Full Transcript
Dr James:
All right team. Welcome back to another live on the Dennis Toon Invest Facebook group. What I’m going to go ahead and do right now is get this up my phone screen so I can interact with everybody and all the questions that are, of course, going to come flying in inevitably every single time that we have a live, because you know what, historically, they’re usually super engaging and there’s always a lot of conversation that they generate, which is obviously very cool. So, as I say, welcome back to another live on Dennis Toon Invest Facebook this Tuesday evening 6.30pm, where we are here today to talk about investing mistakes, investing no-no’s, all the things that we shouldn’t do in order to become successful in investing. We cut this stuff out, we cut this nonsense out. Then it gives us an even higher likelihood that we can succeed and achieve our stated aim to grow our wealth using the markets. As ever, guys, if you’re here watching this live, go ahead and throw live in the comment section so we know how many people are here and in the house. We can give you a shout out. We also will give you the opportunity potentially ask questions and avail of the special guest that we have here today, luke Hurley and his knowledge, if you are watching this on replay, if you’re watching this on catch up, that’s also totally cool. Feel free to throw a replay in the catch in the comment section so you know who you’ve got in the house whenever it comes to replays. So, as I say, tonight we’re here to talk about investments mistakes with my good friend, luke Hurley. But before we do that, luke, how are you? Yeah, I’m very well. Thanks, james, very well, keeping you well. Hey, that’s what we like to hear. Well, do you know what? Let’s get down to business and talk about these investments mistakes that I keep banging on about. So, in your experience as a former IFA, what are, like, the biggest no-no’s or the biggest things you used to come across that help people back from being successful whenever it came to invest in? Ie? The biggest mistakes? Exactly what we said earlier.
Luke:
Humans, humans, humans. Typically, it’s the humans that are the problem, not the investments, havel, flaws, biases, just general mistakes that we make as human beings. I think the first I’ve drafted a list. It’s by no means the complete list, but I’ve done my best to give us something to work through. The first one on my list is not getting started.
Dr James:
Can I ask a question? Are these in order or frequent to last frequent?
Luke:
or just no, they’re just as they came to me. Yeah, no particular order.
Dr James:
sorry, I was just actually going to ask that.
Luke:
Okay, anyway numero uno. Number one not getting started. So classic analysis paralysis either as a new investor or the other time I’ve seen it quite frequently is where somebody’s come into a large wooden fill of some sort so they might have sold a practice or they might have sold a property and they’ve got cash sat on deposit and they get hit with analysis paralysis where they just cannot click the invest button for one reason or another. For those starting out I would say just get going, benefit from compound growth as soon as possible, even if it’s £25 a month, just get started. That’s the key.
Dr James:
Can I add something to that? Do you know from experience, through seeing people go through that journey as well, Because I see people and they’re like okay, but I can get an extra 0.2% if I go with this account over this one and it’s like okay, dude, and that, whilst that may be true, it’s important to remember that in both those accounts you’re still getting like 9% more than what you would be getting Otherwise if you don’t do anything, which will be zero, because if you literally don’t do anything, it’s going to be zero. So in both cases there’s upside. In both cases you’re going to win. Whether it’s the one that’s 0.2% more after analysis or not, the point is that you’re winning everywhere. Of course, you’ve got to counterbalance that with.
Luke:
It’s good to have some sort of methodology and strategy, but what we’re saying is maybe don’t over egg it, right 100% and the big risk, as we’ve talked about in the past, of having large sums of cash on deposit, is inflation eating away at it and eroding its real value.
Dr James:
Cool.
Luke:
So number two is not defining goals properly. So the plan always comes before the portfolio. So you should know why you’re investing, how long are you investing for. That’s probably the most important thing. So when do you need access to the money and how much are you going to deploy, and from that you can then work out how to structure your portfolio from a risk perspective or volatility perspective, but also in terms of the types of accounts that you wish to use, the tax records that you wish to use. A large part of that decision is down to time horizon, so defining what the money is for, when you’re going to need access to it, is absolutely vital. We always talk about having an investment plan and actually defining those goals and having a short paragraph or description as to what that pot of money is aiming to achieve.
