0:07

Well it is that time to

0:09

fire up the campfire, get some

0:11

schmores, get some hot chocolate

0:13

Vince at supper time in Scouts and all

0:16

that stuff. So hey we've got

0:18

a big campfire today and

0:20

a really interesting set

0:22

of attendees around the fire. Our

0:25

regular campfire, Vince Scully, welcome back to

0:27

this, his money from Lifeshurper. Get a

0:29

clean. And we've got Chris

0:31

Bricky, is that how I pronounce it? I

0:34

get a lot of pronunciations but Brikey is

0:37

the one I will take. Right, so

0:40

Chris is the founder, creator,

0:43

CEO if you will, head dude at

0:45

Stockspot, you've heard that before and we'll

0:47

get into that. Kenish Chugh,

0:49

you've been on the podcast a few times,

0:51

you're a regular pest in the investing world

0:53

in Australia and it's great to have you

0:55

back. No, glad to be back. Awesome.

0:58

So what I want to kind of do if you

1:00

are new to these episodes, they're just

1:03

us chatting. We're not going to stop and

1:05

explain what an ETF is or what DIP

1:08

stands for. We do these for

1:10

those who want a little bit

1:12

more nuance to discussion. We

1:15

do these for those who might want longer form, so

1:17

you're on a road trip, you might want to turn

1:19

on the potty for a couple of hours. We're

1:22

not going to be here all day but we don't want

1:24

to outstay our welcome or you know cut

1:26

it short. We put

1:28

questions up in the Facebook group when we do

1:31

these campfire chats and they kind of form the

1:33

basis of what we're going to talk about and

1:35

I will start. There was a couple of questions.

1:37

First one from Aleski and there was another one

1:39

from Anonymous. How do you determine when to sell

1:42

your shares or ETFs? So Chris, you

1:44

may have had a new client come into

1:46

your ecosystem and you do a weekly newsletter

1:48

or monthly newsletter. It was a weekly or

1:50

monthly? We do a monthly newsletter, yeah. And

1:52

you do Q&A. So if someone said to

1:54

you, Chris, with all your experience in the

1:57

investing world, How do I

1:59

know when to buy shares? There's and how don't I

2:01

went to sell them. I. Think it's

2:03

a pretty common question people have cause I think

2:05

the conception people have about the market is that

2:07

you really need to focus on getting in low

2:09

and getting our clients know half the job is

2:11

actually trying to time when you get in and

2:13

out of the market. I think for a very

2:15

small. Percentage. Of the community who

2:17

are professional traders that is the I am. but

2:19

from what I've seen having worked in that world

2:22

is that it's very difficult to get your timing

2:24

right and and so for all of our clients

2:26

had stopped spot in the way I would think

2:28

about it for and anyone listening in any one

2:31

investing at home would be to forget about the

2:33

market level or you know where the market he

2:35

is or whether that person on Tv says it's

2:37

overvalued are undervalued and the right time to invest

2:39

his release. If investing is right for your goals

2:42

at the time in a D have some savings

2:44

that you're able to invest in old are you

2:46

capable. Of holding on for a reasonable period of

2:48

time to enjoy the returns of the markets and

2:50

if the answers to those sort of questions or

2:53

right which the an advisor might take you through

2:55

or in in case of our product we would

2:57

take you through. When you sign off, that is

2:59

the right time to invest. as if if you've

3:02

actually got the time on your side to be

3:04

able to see those investments go and an equally

3:06

the time to sell is when you've actually reach

3:08

to go. So when you've seen that times through

3:11

and and your portfolio his hopefully grown over that

3:13

period. and then you have the money that you

3:15

need to do whatever. You were planning to

3:17

do. we will buy a house Go on

3:19

holiday. Funny kids' educations. That's the right time

3:21

to So so so really the market level

3:23

should be you're not really I thought it

3:25

all in the process. What would you say

3:27

to that to nice as it is going

3:30

to I think this question is when when

3:32

as you were saying it sounds like a

3:34

toddler on into context as a lot of

3:36

people would look at your unanswered Chris what

3:38

you're saying People often get caught up with

3:40

trying to time.monsters vs that in other common

3:42

sort of fraser to time in the market

3:44

am I think the other side to. went

3:46

to sell is when you rebounds the portfolios

3:48

so gently when you go to a professional

3:51

advise us that is their job you know

3:53

and you know the from the robot was

3:55

possible more already had one else in your

3:57

job is to review your portfolio at that

3:59

rate basis and if you're taking care

4:01

of your investments yourself, how regularly do you

4:03

do that? And you

4:06

would then try to trim those positions accordingly just

4:08

to make sure that the goal

4:10

that you're intending your portfolio to be

4:12

positioned around and to be the diversification

4:15

aspect of your portfolio, it's still maintaining

4:17

within that target as well. Because sometimes

4:19

with, you know, you've

4:21

just seen recently, for example, that the

4:24

equity markets and how much that they've

4:26

run, potentially your equity allocation of your

4:28

portfolio could be significantly higher than

4:30

your risk tolerance should allow it. So

4:32

I think that's the other aspect of

4:34

things is to be reviewing your portfolio

4:36

or your allocations on a

4:38

timely basis based on how you want to

4:40

approach that. So there's a couple of things

4:43

there. Buying and selling through

4:45

the normal course of portfolio management

4:47

and then as you say, increase

4:49

that whole, well, I don't know,

4:51

I'm in the best of it. When do I know

4:53

when to sell? How do you trade these things? I

4:56

think that point about are you a trader or are

4:58

you investor is the first decision. If

5:00

you're a trader, what matters is what the share

5:02

price is going to do tomorrow, not what it's

5:04

going to do in 10 or 20 years. So

5:07

if you're, and I think

5:09

most people listen to the podcast are probably

5:11

investors rather than traders. So we can probably

5:14

ignore that trading aspect of that. And so

5:16

if you're an investor, you

5:18

have a goal in mind and you

5:21

have some cash today, that's when you

5:23

should invest. Markets go up

5:25

75% of the time. So a

5:27

significant chunk of the time, the market's going to

5:29

be at an all time high. You

5:32

probably have closer to the numbers than I am Chris, but it's

5:35

most of the time you're getting close to an all time

5:37

high given that markets go up all the time. Today's

5:40

highs are tomorrow's lows. That's right. And

5:42

so tomorrow might just be in three

5:44

years. But certainly the thing that shouldn't

5:46

be determining your choice to invest is what the headline on

5:48

the front page of the Finn review is. There's

5:51

actually some great research on exactly the point Vince

5:53

has made. I Think people have an aversion to

5:55

buying when markets are high because I think when

5:57

you go shopping, you want to buy things on

5:59

a disc. They aren't. You have a sale and

6:01

I think people think when it comes to the

6:03

share market is you crazy to buy one? That's

6:05

why you gotta wait for sale. I think the

6:07

problem I see when I without clients that are

6:10

waiting for sales is festival. The sales don't always

6:12

com so you're often just left waiting and markets

6:14

go higher and higher. The other problem, which I

6:16

actually think is a big problem is that it's

6:18

often when the cell com people are waiting for

6:20

a big asylum. Yeah, and we thought we saw

6:22

that happen with clients. And twenty twenty when markets

6:24

ultimately fell thirty five percent com and we called

6:27

a few of our clients who had just I

6:29

think by law called. You know, maybe they didn't

6:31

predict favored they were out of the market in

6:33

had Saudi Arabia. We said to them hey you

6:35

know what you expected as happen are you ready

6:37

to get back into markets And I'm an amazing.

6:39

Majority of those said we know them it's going

6:42

get a lot worse before it gets better. Song

6:44

when to keep on waiting Amazon as all over

6:46

ninety days and it's always been so. The stuff

6:48

we like to share with points now is that

6:50

if you look at the history of the Australian

6:52

market and we've done a study on the So

6:55

the Us market and others have studied at, if

6:57

you look at Ford twelve months or thirty six

6:59

months returns, you. Actually have a higher chance

7:01

of whom have a positive return. Markets

7:03

are treading in at all time. High

7:05

verse not and saying shouldn't let that

7:08

get in the way they're investing. Far

7:10

out it's. Been. A

7:12

pro think that the follow on from

7:14

that easier he gives mr when you

7:16

got money in your plan and that.

7:19

Tattooed. On the show plan

7:21

changes your portfolio. Should.

7:24

Necessarily times of sunshine. So

7:26

many to react to that.

7:29

But what? Tomorrow's newsies? Shouldn't.

7:32

Change to those planes. Always go

7:34

back to the old personal finance.

7:36

Won I won and. I.

7:38

Think of it in my books like the best time to

7:40

buy. Is. When you got

7:43

the money is the best not to sell

7:45

it when he made the managers from now

7:47

need the money is that you say fruit

7:49

like the the Goldsmiths ah or your tire

7:51

but it's. The So I'd goes back to.

7:54

So. Many people and Vinson eyes when I

7:56

was going to my coffee only of it's

7:58

really didn't join for coffee. It already had

8:00

sustained that exists. But it's. Kind

8:03

of like that how we've all heard the stories

8:05

of people by the first time. In

8:07

three years later on or by an

8:09

investment property threes up to that. All

8:12

situations I just sell the probably the

8:14

worst time do their Us and it's

8:16

to see speak circle of nothing happening.

8:19

And. We've ever seen says he

8:21

swiped so so important to have

8:23

you personal cashflow source added so

8:25

each month, each week each year

8:28

you know exactly. What? Money

8:30

can be carved off and allocated

8:32

to feature you. We. The

8:34

out leading to touch that. Because.

8:36

The problem. With. Investing

8:38

in equities, Bts, Rowboat

8:42

ice platforms. Because it's likud,

8:44

it is easier to Delhi

8:46

and are scripted thousand dollars

8:48

off as disease and. Eat.

8:51

His record investing work is a investing a

8:53

simmer. Investing

8:55

lacks. The.

8:57

Gates Adi. The answer is friggin remove yourself

8:59

from the process. He only wants success. Yeah,

9:02

I think that's absolutely right. There's always like

9:04

you say, a temptation to do something and

9:06

we see that all the time in a

9:08

classical when market for hi there hi, should

9:10

I sell them for when it's low amount

9:12

of hello? Should I sell am in a

9:14

way that piece of news all the economy's

9:16

going to recession or interest rates are about

9:18

to go up As a response we always

9:20

give his life movies if you know that

9:22

than everyone knows that and therefore it's probably

9:24

already built into the prices insights. that's not

9:26

new information you're trading. Off and year. Really

9:28

it the united just sit and incidents

9:31

against a person. I just hope you

9:33

prison is how often suits and invest

9:35

a look at their portfolios. in

9:38

terms of let's because i reckless you look up

9:40

the i'm be a pc john on your i

9:42

phone and you see how often someone's logging into

9:44

their superior com sec whatever try to handle the

9:46

stuff for dot like how often months of made

9:48

that investments as and health hims didn't look back

9:51

on it just a to some people get probably

9:53

look at it every hour going you know you

9:55

get those people it's like i said it will

9:57

last me to say what what what a dumpster

10:00

Well, I think part of this goes back to

10:02

one of Vincent's points is are you a trader

10:04

or an investor like trading apps are designed in

10:06

a way to Generate dopamine every time you trade

10:09

because ultimately you get a baby you get that

10:11

thrill of like any needy when you're gambling And

10:13

you know, it's why Robin Hood in the US

10:15

created confetti and then they got in trouble for

10:17

that Because ultimately they're they're trying to generate brokerage

10:20

or generate, you know trades You

10:22

know what we know from all the research is that's

10:24

the last thing investors should be doing they shouldn't be

10:26

generating trades But the temptation is so strong so I

10:29

mean to answer your question and condition like

10:31

we actually designed our app in a way that we

10:33

don't allow people to buy and Sell within the app

10:35

because we know that if we did actually it wouldn't

10:37

be in their best interest because you're on the train

10:39

on The way home or on the bus and you

10:41

open the apple. I think I should buy I think

10:43

I should sell Hold

10:50

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know we think you know people shouldn't be checking often first

