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Dentists Who Invest

Episode 256

Portfolio Design 101

Hosted By: Dr. James Martin

Dr. James: 

Fans of the Dentists who Invest podcast. If you feel like there was one particular episode in the back catalogue in the anthology of Dentists who Invest podcast episodes that really, really really was massively valuable to you, feel free to share that with a fellow dental colleague who’s in a similar position, so their understanding of finance can be elevated and they can hit the next level of financial success in their life. Also, as well as that, if you could take two seconds to rate and review this podcast, it would mean the world. To me, what that would mean is that it drives this podcast further in terms of reach so that more dentists across the world can be able to benefit from the knowledge contained therein.

Dr. James: 

Welcome, welcome to the Dentists who Invest. Podcast.

Dr. James: 

Hey team, what is up? Welcome back to the Dentistry Invest podcast with returning and familiar face, my good friend, Jon Doyle, ifa. John and I are going to be covering portfolio building 101 today. We’re going to talk about how you can begin to take your first steps into investing or, if you’re already there, how can you build your knowledge further so that you know that your strategy is optimized and you’re getting the best result. Isn’t that right, Jon?

Jon: 

it is, yeah yeah, quite exciting lovely lovely jovley.

Dr. James: 

How have you been since we last spoke?

Jon: 

uh, pretty good, pretty good. I’ve done my first triathlon for the year, so uh, that went okay, and uh had a nice time surfing in wales as well, so it’s been quite good.

Dr. James: 

You did your first triathlon, the whole flipping thing.

Jon: 

Of the year. Yeah, yeah, so I’ve got a few more proper ones later in the year. This was a little short sprint one, but it was good fun. It was good fun.

Dr. James: 

No, I’m just stunned because I know you’ll be able to rhyme this off off the top of your head, but I vaguely know this as someone who, as an athlete who’s well, an athlete might be a stretch, but as a person who has never, ever competed in a triathlon, all I know is that they’re long, they’re hard and they require a lot of physical endurance. And how many?

Jon: 

miles. Is it you run and then how many you swim? This one was a sprint triathlon.

Dr. James: 

Okay.

Jon: 

So it’s only a 5K run. At the end it’s like a 10 10 mile bike and a 400 meter swim. So it’s a little diddy one. It was done in an hour and five minutes, hour and 10 minutes like a little little one. I’ve got a proper olympic one later in the year.

Dr. James: 

Respect respect, fair play, and how much is the the full thing, the full turkey?

Jon: 

oh, full. I’ve never done an iron man, I’ve never done one of those, but they’re like uh, you know, you run a marathon at the end having already done like 160 or 180k on the bike and a three mile swim, I’ve not, I’ve done a half one, which is which was brutal enough. That was like seven hours.

Dr. James: 

That was a few years ago and that wait, that’s what you’re gonna do this year the full thing no, I’m doing an olympic one, which is what you’d see the olympics.

Jon: 

So that’s like a 1500 meter swim, uh, 45k bike and a 10k run.

Dr. James: 

So that’s still a solid effort. Hats off man. Fair play, okay. Anywho, we should probably talk about investing at some point today. So, uh so, portfolio portfolio building from the ground up. Let’s make this, let’s break this down really simple, because there’ll be a real diaspora of people listening to this podcast. Some people will have never invested because they don’t really understand the point. Some people will be seasoned hardcore veterans off the scene, and we’re going to ensure that everybody’s catered for in this podcast. Of course, let’s start from the start best place usually and let’s just let’s discuss why it’s a good idea to think about investing if you haven’t already dabbled, yeah I think, like the, the easiest place to to do is think right back to sort of first principles of what.

Jon: 

What is it we’re doing when we’re investing? We’re basically making a decision that I don’t want to spend this money today, but I want to spend it in the future and I want it to be worth at least the same amount in the future in terms of purchasing power. And I used to have to spend a lot of time explaining inflation to people, but we kind of all get it a little bit now because we’re seeing it week by week in the supermarket well, this is it right, you don’t need to use these analogies anymore which I used to explain inflation.

Dr. James: 

I used to say it’s the rising tide, it’s the rising, it’s like, it’s like global warming. Right, the oceans are going to rise. Right, you’ve got to beat them, right, that’s what I used to say. But now you don’t even need to go there, you just say go to taskos on monday, go to taskos on friday. Right, inflation boom indeed indeed.

Jon: 

Yeah, and it’s like I have a, a slide I show you like new clients. I’ve called it the beer and burgers index. It’s like the cost of a beer or a burger, like from the 1980s right through to more recently, and it was a good, fun way of saying like this is what we’re trying to do, really, because we want to be able to buy beer and burgers in 20 years, 30 years’ time. But we can all think about a Freddo, what a Freddo cost when we were a kid, right, or what a can of pop was, um, although we shouldn’t probably eat those things, you know we’re just gonna dentist it I saw.

