Chris Lee & Partners Ltd

Taking Stock 15 May 2025

ABOUT 15 years ago I enjoyed a battle with Bob Jones in a civil case. It was the fifth occasion he had taken aim at me for what he considered defamatory comments about his behaviour when he was running a publicly listed company.

On this fifth occasion he won and secured a modest sum to penalise me for what was my error, in misdescribing the ridiculous fees he privately charged the public company he had formed.

I erred; my mistake; I paid. He had boasting rights, for whatever they were worth.

On the first four occasions he had retired without a court battle. On those occasions I had not erred. His legend was important to him.

Jones died a few days ago, aged 85, after a colourful and I imagine enjoyable life.

At the time of my battle with Jones, I was provided with a large arsenal by the business world and the public, inundating me with anecdotes and data, presumably provided to help me prove that my error was insignificant. Not everyone wore his fan club badge.

For a while I prepared to write the defining biography of Jones and dispel the myths perpetuated by the mainstream media, which had helped him to create a back story that was hilarious but balderdash. I went as far as asking HIM for some photographs. There was no response.

A friend and legal counsel (then QC, now KC) offered his opinion on my plan to write the truth about Jones’ business life. There had already been too many books about Jones, he opined. Forget it. Leave him out of your thoughts. Whatever the merit of it, the book would create endless litigation.

I accepted that, after some contemplation. Jones, 15 years ago, was no longer relevant to investors. He funded his property business entirely with the banks. He was 70. The myths about his life were unimportant.

The public was not at risk of any repeat of what had happened with Jones’ public company (RJ Investments Ltd) which had been buried decades earlier, largely due to his personal vanity and stupidity.

So there was no book.  (As Trump says, “Never say never”.)

Nor will I record the details of his personal life now. He is dead. He will live on by the presence of his private company and some number of family trust structures, about which the public need not care.

Various people on whom he showered gifts – real estate agents, struggling media people and public relations people, selected women, and no doubt many lawyers - will find other benefactors after lauding him in obituaries.

So they should.

If he was a major donor to the Upper Hutt Jaguar Club, let the club praise him for his donations and his buttering of the bread at their sausage sizzles, if that was his contribution.

I acknowledge that he added colour to the world and will leave it at that. We always need colour.

However, the less personal matters of the myths about his business practices must be worth discussion. His errors must not be repeated.

Taking Stock seeks to help investors. The fables about business creativity should be countered. In coming weeks I will discuss these.

Meanwhile, his various sons, daughters, wives and partners are entitled to enjoy a hearty wake, as he prepares to knock on the pearly gates hoping, no doubt, to find an audience for his irreverent, sometimes funny, observations on his surroundings.

He should simply not talk about his disasters with RJ Investments Ltd, whose share price began at 50c, fell to 30c, rose to nearly $20 and finished at a level that, if recognised by one cent coins, would not fill a cup designed for a quail’s egg.

I will discuss the errors in a future Taking Stock

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THERE would be few investors, if any, of my generation that ever became wise about financial matters during their school and university years.

Probably that was a good outcome.

Then, and now, teachers and university lecturers are a most unlikely source of financial knowledge, let alone wisdom.

The truth is that those who work in financial markets must bring together in-depth experience, a widespread network that relies on the trading of knowledge between its network members, and the energy to accept the 24/7 nature of financial work. Those who succeed very rarely would contemplate the restrictions and rewards of the teaching trade and its often political curriculum.

It is for this reason that multiple years of academic devotion produces no Warren Buffetts or any of the others who walk the walk.

I was reminded of the divide in work ethic and motivation after I had written The Billion Dollar Bonfire, an account of political and financial market disasters around South Canterbury Finance that destroyed far more than a billion dollars, unnecessarily.

Multiple corporates and banks bought boxes of the books to share with directors and executives.

As a kindness, I wrote to each of New Zealand’s universities, offering a box of books without charge, to share amongst commerce students. I directed my email to their Commerce Faculties. Not a single university replied. Whether this silence came from laziness, incompetence, indifference, or some other reason, was not clear to me.