11:37

of all But if they are we need

11:39

to actually help guide them into the right behaviors

11:42

And you've got to be self aware because you know

11:44

I'm I'm a dopamine junky like 100%

11:46

just recently finally

11:49

got an ADHD Diagnosis

11:52

and got the medications, and it's actually changed my

11:54

life, and I'm doing some council

11:56

of psychology to really understand and

12:00

I don't know when it's going to come out

12:02

but it's either before or after this campfire chat

12:04

I'm doing an episode with a psychologist around ADHD

12:06

and then as a part two I might share

12:08

my own story but for me

12:11

with that whole dopamine and ADHD

12:14

one thing that I've done to optimize

12:17

my personality in my life

12:20

is to remove the visual stimulation

12:22

because if I see the visual

12:24

because my was it

12:26

the prefrontal cortex is basically

12:29

screwed I'm just like oh a

12:31

flashing object run to it or oh

12:33

investing app I need to sell

12:35

or like so it's that

12:37

behavioral thing but it goes

12:39

back to Vince you know we're at our

12:41

Sydney event last night and the

12:44

difference with personalities there's four engineers in

12:46

the room right and the engineers

12:49

are the one that can methodically look

12:51

at it and not you know and

12:53

be considered and be measured and they're

12:56

all slow-moving and it's all good where

12:58

my personality is the Wild West so

13:00

I have to really be self-aware

13:03

enough to know to keep stuff

13:05

out of sight out of mind and have

13:07

a system that works I mean she talked

13:09

about dopamine because if you because

13:12

the way markets move them they're

13:15

more likely to be that the

13:17

more often you look at it the more likely you are

13:19

to see a down result that

13:22

if you don't look at it

13:24

for a year you probably have a 75% chance of

13:26

seeing an up result if you look at

13:28

it every two minutes you probably got an 80% chance

13:30

of seeing a down result and so

13:33

frequency actually leads to feeling

13:36

bad about it so I generally

13:38

encourage our members not

13:41

to have these apps on their phone don't look at

13:43

it that's what we're paid

13:45

to do we're paid to keep an eye on it and

13:48

you know today's results yesterday's

13:50

results are sort of academic

13:53

you need to look at the bigger picture you know is there

13:55

a change in your fundamental economics

13:57

history change in regulation that this fun

13:59

change Has your goal changed? They're

14:03

the things that should trigger a move rather than,

14:06

oh, it's down. Oh,

14:08

it's up. Oh, it's down. And I think those statistics I

14:10

think are hard for people to visualize because I think, you

14:12

know, Vince mentioned before, markets are up 75% of years. I

14:15

think a lot of people would do the mental math

14:17

and think, okay, well, therefore, you know, in a typical

14:19

week, it will be up four days and down one

14:21

day. But actually, it's not like that on a single

14:24

day basis. I think markets are up something like 51%

14:26

of the time and down 49% of the time. And

14:30

so, you know, we get the exact same questions from

14:32

clients who will be investing for two weeks and say,

14:34

hey, what's going on? You know, I've lost

14:36

money and we'll have to explain actually that's

14:38

perfectly normal. You had a

14:40

48% chance of losing money over that period. And

14:42

that's why you've told us when you joined that

14:44

you're investing for six years and over that period

14:46

where, you know, much more confident that you'll get

14:49

a great result. So

14:51

this episode is going up on the

14:53

4th of April. So

14:56

that's next Thursday. Yes,

14:58

next Thursday. So we're recording this on the 27th. Sometimes

15:02

when we do content that's a little bit markety,

15:04

we like to get it up as soon as

15:06

possible. So we're recording this, you know, on the

15:09

27th of March. We

15:12

talked about like markets and all time highs.

15:16

Should, you know, does...

15:19

Is Nvidia ever going to stop? Like

15:23

if we were on TV and I was

15:25

the Sky Newsperson interviewing you, Chris, and

15:28

I'm like, Nvidia, what's

15:30

the deal? Is it going to stop? I

15:33

think Nvidia or other stocks that have,

15:35

you know, had great runs and we've

15:37

seen Booms and Bus before. What makes

15:39

the stock market wonderful is extreme things

15:41

happen and they're really hard to predict

15:43

how long those extreme things will last for because it's

15:45

all about the psychology of the crowd. You

15:48

know, I think people look at stocks that go

15:50

crazy or, you know, Dogecoin or

15:52

something like that and think, well, this is

15:54

a sign that markets are inefficient. But

15:57

I don't see it that way because actually to know

15:59

when... The psychology will get so extreme that

16:01

it will revert backwards. That is

16:03

very difficult for even the experts to do. Something

16:07

I've learned in my career is just because something

16:09

seems overvalued or crazy doesn't mean it can't get

16:11

a lot more crazy. I think when people saw

16:13

Dogecoin have a market cap of a billion, they

16:15

would have rightly said that's crazy, let alone 20

16:18

or 50 billion. I

16:22

guess I've stopped in my career trying to predict

16:24

how wild things can get. Often

16:27

there's a big timing difference as well. I

16:30

always like to point to Amazon as an

16:32

example. Amazon is a wonderful company built fantastically

16:34

over 20 years. That

16:36

doesn't mean in 2001 it wasn't

16:38

massively overvalued, which it ultimately was

16:40

and fell It's

16:43

a great example, I think, of why even if

16:45

you're absolutely right and pick the right stocks over

16:47

the long run, it's so hard to hold on

16:49

to them. Imagine going to your partner saying, hey,

16:52

I bought Amazon. I still think it's a great company. I've lost 95%

16:55

of our family money, but just hang in there like we'll

16:57

have to send the kids to different schools for a few

16:59

years. I think you could readily replace

17:01

Nvidia 2023-2024 with Cisco 1999. Cisco

17:09

is now still trading at less than it was in 1999. That's

17:12

the thing, isn't it? It's all good

17:14

until it's not. It

17:16

goes back to having those, I think

17:18

you touched on, Kenish, with in

17:21

your own portfolio, are

17:23

you brave enough, committed

17:25

enough to rebalance every quarter come

17:27

hell or high water? I

17:30

think that's where someone

17:33

that's been part of that ETF industry for close

17:35

to a decade, that's where the

17:37

ETFs really take that thinking away from

17:39

the investor. Because generally if

17:41

a passive ETF is tracking that index, that index

17:44

is going to rebalance based on that frequency, whatever

17:46

that comes. You look at

17:48

say, an outback 100 index or some of these

17:50

others that have Nvidia in them, they

17:52

may be selling at the high

17:54

and then buying again, reweighting that portfolio from

17:57

20% that Nvidia is down to 10% or 5% or whatever. it

18:00

may be. Now that's actually doing the

18:02

part that the investor should do and it's

18:05

taking that choice away which is not a bad thing. The

18:07

other thing I would say is I was actually looking

18:09

at it from a perspective of you look at Nvidia or

18:11

you look at say Amazon or Microsoft

18:14

or Alphabet, some of the other companies in

18:16

there actually have multiple business revenues where if

18:18

you actually split them up, YouTube is a

18:20

good example. If YouTube was its single owned

18:22

company, I think it could be in the

18:24

top 10 or top 20 of the NASDAQ

18:26

index just in terms of its size.

18:29

When you talk about to your

18:31

point Vinta or Cisco and Nvidia, the

18:33

only thing I would say is what else do they have beyond

18:36

that one chip which right now everyone's looking at AI,

18:39

everyone's focusing on it so it's great but yeah.

18:41

Or Intel 30 years ago. These

18:45

things keep coming around. You're

18:47

just sitting back, I've seen it all children. The

18:52

world keeps turning. I think the beauty as

18:54

well of and Conish made this

18:56

point, owning an index fund is that if industries

18:58

are growing and becoming bigger as a part of

19:00

the economy like AI is at the moment, these

19:02

companies naturally become a bigger part of the index

19:05

and you own them anyway. We

19:07

do get clients call us and say, hey, I want

19:10

Nvidia in my portfolio and we say, well actually with

19:12

you now, global 100 ETF, it's already 8% of that

19:16

index. You actually do own it and the

19:18

good thing is if it continues to be successful, you own more

19:20

of it and if it doesn't, you'll own less of it.

19:22

The market's doing your job for you and if

19:24

you're not investing yet, your super fund owns it,

19:26

trust me. Yeah, that's right. If you want to

19:28

see how this works in a broader index sense,

19:31

if you just compare Japan with

19:33

the MSCI, the global

19:36

developed markets index, if

19:38

you were investing in the late

19:40

80s, Japan was go,

19:42

go, go, go. It

19:45

became 40% of the MSCI in 1989. Today, it's about seven. But

19:52

if you'd invested in the MSCI, even though you were

19:54

putting 40% of your money in Japan in

19:57

1989, you've still done. hugely

20:00

well even though Japan

20:03

did nothing and went from 40% to 7%.

20:06

So my indexes are sort of self

20:08

cleansing in that sense. Just

20:12

back to you Chris, in

20:14

turn I'll just disclose everyone,

20:17

I've invited Chris, it's

20:19

not a stock spot paid plug,

20:23

he's here as our guest to

20:25

the campfire and weirdly,

20:28

Kanisha is a

20:32

customer of stock spots so just disclosing all

20:34

that that no one's paid any money and

20:38

that's how we got here. But just tell us a

20:40

little bit about stock spot, is

20:42

it a RoboAdvisor? I

20:45

mean the name that's been given to the

20:47

category that we operate in is RoboAdvisor, I

20:49

think it's given a broader name in Australia

20:51

but certainly overseas where it originated in North

20:53

America, a business that helps

20:57

everyday investors invest into a sensible ETF portfolio

20:59

for the long run known as a RoboAdvisor

21:01

and why did it come up with that

21:03

name? I guess it was because traditionally it

21:05

would be a human not only providing the

21:07

advice but doing the portfolio with implementation and

21:10

rebalancing and a lot of that's automated. So

21:13

yeah that's essentially what we do but we do have qualified

21:15

advisors on our team who then

21:17

help with people who want to

21:19

do transitions or want to get

21:22

advice around how their money should

21:24

be managed. Yeah because the investing

21:26

piece is actually a small piece

21:28

of the overall advice puzzle. In

21:31

my view, yes and we do essentially

21:33

put clients through some level of risk

21:35

profiling and joining but what

21:37

I've seen in the industry is a lot of

21:40

people particularly first time investors don't really know how

21:42

they'll react when the market falls because they've never

21:44

been through that experience and so a lot

21:46

more work in our business goes into

21:48

actually getting people and helping

21:50

them along that journey and answering

21:52

all those tough questions that I

21:56

see a lot of value for advice supporting

21:58

people because often if people are

22:00

managing their own portfolios, they get tripped

22:02

up with a lot of these behavioral

22:04

biases that lead them to make

22:07

the wrong decisions at the wrong time. Are

22:09

there any details about your

22:11

portfolios that aren't behind the paywall or

22:13

for customers only that you can tell

22:15

us a little bit about? So all

22:17

of them, our value proposition

22:20

and certainly our secret source isn't just what

22:22

percentage we put in different assets, they're available

22:24

on our website and anyone can find them.

22:27

We're actually not a secret. Our

22:29

secret source is the time saving we can

22:32

give people versus having to manage it themselves

22:34

and do the administration and the tax and

22:36

all of the work that goes on because

22:38

I think a

22:40

lot of the unadvised community in Australia are

22:42

people that are working hard and have jobs

22:44

and have families and don't want to be

22:46

watching ETF prices every day and doing

22:49

all the hard work. In

22:51

our portfolios, our philosophy is really

22:53

that simple is better when it comes to investing.

22:56

I've done a lot of research on this and

22:58

certainly adding more complexity and too many assets doesn't

23:00

seem to add a lot of extra value. If

23:02

anything, it adds unnecessary cost and

23:04

complexity. So we in our core portfolios only

23:07

have five ETFs which we've only had the

23:09

same five ETFs coming up on one year

23:11

next month. We offer

23:13

a few other more thematic type investments for those

23:15

investors that really want to have something

23:18

a little bit different in their portfolio. But

23:20

most of our clients just pick a very

23:22

simple five ETF portfolio which contains Aussie shares,

23:26

two large companies, emerging markets, government

23:28

bonds and gold. Yeah,

23:30

cool. I mean that's a really good

23:33

point about the constituents of it.

23:35

That's not the secret sauce. I

23:38

mean we publish components of

23:40

our portfolios and so

23:42

when a member looks for advice, you go, well

23:45

here's the portfolio, offer it yourself or let us

23:47

look after it for you. So

23:50

if you choose to invest in Australian

23:52

large cap, let's say you pick the

23:54

Vanguard Australian share fund or VAS. It

23:57

doesn't know whether I recommend it or Chris recommended it.

24:00

or you picked it on a dartboard or you read it

24:02

on Reddit, it will do what

24:04

it does. The market generates the return.

24:07

The value of an advisor or a portfolio manager

24:09

is to make sure those returns end up in

24:11

your pocket. And some of the biggest

24:13

barriers to that is something you see in the

24:15

mirror every day when you go to the bathroom.

24:17

And there's studies as well that show this in

24:19

the US. The Dalbar study, which has been done

24:21

for 30 years, shows that even

24:24

though the market returns might have been 10 or

24:26

11% per year over the very long term, the

24:28

returns that actually end up in people's pockets might be

24:30

like 5% or 6%. And

24:32

so the job of an advisor, whether

24:34

it's a digital advisor or a human advisor, is really

24:36

to help people go from that 5% back

24:39

up to the market's 10% because that's really

24:41

what people should be earning. And if

24:43

you look at the people chase the

24:45

fashion fund, Arc,

24:50

Cathie Wood's Arc Fund, it's a perfect good example, $14

24:53

billion of retail investors' money has been

24:56

toasted by people

24:58

investing in Arc, not withstanding that

25:00

the Arc Fund itself has

25:03

delivered very good returns since

25:05

inception. It's just the fact that as

25:08

it did well, funds flowed in, performance

25:12

tailed off a bit. As

25:15

it dropped, Irulam bailed out. So

25:17

the fund itself did way

25:19

better than the average investor in it. $14

25:22

billion, that's a lot of money, of

25:24

retail investors' money has been toasted by

25:26

following that trend. And it would be stocks

25:28

and funds, and it's happened throughout the

25:31

decades, that the retail money chases things

25:33

after they're already hot, unfortunately, and then

25:35

the money-weighted returns in those things are

25:37

actually negative, which seems bizarre that something

25:39

so successful could actually lead to people

25:41

losing money. This investing thing, it is

25:43

almost like art,

25:45

for example. You

25:47

could want to pay your own landscape, and

25:49

you could be good enough, but

25:51

you've got to know when to put the brush down

25:54

and stop because the more

25:56

friggin' paint and digging around, the worse

25:58

it will look. I

26:00

think that's the knowing when to keep your mitts off

26:02

it. And that's what

26:04

a third party advisor

26:07

or offering will do. It will just remove you from

26:09

stuffing it. But I think you've got to realize

26:12

that truth without

26:15

then falling into the set

26:17

and forget option. There

26:20

is no set and forget investment option.

