Greg
Hoffman


Level
2,
282
Oxford
Street

 
 
 
 
 
 
 
 (02)
8305
6000

Bondi
Junction
NSW
2022
 
 
 
 
 
 
 
 


1800
620
414


SUMMARY


Greg
is
the
Research
Director
of
The
Intelligent
Investor
Publishing
Pty
Ltd
(AFSL
282288).
He
is
also
a

Responsible
Manager
for
the
company’s
Australian
Financial
Services
Licence
and
sits
on
the
compliance

committee.


Greg
has
managed
The
Intelligent
Investor’s
analytical
team
since
2001,
directing
the
firm’s
editorial

content.
He
has
been
instrumental
in
developing
the
company’s
business
plans
and
transitioning
the

business
model
from
a
traditional
print
publisher
to
a
successful
online
service.
As
well
as
supervising

the
output
of
a
team
of
analysts,
Greg
has
analysed
a
wide
range
of
stocks
for
The
Intelligent
investor

across
a
number
of
industries.
Prior
to
joining
The
Intelligent
Investor
in
2001,
Greg
had
a
range
of

experience
in
a
number
of
firms
in
the
financial
sector,
with
a
strong
background
in
money
market
and

fixed
interest
operations.


EXPERIENCE
RELEVANT
TO
THE
ROLE
AS
RHG
DIRECTOR


Financial
analysis
skills
and
experience


Greg
has
been
an
active
investor
for
more
than
a
decade,
analysing
hundreds
of
listed
and
unlisted

securities
and
products.



He
has
a
strong
knowledge
of
the
Australian
financial
sector
and
a
working
knowledge
of
important

operational
issues
relevant
to
RHG,
including
the
settlement
of
residential
mortgage
backed
securities

(RMBS)
gained
through
his
experience
at
Macquarie
Bank
and
also
NatWest
markets
involving

transactions
undertaken
by
its
Prime
Asset
Vehicle
(PAV)
structure.


Greg
was
instrumental
in
the
financing
and
planning
associated
with
the
management
buyout
of
The

Intelligent
Investor
in
2004.


Market
analysis



‘Money
has
been
too
cheap
for
too
long
and
the
world
is
addicted
to
debt.
Australia’s
addiction
is
up

there
with
the
best
of
them.’
–
Greg
Hoffman,
January
2007.


Greg
has
been
a
keen
observer
and
analyst
of
financial
markets
and
macroeconomic
trends
for
more

than
a
decade.
As
an
example
of
the
prescient
insights
Greg
could
offer
to
the
board,
enclosed
is
a
copy

of
an
article
he
wrote
in
January
2007,
titled
Dear
Glenn,
you
have
a
problem
(from
which
the
quote

above
is
taken).
The
theme,
that
the
world
was
overleveraged,
was
one
he
wrote
about
consistently
in

the
years
leading
up
to
the
recent
financial
crisis.
These
insights
could
be
of
immense
value
to
the
RHG

board.




Media
communication


Since
2001,
Greg
has
been
a
key
representative
of
The
Intelligent
Investor
in
the
public
sphere.
He
is
a

regular
columnist
for
Money
magazine
and
the
ASX’s
monthly
newsletter.
He
was
also
a
regular

columnist
for
Professional
Planner
magazine.



Greg
is
a
recognised
opinion
leader
on
financial
matters,
being
quoted
in
a
host
of
national
and

international
publications
including
The
Economist,
The
Australian
(particularly
in
relation
to
The

Intelligent
Investor’s
warnings
about
the
risks
in
Centro
Properties
Group
before
its
precipitous
fall),
The

Sydney
Morning
Herald,
The
Age,
The
Courier‐Mail
and
The
Adelaide

Advertiser
among
many
others.