The real world had a different view of a presentation based on a level of research that was undeniable. Financial “advisers” who passed exams but had never worked in financial markets were, and are, likely to trot out some textbook stuff.  Sadly textbooks, like Chat GPT, are barely a starting point for any plan to create value or collate wisdom.

For this reason, I will be thrilled if the new Minister of Education succeeds in persuading people with real knowledge and experience to help create a curriculum on Financial Literacy AND persuades the same people to help with delivering it to the Year 10 classes.

For many years the local colleges in Kapiti sought my help in communicating in classrooms with the 6th and 7th form commerce students. The teachers themselves who sat in almost inevitably were amongst the most attentive members of the audience. They may have had no portfolio, and no or little savings beyond their pension schemes, but they clearly relished information tailored for beginners.

The arrival of KiwiSaver has marginally improved the energy to learn about financial markets but the truth is that there is a giant long-term gap between the vast majority of young people and the tiny percentage that learn about the discipline of investing.

The likes of Sharesies has helped large numbers to play, raising the level of fun in speculative investing but that group will learn only if they have the energy and discipline to seek out knowledge.

Just one topical example springs to mind. In 1988 a young man, late 30s, called on me asking to buy $75,000 worth of Bob Jones’ shares, RJI.

I asked him to reveal his logic. He owed the IRD $75,000 later that year and believed Jones’ public statements that the shares were worth twice as much as the share price.

“When the share price rises, I will sell enough to pay my tax and keep the rest,” he explained.

I asked of him one small matter. “Have you arranged with IRD that if you have no other means of paying they will accept your new RJI shares as full payment for the $75,000 if the shares fall in price?”

He put the $75,000 into an interest-bearing bank account. We all know what happened to the share price. He ended up making a decision that any young person would make after digesting some financial market wisdom.

So the key issues will be an interesting, relevant, agnostic curriculum covering relevant areas AND teachers that can hold their pupils’ attention by supplying real-life examples of the difference between investment and speculation.

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A RECENT Taking Stock item illustrated the nil value-add of trust companies, highlighting just one of the areas where that industry chisels for itself some money with no comparative value-add.

I wrote about trust company supervision of trust deeds, with all their covenants (promises) created to market unlisted projects, in particular, syndicates to own land, plant trees, grow a forest, harvest the wood, replant and then sell the land and the saplings.

These very long-term proposals have often produced reasonable results.

In every case of success the common features were honest, skilled forestry managers, favourable lumber prices, a favourable exchange rate, excellent locations (enabling collection of the logs) AND a helping of good luck (no fires or diseases etc). Not once would the trust company managing the deed have been a factor in the syndicate’s success, at least in my experience.

The harsh truth may be that syndicates, always absent of cashflow for decades, choose to engage with the lowest-cost trust companies, seeing no merit in any of them. There can be no argument – if you pay dock weeds, not even a low-IQ sheep would offer any enthusiasm.

Trust companies do not offer lush pasture so these creatures can bleat but the bleating would be ignored.

I described a forest management group that behaved unintelligently, selfishly, and with the wisdom of the low-IQ sheep. The promoters may or may not have collected generous levels of fees but the investors have every right to feel rorted, having been led to believe that trust companies safeguard investors.

Promotional charts showed thousands of dollars of initial investment growing into a six-figure sum over the 30-year life of the syndicate. The reality is that after 30 years, the capital was returned, barely improved from the original subscription. 

The trustee supposedly protecting investors by supervising the directors and enforcing the promises made, had been paid over the 30 years, a sum of maybe $300,000.

The trustee had failed to add any useful protection for the investors. His function had been performed to a level perhaps matching the value of six aniseed balls at their cost in 1956.

The various trust company people who played the role over 30 years should be thoroughly ashamed of their contribution, or lack thereof.

The public response to the Taking Stock item was telling. Clearly my experiences are not unique.

I hope two things happen:

1.A litigation funder is able to overcome the Limitations Act by proving that the failures of Covenant and the directors continued into very recent years.

2.Parliament brings in law that punishes the owners of trust companies, imposing high personal sanctions, for the clear and obvious failure of the trust company to perform to its promise.

I will update progress should there be any.

