Kerr Neilson’s 7 top tips for navigating today’s market

"I started investing at 13 and I didn't have a clue. I think I didn't have a clue for the first 15 years of being in the markets. Then I started to understand," he said. 

"The real issue is in China - the property market is hugely oversupplied," he said. 

"The exposure of various financial institutions to properties is greater than they declare - they mask what they truly have in terms of exposure. So I think this is quite a long workout." 

Neilson points the finger at Xi Jinping, dubbing China's paramount leader as "impatient". 

"He tried his social control game with COVID and oppressive lockdowns, which destroyed [the economy]. Then he's been more agro than he needs to have been on all fronts, so that hasn't helped with job creation," he said. 

"So you've got high unemployment among educated youth over 20%, and now you're shutting down any communication in terms of collection of stats and the collection of market intelligence." 

Neilson also believes the risks for Taiwan haven't diminished. In fact, "they've probably gone higher", he said. 

"I'm much more interested in the rest of Asia, even though the deeper value is in China," Neilson said. 

"You've got to balance all these things up. It's not just about return, it's how much variance is in the likely outcome of a return." 

"I think we've got huge problems with the supply of labour, we've got high costs of materials and they're not coming down," Neilson said. 

"So, I think we will get inflation to lower levels, but the idea that we get to anything like these central bank levels of 2% is a dream world." 

"I think we need to set up parameters for a more difficult environment than we're familiar with because we really did blow it when we made money free," Neilson said. 

Near 0% interest rates created "confusion" about the pricing of assets, and while some parts of the US market have repriced significantly, Neilson believes much of the pain has been masked by the Magnificent Seven 

"We just had 35 years of falling rates. Now we've got a fairly prolonged period of rising rates and that means you have to reprice assets," he said.

"Remember, we've all been boiled in this cauldron and gradually the temperature's risen and we think it's all well... So it starts changing and eroding your confidence in making objective assessments." 

So what is the objective assessment? 

"The cost of money has risen and we don't fully understand this interaction between central banks and government spending and that's given a mad fillip to activity in the last few years, which is not going to persist," Neilson said. 

In recent weeks, post-Livewire's interview with Neilson, the falls in markets have steepened, with major bourses like the NASDAQ 100, S&P 500 and ASX 200 down between 3.5-6.5%. He had this to add:

"Many markets are seeing breakdowns in crosses of their 50 and 200-day moving averages, indicating further pain," Neilson said.

"Rather than forecasting, I suggest investors watch the path of the US$ (and the BoJ meeting today and tomorrow). When the US$ turns down, and it looks very overbought, the turbulence in currency markets could set gold free (upwards)." 

"Why it worked was there was total integrity of intent... The trouble is in today's world, there's so much product being issued and it's really just trying to put a bucket under every drop," he said. 

"There's a falling integrity of intent, in my view, which is not healthy. There are too many funds. I mean, there are more funds than companies." 

So, should investors manage their own money or pay one of the many managers out there to do it for them? 

"To do it yourself is quite doable, for sure, but it does require time and that's the only difference. If you've got the time, I think you should do that," Neilson said. 

While I may not have the time to track 60 stocks in my portfolio, Neilson believes that number is the sweet spot. 

"It's hard to follow, but remember, your new stocks are probably 10 to 15. Your nice performers are another 15 to 20, and then you're getting companies that are starting to fade. So I think 60 is fine," he said. 

"I run a little more because I've got a big tail of rubbish that I like to have. As Keating once said to me, 'You've got to have a few little runners'."

"It's a spread of different types of industries. It's not just sticking to AI. I don't invest that way," Neilson said. 

"I still own some gold shares, which have made me no money at all for the last few years, but that's how I invest. I don't have a massively concentrated portfolio." 

Neilson believes in topping up positions that are "hibernating" in his portfolio when winning stocks have seen these positions become "insignificant". 

"Sizing is your problem running money because the idea that was prevalent was you just have very few stocks and you put big bets [on them]," he said. 

"The trouble is it can make you myopic about the company and everything gets couched in the same terms - it's a nail, we better hammer it. So I think there's real benefit in having more spread."