26:22

But what if I use VDHG Vince?

26:26

You could certainly use VDHG. But

26:28

is that the right answer for you? Is

26:31

hedged Aussie equities what you should be investing

26:33

in? A big chunk of that. Sorry, hedged

26:35

global. Aussie hedged global equities.

26:37

Bigger bit of a mouthful. That might

26:39

be the right answer. But

26:43

is it going to still be the right

26:45

answer tomorrow? Or

26:47

the day after? Or the day after? So

26:51

none of this can be set and forget. But

26:54

there's a huge chasm

26:56

between set and

26:58

forget doesn't exist to I should mettle with this

27:00

every day. And

27:02

understanding where that happy balance is,

27:06

is part of that psychology. And I don't think you

27:08

mentioned before that you think because of your personality, you're

27:10

probably more inclined to do trading. I

27:12

actually see the opposite happen just as often. I

27:15

spoke to one of our advisors today who had

27:17

spoken to a really talented engineer

27:19

who's one of our clients who has decided

27:21

that they want to be doing more trading.

27:24

And this is a very systematic person

27:27

that I'm sure has fantastic spreadsheets. And

27:29

you know, I think the problem there

27:31

is that often very data focused people

27:33

that have more of an engineering brain

27:36

and I see this across lots of other professions, you

27:38

know, doctors and others

27:40

that have very technical skills. They think it

27:42

can be applied to the share market in

27:44

order to extract returns where in fact, that

27:46

isn't the case. If you do more work

27:48

and more research, 99% of people aren't

27:52

going to actually end up with a better return. And

27:54

I think this really doesn't sit well with these

27:56

more technical people because they think well, you know,

27:58

in my normal profession. You know if I

28:01

read more and I learned more you

28:03

know it's gonna make me more profession

28:05

and more skillful on Unfortunately A you

28:07

know that that's not really the case

28:09

in in the share market or actually

28:11

put a dent. Also opportunity cost So

28:13

episodes of as like as as know

28:15

when you mention I have been a

28:17

customer's da spot because there was a

28:19

point where it's coming from the funds

28:21

management industry I thought I was across

28:23

all the difference on was on a

28:25

manage my portfolio and to be said

28:27

I'd credible I thought was a good

28:29

portfolio. But the problem was I didn't

28:31

monitor it on a regular basis and as

28:33

I'm looking at it on a regular basis

28:36

I didn't do my rebalancing, I didn't do

28:38

it, I didn't do the right things that

28:40

I should as and I couldn't focus and

28:42

those the opportunity cost of do I have

28:44

time in my life A.pointer really be across

28:46

everything to be able to make the best

28:49

investment decisions and the answer was no and

28:51

it was better for me to I was

28:53

headed out and it was easier option to

28:55

go down that pod but I see the

28:57

the other side is have spoken to many

28:59

people. In special services around, why do they

29:02

have an adviser and a lot of people

29:04

don't still and some I see on the

29:06

weight and ptomaine. They said that just got

29:08

an adviser and they said they more of

29:10

a life coach than they are. You know,

29:12

talking about investments. his deal for it's it's

29:14

you know, educating around when markets go down

29:16

will you have to take them through that

29:18

journey and and make them and said well

29:20

that's not the time to run for the

29:22

door, it's probably the time to to stay

29:24

cool and and be patient with that. Or

29:26

you know, do they have allocation of funds

29:28

in how how they manage that aspect. Of things.

29:31

Does. Yeah. That's I see a

29:33

good point the opportunity costs here. I think

29:35

it's also the focus of whom We see

29:37

a lot of people coming. From

29:40

it around service, with existing

29:42

portfolios they might have subscribed to

29:44

The Motley Fool, The Rifkin

29:46

Report, or. All of

29:48

the above a nice see these flurry

29:50

of tried That will be yeah. a

29:53

dozen trades in a couple of months and

29:56

then nothing happens with months and ignore the

29:58

another ferry and The

30:01

cost of those subscriptions will usually be

30:03

more expensive than the advice portion

30:05

of a stock spot fee. I

30:08

mean, what are you charging? 50

30:10

points, 60 points? Yeah, for

30:12

smaller portfolios, it might be $60. Yeah.

30:15

So what's a monthly full

30:17

subscription, $200? And

30:21

we see a bit of a life cycle and I think

30:23

it got mentioned earlier that I think people that know nothing

30:25

about investing usually end up in

30:27

index funds. I think people that know a lot

30:29

about investing and we've got some of our clients,

30:31

a university finance professors, for instance, invest in ETFs.

30:33

But it's a lot of the people in the

30:35

middle and I think the Dunning-Kruger

30:37

curve shows this that they know

30:40

a little bit and unfortunately, you

30:42

don't know what you don't know and you think

30:45

you know a lot and that's actually the biggest

30:47

danger in investing and I've certainly been in that

30:51

area of the curve in my career and I

30:53

think a lot of people that I've observed invest

30:55

have also and I see it happen at stock spot where

30:58

we have clients who then leave because

31:00

the grass is greener, they've heard of hedge

31:03

funds or all these alternative funky investments, Bitcoin,

31:05

whatever it is and they decide I'm going

31:07

to go all in on something else. Sometimes

31:10

it works out for them and we probably never hear from them again

31:13

but often, they'll come back to us and

31:15

say, look, I listened to a friend or

31:17

I did it this other way and for

31:20

whatever reason, I lost money or it wasn't

31:22

as good as I thought it would be. Now

31:24

I realize the benefit of

31:26

a more simple approach. Does stock spot

31:30

have a super off like trusty offering

31:32

or is it just ordinary money? Not

31:34

at the moment. So we're managing a

31:36

lot of self-managed super clients and I,

31:38

for instance, have my own self-managed super

31:40

money in stock spot ETF portfolios but

31:43

not at this stage. Yeah, cool. Now,

31:45

Vince, you've got

31:47

LifeShopper Invest and

31:51

similar to stock spot. I mean, it's

31:53

actually different but philosophically, you guys very

31:55

find it out live here and punch

31:57

each other. I mean, there are probably more

31:59

similarities than there are. The differences. Are.

32:02

You will probably a size. More.

32:04

Components to amplify us which goes you

32:06

put a gets a bit complexity and

32:08

why. You're having it.

32:11

actually? Advisor? probably? I

32:13

will as someone to get tickets around

32:15

that a bit more but that's really

32:17

are in trying to add some factors

32:19

into. The portfolio so we

32:21

have seen about. Smoking. Value

32:23

Education which he can't buy an

32:26

easy if. To track. We

32:29

both have reasonable allocations to gold. You

32:32

might have slightly more than we do.

32:36

What about digital gold? Not

32:40

are we don't' to be. A

32:43

I mean the well I would say it is

32:45

that like if someone's already decided one to invest

32:47

fear and then they've decided not to big individual

32:50

shares and they've decided not to pick actively managed

32:52

funds and they're picking low cost of or sweaty

32:54

to. Yes you're already ninety five percent of the

32:56

idea and you doing a great job is different

32:59

ways of implementing that and you know whether it's

33:01

Vince's businesses or minor another one this one is

33:03

on. I did it a May on Easter the

33:05

other day and sounds like had what she's the

33:07

best investing at some A on like a them

33:10

today. What feels nice A use the like you're

33:12

always. Gonna get there in the end The

33:14

way I would think about investing up because

33:16

we get our cities pick the most. the

33:18

one with the most ugly clunky experience because

33:20

you're less inclined to treasure the last. Investing

33:22

happy to be trading is the one with

33:24

a really good user experience because that's gonna

33:26

make it too easy feat of stuff up

33:28

here and cause platform or app covers a

33:30

multitude that we're starts with brokers stockbrokers which

33:32

is resist a conduit to the market. It's

33:34

a way that you can get some information

33:36

you can place a trade you can settle

33:38

the tried. That's

33:40

so the. Basic. Lesson than you

33:43

got people who are up running. Am

33:45

portfolios. Whether that's the micro investing

33:47

at the where she before we

33:49

get much of he probably have.

33:52

Am partial she's or fractional. She's

33:54

where you can buy part of

33:56

a. Bt.

33:59

If. unit or

34:01

part of a share and then you move up to

34:03

the portfolio. So you start with the micro investing, you

34:06

know, with your roundups and all those interesting gamification

34:09

stuff, which is a great way to start

34:11

and a great way to learn what

34:15

you do, how you react to things.

34:17

So if you start with your $20

34:19

in roundups in raise and you market

34:22

goes up and you feel like Warren

34:24

Buffett market is down, you're ready to

34:26

slit your wrist. Then that

34:28

lesson is the most valuable lesson you

34:30

can buy and for $20.

34:34

So I've got

34:36

a provocative question for Chris

34:39

and even you, Ganesh and you

34:41

Vince. When I

34:43

go online on Reddit

34:46

and in Facebook groups, people

34:49

only invest with a chest-sponsored

34:51

broker. How

34:53

can you sleep at night

34:55

knowing your wealth isn't

34:57

on an individual hand? How

35:00

do you do it? Well, if

35:02

you're buying an ETF, the underlying assets

35:04

are held by a custodian anyway. Don't

35:06

tell me that. So if I go

35:08

and buy some, what

35:11

am I buying? I'm buying an interest in

35:14

a trust and

35:16

those assets are held by a

35:19

custodian. I can't remember who Vanguard's custodian

35:21

is off the top of my head, but it's a custodian.

35:25

The next step is, well, do I own that

35:27

unit or not? And does it matter? Australia

35:30

is an outlier in the world

35:32

where we have a

35:37

register where

35:39

the stock

35:41

exchange actually registers the

35:43

name of the individual

35:45

holder. It's

35:47

still just an extract of the register. It's

35:50

not actually the thing that determines your ownership.

35:52

The thing that determines your ownership is the

35:54

entry in the company's register. So

35:56

go read the constitution before you have this

35:58

effect or this argument. So I'm, you

36:01

know, most people or most stocks

36:04

in Australia are still held by

36:06

custodians. And so

36:08

this whole chess sponsorship is

36:10

a marketing beat up that

36:13

this was a really good way of differencing yourself from the

36:15

new fintechs on board who were

36:17

coming in with custodian models, which gave you

36:19

cheaper brokerage. And

36:22

so it's largely

36:24

bullshit. Everyone

36:26

else in the world works fine by having

36:29

stocks. The fallacy is like you get your

36:31

chess sponsored broker and then you want to

36:33

go and buy Amazon directly or

36:35

Microsoft Tesla. You're exiting the chess

36:37

system anyway. Look, I'm not as

36:39

strongly in that camp as you've

36:42

just heard on the podcast. I

36:45

would say, look, I'm probably more in

36:47

the middle on this one. Like I certainly

36:49

appreciate that Australia is

36:51

a bit of a rare structure where

36:53

this sort of Hinn based ownership is

36:55

basically a way of defining how assets

36:58

are held. And it doesn't happen like

37:00

that in the US and other markets

37:03

where custody is a lot more common, whether it's the

37:05

US, South Africa, you know, most places in the world.

37:07

I think Finland is the only other major market that's

37:09

got the same systems with it. I

37:12

think the difference in a lot of

37:14

those markets is the regulatory rigor around

37:16

custodianship. So the concern I have in

37:18

Australia and I've wasted online and I've

37:22

been on record for it is absolutely

37:25

if your custodian is Citigroup,

37:27

JP Morgan, Merrill Lynch, someone

37:29

that's very credit worthy and

37:31

that ultimately can stand behind

37:33

their custodianship. That's fantastic.

37:36

And that's not something that you should be concerned about

37:38

at all. And they're often if

37:40

you have a look at the top 20

37:42

holdings of shares, you'll see them in the

37:44

top 20 holdings. HSBC Nominees, HSBC Nominees, because

37:46

these are ultimately, you know, the safe global

37:49

custodians where that's their whole business model

37:51

and they're very trustworthy, but

37:54

ultimately they're backed by an enormous business and

37:56

they've got very low credit risk. My

37:59

concern is in Australia. that is a choice

38:01

businesses can make. They can choose a safe

38:03

custodian. But those custodians

38:05

charge money. They charge a few basis

38:08

points to be the custodian. So there

38:10

are some businesses in Australia, and it's

38:12

not just brokers, but advice businesses and

38:15

product manufacturers who have created their

38:17

own custodian businesses. And there's

38:19

not a lot of look through as an investor as

38:21

to how safe they are, how well they're built, or

38:24

actually what is the backing of that business? Do they

38:26

have the balance sheet to actually support that? And there's

38:28

been a few businesses that

38:30

have gone belly up in Australia who have ultimately

38:33

tried to manage their own

38:35

custodial structure

38:38

that haven't been able to support it, and

38:40

investors haven't got 100 cents in the dollar

38:42

back. So the advice I give- Has that

38:45

mainly been the property world? No,

38:47

in the- BBY is probably a good example.