He
makes
regular
television
appearances
on
ABC
Lateline
Business
and
has
been
sought
out
by
Sky

News,
Ten
News
and
Sky
Business
View
to
name
a
few.
On
radio,
he
has
been
interviewed
several
times

for
Radio
National’s
Background
Briefing
program,
as
well
as
ABC
Radio’s
PM
program
and
Triple
J’s

Hack
program.
This
experience
would
be
valuable
in
assisting
the
RHG
board
in
developing
an

appropriate
media
strategy.



Greg
would
also
make
himself
available
to
RHG’s
management
team
to
advise
on
media
matters,

including
the
increasingly
important
issue
of
online
communications
strategy
and
management.


Shareholder
communication


The
Intelligent
Investor
has
a
reputation
for
presenting
financial
information
in
a
language
that
enables

its
members
to
genuinely
understand
their
investments.
It
is
also
at
the
forefront
of
new
web‐enabled

communication
mediums,
such
as
podcasts,
vodcasts,
online
forums
and
webinars.
Greg
would
bring
his

experience
in
this
area,
in
addition
to
extensive
experience
providing
face‐to‐face
presentations,
to
the

RHG
board.
This
would
enable
the
board
to
clearly
communicate
its
intentions
and
strategy
to
the
wider

shareholder
base
and
enable
those
shareholders
to
understand
what
an
investment
in
RHG
entails.


ACADEMIC
QUALIFICATIONS
 


Bachelor
of
Business
(Accounting
and
Finance),
University
of
Technology,
Sydney.


EMPLOYMENT
SUMMARY



2001
–
current
 The
Intelligent
Investor
 Research
Director


1999
–
2001
 Macquarie
Bank
 Money
market
and
fixed
interest


operations

1998
–
1999
 Royal
Bank
of
Canada
 Fixed
interest
operations

1997
–
1998
 NatWest
Markets
 Money
market
operations

1996
–
1997
 Permanent
Trustee
 Money
market
operations



Issue 215, - 17 Jan 07

Feature Article
Dear Glenn, you have a problem
Date: 17 Jan 07

One of the world’s most renowned value investors has published a book, and it’s got us worrying.

Chris Browne is a man worth listening to. He’s a principal at one of the most successful investing companies ever,
Tweedy, Browne Company LLC (it was one of the ‘Superinvestors of Graham-and-Doddsville’ highlighted by
Warren Buffett in his famous speech of that name). So when I noticed Browne’s The Little Book of Value
Investing in our local book store, it went straight to the top of my Christmas reading list.

The book packs a lot of punch and is well worth a read—the most interesting part is his 16-point checklist, which
we’ve reproduced on the following page—but for me, it reignited my thinking about a couple of issues that have
been top of my worry list for a long time.

The debt binge

The first, and the biggest, can be summarised in one word: debt. A major problem with high debt levels, Browne
explains, ‘is that companies or individuals cede a measure of control over their affairs to a lender … Whether it is
a company running up debt to pay for expenses, or a person borrowing to buy stocks on margin, the borrower is
giving someone else the right to say when the game is over.’

This is nothing new, but it did start me thinking again. Money has been too cheap for too long and the world is
addicted to debt. Australia’s addiction is up there with the best of them.

Private equity booms, hedge fund mania, property booms, record consumer debt, negative savings rates, massive
current account deficits, commodity speculation—it’s all a result of money being too cheap. We have the
extraordinary situation of investors being able to borrow 100% of the funds needed to invest in a 90%-leveraged
hedge fund which then goes out and buys junk bonds.

Central banks around the world have finally woken up to this and have been ramping up interest rates over the
past couple of years. In Australia, at least, it doesn’t seem to be making any difference.

The Reserve Bank of Australia has raised rates five times since November 2003, taking the official rate up from
4.75% to 6.25%. But the medicine is not working; Australians continue to borrow, and borrow, and borrow.

The RBA’s latest numbers, for October 2006, showed credit growth for housing up 14%, personal credit up 11%
and business lending up 17%. To fund all this borrowing, the RBA needs to print more money, and more money
will eventually lead to higher inflation.