Dr James:
Love that top stuff. Guys, anybody who’s listening. If you can relate to number one or number two, go ahead and throw which one you feel applies to you in the chat. If it’s number one, you feel like analysis, paralysis is holding you back through number one in the chat. If you feel like number two is the thing that’s holding you back, as again, feel free to throw that in the chat. And you know what? I’m gonna extend that offer or that invitation prospectively in this live. If you feel like you relate to any one of these, please feel free to throw them in the chat. This is a safe space. We can talk about this stuff. We can throw it out there, cause what it means is we can just see how many people in the Denysian Vest audience can actually relate to this stuff so that we can have a good understanding of well how we can tailor the content going forward. So that’d be hyper useful.
Luke:
The next one is the difference between investing, trading and speculating. Not understanding the differences between them and, more so, speculating when you think you’re investing or potentially other things, or trading when you think you’re investing. It’s kind of knowing what those different disciplines are, and I think the main one for me is actually coming back to not getting started people confusing speculating with investing. Investing does not have to. You don’t have to load yourself up with those specific risks of speculating on short-term price movements. Investing really is long-term. It’s buy and hold, it’s buying great assets and benefiting from compound growth over long-time periods. Speculating is something completely different, and yet that is often what stops people from getting started.
Dr James:
Yeah, I was talking to someone the other day on the phone and he said, james, I’m already getting decent returns in my portfolio. Surely the only way I can take it to the next level is if I become an active investor. If I become or sorry, become an active trader, and from what I could see whenever I was talking to this person, actually there was so many things that he could have tightened up on the passive side of things that would have given him, in my opinion, what historical data would say were greater returns purely by just really, really, really tightening up a strategy in the passive side of things, which would have given him, in likelihood, better returns, if you would have asked me, without even thinking about the active side of things. Actually, usually this is one of the most counter-intuitive things about investing. Usually, by and large, people who use active styles tend to make per returns and people with passive styles yeah, agreed 100%.
Luke:
The next one is not understanding investment risk. So the two main types of investment risk specific risks, ie risk-specific to individual stocks or regions or sectors, which you can diversify in a sensible long-term investment portfolio, versus market risk, which is volatility. So, understanding the difference between short-term volatility and market movements which is natural and is expected and actually in many ways, if you’re a long-term investor, embrace it versus permanent loss. Now, you can have a permanent loss if you’re speculating and you put all of your eggs in one basket and you try and speculate on the price movement of an individual security. But if you’re investing in a long-term investment portfolio that’s sensibly diversified, where you’ve spread the money over hundreds or thousands of companies, if you go down the passive route, then you shouldn’t be too worried if you’ve got time on your side in terms of short-term volatility.
Dr James:
Absolutely, and you know what. I know we’ve said this before, but I’m going to say it again because it’s worth repeating. Actually, one of the greatest risks is inflation risk, which is the rising tide which reduces the real value of your assets continuously over the years. So here’s the thing I used to think my biggest limit in belief of all time when it came to the investment side of things was actually, if you don’t invest, that’s the safe move, as in that’s the least risky thing to do. Actually, that still has inherent risk and it’s only really by comparison whenever we think about the markets and we think about investing that, whilst that’s not foolproof in and of itself, if you’re using methods which have historically yielded returns for professionals and even retail investors over hundreds of years, versus the guarantee of losing money by purely keeping your wealth in cash, that was a huge mindset flip for me was to realize that actually doing nothing is there’s risk associated with that as well Big risks 100% and putting all your attention on short-term volatility and what we call market risk versus inflation risk really that you’re slaying the wrong dragon.
Luke:
You need to reassess what’s most important for long-term wealth building.
