Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), & CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he's one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written, yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data & charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, author of the New York Times bestsellers 'End Game' & 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - author of Things That Make You Go Hmmm, one of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, 'MacroBusiness'.

Saturday, 24 May 2014

Vivid Sydney spectacular

Not sure what I was expecting this year but the Vivid Sydney display stuff is brilliant.

Thousands of people down at Sydney Harbour and at Darling Harbour tonight.

Probably all helped by the weather since it's been ridiculously warm and sunny all week. Today was reportedly the warmest May day in 104 years, and it's still that way even at this late hour.

See more on what is going on with Vivid until June 9 here.


Thursday, 22 May 2014

Carr

Former NSW Premier and Foreign Affairs Minister gives an interesting talk at Walsh Bay, discussing foreign policy as well as his shifting allegiances between former Prime Ministers Julia Gillard and Kevin Rudd.

All part of the Sydney Writers Festival down in the finger wharves at Walsh Bay.

Great event; not a bad Sydney sunset either.


Oz 23,500,000

Population hits 23.5m this weekend

On Saturday arvo, in a small but significant landmark for Australia, with the population increasing by one person approximately every 77 seconds, the Aussie population clock will quietly tick past 23,500,000.

Property investors tend to keep an eye on this kind of stuff because population growth and demographic shifts are vitally important to how we are developing as a nation.

While there may be no direct link between the growth in a population and property prices per se, over the long run it is crucial to understand how demographics are shifting.

And, more than that, whether the population is growing or not makes all the difference to city housing markets. 

Where populations are static or falling, this comes with an inherent risk of protracted declines in price, such as experienced in certain other parts of the world. 

Australia is growing its population at a very sharp pace, so these little landmarks tend to sneak up on us, and it is important that the building of infrastructure and jobs growth keep pace with the net migration and natural population increase (click chart):


Steady states?

As I tend to look at periodically, the population growth in Australia is a combination of natural increase and net migration, and, as you might expect, it does not occur evenly across the country.

Over the long run, in particular, four states have been growing their populations at quite a bounding pace.

Since 1981 for example, New South Wales has increased its population from 5.2 million to above 7.4 million - a colossal increase - while Victoria is not far behind, having raced from below 4 million to above 5.75 million.

Queensland and Western Australia have also shown very strong population growth as you can see in the chart below, which details the make-up of Australia's population by state over the long haul.

On the other hand, even over the very long term South Australia has added relatively few persons to its population, increasing from a bit above 1.3 million to less than 1.7 million, a total increase of only around 350,000.

The other states are minnows by comparison, although artificial and geographical supply constraints in Canberra and Darwin have seen dwelling prices rise sharply in some cases (click chart):


It was interesting to read in an article this week, Steve McKnight offering the following advice:

"The generic growth gives investors a blueprint of where to target, namely Melbourne, Sydney, Perth and Brisbane in that order, and where not to, namely: Tasmania, NT, ACT and SA (in that order)."

The total population growth figures released by the ABS tend to reveal similar trends each quarter (click chart):


McKnight believes that because the state of Victoria has the highest total population growth Melbourne is the best city to invest in.

Property price movements are not only about demand of course, you have to consider supply too.

Personally, I prefer Sydney because of its geographical constraints: the city can't readily spread due to the respective surrounding mountains, national parks and the ocean.

As an obvious aside, while it's good to see a city with very strong population growth, we don't look for suburbs with the highest density of population.

Not at all in fact - we look for prime location suburbs where the population is all but fixed due to a necessary lack of new supply, where there are height restrictions on new building.

In Sydney, for example, we've recently been buying in some of the lower north shore suburbs where the population growth within the individual suburbs from Census to Census has been all but negligible. Fully built out and height restrictions on new development. 

There are other factors to consider too, of course, including relative affordability.

Trees surely don't grow to the sky, so at various points in the cycle investors will consider Brisbane and Perth too.

The other states have feeble population growth, and generally speaking, therefore might be considered riskier propositions.