Dr. James: 

I saw freddos for 69p the other day on facebook. So that is 700, you know, and I know that that not everything is going up. 700, you know, but if freddo’s is our yardstick, there’s a lot of people who are indignant. Let’s say that yeah, yeah.

Jon: 

And so when we’re making the decision to, to not spend today but want it for the future whether that’s to set our kids up financially, whether it’s to retire, whether it’s to to be able to go on holidays in in later life or what for whatever reason, we’re choosing not to spend this money today, absolutely, job number one is to protect the purchasing power of this money. Inflation is our biggest enemy, absolute biggest enemy. So that’s reason number one as to why we need to do something with our money and cash. Typically, your bank account has been a very, very poor protection against inflation. It’s, uh, really underperformed. It, yes, it’s not protected. So we need to do something other than hold cash well, this is it right?

Dr. James: 

if I look back on my journey, the real call to action for me was the day that I realized that actually you’re not okay by doing nothing, whereas previously my mindset was oh well, okay, well, at least if I don’t do anything I’m not risking it. Actually, you’re risking everything by not doing anything. Unless you put yourself with this knowledge, it’s a total mindset flip and I was like, wow, I actually have to actively educate myself on this so that that doesn’t happen to me.

Jon: 

Well, you go back to the Freddos, right? If you’ve had a pound coin in your drawer of your, you know, your bedside drawer or whatever, 20 years ago that was worth 10 Freddos. Now it’s not even worth two.

Dr. James: 

Frightening stuff yeah.

Jon: 

So that’s the whole thing we’re looking to do is put our pounds somewhere until they turn into multiple pounds and we can buy as many, if not more, freddos in the future. Lovely job, lee.

Dr. James: 

Whatever we’re doing, Now you’re speaking my language, okay, cool. So let’s move on to the next step, which is for us to articulate the elevator not pitch, but the elevator description, I suppose of how one can begin to be able to appreciate their wealth.

Jon: 

Yeah. So we would then say, well, we need to take this money and instead of having cash or fiat currency, we need to buy assets. We need to buy things that either other people want or that have some form of utility, and so, typically, you’re looking at buying companies, so investing in the stock market, you look at buying property, you’re looking at lending money through buying bonds either corporate bonds or government bonds or you might be looking at what we would, in the advisor world, call alternative assets. Everyone’s got the friend who invests in watches or invests in whiskey or invests in various other things, but we need to be looking to do something to put our money into a store of value.

Dr. James: 

Cool and, as an IFA, obviously we’ve got the steady Eddie route. You know, we’ve got the things that people typically use to appreciate their wealth and we’ve got the more outside stuff that’s more unusual or exotic yeah, stuff that’s more unusual or exotic, yeah, so what would you?

Dr. James: 

tend to advise is a great place to start for most people of that mix of insights.

Jon: 

So, um, my whole approach to investing is to be, where possible, evidence-based, and so the most reliable and repeatable source of wealth growth and protection that we’ve got evidence for is the stock market.

Jon: 

There’s over 100 years worth of data that we can look at for the stock market, and it can be analyzed and looked at and assessed by academics and by investment managers, and it’s been proven that it is a fantastic store of wealth. So when we’re investing in the stock market, all we’re doing is becoming an owner of those companies. You could, in many ways, say that you’re giving your money to Jeff Bezos and to Tim Cook and to all these great CEOs around the world, and you’re saying I don’t want to run a company, can you run a company for me? And you’re owning a slice of their pie. So then, every time, if you’re an Apple shareholder, every time someone uses Apple Pay or downloads an app, you’re making profit as a shareholder. So that’s the thing that we would look at doing with clients is say right, we need to look at the stock market, we need to own companies.

Dr. James: 

I see Right, and I’ve also come across what you were saying just there. Another way of saying in terms of purchasing a little bit of these companies and then having a stake in every single one of the great companies of the world, another way of explaining it is we’re actually owning a little piece of the brain power of these people. We’re basically backing them and saying you’re smart, you know what you’re doing, the evidence is right there. I’m backing you to be able to continue doing what you’re doing right, but of course, you never go all in, do we? Because then what that means is we’ve got all our eggs in one basket well, this is it, is it?

Jon: 

And I actually was talking to a client the other week about this and they flipped it back on me and was like it’s like standing on a nail versus lying on a bed of nails, right, If you stand on one nail, if you go out there and buy one company, there’s every chance that that nail is going to go right through your foot. But if you diversify and you own all the companies, you’ve got a bed of nails going on. People walk over and line that stuff without any pain. And that’s what we’re trying to do. And I was like that’s quite a nice little analogy. I’ll steal that one.