38:49

Yeah, BBY. There was another one recently. I

38:51

forget the name, but I'll share it later,

38:53

and you can share it in the podcast

38:55

notes. But it does happen. And ultimately,

38:58

yeah, the only- I think the key question

39:00

clients need to ask is, who is the custodian? And

39:03

how much visibility do I have, or how much trust

39:05

do I have in them as the custodian? I

39:08

personally wouldn't leave any money with any fintech

39:10

who is the custodian, because we've seen how

39:12

many fintechs in Australia have gone belly up,

39:14

and a lot have got very close to

39:17

it. If you're already

39:19

taking risk on the underlying securities, I

39:21

think it's crazy, even if you're saving

39:23

a couple of dollars per trade to

39:25

basically have counterparty risk, which is what

39:28

custodial risk is, with a business that's

39:30

an unknown. And so I would be

39:32

writing off any custodian that isn't a

39:34

big global brand. I mean, that's a

39:36

fair point. I'll probably glossed

39:38

over that a little bit. Where

39:41

we've seen problems, and BBY is a

39:43

very good example, that's

39:45

Bredette Buckridge and Young, I think, was what

39:47

they originally called, and- OOPs

39:51

Prime- And Halifax was actually the other one I was

39:53

thinking of. I mean, Halifax is a very

39:56

good example, and they are businesses

39:58

which also run- proprietary

40:01

books. So where there's a risk

40:06

of where you've got a business that does other things and there's a risk

40:08

of stuff getting mixed up. I think the

40:10

problem is you didn't know that nobody knew they were

40:12

running prep books. BBY is a good example where it

40:14

wasn't known that that that proper risk was being taken.

40:17

So you as an investor thought your money was safe

40:19

and your shares weren't getting lent out and that's come

40:21

out through the court proceedings that a lot of people

40:23

weren't aware of, you know, the actual risk they were

40:25

taking. Yeah, that's that's

40:27

fair call. Like can you can you

40:30

assess this risk, but you know, Bond

40:33

Street, custodians or HSBC or

40:35

JP Morgan or Bank of

40:37

New York Mellon. That's

40:40

a possibly a benefit

40:42

over having it natively

40:44

in interest because

40:47

you got big, someone

40:49

looking after you, you're much less likely to be hacked,

40:51

you're much less likely to have a problem. And

40:56

yes, I think that's not something that you would

40:58

do to save a dollar on brokerage, but

41:00

for the convenience of having a a

41:05

Vanguard personal investor account where

41:07

you can mix managed

41:09

funds and ETFs in the one account

41:11

with ready access to it. Given

41:15

the Vanguard already holding on the lung assets, that's

41:18

you know, that's a completely different kettle of fish.

41:20

So ours are all hidden held. All of our

41:22

clients own legally and beneficially their ETFs on their

41:24

own in which you know, if they ever want

41:26

to leave us is great because they don't have

41:29

to realize tax. They can just transfer the assets

41:31

out and self-manage. For

41:33

our settlement and clearing we use FNZ,

41:35

which is a big, you know, global,

41:37

you know broker and clearer and settler.

41:40

And we use bank accounts that are provided by Bank

41:42

of Queensland. Yep. Very cool. I

41:45

think on the custody thing as well, I think product

41:48

manufacturers and being part of

41:51

product manufacturing in my old shop, We

41:54

would have dealt with and that's where you

41:56

end up, you know, as an investor. you're

41:58

paying up for some. That security and

42:00

safety sometimes the cheapest option is not

42:02

the best option to to what you're

42:04

doing as well because I think there's

42:07

a lot of focus on times on

42:09

face and sometimes to get to that

42:11

fi point people may take shortcuts I

42:13

deathly know right now and Australia from

42:15

a product manufacture perspective the to begin

42:17

aims the more well established names on

42:19

taking though show cuts and of say

42:21

nuts across the both me to fun

42:23

and eat your spices well I think

42:25

the other question allow us his toys

42:27

that are arguing this sort of chess

42:29

was custody. How many of them have

42:31

a Crypto training camp? And how many

42:33

of them actually wide about that versus

42:36

a much bigger risk versus them arguing

42:38

over disorders and facet. Winner! And a

42:40

regulated i'm country like Australia month to

42:42

be Nicole Story dryness the as that

42:44

and cause the truth is that. All.

42:47

All of your secret is held by Trust Eight

42:49

who uses up. To. A custodian,

42:52

The. Majority of retail investments are

42:54

held in some form of in

42:56

this a direct a portfolio service

42:58

which is or custody most so.

43:01

It's. Become a bit of a boogie man

43:03

on Reddit and he I are you old

43:05

Live on I'd I don't care what anyone

43:08

else does, I just dislike. don't crap on

43:10

about. I only used a chest sponsor when

43:12

you don't have the a super in itself

43:14

on his subsequent events. more of your wealth

43:16

and your investment. And I can tell you

43:18

that the. Lion's share of the

43:20

Scully fortune is held on a custodian model. The

43:23

arguments just not placed in the right place.

43:26

Like it's not the custody that the issue,

43:28

it's the counterparties. Yes, yes and and you

43:30

can face com party risk and lots of

43:32

different areas and you're investing. custody is just

43:34

one of them. And to know who you're

43:36

essentially gangs if you're backing onto with your

43:38

investments is is important and or any sudden

43:40

guess at the hold a crypto can use

43:42

mentioned as well. You know a lot of

43:44

people have realized that Stx and before that

43:46

now gog that there was counterparty risk you

43:48

know with with crypto and and therefore it's

43:50

important to hold it with and safe place

43:53

in a probably. one of the reasons why crypto

43:55

he to have some bitcoin hs have done so well

43:57

is that people feel you know a greater sense of

43:59

a surety that that money is ultimately

44:01

safe and that they can trust a BlackRock or

44:03

whatever the counterparty is. But I'm pretty sure that

44:05

BlackRock's not going to lose the private key. I

44:08

100% agree, yes. But I think in

44:10

any area of life it is sensible

44:12

to still understand who your counter parties

44:14

are and how safe those counter parties

44:16

are. But I wouldn't, as Vin said,

44:18

be too concerned about a JP Morgan

44:20

as your counterparty. But I would be

44:22

concerned about an Aussie fintech who's the

44:25

counterparty. And that would be the real

44:27

difference for me. I've actually got a bit

44:29

of a rule now, because we get

44:31

approached all the time for advertisers. We'd

44:33

like startup fintech apps. If

44:35

you have a mean of business at least two years, I

44:38

don't want your money. Not advertising you. Like,

44:40

as simple as that. Well, yeah, for

44:42

you, I guess it's a business and reputation

44:44

risk having sponsors on your show that disappear.

44:46

Yeah, I'm not about it. But ultimately,

44:49

most fintechs who have

44:51

custodial service endorsements

44:54

on their license, actually employ

44:56

a professional custodian underneath,

44:58

whether that's AET

45:00

or NAB

45:04

nominees or whoever. Now,

45:06

some, it may or may not be all

45:08

that easy to find out. But

45:11

in most cases, very

45:13

few of them take that themselves just

45:15

because of the financial

45:18

requirements of actually holding

45:20

client assets. Yeah, I think I mean, a lot of

45:22

fintechs have raised a lot of money. So I think

45:24

a lot of them have the balance sheet to support

45:26

the ASIC requirements for providing custody.

45:28

But often, you know, fintechs are trying to go

45:31

fast. And from what I've seen around the world,

45:33

often the infrastructure behind the scenes isn't up to

45:35

scratch to support what they're trying to do. And

45:37

they'll put Band-Aid solutions in place. And, you know,

45:39

nine out of 10 times that will be fine.

45:41

It's just the one out of 10 that things

45:43

blow up that you need to be worried about. I

45:46

had one fintech,

45:48

and, you know, they might

45:50

hear this, whatever, you know, who you are, and you

45:53

fixed it, apparently. I had

45:56

something to say about their FSG. And

46:01

I was telling someone else who was

46:03

a younger new to this fin full

46:05

of space, like hey, just to let

46:08

you know if you're working with different companies, just have a look

46:10

at their FSGs. And

46:13

one of the FSGs for this

46:15

FinTech said, we'll basically use your

46:17

information for marketing to third parties.

46:19

Like literally that. Anyway, I

46:22

got back to the founder and he

46:24

messaged me and he said,

46:26

hey, Glenn, I hear

46:28

you've been shit canning my FSG

46:32

to other people. And it was only one other person.

46:36

And I said, yeah, I was because

46:38

it's rubbish. And

46:40

I kid you not, this person said to me, compliance

46:43

isn't one of the big priorities

46:47

at the moment because of budget constraints.

46:50

I'm tipping that wasn't on their ASX release. No.

46:54

And I'm just like, this is you

46:57

starting a car company and you're like,

47:00

we might not have airbags. Maybe not. Like,

47:03

and I'm just from that point, I was

47:05

just like, whoa. I mean, that

47:07

is a tension between Fintechs

47:10

in particular and the VCs that make

47:13

them that VCs

47:15

as a general rule, live

47:17

by the SaaS motto

47:19

of move fast and break things. That

47:22

just doesn't work in financial

47:25

services. And

47:27

we've seen the

47:30

effects of that. If you look at spaceship,

47:33

for example, and the number of ASIC

47:35

releases that are running around

47:37

in their history, that

47:41

you've got to be very careful

47:43

that you

47:45

manage those risks and the compliance

47:48

has to be almost number one.

47:50

It just blew me away that the basis of

47:52

compliance hasn't been a big focus. Just like an

47:54

airline going, well, safety is actually not our number

47:57

one. And he agreed that it was a template

47:59

that they'd use. and they're

48:01

fixing it. And then I've... Because

48:05

someone was obviously here. Taking

48:08

my comments back up the tree. So I've just don't help people

48:10

anymore unless they ask me. That's a good tip for listening is

48:12

just read the fine print. And

48:14

it should be written in everyday language.

48:16

The FSG of your platform or financial

48:20

service, it will say

48:22

we sell your shat to marketing

48:24

companies. But you know Australian

48:27

disclosure probably leaves a lot to

48:29

be desired. I mean if you're

48:31

investing in VTS, the Vanguard US

48:34

Total Market Fund, the

48:37

fact that you're providing an indemnity to

48:39

Vanguard Corporation is

48:41

not disclosed in the Australian prospectus

48:43

but it is disclosed in the

48:46

US prospectus for the thing

48:48

that you're buying a CDI on. And

48:53

obviously the ASX concluded that because

48:56

it's a CDI what you're actually buying is the

48:59

US product therefore you should go read the US

49:01

prospectus. And if you think

49:03

Australian prospectus are hard to read, US prospectus

49:05

is a dense and badly laid out. But

49:08

it's in there in black and white. You can go and download

49:10

this document. It's called the

49:12

Fifth Amended and Restated Funds Distribution

49:14

Agreement and under which

49:17

you give an indemnity for Vanguard

49:19

operating costs. So

49:22

why would you take

49:25

that risk when

49:28

you could buy IVV and not take the risk?

49:31

10 years ago it made sense because you got a hugely cheaper

49:33

fee and Vanguard have obviously

49:36

been very instrumental in

49:38

driving down fund fees. But

49:42

for one basis point is that a risk I'm prepared to take?

49:44

It's a very small risk you've got a thing. But

49:47

nonetheless the whole point about investing is that

49:49

you should only take risks you're being rewarded

49:51

for and if

49:54

fees aren't cheaper you're not. It's

49:57

a wild space here in Australia particularly with

50:00

you know, fintechs and technology and wanting to

50:03

get out like, I don't know, I actually

50:05

don't know if our market is big enough

50:07

for all the startups that are

50:09

out there in terms of You

50:12

know investing apps and all that stuff I

50:14

think a key component of this though is the

50:16

whoever it is if it's a fintech if it's

50:18

a ETF provider if it's trading platform, whatever it

50:21

is if they

50:23

if the If they start

50:25

to lose sight of the fact that

50:27

the customer or the clients Needs

50:30

and goals are not their first and

50:32

foremost Then

50:35

then you start to see you know issues in

50:37

terms of Okay compliance isn't

50:39

a concern You know,

50:41

I know from creating product and you know listing

50:43

products and things like that They're

50:45

the sorts of things that you have to think about is what

50:48

the stress test scenario. What would happen if Things

50:51

went belly up. Well, what would it how

50:53

the investor reacting? Well, what's the

50:55

recourse and all of those sorts of aspects of things?

50:58

That's you're managing people's money Fundamentally,

51:00

I know from a fund managers, but I think

51:02

that's what we would do. You know, we're managing

51:04

someone else's money We've been given

51:06

that responsibility people are paying us to

51:08

do that and that's our job. Mmm

51:10

I don't think Australia's particularly overbroke. I

51:13

don't think there are more brokers per head than in

51:16

other markets Yeah, I don't know. I just

51:18

I don't you maybe I'm just

51:20

getting pitched more from startups And I'm

51:23

just in that pool too much. I'm like, I

51:25

don't know. I think I mean from what I saw Ten

51:28

years ago when I was setting up my business, there

51:30

was nothing and then there was a huge wave probably

51:32

between 2016

51:35

to 20 of new businesses. I think you know, there was

51:37

a lot of you know venture money. I think it became

51:40

Cool thing to do to set up a new business. There

51:42

ultimately was lots of great global ideas that could be brought

51:44

to Australia as well Over the

51:46

last year or two and I expect it will continue

51:48

There's a bit of a flush out where you know

51:51

businesses have kind of either merged or you know You

51:54

know found a different path and so there's a bit

51:56

of a consolidation I think that's probably a natural part

51:58

of all market cycles the same happened back in

52:00

the early 2000s. Is there a minimum of cash

52:02

people need to knock on your door at Stockspot?