Sunday, 18 May 2014

Construct

Down at the $6 billion Barangaroo site this morning. Don't think too many people have yet got much of a grasp of just how big this is going to be. 

It's huge and one of the biggest developments in Antipodean history.

Artist impressions down at the site:


File:International Towers Sydney.jpg


From the far left, casino tower (not yet fully approved as it's on what was due to be public space), two residential towers, and then the three monster commercial International Towers: towers IT1, IT2 and IT3 (confusingly, also known as C3, C4 and C5).

The International Towers are to be 39 to 42 storeys high, as compared to the 10 storey Macquarie Bank builidng which is adjacent to the site.

Along the front there, some more resi developments which are selling for $1 million per bedroom.

As for what's actually happened to date, IT2 and particularly IT3 is well on its way, now built up to level 23 if my eyesight is any good.

Saturday, 17 May 2014

Living Mall

...at Broadway.

Must admit to having been sceptical when I heard about the idea of this place, but have to admit that it looks fantastic, and the Mall area is "coming to life" as well.

A huge win for what was once an awful part of inner Sydney.


Thursday, 15 May 2014

RBA insights into Aussie housing

Ego and Confirmation Bias

The other day I bought a parcel of shares in an industrial stock for $1.10, the share price zoomed up to above $1.20 in double-quick time, but then the price fell back to my entry point at $1.10 and I was stopped out with short shrift. 

I know beyond the shadow of any doubt that when I was 25 I would have let the price fall well below my entry price before even thinking of selling, and then hoped for it to 'come back'. 

It's an ego thing; you never want to admit to making a poor selection.

By the time I turned 35 I'd learned that if you want to be a successful share trader you must have the discipline to cut your losses and let the winners run (rather than precisely the opposite, which is what most losing traders do).

Even the best stock pickers might select perhaps four trades which don't co-operate from every ten. That doesn't make them bad trades, as such. You simply must be disciplined, and cut the losing selections ruthlessly, and 'trade right'.

The process is as important as the outcome. Twisting on 20 and getting an ace doesn't make one smart, only lucky.

Ridding yourself of that pesky ego is vital to ongoing success as a trader. If you let the losing trades fall and fall in the vain hope that they one day come back to save you at break-even, eventually one of them will keep falling and wipe out all of the other accumulated gains in your trading account and then some.

Human nature dictates that it's very hard to admit being wrong. This is non-sensical: we all get things wrong all the time!

The only reason I reckon myself to be a half-decent investor today is that I've made no many balls-ups in the past - pretty much every mistake you can name, in fact, I've probably made it or a variation thereof. 

Indeed, making all the mistakes in the book is sometimes the only way to learn about what works and what doesn't, and to some extent it might be described as the hallmark of an expert investor - one who has made every mistake, but has resolved to learn the inherent lessons.

Capital growth

Is there ego in a lot of our property market commentary? Gosh, yes! 

How often do people admit to being wrong? Even when they've had a complete shocker and recommended speculating in mining towns where prices have since collapsed?  Occasionally? Rarely? Ever?!

As I blogged about here, unfortunately for me, I've made mistake after mistake as an investor, although luckily a long term outlook can be forgiving of errors.

Was it Oscar Wilde who said: "Experience is the name we give to mistakes"? I think it was. Oscar Wilde said most of those things after all. It's true. Mistakes are how we learn as people, and also as investors.

Inner suburbs, or outer?

There has been a long-running debate in Australia about whether capital growth is stronger in suburbs closer to the respective city centre (aye), or in outer suburbs (nay).

Clearly, historically, there is no debate to be had. 

Median house prices in Sydney's inner suburb of Point Piper obviously did not get to exceed $5.832 million with moderate capital growth.

And, just as obviously, median house prices of $228,000 in Spencer, Gosford, or median unit prices in Vineyard, Hawkesbury of $162,000 are hardly representative of rampant dwelling price appreciation.

The price growth has necessarily been in some way inversely related to  relative proximity to the city with its employment, infrastructure, amenities, and so on.

It's a debate we've had over and over again in London and the UK over the years. And every time we carry out research into the issue, the results are precisely the same. 