Dr. James: 

There we go.

Jon: 

When it comes. There’s many, many sort of rules of thumb and interesting things we can look at in investing, but the only one that is 100% cast iron is diversification, diversification, diversification. We want to spread our money out to reduce risk. So we don’t go out and buy one company. We go out and we buy many companies, and different ifas and different investment managers will have different ideas on what they think. A lot of companies is um, you know, so some of those it’ll be 30 companies, for others it’s 10 000 companies, but we want to diversify okay, yeah, so, and we go about.

Dr. James: 

They go about in slightly different ways right, but they’re all of the school of thought that it’s a good thing to diversify to a greater. Yeah, yeah.

Dr. James: 

We can get into that and you know what? We can probably make a whole flipping podcast about diversification in itself. What we’ll do is we’ll cover from a high level and how that’s done. In just a moment, A lot of people who are listening to this podcast and maybe this is now where we’re catering for the people who are already investing a lot of people who are listening to this podcast will have been allocated a proportion of their portfolio to bonds, right being allocated by their FA to bonds. Where do bonds come into it in your opinion? And, by the way, I’m right in saying that it’s usually government bonds and not corporate bonds?

Jon: 

It’s a bit of both. Yeah, it really depends on the financial planner or the investment manager. I’m probably going to use a fair amount of analogies, and I do tend to lean on drinking analogies, so apologies to anyone listening who doesn’t drink. Hopefully they still carry the same meaning it doesn’t lose it. But I would describe bonds as being like the tonic in a gin and tonic Okay. Okay, it’s the thing that takes the edge off, and this is what we do with bonds in a portfolio, because the problem with equities is that they go up and down. They can be volatile. We have these I call them moments in markets, or temporary declines, where people will see the stock market reducing in value. It’s what we’re going through right now. You might hear it referred to as a bear market, and so we use government bonds. According to modern portfolio theory, government bonds will then reduce that volatility because they’re not correlated they don’t do the same things at the same time, so they tend to have a lot less up and downs.

Dr. James: 

I see. So when we’re gearing our portfolio more towards smoothing out the volatility, then we can think about allocating a proportion of that to bonds. And there’s a variety of reasons why we do that right. One can be psychological reasons, the other can be because we’re now transitioning our assets to the point that we can make cash withdrawals right yeah.

Jon: 

So I mean, I have this belief that really for most people we’re investors for life, with the need for cash flow. Love that, that. So if you think, you know, like if I think back to sort of 2008, 2009, when I was being trained as a financial advisor, it was a you know, you get to 60 or 65, you sell your investments, you buy an annuity and you retire. And in the last decade I’ve arranged one annuity for a client wait, can I just pause there for two seconds?

Dr. James: 

annuities were still a thing as recently as that. 2009. Annuities yeah, oh, so was. Was it that that was just what they taught you in fa school but in in practice, people didn’t use them?

Jon: 

no, no, they were.

Jon: 

They were still a thing right through till 2014, 2015 whoa I didn’t know that yeah, um, you know, so, um, and they’re they’re making a bit of a comeback for for low risk people, um, but anyway, the idea, you know, you sort of have this thing of 60 being the end point of our investment journey. But really, you know, we look at life expectancy of a couple. One of them is going to live to 88. Particularly once you’re retired, if you’re above average wealth, living in above average area, you’re going to have above average life expectancy. So you then, you know you’re thinking one of you’s going to live to 88, 90 and you’re retiring at 60. You’ve still got a 30 year time horizon and all you’re wanting is cash flow. You’re wanting money to, you know, go on holidays and to treat the kids and the grandkids and to replace the car and do the extension and sort this out, sort that. But you’re never going to cash it all in at once, not if you’ve planned properly and done a good job throughout your working life real quick, guys.

Dr. James: 

I’ve put together a special report for dentists, entitled the seven costly and potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdentistoinvestcom forward slash podcast report or, alternatively, you can download it using the link in the description. This report details these seven most common issues. However, most importantly, it also shows you how to fix them. I’m really looking forward to hearing your thoughts there. We are right. So it’s all about cash flow, right. And then bonds come into it, or at least they can come into it when we want to transition our stock portfolio to cash flow, to cash.

Jon: 

Yeah, yeah. And the biggest reason why we use bonds at Juniper is to help with behavior. You know, we have clients who are nervous investors. Maybe they’ve never done this before, or they’ve sold a business, a practice, and they’re suddenly sitting on a lot of money and it can be very difficult. And I had a meeting, just today actually, with a client who sold his business in January 2020. We invested the money from his business in February 2020. And so you can imagine the journey he’s had. In that time. We deliberately put a reasonable amount of bonds in his portfolio because we knew, if something happened, his life’s work we can’t, he won’t be able to stomach that dropping 30% there’s no way, you know. And then then look what happened March 2020, suddenly everything’s falling and his portfolio dropped, I think, 10%, which he could live with. And then he stuck it through and we’ve dialed up the equity content since, because he’s now used to this, he trusts the process, he believes in the equities and they’ve done this journey before.

