The Secret Broker: Race Around the World – Sexy Tax Time Edition
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
Well, it’s coming up to ‘Sexy Time’ as my accountant says to me over the phone, and the mental thought of him in a mankini means I have to go and lie down after our chat.
As far as I’m concerned he works for Boring, Boring and Dull (sorry Bill). The only time I can ever get real joy out of an accountant is when I get them to study a listed company’s annual report.
I pay them to give me a simple overview of all of the boring words and figures and all I want from them is ‘FCF’ – Free Cash Flow.
We have all made a pretty penny by looking for FCF and projecting it going forward. Mainly the reward comes in a special dividend or an acquisition via cash and not by issuing more (dilutive) shares.
Don’t get me wrong, I don’t mind paying tax but it’s going through all the paperwork that I find so boring and laborious.
I have to trick my mind to get it into the zone. This requires me repeating to myself, ‘this is simple, this is easy, this is fun’ over and over again till eventually my brain thinks it is.
I learnt this trick from one of my early mentors, when we had to go and visit a fund that was run by Seventh Day Adventists. It included a dry lunch of boiled fish with rice while we went through their portfolio together.
A visit to Macca’s was required on the way home and then a debriefing at our favourite watering hole. Actually, after a few years it did indeed become fun.
I have seen many people do very strange things to try and avoid paying tax.
When they introduced the 50% capital gains tax relief, if you held a winning share for 12 months or more, it created a bit of false hope.
As I had to point out to one stubborn client – who thought he was being clever by holding on longer than he should have – the market doesn’t care about your timing.
In the end, his $50,000 tax-saving ‘hanging on strategy’ turned into a capital loss as he wouldn’t listen to us; he was more concerned about gaming the ATO.
He wanted to ‘beat the bastards’.
In the end he just beat himself.
I’ve seen others leave Australia to go and live in other countries, away from all their families and friends, to eat foreign food paid for with funny money and ordered with strange words.
It normally ended up in divorce or just simply the wife moving back home, so the tax-dodger only became even more lonely when counting his money.
I was reading that in Norway, only 5% of tax returns require an agent, as their tax rules are so simple to use and follow.
In Australia, more than 70% of all tax returns are via an agent.
A simple napkin calculation can prove that the lower a tax rate, the more revenue is collected. The higher the rate the more incentive to find ways around it.
In the late 1970s, the UK government introduced a tax so high, people like the Beatles and the Rolling Stones ended up paying 98p in every £ in tax.
They all ended up in tax minimisation schemes, like buying forests for a tax break.
However, their best minimisation strategy was to live overseas for a year. Hence they all had a few years recording new albums in France and then touring overseas to promote them.
Even the ‘Two Ronnies’ came and toured on stage in Australia, as they were then required to pay zero income tax upon their return.
From the archives:
‘Barker and Corbett moved with their families to Sydney, Australia for tax reasons in 1979. They toured their stage show in Melbourne and Sydney and went on to produce two series of The Two Ronnies in Australia.’
A trip from the UK to Monaco for lunch was almost a weekly event before, during and after the Grand Prix. The client with the best balcony was always full of various financial advisors on a race weekend (thanks Mickey!).
But coming from a cold, wet and miserable England to a warm, inviting Australia, is much more fun than moving to Monaco. Trust me!
When we would sail around the Greek islands, the landscape was dotted with houses and apartments that had roofs that were still half built.
Our skipper would explain to us that in Greece, when you completed a building, you would be taxed on its value.
Hence they were all mainly 95% complete.
At the time, the county was struggling and their 10-year government bonds were yielding 30% or more.
We were there to take advantage of their collapsing currency and help support their economy one Ouzo at a time.
Today, their 10-year bonds yield less than Australian AAA rated 10-year bonds – 3.84% compared to Australia’s recent 4.09%.
How so, you may say.
How can a country that had gone through such a bad time that they needed to pay a 30% coupon, just to attract investors, now be required to offer less than Australia has to?
Well it’s down to tax and how they changed the way it was collected.
Before their Government came up with a turnaround strategy, 85% of the economy was run ‘black market’ – i.e. everything was in cash, under the counter and away from the taxman.
So, what they did was introduce a law that all shops must take electronic payments.
They all had to use EFTPOS machines otherwise they would be closed down. Everyone was given a year to introduce tap ‘n pay and have the banks issue chipped payment cards.
This is the result:
Let’s pray that Australia one day sees the light and we can have 5% agent returns as the norm.
However, the very best Monaco story that we ever heard was when a rival broker was picked up at the airport by Mickey in his Roller in 1985.
Mickey was in the back with him, pointing out all the local sights and excitedly explaining to him his latest toy. All he had to do was issue a voice command to his car phone and the phone would auto dial the required person. (Yes, that was “new tech” back then.)
They had fun saying ‘Casino’, ‘Mistress’ and ‘Monte Cristo’ and hearing the correct person answer the phone.
The broker then leaned forward and said ‘Wanker’ and his own mobile phone started ringing!
Lunch was eaten in silence and Mickey was giggling all the way home.
We all had some fun dining out on that one. When the broker got back to his office, we had changed his old name to his new one. Even his colleagues had a newly minted sign glued to his dealing desk.
If only he had said ‘Broker One’, then I could have given him a few of Mickey’s favourite stock quotes and saved him his embarrassment.
Feel free to contact him with your best stock tips and ideas.