Regional price growth in Britain remains relatively poor, outer London suburbs show moderate growth, and prime central London continues to outperform massively.



Australia?

While it has been common knowledge in Aussie real estate that inner suburbs have demonstrated stronger capital growth over the long term, in the past 15 years or so there has sprung up a debate as to whether regional centres and outer suburbs might now be the outperformers.

Why would that happen? People working from home? People seeking to move outwards for a cheaper lifestyle?

Unfortunately, study after study after study shows that the answer is: no. It's not happening. Indeed, if anything, we seem to have the opposite problem.

Younger generations often want to live close to the city, even if they have to pay to rent or buy an expensive apartment to do so. 

What can happen, in my experience, is that cheap suburbs can get a sugar hit as they gentrify thus experiencing a spurt of capital growth, but over the long term price growth is stronger in better located suburbs closer to the city.

See here and here for the charts from AHURI which prove it, both over the long term and across recent years too. 

The evidence is as clear as daylight, yet some will still cling to perming carefully selected data over short term time horizons in order to defend their arguments.

Inner suburbs are STILL seeing higher capital growth

And so to the RBA's Luci Ellis and her excellent presentation on Australian housing at a conference in Sydney this morning, the full transcript of which you can read here.

Ellis started by highlighting how household debt has hit a plateau since 2005, which implies that Australian dwelling price growth in aggregate will be slower in the future, and far more closely tied to household income growth in the future than it has been in the past, when lending criteria were deregulated and a structural shift to lower inflation and lower interest rates took place.

I'd suggest, though, that property investors will likely still be able to attain strong enough returns over the longer term, provided they know in which locations and what property types to buy.

Ellis highlighted what I've discussed on this blog a thousand times, that being the geographical constraints on some of our cities such as Sydney, which is surrounded by ocean, national parks and mountains, as well as pointing out how exceptionally low the population density is in our urban locations.

We have spacious plots, large houses and relatively few people per square kilometre in urban Australia, which does little to help combat housing affordability in detached dwelling types. 

Graph 3: Urban Population Density

Ellis also went on to discuss the concept of the Central Place model - which is akin to what I have previously referred to here as the bid-rent curve - it suggests that prices and rents tend to decrease as you move away from a city's central point. 

Figure 1: The Central Place Model

Although Australia's cities are not monocentric and do have smaller sub-centres, the RBA notes that when you look at the spatial pattern of employment in Australia, the single centre model "is not a bad fit".

That's correct and accords with what I have seen unfolding in Sydney. We do have employment centres such as Parramatta and Macquarie Park/North Ryde, but they remain very much secondary locations to the main event of the CBD.

We kind of already know all this.

Jobs growth, population growth and capital growth in residential property and much commercial property has been strongest near to the centre of cities in the past.

But what of the future?

At present job density is much higher in the central city areas as the RBA's research shows. In fact, read this point from the RBA carefully:

"Population density is higher near the centres and declines rapidly: again, the scales on these graphs are exponential, so each darker shade is an order of magnitude higher density. 

Some of the outermost districts still contain agricultural land and a good fraction of national parks, so it isn't surprising that population densities are low in these places. I find it interesting that even some middle-ring districts are not that much denser."

Job density:


Graph 4: Job Density

And, for that matter, so is population density far more heavily concentrated on central areas:

Graph 5: Population Density (Persons per square kilometre, 2011)

That's all fairly inherently obvious, but what is more important is how are these trends changing over time.

"The power of the central place is even more striking if we directly contrast where the jobs are with where the employed people live...in all of these cities, the CBD is still the job magnet."

Aha! As I've been arguing forever and a day - yes, we have secondary employment centres in
Sydney (and other cities), but no, they most certainly do not draw more jobs to them than the city and the respective central zones.

Firstly, job density is clearly increasing in central areas at a far greater rate than it is in outer areas:

Graph 8: Change in Job Density

And, secondly, which is more, the population is increasing in density in inner and middle suburbs at a much greater rate too.

RBA:

"In fact, many of the inner areas have become even greater job magnets in recent years; some middle and outer areas added people, but not so many jobs, so their job-to-worker ratios actually declined."