52:06

Yes, there is. So the minimum starting balance for

52:08

a client for us is $2,000, but we have

52:10

a lot of people that just top up $100

52:13

or $50 to start off with and they just go

52:15

into an interest bearing cash account until they get to

52:17

that amount. Yeah, cool. Cool.

52:20

The question for that as well is to the point

52:22

around the fact that read the fine

52:24

print, read the PDS, etc. When

52:27

people are investing, where do they

52:29

get their information from? I know not a

52:31

lot of people would read the PDS. If

52:35

you were to do a straw poll

52:37

of the listeners and ask people to

52:39

put their hands up if they read

52:41

the Vanguard Australian Share Fund PDS, I

52:44

would say you would probably be able to count them on

52:46

the fingers of one hand. Or the thumbs of one hand.

52:50

The old joke that the prospectus is the fat thing

52:53

in front of the application form is

52:55

probably truer now than it is every day

52:57

because everyone is getting these things electronically

53:00

and nobody reads them. They

53:02

have sort of become a bit of a template that

53:04

it is hard to tell one from the other. There

53:07

is a standard format that Chapter 6 is

53:09

always the face section. It

53:13

is sort of hard to work out. People

53:16

need a bit of a guide of what to look for because they are

53:18

pretty unruly documents. What are

53:20

the five things to look out for in a prospectus would be

53:22

a helpful guide. What

53:25

is the issue and what is it invested in? Maybe

53:28

we will see video PDS or something like an

53:30

interactive. That is sort of the

53:32

evolution of where we need to be in terms of because

53:35

people don't digest a document. They

53:37

don't read through the 20 pages, 16

53:40

pages, 26 pages, whatever it is. Some

53:42

of those prospectuses actually have multiple funds. You

53:45

may have 20 funds on one prospectus. Now

53:48

you are talking about a 40 page document that you are actually needing

53:50

that little bit, that two sentence.

53:54

And seeing some of the funds where they may

53:56

be charging fees in a

53:58

different way to what it has. actually

54:00

states that there's ways in which fees are actually

54:02

applied and all of those sorts of things people

54:04

aren't maybe aware of. Just

54:07

a question, back to

54:09

BVY, what was the

54:12

actual investments? Were they Australian

54:14

equities? Yeah, it was...

54:16

And they were borrowing, they were

54:18

lending their securities out. So it

54:20

was a... started life as a

54:22

stockbroker, a traditional run-of-the-mill stockbroker and

54:25

it ran a prop book

54:27

as well where they were investing on their own behalf.

54:31

And I think there was actually some

54:33

fraud involved, which is

54:35

what precipitated the end and

54:38

there was a problem then trying to identify,

54:40

well, are these prop assets or are these

54:43

customer assets? So the

54:45

segregation broke down. Just

54:48

back to that, in

54:51

today's climate, you

54:53

probably wouldn't get another BVY with

54:55

these FinTechs who have got their

54:57

own custodian models. We had

54:59

FTX, it was much bigger. Yeah, but that

55:01

wasn't Australian. That's true. Well, Halifax

55:04

was a good example. That happened 10 years

55:06

after BVY, so pretty similar example. And Halifax

55:08

is a business that's been around since the

55:11

late 90s. There's

55:13

a very small

55:16

retail, largely options trading

55:18

business and... I

55:20

can't remember the guy... I think

55:24

my whole thing is I don't want

55:26

people who are looking to

55:28

get started to be scared with

55:31

their starting with $500 to invest. I

55:34

don't want some keyboard warrior to say,

55:37

only use this broker here because

55:39

it's chess, not this app. And

55:42

I think that's probably a good point for people getting

55:44

started. It's the relative risk, the risk of not starting

55:46

investing for your life is a much bigger risk. Exactly.

55:49

So if you are this purest

55:52

Zen person over here on the hill,

55:55

chanting and kumbayaering all day long, you're

55:58

at a different stage than someone who's just started to be there. starting

56:00

out. Sure. You've

56:02

got to understand where

56:05

chess or not chess becomes significant. I've

56:07

seen people comment about why invest in spaceship because

56:09

it's not chess possible. Well, actually, it's a managed

56:12

investment scheme. That's not how

56:14

they work. Just

56:17

like your superfan isn't chess-sponsored because it's held

56:19

by a trustee. That's how the law works.

56:24

Your portfolio is MDAs. So,

56:26

MDAs are just a legal structure that allows us

56:29

to manage the portfolio. So, that has nothing to

56:31

do with how the investments are held. No,

56:33

but that's the wrapping. It gives

56:35

us the authority to do the

56:38

rebalancing and the implementation. Without ROAs.

56:40

Correct. So, effectively,

56:43

your portfolios have a PDS. No,

56:46

so not a PDS, but we give

56:48

clients a statement of advice. And

56:50

there's an investment agreement that goes alongside it.

56:52

And then there's an FSG. Yep. Yeah,

56:55

cool. Well, shall we

56:57

get into some questions now

56:59

that we just get getting going? Oh, gosh, we'll

57:01

be back right after this break. If

57:04

you're after personal financial advice, don't get it from a

57:06

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57:09

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57:12

Click Get Help and we'd be happy to introduce you to

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58:02

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Discover all the delicious possibilities at

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hellofresh.com. Alright,

58:33

Evelyn, can you explain a little bit about

58:35

dividend harvesting strategies and the covered call strategy

58:37

and the pros and cons? And if you

58:39

could also mention pros and cons of other

58:41

things to consider for high yield ETFs. So

58:45

there's a lot there. Chris, dividend harvesting

58:47

strategies. How do I harvest dividends? So this

58:49

is one of my favorite topics Glenn and

58:52

I did a talk at the ASX on

58:54

this as a topic last year. I've dived

58:56

into a bit of detail on it. Dividend

59:00

harvesting to take people back when you earn a return in

59:03

an ETF, you're earning two different types of

59:05

return. You're earning the capital growth of that

59:07

ETF over time and then potentially some income.

59:09

But what we know in Australia is people

59:11

love income, particularly retirees, but a lot of

59:13

people just want to get more dividends. And

59:16

so a normal ASX 200 or ASX

59:19

300 ETFs will have roughly an even

59:21

split between capital growth and dividends, maybe

59:23

a little bit more capital growth over

59:25

the long run. These

59:27

dividend harvesting products use

59:31

more of a structured product approach. So rather

59:33

than just earning the index, they

59:35

create very unusual structures to basically

59:37

give you more in the dividend

59:39

category and less in

59:41

the capital growth category. So

59:44

the two that have been mentioned

59:46

are two where they either use an option

59:48

strategy to generate that extra

59:50

income or are using timing of when they're

59:52

getting in and out of stocks before they're

59:54

paying dividends. They sound very

59:57

good on paper because they do have historically

59:59

a very good dividend rate and it's better

1:00:01

than just buying the ASX200 or ASX300. The

1:00:05

problem with them I see is twofold and I've been

1:00:07

a bit of a critic of them for many years

1:00:09

and have blogs from probably close to 10 years ago

1:00:11

where I didn't like these products. One

1:00:14

of them is fees so you'll pay about

1:00:16

triple the amount to buy one of these

1:00:19

more specific dividend harvest areas. Yeah and I

1:00:21

didn't mention it but the one that she

1:00:23

mentioned was Biddershares and the ticker was HVST

1:00:25

and Biddershares YMAX and then Vanguard VHY. So

1:00:28

is the Biddershares say the harvest one? Are

1:00:31

they an actively managed ETF? So

1:00:34

they're actually three great examples. So the Vanguard

1:00:36

one is probably the most simple one to

1:00:38

describe which is it's an index ETF so

1:00:40

it is following an index and that index

1:00:42

is of companies that pay higher dividends. So

1:00:45

you do get a portfolio of companies that

1:00:47

doesn't look too different to the ASX200 or 300

1:00:50

but is more skewed towards stocks

1:00:52

like banks or telcos that are paying higher

1:00:54

dividends and as a result what you'll see

1:00:56

is you get more in the dividend

1:00:58

category and less in the capital growth category.

1:01:01

You know the return in a total

1:01:03

return sense from VHY over the

1:01:05

last five years was about 12%

1:01:08

per annum. So then you get

1:01:10

to the more complex strategies of the other

1:01:12

two you mentioned the dividend harvester and YMAX.

1:01:16

These ones use either options

1:01:18

or timing to create a

1:01:20

more bespoke strategy for basically

1:01:23

reducing up the dividends but because

1:01:25

they have high fees as

1:01:28

one reason and also a

1:01:30

crossing spreads and then there's other costs that

1:01:32

people are incurring historically and

1:01:34

I've seen it over many years these

1:01:37

tend to disappoint from a total return

1:01:39

perspective and this doesn't mean they're

1:01:41

not achieving their objective. They may

1:01:43

very well be achieving their objective but

1:01:46

what we see is clients are disappointed when they

1:01:48

buy these products for yield and to

1:01:50

give you an example they've only actually returned between

1:01:53

6 and 9% per annum over the last five

1:01:55

years. So one of them has actually had half

1:01:57

the return of just a much more simple strategy.

1:02:00

I think what I've noticed is product issue has come up with

1:02:02

all sorts of great marketing angles for

1:02:04

getting more income. But ultimately

1:02:07

the more complex the product, the

1:02:09

more likely that there's going to be higher costs

1:02:11

and ultimately that you're, from my experience, going to

1:02:13

be disappointed with the results. So,

1:02:15

Jens, sorry to jot on that. If

1:02:18

you simply take in the approach of

1:02:20

picking within

1:02:22

the ASX200 stocks that have

1:02:24

higher dividend yields like

1:02:27

the banks and telcos,

1:02:30

most of them have underperformed the 200.

1:02:33

So all but CBA and

1:02:36

Macquarie have underperformed, out of the

1:02:38

banks, have underperformed the ASX200 over a period of period of

1:02:40

period. I think, yeah, there will be different over different periods.

1:02:42

I checked as of the end of February VHY, which is

1:02:44

the Vanguard High Yield Producted Return, I think 12.5% over the

1:02:46

last five years. I'm

1:02:49

not sure what VAS would have been over a similar

1:02:51

period, but there'll be times where it's done worse, times

1:02:53

better. I think the risk of it

1:02:55

is right that there's concentration risk. If

1:02:57

you're buying more dividend stocks, one

1:03:00

of the reasons we don't encourage

1:03:02

people to just focus on dividends is you

1:03:04

tend to concentrate in certain sectors of the

1:03:06

market. They can have long periods of underperformance

1:03:08

and then you wonder why you're doing much

1:03:10

worse than the market and it might be

1:03:12

because you have no mining shares or no

1:03:14

technology shares. And so you're taking

1:03:16

a bet on what sectors are going to perform

1:03:18

well and badly and that bet might

1:03:20

work out sometimes, but it won't. And it depends on your

1:03:23

tax rate too. If you're a

1:03:25

retiree with a

1:03:29

portfolio in Super where you're getting cash

1:03:32

for your franking credits, the analysis is

1:03:34

slightly different to a 47% taxpayer accumulator.

1:03:38

Totally, yeah. I think young people that

1:03:40

come to us and say, I want more dividends, our first

1:03:43

question is why? The last

1:03:45

thing you want to do is pay tax now. You want

1:03:47

to pay tax in the future. So if you can defer

1:03:49

tax through capital gains, that's great. Just

1:03:52

a really basic explanation for people

1:03:54

that might still not get it. You

1:03:58

know, I could personally do some dividends. and

1:04:00

harvesting. So I rock up by

1:04:02

parcel of CBA shares for the

1:04:05

record date, get my

1:04:07

dividend and then sell. You do have to hold for

1:04:09

nine. Personal investor, I think it's 90 days. But as

1:04:14

an ETF, you only have to hold the

1:04:16

ETF for one day because

1:04:19

the actual fund is holding the underlying stocks

1:04:21

for that 90 day period. Before

1:04:24

they brought that rule in, there used to be a

1:04:26

huge trade in overseas

1:04:30

holders would sell

1:04:32

before the record date and

1:04:34

so that a domestic investor could

1:04:36

get the franking credit because the

1:04:39

franking credit was largely worthless to an

1:04:41

overseas investor from a tricky country. And

1:04:44

it was only worth 10 cents

1:04:46

for the whether it was withholding

1:04:49

tax. But Glenn, your description of the strategy

1:04:51

is right. The idea of dividend harvesting is

1:04:53

you buy before the dividend, you sell after

1:04:55

the dividend. The problem is that usually the

1:04:57

capital return over that period adjusts for the

1:04:59

dividend. And so you're getting on one side

1:05:01

of the equation what you're losing on the

1:05:03

other side of the equation and it's not

1:05:05

free money. It's not like you can

1:05:07

just pocket the dividend and walk away and say, great, I didn't

1:05:09

have to hold it for 12 months. I only had to hold

1:05:11

it for a month and

1:05:13

a half and I got all these dividends for nothing.

1:05:16

Unfortunately, it doesn't work like that. You're probably close to

1:05:18

these numbers now. But there used

1:05:20

to be a lot of studies on that dividend

1:05:22

drop off. What do the capital value do when

1:05:24

this dividend was paid? And in

1:05:27

the 90s, this was like two thirds, which

1:05:29

was supposedly reflecting the value in the franking

1:05:32

credit to an overseas investor. I understand

1:05:34

I haven't looked at this long time, but I understand that

1:05:36

the gap is much narrower now and the drop off is

1:05:38

closer to 100 cents. I believe so.