Debt junkies

So why aren’t the interest rate rises working? Surely if the price of money goes up, demand goes down, right?
That should be the way it works, but what if you’re so addicted you don’t care about price—all you’re worried
about is your next fix? What if the only way you can meet your loan repayments is to borrow more? It’s certainly
easier for the bank manager to give you another fix—he’ll probably have moved on by the time you check into
rehab.

In the late 1980s, interest rates were already north of 13% but credit demand was still growing at almost 20% a
year. It’s easy to look back and think 18% interest rates were too extreme. But it wasn’t until the economy was
hit with a sledgehammer that people stopped borrowing.

We’ve no idea how high interest rates need to go this time around, but 0.25% rises don’t seem to be making any
difference. New Reserve Bank Governor Glenn Stevens has a big problem on his hands and how he resolves it will
have serious consequences for the sharemarket.

The China syndrome

The second issue Browne got me thinking about was the China syndrome and how it’s going to play out. In the
book Browne writes: ‘The so-called emerging markets have a tendency to never quite emerge and remain unsafe
and unstable places for investment ... As I write this, there is enormous investor interest in China. The world’s
most populous nation seems to be waking up to the joys of capitalism. It is growing at a very rapid pace and has
a huge population. Despite this, there may be significant dangers ahead. China is still a communist country. The
Government still owns or controls many of the listed and traded companies both on the Shanghai and Hong Kong
exchanges. Investors are a silent partner with no recourse to protect them should the Government decide to
change policies. Again, the margin of safety appears to be missing.’

China is still a communist country and the next twenty years is unlikely to be all smooth sailing. Commenting on
the death of Chilean dictator Augusto Pinochet, The Economist recently wrote: ‘In the long run (as China is likely
to discover) economic liberty seldom thrives in the absence of political liberty.’ It’s a sentiment worth keeping in
mind as you invest your money in the years ahead.

Falling knives

The other really interesting, and stock specific, part

of the book was an analysis of the benefits of
purchasing ‘falling knives’. ‘Don’t try to catch a
falling knife’ is a saying that’s as common as it is
unhelpful to the value investor. In a more helpful
twist on the tired saying, Browne suggests that you
‘don’t try to catch an overpriced, cheaply made
falling knife’.

He also cites a study by Josef Lakonishok and Louis

Chen of the University of Illinois, who looked at
returns on US stocks from 1986 to 2002, focusing
on ‘falling knives’ (which they defined as stocks that
had fallen 60% in price over the previous 12
months). In Browne’s words:

‘They found that although these stocks did indeed

represent a risky proposition with a bankruptcy and
failure rate four times that of the market as a
whole, as a group they far outperformed the market
over one-, two-, and three-year holding periods.
Not surprisingly they found that the larger the
market capitalization of the company, the higher
the outperformance and the less the chance of
corporate failure.’

This has also been our experience. We’ve had some

big wins with Cochlear, Great Southern Plantations and Leighton Holdings and the odd absolute wipeout
like Croesus. Overall, it’s been a very useful place to look.

The Little Book of Value Investing deserves a place on your reading list, but its main effect on me was to
reinforce some of the big risks facing today’s sharemarket investor. Over a long period of time it pays to be
invested—those that spend their lives not investing because of the risks end up costing themselves a lot of
money—but 2007 will be a year to tread carefully.

Disclosure: Staff members own shares in Cochlear and Great Southern Plantations, but they don’t include the
author, Greg Hoffman.

Copyright © 2009 The Intelligent Investor. Published by The Intelligent Investor Publishing Pty Ltd.
ABN 12 108 915 233. Australian Financial Services Number 282288.
PO Box 1158, Bondi Junction NSW 1355. Ph: 1800 620 414 Fax: (02) 9387 8674

WARNING This publication is general information only, which means it does not take into account your investment objectives, financial
situation or needs. You should therefore consider whether a particular recommendation is appropriate for your needs before acting on it,
seeking advice from a financial adviser or stockbroker if necessary. Not all investments are appropriate for all subscribers.