Trustee spotlight: Learnings from The richest man in Babylon
Stephen Miller set up his SMSF in 1986, and credits his wealth management philosophy to the famous book, The richest man in Babylon by George Samuel Clason.
Stephen Miller set up his self-managed super fund (SMSF) in 1986 at a time when the super environment was especially attractive.
Back then, there was no tax on contributions or earnings inside a super fund. Administration was also much simpler, with funds only required to submit an annual tax return to comply with regulations.
Steve credits his wealth management philosophy to the famous book, The richest man in Babylon by George Samuel Clason, which his father gave him. The book’s messages are about paying yourself first, investing in your home and yourself, and putting money aside for the future.
“If you haven't made plans early in your life for your future wealth you'll be out of pocket when you retire,” says Steve, reflecting on the book’s themes.
So as soon as he secured his first job in central Victoria, he wanted to work towards being self-sufficient in retirement.
But it was the high fees attached to many investments in the ‘80s and the stock market crash of 1987 that prompted Steve to focus more closely on running his SMSF.
Steve says many of the fund’s milestones have been driven by the many regulatory changes the super system has undergone.
“I have managed the fund through the introduction of contributions tax and annual contribution limits, through to the $1.6 million transfer balance cap... There's been constant change.”
“It's been a lot of work, but I think you discover yourself. I have the right risk profile to run my own fund, and I've been enthusiastic and diligent. You need to have those attributes because running your own fund is not for everybody. It’s much more than just accumulating money.”
He says his approach to investing has changed over time. “I’m more conservative now. You buy and sell, thinking you can outdo the market. I've had some good investments, and some not so good ones as well.”
Failed insurer HIH is one example. “A friend worked there and said it was a good company and I should buy some shares, so I did. When they halved, he insisted it was a good company and so I bought more. The lesson I learnt is don't listen to taxi drivers and friends. Take a long-term, strategic view.”
On the positive side, Steve’s been pleased with his long-term investment in Washington H. Soul Pattinson and Brickworks and admires the way the Millner family has managed these businesses.
While he forms his investment views by reading Morningstar and InvestSmart research and the Australian Financial Review, he says it’s important “not to take on too much white noise, because it can lead to analysis paralysis."
He credits Morningstar with bringing Ramsay Healthcare to his attention. “I bought in at about $4.50 in 2003 and sold them at $14.50 in 2010, a return of 300%. I thought I was a magician. They are now at more than $65 a share.”
“The lesson I learnt is, if you've done your due diligence and you own shares in a company that's got a good market advantage and very little competition, run with them. Over the years, I've sold out after a substantial return only to subsequently buy back in at a much higher price.”
UK wealth management business Henderson Group [now Janus Henderson] has been another good investment. “I doubled my money in about 12 months. You do come across gems every now and again. But after working out my risk profile and strategic asset allocation, I now just make minor adjustments to my allocations.”
Steve, now retired, also holds more cash in his SMSF than he used to. “I have five years’ income in cash because I don’t want to have to sell investments at a bad time in the market.” He also relies more on advisers and accountants now than in the past.
Finally, Steve says he’s an avid reader of SMSF News. “If you pick up one point out of each article that's worthwhile, then it's been worth reading. But overall, my advice is not to sweat the small stuff. If you look at 150-year graphs of stock markets, they always go up and down.”
“Take a long-term approach and make sure you have the right personality to run your own fund. You've got to know yourself, because you'll only succeed if you've got that personality."
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