Dr James:
And you listened. You actually nailed it just then, because people talk about risk like they throw it around without really defining it and there’s often this confusion that volatility equals risk. Volatility is just a rate of fluctuation in the value of your assets. It’s not actually risk per se, because what most people would associate with risk is the risk of total capital losses in the assets going to zero. Something can be volatile but still not have a very high chance of going to zero, particularly if there’s lots of data to support it’s continuous upward trend over the years. But, however, it still may be volatile. So to me, those are two separate things in and of itself, and that’s even just at surface level, before we actually get into the nuances which define them and separate them even more.
Luke:
Yeah, 100%. The next one is a technical thing which is really just not understanding the differences between the tax wrappers, so not necessarily fully understanding the technical side of portfolio construction, which we haven’t got time to go into now, but I do see that a lot Some people misunderstanding wrappers themselves for the investments. An ISA is not the investment itself, it’s just the box, it’s the tax wrapper. The same for pensions they’re tax wrappers, they’re types of account, they’re not the investments themselves, and that’s something that comes up a lot.
Dr James:
Absolutely, absolutely love that. Was there more on that list, oh?
Luke:
there’s. I keep going for a long time, James. We’ll rattle a couple more off. The next one not understanding the nature of investment returns, so not really looking at where all your returns likely to come from, and the difference between trying to time the markets, which for many ends in disaster, or trying to stock pick if you don’t really know what you’re doing and you don’t have the time and you are not able to dedicate the amount of time and resources to doing to doing so when you know you bear in mind that most professional stock pickers fail to beat the market, for example, and not really understanding that asset allocation drives depends on what research you’re looking at, but let’s say, 80 to 90% of your long-term returns is basically down to the asset mix of your portfolio. So that should be where all the attention goes. And yet all of the attention for most investors, particularly when they get started, goes on which fund should I be in and when should I invest? Trying to time the markets, and actually it should be focusing in on your asset allocation.
Dr James:
Yeah, big time. Yeah, there seems to be a lot of focus on getting in and out of the market and, really realistically, that style is more aligned with the style of a trader. So I think it comes back to really defining your definition of trading versus investing and then really honing in on which strategy you would like to focus on, because actually, for like 99% of people, probably investing is the best way, in which case market timing is way less of a consideration.
Luke:
Yeah, on average. I mean, there’s different research papers but investors underperform their investments and different research will say different figures, but between 1.5% to 3% a year the investor will actually underperform, say, the fund that they’re in, and that’s down to a number of factors, some of which we’ve covered. But things like performance chasing, so hopping between different funds, the whole classic when you’re on the motorway changing lanes to try and get ahead, try and gain an edge lots of people do that. When it comes to performance chasing, if they hold a basket of funds, they’re constantly trying to assess short term performance. But actually if you’re picking funds, you won’t really know for 15 years whether you picked the winners when you kind of pull out, whether it was luck and skill and everything else. So, performance chasing, obsessive portfolio monitoring now we’ve got apps. Everybody wants to check their investment portfolios on a daily basis. You used to get something through the post every six months or a year. If you’re potentially lucky in terms of monitoring the growth in your portfolio, because we have so much information to hand, we’re more likely to constantly want to play around with our portfolio and make mistakes and overdo things. Overconfidence that’s for me. I personally think I’m an above average driver. I don’t know about you. Same goes for investing. We tend to have a tendency, as humans, to be overconfident in our abilities, and success in one walk of life doesn’t necessarily mean it’s going to translate into things like trading and so on and so forth. Herding madness of crowds following the crowd. As humans, we do it all the time. We see that with bubbles loss aversion, which is where we feel losses twice as much as the positive emotions that we get if our portfolio goes up. So loss of aversion is key and can often lead to other things like moving, switching funds and over tinkering in our portfolios Other things. The main one actually the last one I’ll cover because we’re running out of time is getting sucked into a good story. So you know marketing departments from fund managers, product providers, financial advisors, portfolio managers and the investment press where they’re really selling you a good story on the best fund to buy right now, or the best investment to buy right now, or how we’re going to run your portfolio and do all these wonderful things. You know a lot of it. You’ll find over a long time period where you get regression to the mean and everything sort of hugs around the average. It’s baloney.