1:05:40

And certainly, once you account for the costs of trading and

1:05:43

the costs of fees, these products show

1:05:45

that there's no free ride here. And I mean,

1:05:47

it's a general rule, I think

1:05:49

with a lot of trading strategies is like once

1:05:51

everyone's doing it and everyone knows about it, any

1:05:53

opportunity that existed in the past no longer exists.

1:05:56

They get arbitraged out of the market. Yeah, I

1:05:58

mean, the cover call one strategy. though

1:06:00

is an interesting one particularly if you're

1:06:03

a retiree looking for

1:06:06

income. The concept of

1:06:08

a covered call strategy is that

1:06:11

you sell

1:06:13

some options, that is you sell someone

1:06:15

the right to buy your shares at

1:06:17

some price that's above today's market price

1:06:20

and if the period

1:06:24

expires and the share hasn't

1:06:26

gone through that threshold and you

1:06:28

pocket the option premium

1:06:30

as additional income. So

1:06:34

there is of course the risk that you miss out

1:06:36

on the growth above that cap and

1:06:39

you need a big portfolio to make

1:06:41

the trading work on the options. So

1:06:44

covered calls as well just to add

1:06:46

to what Vince is saying is really

1:06:49

it's quite a complex bet you're making

1:06:51

and from a derivative perspective you're actually

1:06:53

taking a bet between implied volatility and

1:06:55

realised volatility because if you're selling options

1:06:57

you're pocketing implied volatility and then on

1:07:00

the other side you're actually experiencing realised

1:07:02

volatility. So in my view

1:07:04

these are products that are very complex

1:07:06

and even sophisticated derivatives investors often struggle

1:07:08

with them. It's

1:07:12

not something I think a lot of people are doing

1:07:14

here and I'm like what are you doing? Get

1:07:16

back to work you're a plumber, you focus on plumbing

1:07:19

well running your freaking plumbing business and pump money into

1:07:21

a portfolio, get on with your life. The beauty is

1:07:23

that it's not like these products are doing much better.

1:07:25

I think if these products are doing a lot better

1:07:27

the plumber can worry about complexity but the beauty for

1:07:29

the plumber out there is investing is

1:07:31

one of the few areas where you can make it super simple

1:07:33

and you'll do better than the people that are adding the complexity.

1:07:36

I think it's interesting though because we covered

1:07:38

call strategies in Australia there's been a multitude

1:07:40

now that have been launched in the past 18

1:07:43

months. Yeah, what's talked about like

1:07:45

product land with these ETFs, have they had

1:07:47

much take up? So here in Australia not

1:07:49

so much versus your traditional funds

1:07:51

that we see in the basic equity

1:07:56

markets whether it's your that's or whatever it may

1:07:58

be but in the US. there

1:08:00

is that difference. So for example, JP

1:08:02

Morgan, a big proponent of covered call

1:08:05

strategies and their JEPI and JEPQ funds

1:08:07

over in the US were some of the biggest

1:08:09

flow takers for 2023 in the

1:08:11

ETF market. Now,

1:08:14

they are two funds that basically run active covered call

1:08:16

strategies over the S&P 500 and JEPQ is

1:08:19

over the NASDAQ, I believe. And

1:08:21

their intention is to try and actively manage that

1:08:24

strategy and to try and ensure that they're paying

1:08:26

a regular income, high enough

1:08:28

income above, you know, what you need. What's

1:08:30

the MIR? One and a half percent? No,

1:08:32

it was 30 or 40 bit basis points.

1:08:35

It was quite cheap. They're very much. The

1:08:37

MIR wouldn't include the options fees. Right. Yeah.

1:08:41

But I think from that perspective, which sorry, that would

1:08:43

just be netted off before the

1:08:45

return. Yeah. But

1:08:47

so I think here in Australia, we haven't

1:08:49

seen the take up. The benefit,

1:08:52

I guess, of the landscape of the

1:08:54

ETF market though, is the optionality for

1:08:56

those sophisticated investors that understand that

1:08:58

area. It's not going to be for everyone. You

1:09:01

know, for some of those strategies, there can be some

1:09:03

rules and rigor that may be applied to it. It

1:09:06

comes down to how it's at the end of

1:09:08

the day, it's lifting up that that wouldn't understanding

1:09:11

what that index looks like and what that construction looks like.

1:09:13

There are some covered call strategies that cap it out at

1:09:15

1% income. So they're trying to

1:09:17

have that capital preservation where some other covered call

1:09:20

products, the issue has been is that capital preservation

1:09:22

hasn't been there. So you're basically paying out the

1:09:24

dividends from the existing capital and investors looking and

1:09:26

go, yeah, I'm getting 2%, 3% income

1:09:29

per month or whatever it may be, or 15% over

1:09:31

the year, but actually I'm down, you know,

1:09:34

20%. That's that's a concern.

1:09:36

I think the the key issue, I think, of a

1:09:38

lot of these structured products, as Kenny said, that they

1:09:40

haven't been that popular in Australia recently. I remember

1:09:43

when they were last popular, because I was working in an

1:09:45

investment bank then and they were flogging them and they were

1:09:47

very, very popular back in 2005, 2006, 2007. The problem is

1:09:49

with these structured products is it's, you know, it is in

1:09:51

many cases like picking up the pennies

1:09:58

in front of the steamroller, it will work for a few years. and

1:10:00

then everyone gets blown up and then you

1:10:02

actually have to wait another cycle to find

1:10:04

enough people to be

1:10:07

interested in this complexity again. So I think

1:10:09

we've hit sort of a whole cycle in

1:10:11

complex structured products and all the people that

1:10:13

got dusted back in 2007 and 8,

1:10:15

you know, have probably either forgotten or

1:10:18

there's a new generation that are interested. You

1:10:21

know at some point there'll be some structured products that

1:10:23

do well, but I would question whether

1:10:25

you know more than 1% of retail investors truly,

1:10:28

you know should be thinking and

1:10:30

or considering these products, you know as an example

1:10:32

some of these structured products my

1:10:34

dad has showed me because his bank manager

1:10:37

has showed him and I've gone back with

1:10:39

questions that the bank manager has obviously no

1:10:41

idea about. No one's selling these products including

1:10:43

the you know the banks actually

1:10:45

I think understand what they are and

1:10:48

if you don't understand a product and you can't

1:10:50

explain it to someone I think that's a good

1:10:52

test case for whether you should be investing in

1:10:54

it. It is and there is a lack of

1:10:57

transparency. I mean we were issuing these things pre

1:10:59

GFC. So we were issuing capital protector notes

1:11:02

and sometimes complexity

1:11:05

and structure is a smock screen for

1:11:07

higher fees. But

1:11:10

other times it's about you

1:11:12

know trying to create a product that meets

1:11:14

a specific need and you

1:11:18

know we talked about efficient markets at the beginning of

1:11:20

this campfire and he said well if

1:11:22

markets are efficient then these things should never work

1:11:24

and the

1:11:27

reason they do from time

1:11:29

to time or for the right application

1:11:31

is that not everyone in the

1:11:33

markets playing the same game because

1:11:35

if markets were perfectly efficient and everyone was playing the same

1:11:38

game and we

1:11:40

don't have to worry about currencies or taxes then

1:11:42

the only investment you'd ever need is

1:11:44

a global equities fund and a local

1:11:47

government bond fund. But

1:11:50

everyone isn't playing the same game. So

1:11:52

if you are an insurance company what you're trying

1:11:55

to do is match your liabilities in the market.

1:11:57

So you're going to buy stuff

1:11:59

that It might not necessarily be good value

1:12:02

but it fits your investing needs because

1:12:04

it's hedging a risk that you have

1:12:06

on the other side. If

1:12:08

you're a Harvard Endowment Fund, what

1:12:11

you're concerned about is, well, will

1:12:13

this money still be there in 200 years? So

1:12:16

I'm prepared to trade off some return

1:12:18

to get stability. As

1:12:21

a retail investor, you're a retail

1:12:23

Australian investor, you're saving money to

1:12:26

spend in Australian dollars at

1:12:28

some point in the future. So you

1:12:31

probably should have more than 3% of

1:12:33

your money in Australian shares,

1:12:37

even though Australia is 3% of the world's

1:12:39

markets or 4%, depending on how you measure it. And

1:12:43

you're going to spend it in Australian dollars, you're

1:12:45

going to spend it in an

1:12:47

Australian inflation and an Australian tax environment and

1:12:49

you probably have a house down the road

1:12:52

that's denominator in Australian dollars. So

1:12:54

your objective is different

1:12:56

to the objective of the

1:12:59

insurance company or the objective of the

1:13:02

Norwegian Global Sovereign

1:13:05

Fund. Not everyone in this market

1:13:08

is playing the same game. So you've got to look at

1:13:10

what your goal is and play that game, not

1:13:12

the game of someone on Pitt Street

1:13:14

necessarily. And I think the context of that,

1:13:16

and I agree, I would add, is that

1:13:20

your game and the games others are

1:13:22

playing are often in conflict. And

1:13:24

also you lack a whole lot of knowledge that

1:13:27

a lot of those other players have, and a

1:13:29

great example of exactly what Vince is describing happened.

1:13:32

Within this investment banking world, I remember very clearly in 2006

1:13:34

and 2007, banks wanted to

1:13:38

buy volatility, their derivatives desks. And so they came up

1:13:41

with these funky products, and I remember one of them

1:13:43

was called a worst old product. And at work like

1:13:45

this, you've got a basket of, I think it was

1:13:47

five stocks, BHP, CBA, wrongly

1:13:50

safe stocks. And they said, look, we'll

1:13:52

give you a return of 10% over the next 12 months, unless

1:13:55

one of

1:13:57

them falls by more than 30%. And if

1:13:59

that happens, you get... that stock instead. Extremely

1:14:01

complex product that no one in their right

1:14:03

mind could price apart from an exotic derivatives

1:14:05

trader who happened to be the person that

1:14:07

priced these products. What retail

1:14:10

investors didn't know was that they were

1:14:12

selling volatility way too cheaply. So

1:14:14

people weren't earning what they should have been earning which

1:14:16

might have been 15 or 20% for

1:14:18

that risk. They were only earning 10%. The investment

1:14:21

bank was pocketing the difference between the 10 and

1:14:23

the true value of the volatility. And what ended

1:14:25

up happening is obviously the crisis came and all

1:14:27

of those stocks fell by 30% and rather

1:14:30

than earning a 10% return, people ended up with

1:14:32

Rio Tinto which was down 50 or 60%. What

1:14:36

was wrong about that to me wasn't

1:14:38

that the bank was right to buy

1:14:40

the volatility and the retail investor was

1:14:42

right to buy the structured product. There

1:14:45

was such an information asymmetry between the

1:14:47

two that people didn't really know the

1:14:49

enormous margin the bank was taking from

1:14:51

them and really it wasn't a fair

1:14:53

sharing of the risk. So what you're

1:14:55

saying like oh there's a question from

1:14:57

Leanne and then I'll read another question

1:15:00

and bring it back. How

1:15:02

does everyone make investing more fun? I do

1:15:05

DCA every month and once in a while I

1:15:07

get an individual stock. How do I spice this

1:15:09

up? Do I buy

1:15:11

an overpriced Melbourne coffee? I don't know. And then

1:15:14

there's another question here from

1:15:16

TC. Hey Glennie Jay, I'm

1:15:18

taking the whole call satellite approach. 80% going

1:15:21

into boring low-cost ETFs and

1:15:23

sold pats then getting 20%

1:15:25

into speccies like it's my

1:15:28

Ladbrokers account. Would

1:15:30

you class sold pats as a

1:15:32

core or satellite? So I

1:15:35

think there's a book opportunity there. It's the karma

1:15:38

sutra of investing spice up your inventory. With this

1:15:40

crazy outlier fringe, you

1:15:47

don't understand it's high risk. That

1:15:50

pendulum will swing the most and

1:15:52

with my wealth, I

1:15:54

want the pendulum to swing as little

1:15:56

as possible and still be standing at the end of the day.

1:16:00

The concept with investing, if you're having fun, you're

1:16:03

probably doing it wrong. It

1:16:05

shouldn't be fun. In

1:16:08

my wealth management world, if I

1:16:10

want to have fun, I go to the TAB. If

1:16:12

I want to invest, I go to the stock market. I

1:16:16

have my fun at the TAB.

1:16:20

That's the whole thing. These exotic

1:16:22

funds or even the dividend harvesting

1:16:24

funds or the geared up covered

1:16:26

call and all that, sure,

1:16:29

if you're interested, throw 5% of

1:16:31

your portfolio in it. I don't care,

1:16:33

but don't go putting everything

1:16:35

in this stuff because when it

1:16:38

gets flushed, you get flushed. I

1:16:40

get what I would say though is for some of

1:16:42

those strategies that covered calls, there is

1:16:44

a reason why they have been successful in the

1:16:46

US. They haven't blown up and there is a

1:16:48

place for them. I wouldn't classify them as speculative.

1:16:52

They're not a specie mining stock out of

1:16:54

WA, which has yet to dig in

1:16:56

the ground and people are trying to push. I

1:16:59

think the key part here is for that particular

1:17:01

question, the person asked that, they should get their

1:17:03

excitement from somewhere else, not investment because I think

1:17:05

we've all said it, are they

1:17:07

a trader then? Are they not an investor?