Graph 9: Change in Population Density

Impact on dwelling prices?

What people, I suppose, are often really interested in is how these demographic shifts impact dwelling prices.

The answer, concludes the RBA's research, as indeed does every other credible study undertaken on the subject for that matter, is that the ratio of inner ring to outer ring house prices is actually continuing to increase, and the ratio is notably increasing at the greatest rate in the largest cities.

Luci Ellis:

"Declining job-to-worker ratios in some of the outer areas mean that many people are likely to face longer commutes than before. 

The trade-off between space and place is getting steeper. 

Locating on the fringe is relatively less attractive than it used to be, and not only because the fringe is moving further out.

You can see that trade-off in relative housing prices over time. Inner-ring properties have become more expensive relative to outer-ring properties in recent years. And the larger the city, the greater is that premium."
Graph 11: House Price Gradient

This trend has played out in all five of the major cities so the conclusion is inarguable on an aggregate basis.

The causation is simply a matter of increasing demand for living close to the city versus scarcity value.

A word of caution, though. This chart represents the ratios for detached housing only, which inherently tends to have a certain level of scarcity value, particularly in fully built out areas.

If you're going to buy unit or apartment stock, look to those with an inherent scarcity value, which does not mean generic, over-priced high rise shoe-boxes which are purchased off the plan.

Outer suburbs and regional centres are struggling

With a few exceptions, outer suburbs and regional centres are struggling across a range of metrics. Ellis again:

"Even social infrastructure doesn't easily follow population to the low-density fringes. Sydney's newest university, Notre Dame, could have chosen an outer-ring location where land was cheaper and it had more room to grow. 

But instead it put one campus right next to two other universities not far from here on Broadway and another in Darlinghurst."

And on the challenges facing our regional centres:

"I also can't help noticing how difficult it seems to grow the smaller cities in this country relative to the bigger cities. With the possible exceptions of Newcastle, Geelong and maybe Bendigo and Ballarat, few centres outside the state capitals have many corporate headquarters or other job magnets. 

These self-sustaining job magnets seem to be necessary to create the variety of job opportunities that would attract large numbers of former city dwellers. 

Over recent years at least, these smaller centres had rates of employment growth and changes in employment-to-population ratios that were similar to or a little below those in the big cities, and a bit below those of inner-city areas. 

At this rate, it will be hard for the smaller centres to start catching up with the bigger cities, relatively speaking. That means that if big-city housing prices should rise too high for some residents, smaller cities cannot provide alternative locations that are any more viable than they are today.

Instead of jobs coming to people, at least some of the people have been coming to the jobs, enabled by the pattern of building. In recent years, not only is a lot of the new housing in infill developments, it is much more likely to take the form of high-rise apartments than in the past. "
And so, yet another independent study concludes unequivocally that inner suburbs are more desirable, are magnets for jobs growth, have greater access to essential infrastructure and amenities, have higher population growth, are more self-sustaining and show higher residential property capital growth  - both over the long term, and over the last 8 years too.

Summary

The debate about whether inner or outer suburbs will thrive will drag on, of course, since that is the very nature of confirmation bias.

But the conclusions drawn by the RBA and independent research institutes are about as black and white as it is possible to find.

Ships will sail around the world, yet "the Flat Earth Society will continue to flourish"...yet those listen to what the data is clearly telling them rather than continue to rally in vain against it, will prosper.

Wednesday, 7 May 2014

The Pulse: The 7 personal finance skills that every business owner must ace

Read my latest MYOB Pulse article here.

"The majority of business owners have a desire to become wealthy and financially fluent, yet for most, true financial success remains tantalisingly elusive.

Years ago, having momentarily taken leave of my senses, I enrolled for the Sydney Marathon, and that’s when I learned how to achieve intimidating goals: make sacrifices, eat the right fuel, plan, train hard, execute, build on success and never, ever give up!
Let’s run through the heptathlon of personal finance skills that every business owner must ace..."
Read the rest here.