Dr James:
It’s so flipping true, because I’m always really skeptical when someone comes to me and says, oh, I beat the market on this time frame and what have you, and I’m like, hmm, but how much time did you actually spend like actively dipping in and out? And then also, how much historical data do you have to set that asset is going to continue to appreciate with time? And it just brings on all these. I’ve been there myself and I was exactly that person at the very start. I thought I was really smart, I thought I could beat the market despite not knowing a great deal about it back in the day. And I think the most dangerous thing around about that time is for you to invest and make a lot of money, as in it’s, for you to get the quick wins at the start, because then you tend to think that’s your experience, like that’s how you think it’s going to continue forever, and then what it can mean is that you go all in and you go deeper and deeper and deeper and then inevitably, inevitably, because you have zero risk management, because you’re brand new to it, it’s going to go tits up at some stage. So I would definitely say that, not to be that person, I would definitely say do the simple stuff and educate yourself on how can we say, the orthodox strategies whenever it comes to investing. And then, if you want to, if you really really really must, then take a little bit and possibly dabble in some from this a little bit more racy, and then also try to remember that, just as Luke says, really results in these things are measured over 15 years, and just really understand how much of a commitment you actually want to give to the, to your strategy, to your investing, given that really, if you want to continuously beat the market, it’s going to likely require a little bit of effort and time and monitoring on your behalf. And if you don’t want to be that person, please pick a passive strategy which, by the way, it’s completely valid in and of itself and actually will give you really good returns and accelerate the date that you can reach financial freedom, if you ask me.
Luke:
Yeah, and be patient and be disciplined, and if something sounds too good to be true, then it probably is Probably probably.
Dr James:
But yeah, I mean, so much of this is self-awareness. That’s the thing that fascinated me about investing. I didn’t realize from the way back in the day, from the outset, how much of it is understanding yourself and your own psychology. Really great book. I wonder if you’ve read it. Look, it’s called Triton in the Zone. I haven’t. I haven’t read that. I mean it sounds like you probably know most of the things that are in there anyway. But it’s all about exploring the psychological side of trading and I remember trading and investing. I remember reading that way back in the day and I used to think to myself what the hell is psychology got to do with trading? Like those are just two completely different things. But you can even see it panning out on price action charts. You can even see when people become fearful and the general mood is super pessimistic. The price of the stock market goes down before it historically inevitably recovers. Touch word, no financial advice, anything like that. But historically that’s what’s happened, certainly if you look at the data and that’s the whole premise that long-term investing is based on, that the market is a continuous wealth generating machine that has only ever advanced in value. Of course, please don’t rush off everybody and flip in and try to execute an investing strategy based off what I’ve just said. There’s a little bit more to it. You have to understand how it works, but certainly that’s what the data would say and certainly that was that orthodox. That is the orthodox thesis that I was alluding to just a second ago. But anyway, all we’re doing tonight is tickling everybody’s pickle, wetting everybody’s whistle and allowing them to understand that that’s possible and talk about the biggest investing no-nose. So I’m sure there’ll be lots of people out there who can resonate with this stuff. Guys, if there’s anybody out there who feels like you need some help whenever it comes to understanding a little bit about investing, feel free to throw game plan in the comment section and we will reach out to you at some point in the future. There’s so much scope to be able to help the dentist community whenever it comes to the investment side of things. There’s so much stuff that you can do independently when you have the right knowledge, but of course key clause in that sentence when you have the right knowledge. That’s literally why I created Dennis who Invest and it’s why it’s been such a pleasure to present this tonight with Luke. Luke, we’re going to go ahead and wrap up a roundabout Now. Is there anything that you would like to say in conclusion? Oh cheers, james. Always a pleasure, love coming home. Hey, man, man, I hope you have a smash on Tuesday and we’ll see each other very soon.
Luke:
Take care.