When Passive Stops Paying

Passive investing has had a long run. Why we think the easy years are behind us, and why the next trigger is usually something nobody sees coming.

This Week's FocusThe Members Message

For many years, passive investing has worked a treat. Buy US shares or Australian property, then watch the dollars roll in. Who needs income when asset prices do the heavy lifting? It has been extremely profitable, especially for people who had the collateral to borrow from the banks.

We think those days are gone. US valuations remain stretched, Australian property prices are now falling, and we can see nothing that points to a quick rebound.

At this point in the cycle it pays to understand market dynamics and check that your portfolio suits the threats on the table. The trouble with markets is that the trigger is usually something unexpected.

The US midterm elections are nearly upon us. With the Democrats looking strong, our view is that we should expect some unpredictable behaviour from Donald Trump whatever the outcome. Interesting times.

Most people are taught that the long run, and passive, hands-off investing, is the best way to earn a return. We read the data differently, and starting valuations are a big part of why. For long-term returns, the old rule is to sell when others are greedy and buy when they are fearful. In practice we mostly act on short-term emotion …

WorldEurope Moves on China

The UK is getting ready to put tariffs on Chinese electric vehicles, and Europe is lining up protection against Chinese imports of its own. The EU's goods deficit with China was about €360 billion in 2025, close to €1 billion a day, according to figures New Normal cites from Nikkei.

Brussels is now reportedly working on changes that would make it easier to use its Anti-Coercion Instrument, the so-called trade bazooka, with a decision aimed at the European Council on October 15. We should expect more of this around the world, and more retaliation from China, which brings the supply of critical materials into focus.

Behind the PaywallIn This Week's Premium Issue

The rest of the issue is for members. Here is what they are reading this week:

• France. A government bond spread that has jumped to roughly 150 basis points, and why we think France may be the trouble spot.
• The Middle East and Russia. The war spreads, new alliances form, and what we make of the Russian plague scare.
• Australian property. The full price table by city, auctions, clearance rates and a story about a house on the market in 2008.
• The politics of volatility. The latest poll, One Nation, immigration and a 30-year low in consumer confidence.
• Special topic: rare earths. The article we are reading on Canberra and critical minerals.
• The Weekly Video Review with Steve, Tom and Jacob, plus the complete Members Message.

The TMM PodcastYour Edge Is How You Think About Time

This week Steve, Tom and Jacob get into timeframe, volatility and action, and why most people think passively about investing without ever deciding to. Free listeners get the full episode.

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