Monday, 5 May 2014

Port Hedland shatters cargo record (again)

China's non-manufacturing PMI in April was 54.8 (above 50 denotes expansion) which was a new 5 month high.

In that context it was interesting to see the latest news from the Pilbara, with Port Hedland iron exports crunching out another huge record result for the last last month despite talk of weather interruptions.


"Iron ore exports to China from Australia’s Port Hedland surged to a record in April as stockpiles in the biggest buyer reached an all-time high.

Shipments from the world’s largest bulk export terminal totaled 28.9 million metric tons last month compared with 27 million tons in March and 19.3 million tons a year earlier, data on the port authority’s website show. Total exports were also a record 34.8 million tons last month, up from 34.4 million tons in March and 26 million tons in April 2013, the data show.
Total shipments from Australia, the world’s largest exporter, will rise 19 percent to a record 687 million tons this year, the Bureau of Resources and Energy Economics estimates, as miners including Rio Tinto Group (RIO) and Fortescue Metals Group Ltd. boost output."
Numbers on a page don't tell much of a story.

But if we chart the figures back to October 2012, this should give a picture of (a) the huge ramp up in volumes that is taking place and (b) the massive reliance on demand from China (and its province Taiwan), and to a lesser extent Korea and Japan. 
Due to it being a province of China, I've just lumped the Taiwan numbers in with China below (for the record the Taiwan share of exports shipped for the month was around 787,000 tonnes). 

The rest of the iron ore cargo, some of which is shipped within Australia, is peanuts. The ramp up in volumes is vast (click chart):

Total iron ore shipments from Port Hedland have leapt by 34% on a year ago.

For a little bit of context, on the same month in 2006, Port Hedland shipped only 8.7 million tonnes of iron ore and only 5.4 million tonnes of that to China.

Australia is rapidly transitioning from mining construction to mining production.

Watch out for the RBA's updated Chart Pack this week: it's going to show iron ore bulk commodity exports spiralling off the chart.

Bulk Commodity Exports graph

Even these figures don't really do the Port Hedland ops justice. There is only one way to really get a handle on what's going on up there, in the Pilbara, and that's to go for a visit. Only one word for it: awesome.
That

Saturday, 3 May 2014

Darling Harbour

Regeneration continues.

With already 23 million visitors a year, the area is set to be one of Australia's greatest landmarks. 

Not only is this end of the harbour area undergoing a massive regeneration program, a whole new suburb is being created on the old Hungry Mile site at Baranagaroo.

Lend Lease confirmed this week that HSBC and PwC have signed leases on its third tower and construction will be commenced in due course.

The Barangaroo South project itself will be a $6 billion project, funded in part by international pension funds.





Friday, 2 May 2014

Human capital

Financial capital 

We talk a lot about financial capital. 

Simple idea, really. You save a bit of your income each year and invest it for your retirement, and although one must make an allowance for a future increase in the cost of living, if you invest wisely thanks to the compounding growth effect, your retirement should be a comfortable and well-funded one.

In the ideal but sadly non-existent financial world where nobody becomes ill, dies, gets divorced, goes on a spending spree, loses money on bad investments...then building a retirement portfolio is very simple:


Unfortunately it doesn't always work out that way, so when you have money available, it's important to invest some of it!

Human capital

Let's think today instead about human capital

In purely economic terms, invented by economist Theodore Schultz in the 1960s, human capital is said to be "the sum value of our human capacities".

It's a pretty useful concept. 

Just like other forms of capital, you can invest in your own human capital: through education, practising skills and professional training.


A pure economist would tell you that human capital is a way of measuring an employee's skill set, for the more skills and experience you get under your belt, the greater your earnings potential.

So if the value of your human capital is said to be the present value of your future earnings capability, you might expect that at the age of 18-21, while your financial capital might be low or even negative, your human capital might be at its highest point since you have decades of earning power ahead.

In practice, what often happens is that as we move through education and in some cases higher education and professional training, our skills and therefore the salary we can expect to command in the future increases. 

When you are younger and you have time on your side, when allied with professional skills, this can make the level of your human capital high.