Jon: 

And I think, as financial advisors, it’s very easy for us to forget that we’ve done this our day in, day out. It’s the same as a dentist Pulling a tooth it’s very easy for us to forget that we’ve done this our day in, day out. You know it’s the same as a dentist pulling a tooth it is your day job. But for that person in the chair they may never have had a filling or a tooth done before. And it’s the same for my clients. You know I’ve been through this journey a number of times. You know 2008, 2009. Great first year’s experience there for a new, newbie financial advisor. So you get used to it. So we use these bonds to kind of particularly for nervous clients or for clients who are, um, you know, new in the journey. We’ll use bonds to to just even things out a little bit and then dial equities up to the point where they fully trust the process that we’re taking them through very, very, very cool.

Dr. James: 

Okay, cool, thank you for that. So let’s move back to equities now, and we we use the d word diversification and we kind of have explained it. Yeah, what is it that we need to know in order to diversify our equities portfolio suitably?

Jon: 

Yeah. So if you go back 30, 40 years, the common wisdom was 30 equities, 30 stocks was diversified. Okay, which is? You know? When we think about that now, it’s madness. You know that 30 stocks is a very concentrated portfolio.

Dr. James: 

But the Dow is 30 and it’s all flipping train companies, you know, and some people used to buy the Dow and just say there’s my retirement fund, but anyway.

Jon: 

so yeah, well, this is it. Now. You know, there are in excess of 20,000 listed companies across the world that we can invest in Now. Some of those are so small that they’re not worth buying as retail investors or as in-funds. But when we’re looking at diversification, the first thing we’re looking at is global diversification.

Jon: 

The biggest mistakes that I see when it comes to diversification is buying the S&P 500 and thinking you’re diversified, because if you’ve just got the S&P 500, you’ve got 20% of your wealth in four companies. And yet there are thousands and thousands of companies out there to be invested in. And if you look back a decade, who the top companies were in the S&P 500, they weren’t the same companies that they are today. There’s one or two of them that are still the same, but a of them aren’t, because it’s very hard, when a company gets very, very big, to continue to be the innovator. Um, so you, you want to to diversify, so we diversify.

Jon: 

It’s the same with the footsie 100. I’ve come across clients with. I have a foots 100 tracker. That’s my diversification, and what you’ve got really is a very, very small part of the world economy. Here’s a question for you. I’m going to put you on the spot here. If you were to put the global stock markets into an, allocate them as a percentage and allocate them as a percentage, okay, what percent of the world stock market do you think the UK is?

Dr. James: 

I actually really recently talked about this to someone and off the top of my head, it’s 3%, very close, yeah, that’s really good. Yeah, yeah, it’s just under 4, four percent oh, okay yeah, and america is something I’ve seen, like 50, right, yeah, 60, 60, oh, 60, whoa yeah, yeah, and there was a point.

Jon: 

It’s, it’s um, it’s. It’s dropped off a bit since, but there was a point where apple was bigger than the entire uk stock market. Oh, oh, that is just crazy. These numbers? I’ll give you a couple of numbers. This is at the end of 2021. Apple was worth $2,154 billion and the whole UK stock market not just the FTSE 100, but the FTSE All Share and the AIM market was worth $2,450 billion.

Dr. James: 

That’s insane, you know? I’ve got another fun one which is similar to that. Do you know, in the 80s, when Japan’s stock market peaked out, it was bigger than America’s. Yeah, briefly, yeah, yeah. And that’s a nation of 120 million versus a nation of I think it was like 250, 300 at the time. That’s how successful they were back then. But then they’ve had this whole stagflation thing. It’s kind of petered out. Population decline hasn’t helped them. But anyway, I love little factoids like that.

Jon: 

This is it. And so the UK used to be about 11% about 15, 20 years ago, and so the UK has been on the decline about 15, 20 years ago, and so the UK has been on the decline. So why don’t we diversify globally, and not just the S&P 500 or even the US whole market? Because you don’t know which country is going to come through and which currency is going to outperform over time. You know there’s all sorts of theories out there about the changing political order. If you’re a Ray Dalio reader or any of these sort of things, you know we’ve got the rise of China. Or you know India and the BRIC countries. We’ve got the EU. You know, we don’t know. There’s no predicting it. So we need to diversify across all of these countries to make sure that we’re in with the chance, over our 30, 40, 50-year time horizon, of protecting the value of our money and being in the great companies of the world. So we diversify.

