably andsuperannuation has become a $3 trillion reality for Australia over the past 30 years.

But a timeless truth has been evident to Mr Warnes since a brief stint on Wall Street in the depths of the 1973-74 global share-market crash and as the Dow Jones index trawled 600 points.

“You’ve got to get into the market early and stay in there a long time,” Mr Warnes said as the Dow was nudging 39,000 points last week.

“You should be in for the long term.”

Mr Warnes retired on Friday after 18 years as theAustralian head of equity research at highly regarded global analysis group Morningstar and decades writing for a variety of specialist magazines, including the share publication Your Money Weekly and The West Australian’s Your Money.

His career as both a top-shelf share analyst and commentator might have come to an official close, but he plans to keep watching financial markets and find less testing roles to take into his 80s.

He plans to keep posting his thoughts online, taking some part-time roles on committees and even a couple ofregular writing gigs.

“It’ll be pretty easy to do because I’ve still got a lot of contacts and I’ve still got a lot of information coming,” Mr Warnes said.

When it comes to comparing the choices facing investors now with 30 years ago, he is not convinced it is necessarily for the better.

Investors might have gone to a stockbroker like JB Were 30 years ago and been advised to set up a portfolio of 10 orso stocks from a list recommended by the firm. Then there were also managed funds trying to pick winners on the markets.

Mr Warnes said investors nowadays were confronted with potentially hundreds of choices and variety of exchange-traded funds set up to hug a chosen index.

“What active managers do and what active research is all about has been taken away from people,” he said.

Mixing his culinary metaphors, he said ETF fund managers were sausage factories and also gelato bars “that started out vanilla but now have 400 bloody flavours”.

“Whatever the flavour of the month, they just create an ETF around it,” he said.

“But there’s a kind of trade-off with that.”

The big test, and potentially big opportunity, for investors now is being created by what Mr Warnes sees as a flood of money into a small number of stocks at the top of popular share indices.

This includes companies in the Australian Securities Exchange’s top 10 and so-called Magnificent Seven technology stocks dominating Wall Street’s S&P 500 index, including Microsoft, Amazon, Alphabet and Meta.

Mr Warnes said opportunities could emerge for so-called value investors willing to look beyond where fund flows were now being concentrated. While investing for the long term, he said people must keep doing their homework and ensure their investment thesis and individual security picks were continuing to stack up.

“If your thesis is holding up, let it run,” he said. “If it isn’t — regardless of whether it’s an individual stock or an index — the first cut is the best cut. Cut it, get out of it, take your emotional baggage and get a fresh start.”

ONE LAST THING ...

We couldn’t let Peter go without a few last questions to help us all get through the rest of the year..

Where will the S&P/ASX 200 be at the end of 2024?

Around 7200 points (546 points below Friday’s close). We could go into recession. They can cut interest rates quickly but higher costs are locked into business after two years of inflation. Corporate profits could be hammered.

Will interest rates be cut if there is not an economic downturn?

You might get two cuts by the end of the year, but I don’t think they will come until September at the earliest.

Will they cut rates if markets and the economy keep bubbling along?

Very cautiously, my answer is no. Interest rates are going back to where they were two years ago. I don’t think you’re going to see zero-bound official interest rates.

Where would you be buying if rates fall?

Banks tend to do better, but they’re very expensive now. You need to look at stocks that do well no matter what is happening. Look at Ventia and Downer, who provide all these services for local, State and Federal governments.

Best investment advice for someone starting retirement?

Let your winner run. But if they become overweight, you’ve got to be prudent. You’re allowed to bank some profits.

And what if you’re just starting out?

I would not try to pick 10 stocks. You could just buy an ETF in Australia and offshore. As you get a little bit more money under your belt, you can become more active.