STRICTLY PRIVATE & CONFIDENTIAL 21 March 2019 / 1 Business 101: “Investing in Shares and Businesses” Peter Corban Investment Adviser, Private Wealth Specialist Please note that this is a copy of a slide presentation. Nothing within this document is to be taken as a solicitation to buy or sell securities. Please DO NOT pass this on to 3rd parties. If you would like further information, please contact Peter Corban at 924 0504 or [email protected] Strictly Confidential 1 STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 1 Disclaimer This presentation is a private communication to clients of Craigs Investment Partners Limited resident in New Zealand and is not intended for public circulation or publication or for the use of any third party, without the express prior approval of Craigs Investment Partners Limited. This presentation is not intended for distribution to any person outside New Zealand except in accordance with all the legal requirements of the relevant jurisdiction. While this presentation is based on information from sources which Craigs Investment Partners Limited considers reliable, its accuracy and completeness cannot be guaranteed. Craigs Investment Partners Limited, its partners and employees, do not accept liability for the results of any actions taken or not taken upon the basis of information in this presentation, or for any negligent mis-statements, errors or omissions. Those acting upon information and recommendations do so entirely at their own risk. Craigs Investment Partners Limited and/or its partners and employees may, from time to time, have a financial interest in respect of some or all of the matters discussed. The research analyst or analysts responsible for the content of this presentation certify that: (1) the views expressed and attributed to the research analyst or analysts in the presentation accurately reflect their personal opinion(s) about the subject, securities and issuers and/or other subject matter as appropriate; and (2) no part of his or her compensation was, is or will be, directly or indirectly related to the specific recommendations or views contained in this presentation. Craigs Investment Partners Limited did not take into account the investment objectives, financial situation or particular needs of any particular person. Accordingly, before making any investment decision Craigs Investment Partners Limited recommends professional assistance from an investment adviser is sought. Disclosure statements are available on request or from www.craigsip.com. STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 2 Craigs Investment Partners: Core business and expertise is in in providing investment advice 30 year history in personalised investment management Craigs has a significant retail distribution network in New Zealand Locally owned & operated (50% staff ownership) Sole focus - investments for NZ private wealth & institutional clients Over $16bn of funds under management and administration 60,000 clients – from individuals through to community organisations and charitable trusts Self managed super Strategic partnership with Deutsche Bank Access to new equity and debt issuance through dedicated investment banking team Comprehensive strategy and research team STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 3 Introduction to investing: with a focus on shares • What is investing? • Why invest? • Deciding what to invest in • How to diversify your investment • Why diversification is important STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 4 What is investing? “To lay out money in an enterprise with the expectation of profit” - Definition from Oxford Dictionary Profit can be achieved through: • Income stream (interest and dividends) • Capital growth (an improvement in the value of your original investment) STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 5 Why do I need to invest? Besides the fact that it is interesting and fun . • The income from NZ Super is simply not enough – to have a good lifestyle you will need to derive additional income STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 6 We can categorise investments as either: 1) Growth assets - example company shares, property or 2) Income assets - example term deposits and fixed interest Source: CIP, Bloomberg. STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 7 Investment assets Income assets Growth assets $100 in = $100 on maturity, generally an unlimited whether that be in maturity and an 3 months or 5 years unknown amount out, but, ideally, some growth Return = interest = a fixed & known a capital return on amount realization, BUT in most cases, also a regular income (rent, dividends) Source: CIP, Bloomberg. STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 8 What sort of returns might I get?* Company shares help protect your money from inflation - Source: Reserve Bank of New Zealand, Bloomberg, Craigs Investment Partners. Share returns are calculated using the Barclays Capital Index prior to 1986 and the NZSE Gross Index from 1986. This index excluded dividends up to 1986, included gross dividends from 1987 to 2000 and net dividends since then – on balance it includes dividends reinvested net of tax. The six month term deposit rate was sourced from the RBNZ, tax has been deducted from interest at a rate of 30% and interest has been compounded. Inflation has been calculated using CPI data. * Note – past performance is not a guarantee of future results STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 9 Graphically: NZ shares since 1967 $10,000 $12,254 $1,000 NZ shares have returned a nominal 9.8% pa over the past 50 years… $100 Source:Source: CIP, CIP, RBNZ, RBNZ, Bloomberg. Bloomberg. RBclays BarclaysCapital Capital Index Index from from 1967 1967 to to July July 1986, NZSE Gross Index from July 1986 to current. Data as at December 1986,2018. NZSE Tax considerations Gross Index from ignored July 1986 for shares to current. and house prices (given imputation regime etc), and term deposit income taxed at 30% per annum. STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 10 So what is the sharemarket?: - The capitalist system . Everything we use or require is produced by someone . Many centuries ago we produced these things ourselves or in our family unit . Over time we specialised – farmer, builder, clothing etc . As we became more efficient, innovative and creative, the ‘better’ producers got larger and larger . As they got larger, or planned to get larger, they needed extra capital to pay for labour, machinery, supplies, marketing etc . If could not self-fund, then needed to either borrow the extra funds – BANKS – or, sell ‘shares’ in the business to raise capital STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 11 Hence the sharemarket . Is simply a market, or exchange, set up to enable entrepreneurs to efficiently raise additional capital to help fund growth in their businesses . It also has the additional benefits of: enabling anyone to own a stake in a business by buying shares in the listed company Providing a way for existing and future owners to sell should they want . A shareholder enjoys the benefit of growth in the companies profits – share price and dividends from growing profits STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 12 The sharemarket . Nothing ‘magical’ or different with a sharemarket-listed company than a one-person or three-person company – just scale . Own a stake in growing companies and enjoy the increase in wealth that is created by the capitalist system and good managers World* New Zealand* 1) Apple 1) a2 Milk 2) Microsoft 2) Meridian Energy 3) Amazon 3) Auckland Airport 4) Google 4) Fisher & Paykel Healthcare 5) Facebook 5) Spark 6) Johnson & Johnson 6) Ryman Healthcare . How many of these companies/products do you use everyday? * ranked by market capitalisation/value STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 13 With shares in companies, you can diversify by sector: Contact Energy Z Energy Spark Fletcher Building Mainfreight Pushpay Kathmandu Precint ANZ Woolworths F&P Healthcare STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 14 And you can diversify by geography *This chart is illustrative only. STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 15 Why invest in company shares? • Because it enables you to co-invest with the best companies in the world and with the best opportunities • Because it enables you to access a high and growing income stream into the future • Because it helps you to grow your money and give you more financial freedom in the future • Because your investment is extremely liquid You can sell any part of your holdings at any time and with cash settlement in 2 days STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 16 How can you access the different investment areas? Sharebroker Fund manager Bank Estate agent Income assets Cash Yes Indirectly Yes - Fixed income Yes Indirectly Possibly - Growth assets Property (direct) - - - Yes Property (listed) Yes Indirectly Possibly - Shares/Equities Yes Indirectly Possibly - Core competency: Investment Investment Lending Real estate STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 17 Interest rates: a structural decline 20% 18% For three decades, 16% interest rates have 14% been consistently declining . 12% 10% 8% 6% 4% 2% 0% Source: RBNZ, 5 year government bond yield STRICTLY PRIVATE & CONFIDENTIAL 25 March 2019 / 18 You need money to live off - but interest rates have plummeted to historical lows Monthly income on a $500,000 3-month term deposit* 2008 $3,200 2019 $1,130 -65%! Effectively, someone who has saved throughout their