Dr. James: 

Lovely job, lee, so that’s why we do it. I know we’ve got to be a little wary about this. Yeah, given that we don’t want to contravene any rules about financial advice or anything, let’s take it one step further, as much as we can. How would we do that? How does that actually translate to the actions that we’d undertake?

Jon: 

Okay, yeah, so we’ll talk in theory and try and avoid any. Oh, press the button. I’ve got a stand-up desk and I’ll press the button. That’s why my camera’s moving and people are watching this on the camera.

Dr. James: 

Oh, there, we can cut that bit out if you want.

Jon: 

So we won’t mention any funds or anything like that. But in essence, there’s three ways that we can go out and invest in the stock market. We can go out and buy companies directly ourselves Okay and we can try and decide for ourselves which companies are going to outperform or which ones we believe in. Achieving diversification will be very, very hard if you do that, because you’re going to be buying such tiny fragments of some of these companies that you just won’t have the scale. So you end up with a quieter, concentrated portfolio which will either do really well, because you got lucky and picked some good companies, or really badly, because you got unlucky and pick some really bad companies. It can also be complicated trying to buy in foreign markets, depending on the platforms you’re using. You can go out and buy an active fund where we’re essentially paying a fund manager to make those stock picking decisions for us. Some of those will buy a specialism in a specific market. So you can go out and buy a FTSE 100 active fund and they will just play in the FTSE 100 and try and outperform. Or some of them have global remits where they will try and pick um, you know, from the global market and you then rely very much on that fund manager’s skill um, which is, uh, well, there’s various studies that have shown most of them don’t have a lot of skill. Um, there’s a there’s a few maybe less than 1% who do. You’ve got to pick the right ones. You’ve got to back the right holds on the active fund game, but some people do enjoy that side of it.

Jon: 

Or you can go out and you can buy an index fund. Sometimes these are called passives and with an index fund, you are buying a basket of investments within whatever the remit of that index fund is, and sometimes you can look at, say, ETFs as well, or another type of index fund or passive instrument. What you’ve got to be wary of with an index fund is just because it’s an index fund doesn’t mean that it’s going to be diversified, because you can get really niche index funds. You can get the ones that only invest in companies that are in automation, and you might have an index fund with like 15 companies in it, etc. So just because it’s an index fund, you got to look at what is that index fund and what’s it going to do within my portfolio boom, there we go.

Dr. James: 

Lovely, hot, take on that. I wanted to chuck something in on top as well. You know, whenever it comes to this whole active versus passive thing, right? So you’ve got the people who are just like, okay, I just want somewhere to store my wealth, okay, and that because that’s basically what investing is it’s just a better place to store it. Right, is another way of thinking about it. Right, and I get that philosophy where you buy an index which has, like flipping 60 years of history, to say that it’s appreciated, okay, which you know.

Dr. James: 

That history is on your side at the very least, doesn’t mean that it’s a guarantee it’s going to continue. Of course you have to get that little disclaimer in there, but at least, at least, you’ve got a huge amount of history on your side and you’re also literally using the methods that an FA would use. Anyway, you’ve just educated yourself in it, right? So you’ve got that weight behind you. Let’s say that. So you’ve got that philosophy.

Dr. James: 

And then you’ve got the people who fancy it a little bit and they’re like well, I’m going to go buy this company and see how it does, and or I read this thing that says that apple’s gonna have a good year so I’m gonna buy apple and blah, blah and all this stuff, right. So, with that whole philosophy, right, and take you know, take this from someone who’s been there and done it a million times right way back in the day and and and now does it purely passively, okay, and the reason for that is what I always noticed is you’ll do well, you might even do well for a start. You’re either one of two things will happen right, it’ll go really well, or it won’t go so well and you’ll be like screw this, I’m just gonna go passive, right, but when it goes well, right. The whole psychological phenomenon you have to work against is where you think you’re hot, hot shit, basically okay, and you’re like, yeah, I beat the market.

Dr. James: 

Yeah, I’ve been investing for two months and I’m beat the market, right. Yeah, it goes well, okay. But then when it doesn’t go so well because you’re not to consistently beat, it, is very, very, very, very, very difficult. Like if professional fund managers can’t do it, the amateur, the beginner, has little hope, right. So let’s say it does outpace at the start and then if we got it after that point where it starts to not do so well, that is actually tougher than when it does, than when it does do well by an absolute mile, right.

Dr. James: 

Because then you start to think to yourself jesus, what am I doing? What I like, have I got in over my head here? What do I do next? Right, and the whole turmoil that you put yourself through in that scenario consumes so much brain space, right, so many times that the eventual conclusion that it led to for me, where I was, just like you know what, I’m just going to go passive, just buy a fund that reflects an index that is 50 years of history.