For the want of a better example, this is what happened to my salary between the age of 18 and 32:


When I left school I was mostly interested in playing cricket and Guinness, and had a factory machinist job in cold England which paid £4 per hour or £8,320 per annum. 

Uni years: an array of worse part-time jobs in factories producing anything from timber products to perfume and then in my backpacking year, I earned $15 per hour as a van driver and mail-sorter.

But then as I started my professional training contract in London I saw a nice jump in my salary, which then almost doubled three years of tough exams and painstaking auditing work later, when I qualified as a Chartered Accountant.

Moving up through the ranks at Deloitte and then transferring into the mining industry saw my salary increase - not exactly in a straight line, but quite significantly as my skills and experience increased.

Human capital increases then decreases again

The basic point is that while your human capital is highest when you are younger, it then tends to decrease as you approach retirement, since you have fewer earning years remaining. 

Consequently from an investment point of view you should aim to be an accumulator with your long term investment capital (including your superannuation) in your younger years while tending to take a more conservative approach as you move into the income phase as you approach retirement.

The old rule of thumb used to say "subtract your age from 100 and put this percentage of your portfolio in shares, and put the balance in bonds".

But unless you've had 100 subtracted from your IQ you'll know that in the real world individual circumstances differ and no such hard and fast rule can really be applied.

Just like financial capital, human capital has different rates of risk and therefore potential returns. 

Some occupations (e.g. Chartered Accountant) are expected to be relatively low risk and steady in terms of income flows, which makes formulating a regular investment plan straightforward.

Meanwhile others (such as e.g. acting) may be perceived as riskier but potentially with greater rewards, both financially and personally. 

Other occupations are commission based and can see more earnings volatility.

Risk assets

Typically therefore, a younger person might be more inclined to invest heavily in the so-termed risk assets since they have the benefit of a longer investment time horizon. 

Apparently 'safe' term deposits may produce a reliable though small income, but over the long term tend to be actually much riskier since they provide no growth potential.

Upon approaching retirement your financial capital should have increased as your human gradually capital decreases, and the focus often tends to shift towards income investments.

Time horizon

This is an important point, particularly in the light of day-to-day commentary which focuses almost unstintingly on recession risk, economic headwinds, investment market corrections, and so on.

Remember that what is risky for one investor is not necessarily risky for another. It's often largely related to financial goals and time horizon.

Stock markets will periodically boom and crash, but for those who invest wisely in dividend-paying investments the long term risk is greatly diminished.

Another example: I read yesterday in Natural Health magazine that vegan property investor Les Moore, aged 100 this year, retired more nearly 55 years ago having invested heavily in properties around North Sydney and Manly. 

Since the median house price in Sydney in 1960 was around $4,000, these were clearly not risky investments for Les, although they may of course have appeared to be at that time.

Diversifying 

Diversification is one of the key rules of investment and since human capital is a form of investment, then you should avoid having all of your eggs in one basket here too.

To go back to the example of my own career, I recall that when I worked in mining (copper mining company), many of us were offered shares and options as long-term incentives remuneration package from the company.


When the copper price tanked some years ago, the company was forced to make some executives redundant, while the value of their shares also dropped at the same time, and their options flipped out of the money too.

This represents a highly leveraged bet of both human and financial capital on one outcome - that is, one company successfully mining, selling and shipping copper off to China at high commodity prices.

While this focused approach can certainly pay off handsomely for some, for most of us it's often better not to have too much correlation between your human capital and financial capital

If you are specialised in one career, it may be wiser to invest your financial capital in non-correlated investments.

Insurance

When investing in the share market you might opt to you have a form of insurance (e.g. put options) and so it is with relation to your human capital.

Life throws up unforeseen events such as illness or disability which can severely impact earnings potential and therefore there are forms of insurance that can be taken out to protect against such an adverse event.

Summary

Investing in your human capital has many similar principles to investing financial capital.

Invest in your skills and compound your education and the value of your human capital and your future earnings potential goes up. 

Aim to have some level of diversification, limit your downside risk, and invest in yourself for the long term.