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Travel

Auckland (North Shore) – 26 May – Chris Lee

Auckland (Ellerslie) – 27 May & 28 May am – Chris Lee

Wellington – 28 May – Edward Lee

Lower Hutt – 29 May – David Colman

Napier – 9 June – Chris Lee

Tauranga – 11 June – Chris Lee

Wanganui – 11 June – David Colman

Hamilton – 12 June – Chris Lee

Christchurch – 23 and 24 June – Chris Lee

Ashburton – 25 June – Chris Lee

Timaru – 26 June – Chris LeeAuckland (North Shore) – 25 June – Edward Lee

Auckland (Ellerslie) – 26 June – Edward Lee

Auckland (CBD) - 27 June – Edward Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee

Chris Lee & Partners

Taking Stock 8 May 2025

James Lee writes:

"Give me a view. It's what I am paying you for. "

I was sitting at dinner with a CEO of a company for which we were trying to launch an IPO. I replied, “How honest do you want me to be on a scale of 1-10?” He said 10, so I didn't hold back.

To this day we have a very honest and direct relationship based on two key concepts - respect for each other's capabilities but more importantly a shared understanding that being clear with your views, whilst awkward, if done with respect, will generally improve a situation. 

When I look across the market today, I worry that the advice industry has become so careful with its language it is nearly impossible to know what is being said.   The more cynical side of me wonders if for some people it's easier to position your view so carefully that you haven't actually given a view, perhaps because you actually don't know what you are talking about. 

Unfortunately it matters a lot because over the past four months investors have been exposed to probably one of the most wild rides in human history, driven by a group of powerful people whose logic frankly can't be explained.

Whether it's the tariffs, the Ukraine war, China’s economy, Musk’s foray into politics or the Germans’ fundamental shift in approach to debt, investors have no place to hide.

At the start of the year most banks forecast that the S&P500 would be at 6500 by year end. Today they are forecasting a significant chance of recession. Most will tell you to be passive because markets are efficient, while others (me included) believe markets are materially inefficient in the short term because of their structure.

Some will tell you that you can't time the market, others will highlight that Warren Buffett has proven that to be nonsense. 

With all that, how should the average investor form a strong view given even the “experts” don't? 

Usually I would say make sure you get advice, but given some of the gobbledegook I have seen recently I can empathise with the sense of caution some have. So instead I will say, please go to see someone willing to give you advice and to listen to your exact risk tolerance. 

We all have to accept that an opinion is just a view in an uncertain world, but don't fall for the “buy the index and it’s all going to be okay” nonsense. 

If any adviser were to tell me that time in the market was more important than price, or that over time markets always recover, or that no one can predict markets, I am pretty certain that I would walk out. Such salesmen’s guff is not advice that adds any value.

Markets do not always go up; prices do not always recover; and I would be paying to receive a valuable view on the markets. 

I do believe however that markets are always rational eventually and generally look out only nine months so you can beat the market if you are right with your analysis and your ideas.

Recently I read that if you missed out on the 17 best days in the history of the markets your returns would be materially worse; sure, but equally those 17 days mostly followed the 17 worst weeks in history. Avoiding the worst weeks is important.

I might have missed the S&P going up 10 percent in a day last month, but the S&P is still lower than it was on January 1st,a time that clearly preceded a risky quarter.

That said, every opinion is awesome in hindsight, but some of the best educated people I know in markets are terrible advisers because they miss the single most important part of advice - actually understanding the client’s risk tolerance. 

You will get bored with me saying this but the most important thing to do is get your risk tolerance and time horizon right. This is why being told you can have five different, largely passive, asset allocations of model portfolios isn't advice. It's the human form of robo investing and, at its most simple, is just an attempt to avoid accountability. 

Setting your goals and your risk 

It is only once you know what you want to achieve from your wealth then you can make a portfolio. As I don't want to venture into the world of advice today, I will just tell you how I do it for me personally, openly acknowledging everyone's risk tolerance and goals will be different. 

I start each year looking at where the market is in terms of risks, geopolitics, macro and leverage vs where it has been.

I then look at how I think this year and next year might go on balance of probabilities compared to current market expectations (i.e. market pricing).

I then decide what my liquidity requirements might be over that period, and what my income needs might be, then decide how much cash/ bonds or private credit I should have to meet that income part of my portfolio. 