Dr. James: 

Then I know that there’s a huge amount of history on my side and, whether it goes up or down, I know that the trend is upwards. The trend is the friend is your friend to the bend. At the end is the last bit and it goes from bottom left to top right. And for me, I was like, all of a sudden, I was getting consistent rates of appreciation over many years. Of course, consistent because it’s a long game. Consistent rates of appreciation over many years. Of course, consistent because it’s a long game. Consistent rates of appreciation that consumed exponentially less headspace. And I was like, right, this is for me.

Jon: 

So this is it, our investment philosophy. At Juniper we’ve got an awful lot of research that’s gone into why we invest the way we invest, including a document that runs to about 7,000, 8,000 words that details our investment philosophy. Because for us, when we put something in our client portfolio, we really need to know the rationale of why that’s there. Because then, when the market changes or when the world does something you weren’t expecting, you’ve got to ask yourself was the rationale right? Is the rationale still right? And and what did I base those decisions on? Would I you know? Was it a good decision?

Jon: 

And it’s the same when you’re doing this diy, you have to know what is the reason you picked this company or this fund. What did you believe about them that made them deserve a place in your portfolio? And I’d almost encourage people to write it down, even if it’s a couple of bullet points I bought this company because I believe X, y and Z. And then, when you doubt yourself in a few months or a few years, go back and ask yourself how often you got it right. And the other thing that they’d even do is just sit down and play the game of up or down Just for a week, two weeks is the general stock market. Pick an index S&P 500, ftse 100, and just play the up and down game. Is it going to go up? Is it going to go up, is it going to go down?

Jon: 

It doesn’t take very long for you to realize that you don’t know. These short-term games are so, so difficult. There’s a thought experiment called a random walk down Wall Street, where a guy flipped a coin like 500 times and recorded the results and put it into a statistical chart and showed it to a load of fund managers as though it was a company and asked them to predict what was going to happen to the company next. And yeah, it was just a flip of a coin and there was no actual statistical reasoning behind it. There was no evidence, it was just. This is what it looked like historically.

Dr. James: 

Yeah interesting stuff. No, it really is so seemingly spontaneous in the short term, seemingly sporadic, and it’s it’s. That’s what. That is basically what you’re up against when you’re picking stocks and, uh, you know what? I’m sure there’ll be some people out there who can do it successfully. But here, here’s my logic.

Jon: 

Right, if you’re gonna learn how to run, you gotta learn how to walk first, at the very least, which is the yeah and I think, when people think about the people who have done it successfully, people like Warren Buffett are often their go-tos, right, but here’s the thing that Warren Buffett has that you and I don’t. When he believes in a company, he doesn’t invest in it, he buys it. He’s the third biggest shareholder in Apple, so if he has an idea about what Apple should be doing or some sort of issue with the way Tim Cook’s running the business, he picks up the phone, he takes Tim Cook for dinner and Tim Cook has to listen. The other two investors who are bigger than him is Vanguard and BlackRock.

Jon: 

That’s one person, that’s you know. And between them they own about 15% of Apple, vanguard, blackrock and Berkshire Hathaway. So when Warren Buffett is outperforming the market over a number of years, he’s got time on his side, he’s got incredible discipline and he’s got the ability to make impacts in that company that other mortals don’t there we go.

Dr. James: 

I’m reading incidentally, I’m reading this book at the minute the university of berkshire hathaway. Okay, cool, yeah, I’ve got a few books. I’m spinning a few plates when it comes to books at the minute, but that’s one of them. Uh and um, I’ve just it’s. It’s like a chronology of all the agms, okay, uh, for brookshire hathaway, right, and it’s like chapter one is 19, I don’t know 70, something like that, and then each chapter corresponds to a year, so I’m in the year 1991 at the minute, right, and he’s just bought coca-cola. Okay, we’re gonna see how that transpires.

Jon: 

I don’t think he’s invested in apple yet, but I’ll keep everybody posted, yeah anyway, in the short term, very, very hard to know what’s going to happen right in the long term. Humanity and capitalism has this ability to innovate and generate value, and that’s all the stock market is doing is capturing the value that humanity creates. So when they invent the iPod, or when they invent Coca-Cola, or when they invent open AI and chat GPT, eventually these things are all captured by companies because we love using their products and services and, as shareholders, we capture the value. So the stock market will have these temporary declines, but it goes up way more than it goes down, and so over time, it’s where we want to be, but don’t try and predict it in the short term.

Dr. James: 

Boom. Thank you for that, john, and you know what? What a nice note to end the podcast on and coming up to the 40 minutes mark, ish. If anybody wants to know more, where can they find yourself, john?