1:17:10

Because if you're an investor, you're not using, that's

1:17:12

not your dopamine hit. It shouldn't be. I

1:17:16

think the good

1:17:18

and bad thing around what ETFs,

1:17:20

from my perspective, have done is there's a

1:17:22

lot more optionality now. You

1:17:24

can get leverage products

1:17:27

which provide for

1:17:29

sophisticated investors a tool to

1:17:31

trade the volatility either short

1:17:33

or long on particular

1:17:35

markets. Now, that's not for everyone and

1:17:38

it's for particular investors if you use it in

1:17:40

an appropriate way. They're trading tools, but

1:17:43

the problem there is because they're open to

1:17:45

everyone, now someone

1:17:47

can go, okay, well, that's now going to be my speculative

1:17:50

play. They need to understand

1:17:52

what they're actually going into. I would say if you're

1:17:54

investing, get your excitement

1:17:56

from somewhere else. on

1:18:00

line is CFD providers actually have to

1:18:02

publish what percentage of their traders make

1:18:04

money and a lot of

1:18:06

their websites, if you look at the very

1:18:08

bottom, they disclose it's usually between 70 to

1:18:10

80 percent, sometimes higher, of people lose money

1:18:12

on those platforms. Now that's, you know, it's

1:18:15

a great microcosm of trading generally. Yeah. That's

1:18:17

about right. When it comes to

1:18:20

investing in a platform like Vincers or mine, if people

1:18:22

are investing for at least, you know, a reasonable amount

1:18:24

of time, five or six years, you

1:18:26

know, I would guess that in most cases

1:18:28

it's 90 percent plus, if not more,

1:18:30

are making money. It's complete opposites,

1:18:33

trading versus investing. And I think, yeah,

1:18:35

people need to understand, you know,

1:18:37

those double and triple leverage products,

1:18:39

Knish mentioned is a great example. You

1:18:42

know, there is a double-edged long

1:18:44

product on the ASX and a double-leverage short

1:18:46

product. There have been

1:18:48

some great analysis done on these sorts of

1:18:50

products globally and they've actually found one of

1:18:53

the best strategies is to be short both

1:18:55

of those products because they

1:18:57

cancel each other out and you

1:18:59

pocket the funding difference, which is

1:19:01

often very large. And so

1:19:03

not only are these products both bad, but the best

1:19:05

way of making money out of them is to

1:19:07

actually not own either and to be short these

1:19:09

products. I mean, there's an old saying in options trading

1:19:11

that if you're

1:19:13

running an options broker business, it's fundamentally about

1:19:16

client acquisition because 90 percent of people lose

1:19:18

90 percent of their money in 90 days.

1:19:20

So what you've got to do is keep finding new bunnies. And

1:19:24

that's not to say you can't make money in options

1:19:26

trading if you know what you're doing.

1:19:29

But there's a lot of Greek letters to get your

1:19:31

heads around to successfully trade

1:19:33

options. It

1:19:36

isn't a very valid investment strategy,

1:19:38

but there's a lot of math in

1:19:40

there. A question I have then

1:19:42

is, what are Australian

1:19:44

investors, are we doing better or worse

1:19:47

than say the US investor? Because

1:19:49

you look at the US investors

1:19:52

and I look from an ETF's

1:19:54

perspective, the cover call products, some

1:19:56

of those leverage plays, they

1:19:58

sometimes Gather up. The lot

1:20:00

of flows and a lot of interest whereas

1:20:02

if even because is a great example. So

1:20:04

the be quantity us now been top ten

1:20:07

oh in the United listen dominated by be

1:20:09

quite a chance at the moment the U

1:20:11

S here and so I helped launch on

1:20:13

the decline products here two years ago and

1:20:16

the flies have been slower a lot saw

1:20:18

and but there's a lot of it's rate

1:20:20

hell of a we as are signed vs

1:20:22

just more courses. are we better of advise

1:20:24

or of the Nautilus property in Australia have

1:20:27

enough but we do have the work the

1:20:29

world's best performing. Stock Exchange since records

1:20:31

began. See a struggle at iron

1:20:33

ore and call Stallion Stocky same

1:20:35

since nineteen hundred his the app

1:20:37

formed every other. Developed. Markets.

1:20:40

In. The world including Us. Getting.

1:20:43

I mean it's an interesting cannot buy Madison.

1:20:45

I think one way of looking at it

1:20:47

is the dow by study because that's look

1:20:49

through time with his other studies that have

1:20:51

looked of what of investors and this the

1:20:53

market returns. You know I would guess that

1:20:55

actually a lot more choice of products haven't

1:20:57

actually help people in a better return because

1:20:59

it's more temptation to switch like people sitting

1:21:01

at the wrong times like we've discussed before.

1:21:03

Just because one of these each yes is

1:21:05

actually done well doesn't mean people of necessarily

1:21:07

make money out of them am and I

1:21:09

I think the desert of new generation of

1:21:11

products that have been watching. Recently is almost

1:21:14

a year. the if the first generation of

1:21:16

each yes was a way of getting access

1:21:18

to the next was more of an alternative

1:21:20

to acting fund management Reza next generation of

1:21:23

Bts a ways of getting quite nice sector

1:21:25

exposes or exposure to sort of themes. It's

1:21:27

almost a replacement of direct share investing because

1:21:29

it's a it's a more granular way of

1:21:32

investing. It is slightly better, slightly more diversified.

1:21:34

but it's a way of having quite a

1:21:36

specific risk in your portfolio. So I think

1:21:39

Hfc becoming like the conduit spare in a

1:21:41

different approaches we I'm not saying ones. right

1:21:43

or wrong but yet they are ultimately

1:21:45

quite an effective instrument save for doing

1:21:47

either have to say though another question

1:21:49

the cancer that eighty twenty and you

1:21:52

know that twenty percent odyssey i do

1:21:54

is that investors that investor that persists

1:21:56

after themselves the question are they willing

1:21:58

to lose that twenty percent So

1:22:01

to your point, you go into the TAB,

1:22:03

you jump on the Ladbrokes, whatever, betting app

1:22:06

people use, but are you willing to

1:22:08

basically, if you're taking some very speculative

1:22:10

bets, when talking to investors that

1:22:12

wanted to look at Bitcoin and talking to advisors

1:22:14

around that, I remember talking to them and saying

1:22:16

that is a 1% 2% allocation, if at all,

1:22:18

based on that

1:22:21

in particular investor willing to take that risk

1:22:23

given the volatility in that asset class. So

1:22:26

part of the problem with this

1:22:28

satellite thematic approach where you're saying,

1:22:30

look, I'm 80% in

1:22:32

core stuff and I'm going to

1:22:34

have 10, 20, whatever percentage in

1:22:38

themes or trends is that the

1:22:40

difficulty in telling the difference between

1:22:42

a serious

1:22:45

mega trend that is

1:22:47

going to have a fundamental difference to

1:22:49

the way we live and work and

1:22:52

things that are just fads and fashions. And

1:22:54

what we find is that the number

1:22:58

of funds that get launched in a sector

1:23:01

tend to be very highly correlated to

1:23:03

the peak of whatever trend it is.

1:23:06

You look at the number of tech funds

1:23:08

launched in 1999, you look

1:23:11

at the number of Asian funds launched

1:23:13

in the late 90s, you look at

1:23:16

Japanese funds launched in the 80s

1:23:20

and that's the thing that leads

1:23:22

to the spectacular underperformance

1:23:24

of investors relative to the funds they

1:23:26

invest in because they're investing at the

1:23:28

peak. But absolutely, there

1:23:31

are opportunities in that space and

1:23:33

things that are now core,

1:23:36

things like infrastructure, that was a

1:23:38

satellite thing in the 90s where

1:23:42

it was considered a replacement

1:23:45

for some of your bond allocation, maybe some

1:23:47

of your real estate allocation

1:23:51

but it very much sat

1:23:53

in that non-core space whereas

1:23:56

today, infrastructure would sit right along with real

1:23:58

estate as part of a core portfolio. It's

1:24:00

quite fascinating. I've never seen an ETF or

1:24:02

any managed products for that matter that it's

1:24:04

ever had a bad backtest when they launch.

1:24:07

They always have a great backtest. There was one I think.

1:24:09

I remember speaking to you about it, but yeah, I remember

1:24:11

you said that to me. That actually resonated with me. I

1:24:13

think I was interested in that one. Yeah, but my first

1:24:15

question is, Greg, can I invest in it 10 years ago?

1:24:17

That's the perfect time to invest in it. The

1:24:20

data tends to suggest exactly what Vids is saying

1:24:22

is once they launch, if it's

1:24:24

a mega trend and everyone's already talking about a mega trend,

1:24:26

then it's too late.

1:24:28

It's in the price. Everyone already knows about it. The

1:24:31

mega trend nobody knows about. That is one

1:24:33

of the big advantages of

1:24:35

the ETF structure that you can actually

1:24:37

get them to market faster. The

1:24:42

size of the fund doesn't really

1:24:45

dictate the liquidity, whereas if you were trying

1:24:47

to launch a managed fund, you

1:24:50

needed a decent size bulk to be

1:24:52

able to provide the liquidity,

1:24:55

whereas with an ETF, you don't really have

1:24:57

to worry about that as much. Obviously, it

1:24:59

flows into spreads. That

1:25:02

actually goes into the product development of a

1:25:04

lot of fund managers. They actually look at

1:25:06

that. They want the fund to last five

1:25:08

to seven years. It's to your point, there

1:25:10

have been funds that have been part of

1:25:12

launching that had a bad backtest that were

1:25:14

underperforming, but for whatever reason, from

1:25:16

my perspective, the idea was there

1:25:19

is a gap in the market and there

1:25:21

is a potential need that that can have

1:25:23

for investors' portfolios and therefore you're going to

1:25:25

launch that, but you're going to live with

1:25:27

that fund for at least five years, if

1:25:29

not longer, to allow those cycles to go through.

1:25:31

You can always find something it will backtest well against.

1:25:34

You're only launching them for five to seven years. I've been

1:25:36

telling the clients they're going to be available for decades. Well,

1:25:39

that's the hope, but at least commercially, you've

1:25:41

seen funds close after three to four years.

1:25:43

That's a concern, isn't it? When an ETF

1:25:45

closes, the money goes to tell the ...

1:25:50

with the custodian, it's held in that trust structure and the money

1:25:53

goes straight back to the ... So it's like

1:25:55

Boeing, when one door closes, another ... With the elephants. With

1:25:57

some capital gains. Exactly, yeah. So it's quite

1:25:59

... Capital losses. Old mate when he was

1:26:01

saying he's 80% he's going into his

1:26:04

boring core like

1:26:08

locos ETFs and sole paths then

1:26:11

20% going into

1:26:13

speccies. I'm not sure I'd call

1:26:15

sole path boring. No but and also I wouldn't

1:26:17

call it core I think for me right and

1:26:19

I think this is one of the questions he

1:26:22

asked. For something to be

1:26:24

core in my mind you have to not have

1:26:27

the you can't have any non systematic

1:26:30

risk by that I mean stock risk.

1:26:32

So if you've got stock risk in

1:26:34

your portfolio that's actually a speculation or

1:26:36

that's a bet you're taking. I mean

1:26:38

that whole sole paths brickworks cross

1:26:41

holding has been a investment

1:26:44

banking challenge for the best part of 30

1:26:46

years and no one's worked out how to

1:26:48

unwind it. Yeah I'm not seriously idiosyncratic risk.

1:26:50

Yeah I'm not I mean it's not just

1:26:52

sole paths whether it Telstra or BHP or

1:26:54

a CBA like that like by definition you

1:26:56

would say will you core is your broad

1:26:59

base index funds that you don't touch or

1:27:01

does a thing and if you want to add a single

1:27:03

stock that's by definition a

1:27:05

satellite because it isn't your core portfolio.