Whatever is left over I then put into growth assets. I choose what market is more likely to perform based on the trends in economic data, and then I choose some sectors that should do well in that environment, and pick some companies based on their board / management. 

I finally look to see how expensive a company is relative to its peer group/ history and finally how expensive it is in absolute terms.

How does that work right now?

Let's take the US. The market is within a few percent of where it started the year. Its growth will be impacted by this tariff war. It is also a mathematical certainty that US growth will be slower than previously expected because investment decisions are being paused, and consumers, after the initial surge, will worry that US leverage will continue to grow so interest rates are unlikely to fall unless/ until the economy tanks, meaning the market is already expensive. 

New Zealand on the other hand will see the benefit of lower rates flow through and Christopher Luxon will create new jobs with the fast-track projects. New Zealand has a tonne of savings to invest in infrastructure and the RBNZ is likely to cut banking capital requirements to stimulate lending growth. The property market appears to be stabilising. Tariffs in NZ are a non-event relative to elsewhere and the market pricing is largely where it was in 2022. 

I use these two markets as my starting points because, as a New Zealander, my dividend returns are improved by imputation credits and the US covers 70 percent of the world, so I have all my growth available to me by looking at that one market. 

So once I have formed a view on the world, I think what would a good return be this year and I think what I would be happy with over the next year. 

This year looks to be one where, if I can get a positive return of 6-8 percent, I am going to be happy, but next year I think the New Zealand market is likely to do okay as the economy improves so I need to look at what parts of the market I want to be exposed to. 

In the short term I think the US market probably struggles, as the data in the next few months gets worse, and I think next year returns are more likely to be negative than positive as all of this uncertainty will slow down decision making, and possibly consumption. Domestic consumption is what drives the US economy. 

I accept that if Trump and Xi agree a compromise the market might bounce on sentiment, but I have more confidence that risk-adjusted NZ will meet my investment needs next year with less risk than the US. 

Now I have decided that, I think 6-8 percent this year would be good, and that I want some exposure to a bounce in the NZ economy for next year.  I structure a portfolio of companies leveraged to that theme, that are paying a good dividend to cover me through this year and whose management I respect. I accept that investors must rely on the advice sector to form a view on management. I hope my background will help our clients in this assessment.

I write my plan down with catalysts and then write down what I think these investments might be worth at the time of the catalyst and compare back to this on a regular basis.

The good news for me is I can't really quibble with my financial adviser if I get it wrong! 

Summing this up:

Right now it's ok to feel confused, as markets are really hard. You do not have to be invested in high-risk assets to generate a sensible return in this environment. 

Before you agree to paying an adviser to help you manage your money make sure you understand your own risk tolerance and cash flow needs, and make sure your adviser understands these issues. 

Finally agree a plan and review that plan regularly 

Our team is equipped to help.

Editor’s note: James was previously CEO of investment bank Jarden and is, from July 1, CEO of the Canadian listed company Healwell AI Inc, a health software provider, now the owner of the NZ- formed company Orion Health. He became chairman of Chris Lee & Partners Ltd on 1 April  and chairs the investment committee of our company. 

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Chorus – New Capital Note Offer Pending

Chorus has announced that it is considering an offer of up to $170 million of subordinated capital notes.

Further details are expected to be released during the week of 19 May 2025, with payment likely due by the end of May.

It is anticipated that Chorus will cover the transaction costs associated with the offer, meaning no brokerage would apply. This will be confirmed once the offer formally opens.

While the interest rate has not yet been disclosed, comparable securities in the market are currently trading around 5.00% per annum, so we expect the offer to be in that range.

Investors wishing to be kept informed or pencilled in for this offer should contact us now to register their interest.

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Travel

New Plymouth – 9 May – David Colman

Nelson – 12 May – Chris Lee (FULL)

Blenheim (pm) – 13 May – Chris Lee (One appointment time available)

Auckland (North Shore) – 26 May – Chris Lee

Auckland (Ellerslie) – 27 May -all day & 28 May (am) – Chris Lee

Please contact us if you would like to make an appointment to see any of our advisers.

Chris Lee & Partners