Jon: 

Well, you can find us at juniperwealthcouk. We have juniperwealthuk on Instagram. I’m juniperjohn on Instagram and there’ll be lots of ways You’ll find me hanging around the Facebook group. There is so much more that we could go into. There’s days of stuff, so hopefully we’ll do another one of these and take this deeper.

Dr. James: 

We will 100%. I need to do more tangible investing podcasts because I know that we kind of bounce around between being profitable and business and all that stuff and I want to move the podcast back to the essence, the reasons why we created it initially. So, yeah, watch this space everybody, let’s do one. I think diversification will be a good one, right or even building on what we did today.

Jon: 

Yeah, there is so much we could go into that and on asset allocation, which is the fundamental part of diversification, so maybe that’s our next one.

Dr. James: 

That’s the next one right there, Boom John. Thank you so much for your time, mate. We’ll catch up really soon.

Jon: 

Absolute pleasure.

Dr. James: 

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Dr. James: 

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Dr. James: 

Welcome, welcome to the Dentists who Invest. Podcast.

Dr. James: 

Hey team, what is up? Welcome back to the Dentistry Invest podcast with returning and familiar face, my good friend, Jon Doyle, ifa. John and I are going to be covering portfolio building 101 today. We’re going to talk about how you can begin to take your first steps into investing or, if you’re already there, how can you build your knowledge further so that you know that your strategy is optimized and you’re getting the best result. Isn’t that right, Jon?

Jon: 

it is, yeah yeah, quite exciting lovely lovely jovley.

Dr. James: 

How have you been since we last spoke?

Jon: 

uh, pretty good, pretty good. I’ve done my first triathlon for the year, so uh, that went okay, and uh had a nice time surfing in wales as well, so it’s been quite good.

Dr. James: 

You did your first triathlon, the whole flipping thing.

Jon: 

Of the year. Yeah, yeah, so I’ve got a few more proper ones later in the year. This was a little short sprint one, but it was good fun. It was good fun.

Dr. James: 

No, I’m just stunned because I know you’ll be able to rhyme this off off the top of your head, but I vaguely know this as someone who, as an athlete who’s well, an athlete might be a stretch, but as a person who has never, ever competed in a triathlon, all I know is that they’re long, they’re hard and they require a lot of physical endurance. And how many?

Jon: 

miles. Is it you run and then how many you swim? This one was a sprint triathlon.

Dr. James: 

Okay.

Jon: 

So it’s only a 5K run. At the end it’s like a 10 10 mile bike and a 400 meter swim. So it’s a little diddy one. It was done in an hour and five minutes, hour and 10 minutes like a little little one. I’ve got a proper olympic one later in the year.

Dr. James: 

Respect respect, fair play, and how much is the the full thing, the full turkey?

Jon: 

oh, full. I’ve never done an iron man, I’ve never done one of those, but they’re like uh, you know, you run a marathon at the end having already done like 160 or 180k on the bike and a three mile swim, I’ve not, I’ve done a half one, which is which was brutal enough. That was like seven hours.

Dr. James: 

That was a few years ago and that wait, that’s what you’re gonna do this year the full thing no, I’m doing an olympic one, which is what you’d see the olympics.

Jon: 

So that’s like a 1500 meter swim, uh, 45k bike and a 10k run.

Dr. James: 

So that’s still a solid effort. Hats off man. Fair play, okay. Anywho, we should probably talk about investing at some point today. So, uh so, portfolio portfolio building from the ground up. Let’s make this, let’s break this down really simple, because there’ll be a real diaspora of people listening to this podcast. Some people will have never invested because they don’t really understand the point. Some people will be seasoned hardcore veterans off the scene, and we’re going to ensure that everybody’s catered for in this podcast. Of course, let’s start from the start best place usually and let’s just let’s discuss why it’s a good idea to think about investing if you haven’t already dabbled, yeah I think, like the, the easiest place to to do is think right back to sort of first principles of what.

Jon: 

What is it we’re doing when we’re investing? We’re basically making a decision that I don’t want to spend this money today, but I want to spend it in the future and I want it to be worth at least the same amount in the future in terms of purchasing power. And I used to have to spend a lot of time explaining inflation to people, but we kind of all get it a little bit now because we’re seeing it week by week in the supermarket well, this is it right, you don’t need to use these analogies anymore which I used to explain inflation.

Dr. James: 

I used to say it’s the rising tide, it’s the rising, it’s like, it’s like global warming. Right, the oceans are going to rise. Right, you’ve got to beat them, right, that’s what I used to say. But now you don’t even need to go there, you just say go to taskos on monday, go to taskos on friday. Right, inflation boom indeed indeed.