1:27:07

Correct yeah I mean a core if

1:27:09

you're taking single stock risk and like

1:27:11

a downgrade can impact your core substantially

1:27:13

it's I wouldn't call it a core

1:27:16

portfolio because the whole idea is not to have that

1:27:18

individual stock risk. Here's one

1:27:20

this is a good one for young

1:27:22

Vincent Cara a

1:27:25

discussion around DSSP

1:27:28

when investing in Athic for kids

1:27:30

portfolios compared to DIP and

1:27:33

paying tax. Yeah now this is a

1:27:35

reddit favorite the software bros love this

1:27:37

one and a

1:27:40

bit of background I think is

1:27:42

probably useful so the DSSP is

1:27:45

a scheme whereby instead of

1:27:47

getting a distribution from or

1:27:50

dividend from a listed

1:27:53

investment company like Athic and there's

1:27:55

a handful of these around you

1:27:57

can elect instead to get shares

1:28:00

or bonus shares and

1:28:03

the advantage of a bonus share

1:28:05

in that context is it's not

1:28:07

income when you get the share it

1:28:11

becomes when you eventually sell

1:28:13

it you get a you

1:28:16

pay capital gains tax on it assuming and the

1:28:19

cost base starts when they issue the bonus share

1:28:21

so you get a zero effect zero cost base

1:28:23

in it Qantas

1:28:25

used to issue bonus shares all the time I

1:28:28

can't remember when the last one I've seen but

1:28:30

certainly afik has one that and

1:28:33

they sort of work really

1:28:35

well before franking credits and

1:28:37

before that capital gain the

1:28:39

LIC capital gains offset incentive

1:28:42

so you're gonna understand how both

1:28:44

of those work in order to work

1:28:47

out whether this makes sense so franking most people

1:28:49

understand that you get a dividend comes with a

1:28:51

franking credit representing the tax paid by the company

1:28:54

so if you receive that dividend you

1:28:57

get a franking credit with it the

1:29:00

bonus you you forego your franking

1:29:02

credit and the second thing

1:29:04

is I can't remember when this came in but because

1:29:08

LICs or listed investment companies don't

1:29:12

get to historically didn't

1:29:14

get to pass on their capital

1:29:17

gains tax discount like a trust could

1:29:20

they brought in this incentive you might

1:29:22

know when this was Chris but he

1:29:25

was designed to it to give people a

1:29:28

an offset a

1:29:31

non-refundable offset I think in the

1:29:33

tax return to reflect the fact

1:29:35

that this distribution

1:29:37

of a capital gain didn't

1:29:40

come with the capital gains tax discount and

1:29:43

some LICs qualify for this so

1:29:47

if you get your normal afik dividend

1:29:51

you get cash you get franking

1:29:54

credit and you qualify for this

1:29:56

offset and the percentage ranking

1:29:58

and the size of this offset different from

1:30:00

dividend to dividend. And

1:30:03

so where they are high you

1:30:06

will be worse off on the DSSP

1:30:11

even if you sold it, you know, even the

1:30:13

price didn't move and you sold it in 12 months time to get

1:30:16

the capital gains tax discount.

1:30:19

And all of the analysis I've

1:30:22

done says that it really only

1:30:24

works consistently for top rate taxpayers.

1:30:27

And even then there are some distributions

1:30:30

of dividends where it doesn't work particularly

1:30:32

well. So

1:30:34

the question is am I better

1:30:37

off taking the dividend paying tax

1:30:39

on it and reinvesting it? Or

1:30:42

heaven forbid take the DIP box, the

1:30:44

spawn of the devil. And

1:30:48

in most cases unless you're a top

1:30:50

rate taxpayer you're actually better off taking

1:30:52

the dividend. So that raises questions,

1:30:54

well what about my kid? Well if I'm investing for

1:30:56

my child they get $416 of... $412, $416, something about

1:30:58

that. As

1:31:05

tax rate and then they pay 60 cents,

1:31:07

which is designed as a penalty tax for

1:31:09

kids. So

1:31:14

the moral of that story is don't invest in your kids name if

1:31:16

you're going to have more than $416 of income. So

1:31:20

your child is there for a top

1:31:22

rate taxpayer to all intents and purposes.

1:31:25

And so maybe it works for them but

1:31:28

you might actually be better off investing it in

1:31:30

the name of your stay at home spouse or

1:31:33

the lower tax rate of the spouse. Or just

1:31:35

building wealth yourself and one day when your kids

1:31:37

need help you might be nice enough to help

1:31:39

them out. So there's a whole bunch of... Yeah.

1:31:42

Okay so just so the upshot of all of

1:31:44

that is for some

1:31:46

people in some circumstances it makes sense but for

1:31:48

most people in most circumstances it doesn't. So I

1:31:51

just hope this kid really appreciates the hard work

1:31:53

that this guy has gone to. Yeah so this

1:31:55

whole LIC

1:31:58

thing right I think it's become

1:32:00

about because of Barefoot Investor

1:32:03

primarily in the main discourse. And

1:32:05

our friend Mr Thornhill. And Thornhill.

1:32:09

But were ETFs as popular when

1:32:12

Barefoot was written? No,

1:32:15

they weren't. And like

1:32:17

I just want to you know dance

1:32:19

around this like is it the

1:32:22

Lord and Saviour's Scott paper against ETFs or

1:32:24

it was LICs were just the things that

1:32:26

are available. I mean I think if you

1:32:28

look at the LIC's history. He was a

1:32:30

broker effectively wasn't he? Stock me up. And

1:32:35

an LIC, if I'm wrong,

1:32:38

is literally just an actively

1:32:40

managed fund. Yeah, I mean it

1:32:42

was the entry point to collective

1:32:44

investing in Australia. Which is awesome.

1:32:46

So if you go back to

1:32:48

the 20s, 30s, 40s, it

1:32:51

was the only game in town if you

1:32:53

wanted a collective investment. So if you wanted

1:32:55

a diversified portfolio that you could buy in

1:32:57

a single trade, the LIC was the way

1:32:59

to do it. And the problem with

1:33:01

an LIC is that you can often get a

1:33:03

disconnect between the value of the

1:33:10

underlying portfolio and the share price. So

1:33:12

if there's more demand

1:33:14

for a fixed

1:33:17

stock than there is supply,

1:33:19

then the price of the

1:33:23

share will trade at more

1:33:26

than the underlying assets which is called a premium

1:33:29

or where there's less demand, they'll

1:33:32

trade at the discount. So you've got two

1:33:35

moving parts here. You've got the what's

1:33:38

happening to the underlying investments and

1:33:42

what's happening to the premium discount. So

1:33:45

it's really hard to predict where it's going to go. And with

1:33:47

these LICs,

1:33:51

someone might be thinking, well how does the company make

1:33:53

money? Do they charge

1:33:55

a management fee and the shareholders

1:33:57

vote on that? two

1:34:00

broad types. You've got internally managed

1:34:02

ones like AFFIC for example and

1:34:05

it employs staff, it rents an

1:34:07

office, it runs a business of

1:34:10

trading on portfolio and

1:34:12

the quoted MER or

1:34:14

ICR doesn't actually

1:34:17

reflect all of those costs. I

1:34:20

did do the numbers, I think the difference

1:34:22

is about 10 basis points between the quoted

1:34:25

MER and the actual

1:34:27

cost. So if you look at the difference

1:34:29

between underlying investment return

1:34:32

and net profit, there's a

1:34:34

difference and that difference is the

1:34:37

company's expenses that don't get counted in the

1:34:39

MER, like the board of directors fees

1:34:41

I think don't get counted in. There's a set of

1:34:43

rules, none of this is illegal

1:34:45

or wrong, it's just that's how

1:34:47

the rules work. Well probably material to most

1:34:50

investors. Well the difference between

1:34:52

a quoted 17 and an actual 27 points,

1:34:55

is that material? I don't know,

1:34:58

people argue about one basis point between IVV and

1:35:00

ETS. The

1:35:03

truth is they're tending to zero. So

1:35:05

it sort of doesn't matter. But that

1:35:07

difference, that

1:35:10

premium discount was

1:35:13

a problem and that led to the development

1:35:15

of managed funds. So managed funds

1:35:17

really started in Australia in the 50s and

1:35:21

that allowed you to buy the

1:35:25

underlying portfolio at its value, generally

1:35:28

by filling out a form and mailing

1:35:30

a cheque to the manager, probably 20

1:35:33

grand or more and you

1:35:35

traded once a day. So they suffered

1:35:37

from lack of flexibility, whereas

1:35:40

you could buy your LAC by phoning your

1:35:42

broker. The ETF

1:35:44

came along in the 70s?

1:35:49

34 year anniversary in terms of the first ETF

1:35:51

in Canada last month. Oh,

1:36:00

so the index funds were the 70s. Index

1:36:03

funds were the 70s. It was 1990

1:36:05

in Canada. Sorry. It

1:36:08

all feels like yesterday to me. But

1:36:12

the ETFs sold sort

1:36:15

of gave you the best of both

1:36:17

worlds. So it gave you the ability

1:36:19

to buy close to asset value and

1:36:21

the market maker ensured that it stayed there. And

1:36:24

it also gave you the ease

1:36:27

of access of being

1:36:30

listed. And it also

1:36:32

came with an additional tax benefit where the

1:36:35

creation and destruction of units didn't actually trigger

1:36:37

a capital gain like it did on managed

1:36:40

funds. So it created a whole

1:36:42

new generation of collective investment vehicles

1:36:45

that solved most of the

1:36:47

technical problems. And so here

1:36:49

we are today where that's

1:36:52

now probably the primary investment

1:36:54

vehicle for most new

1:36:56

investors. I think it's important to note as well.

1:36:59

So investors that's invested in LIX,

1:37:01

you can't compare the LIX to the ETF

1:37:04

because an ETF is open ended. So

1:37:06

when you look at an ETF and it doesn't

1:37:08

trade during the day for whatever reason, it's brand

1:37:11

new. It has $2 million in market cap, for

1:37:13

example. That doesn't mean it's

1:37:15

illiquid. It doesn't mean you can't trade it. It's simply

1:37:17

that's the birth of that first ETF at that point

1:37:19

and it's open ended. So if there was an investment

1:37:21

that came in and wanted to invest $10 million or

1:37:24

$100 million over that

1:37:26

period, that ETF would just keep

1:37:28

creating more units. And the

1:37:30

price, as you mentioned pointed out, there is

1:37:32

that sort of market maker intermediary that tries

1:37:34

to make sure that the price of the

1:37:36

ETF that you're trading is as

1:37:38

close to the price of the underlying asset. So

1:37:41

people need to be aware that an LIX

1:37:43

or a LIX, it's closed ended. They

1:37:45

issued X amount of units and they trade like a

1:37:47

share. Simple as that, supply and demand will determine the

1:37:49

actual price of that LIX and

1:37:52

that can go away from that underlying asset. So

1:37:54

people need to be aware that ETFs are

1:37:56

open ended, there's liquidity, don't be scared if it

1:37:58

doesn't trade. And also the one thing

1:38:01

I actually, I think we talked about the very

1:38:03

start was when is the right time to

1:38:05

buy? At what price? Some

1:38:07

of the ETFs now are trading

1:38:09

at like a few hundred dollars a unit. I

1:38:11

think it's IVV, I think it's a few, I

1:38:13

don't know if they've done a stock split. I

1:38:16

know there's a few others that could be up to the $200 per

1:38:18

unit. That doesn't

1:38:20

mean it's expensive. That's just because... So VGS is $124. Yeah,

1:38:24

IVV did the split and it's down

1:38:26

to like $54 or something like that.

1:38:28

But VGS is $124. But

1:38:30

the ETF provider for a lot of these will just

1:38:32

basically set a unit price on day one and that's

1:38:34

normally $5, $10, $50, $100 and then it just goes

1:38:36

from there. There's

1:38:40

no sort of real science behind, oh, it's going to

1:38:42

be $100. That's too

1:38:44

expensive. I'm going to buy the $5 one. There's actually

1:38:46

no difference between it. Now, when people do have that

1:38:48

perception, that's... Maybe

1:38:50

one other point to make on, I think

1:38:52

it's an interesting one on the relationship between

1:38:55

Lix and ETF. So something I've noticed and

1:38:57

we've done a bit of research on is

1:38:59

why Lix traded a big discount because that

1:39:01

discount is historically towards its largest

1:39:03

and it's been getting bigger over the last five to

1:39:05

10 years. My theory

1:39:07

on that, which is a theory, but

1:39:09

I've spoken to some other people in

1:39:11

the industry that agree with this, is

1:39:14

that there's actually a reason that's

1:39:16

related to ETFs of why these Lix are

1:39:18

trading at a bigger discount. And that's because

1:39:20

historically, as Vince pointed out, Lix were one

1:39:22

of the few ways to get collective investment

1:39:25

into a diversified portfolio. Then ETFs came about

1:39:27

and said, okay, for 10 basis

1:39:29

points or five basis points, almost no fees,

1:39:31

you can get now access to the ASX200.

1:39:35

Now people have an alternative and so

1:39:37

they're actually pricing Lix off

1:39:39

what they can get in the ETF world. And by

1:39:41

this, I mean, if you know that the ETF is

1:39:43

going to just give you the ASX200 return, which

1:39:46

over the long run, as Vince has mentioned, was the best in the

1:39:48

world, 10% or 11% per annum.

1:39:51

So you know that 90% of Lix fund

1:39:53

managers underperform the market and their net of

1:39:55

fee return is 1% less than the market.

1:39:58

You actually price... that asset using

1:40:01

a discount rate based on

1:40:03

the return it's getting as well. And

1:40:06

that discount rate may be that it should

1:40:08

be valued at a 20% or 30% discount versus just

1:40:12

buying the ETF. So I think it's

1:40:14

actually quite rational that these leaks are

1:40:16

trading at a 20% or 30% discount to

1:40:18

their NTA because that's the

1:40:21

value of buying an asset earning 9%

1:40:23

a year versus 10% a year. Now

1:40:27

the discount now it's

1:40:29

effectively the standard, just the

1:40:31

price quote unquote. Well I think people think it's

1:40:33

going to close for some magical reason but I

1:40:35

think they can close but only if the

1:40:37

managers choose to close them. And it's

1:40:39

usually not in the manager's interest to close

1:40:41

them because the reason it's such a big

1:40:43

discount is because they've been underperforming. And

1:40:46

because it's a closed end fund people can't redeem.

1:40:48

But if they were to open it people would

1:40:50

yank their money out and a few of them

1:40:53

who have converted to ETFs that's exactly what they've

1:40:55

seen is finally investors are like, phew, I finally

1:40:57

get my money out, I'm yanking it all out.

1:40:59

So why don't we see

1:41:01

some of these big old dogs like

1:41:03