Jon: 

Yeah, and it’s like I have a, a slide I show you like new clients. I’ve called it the beer and burgers index. It’s like the cost of a beer or a burger, like from the 1980s right through to more recently, and it was a good, fun way of saying like this is what we’re trying to do, really, because we want to be able to buy beer and burgers in 20 years, 30 years’ time. But we can all think about a Freddo, what a Freddo cost when we were a kid, right, or what a can of pop was, um, although we shouldn’t probably eat those things, you know we’re just gonna dentist it I saw.

Dr. James: 

I saw freddos for 69p the other day on facebook. So that is 700, you know, and I know that that not everything is going up. 700, you know, but if freddo’s is our yardstick, there’s a lot of people who are indignant. Let’s say that yeah, yeah.

Jon: 

And so when we’re making the decision to, to not spend today but want it for the future whether that’s to set our kids up financially, whether it’s to retire, whether it’s to to be able to go on holidays in in later life or what for whatever reason, we’re choosing not to spend this money today, absolutely, job number one is to protect the purchasing power of this money. Inflation is our biggest enemy, absolute biggest enemy. So that’s reason number one as to why we need to do something with our money and cash. Typically, your bank account has been a very, very poor protection against inflation. It’s, uh, really underperformed. It, yes, it’s not protected. So we need to do something other than hold cash well, this is it right?

Dr. James: 

if I look back on my journey, the real call to action for me was the day that I realized that actually you’re not okay by doing nothing, whereas previously my mindset was oh well, okay, well, at least if I don’t do anything I’m not risking it. Actually, you’re risking everything by not doing anything. Unless you put yourself with this knowledge, it’s a total mindset flip and I was like, wow, I actually have to actively educate myself on this so that that doesn’t happen to me.

Jon: 

Well, you go back to the Freddos, right? If you’ve had a pound coin in your drawer of your, you know, your bedside drawer or whatever, 20 years ago that was worth 10 Freddos. Now it’s not even worth two.

Dr. James: 

Frightening stuff yeah.

Jon: 

So that’s the whole thing we’re looking to do is put our pounds somewhere until they turn into multiple pounds and we can buy as many, if not more, freddos in the future. Lovely job, lee.

Dr. James: 

Whatever we’re doing, Now you’re speaking my language, okay, cool. So let’s move on to the next step, which is for us to articulate the elevator not pitch, but the elevator description, I suppose of how one can begin to be able to appreciate their wealth.

Jon: 

Yeah. So we would then say, well, we need to take this money and instead of having cash or fiat currency, we need to buy assets. We need to buy things that either other people want or that have some form of utility, and so, typically, you’re looking at buying companies, so investing in the stock market, you look at buying property, you’re looking at lending money through buying bonds either corporate bonds or government bonds or you might be looking at what we would, in the advisor world, call alternative assets. Everyone’s got the friend who invests in watches or invests in whiskey or invests in various other things, but we need to be looking to do something to put our money into a store of value.

Dr. James: 

Cool and, as an IFA, obviously we’ve got the steady Eddie route. You know, we’ve got the things that people typically use to appreciate their wealth and we’ve got the more outside stuff that’s more unusual or exotic yeah, stuff that’s more unusual or exotic, yeah, so what would you?

Dr. James: 

tend to advise is a great place to start for most people of that mix of insights.

Jon: 

So, um, my whole approach to investing is to be, where possible, evidence-based, and so the most reliable and repeatable source of wealth growth and protection that we’ve got evidence for is the stock market.

Jon: 

There’s over 100 years worth of data that we can look at for the stock market, and it can be analyzed and looked at and assessed by academics and by investment managers, and it’s been proven that it is a fantastic store of wealth. So when we’re investing in the stock market, all we’re doing is becoming an owner of those companies. You could, in many ways, say that you’re giving your money to Jeff Bezos and to Tim Cook and to all these great CEOs around the world, and you’re saying I don’t want to run a company, can you run a company for me? And you’re owning a slice of their pie. So then, every time, if you’re an Apple shareholder, every time someone uses Apple Pay or downloads an app, you’re making profit as a shareholder. So that’s the thing that we would look at doing with clients is say right, we need to look at the stock market, we need to own companies.

Dr. James: 

I see Right, and I’ve also come across what you were saying just there. Another way of saying in terms of purchasing a little bit of these companies and then having a stake in every single one of the great companies of the world, another way of explaining it is we’re actually owning a little piece of the brain power of these people. We’re basically backing them and saying you’re smart, you know what you’re doing, the evidence is right there. I’m backing you to be able to continue doing what you’re doing right, but of course, you never go all in, do we? Because then what that means is we’ve got all our eggs in one basket well, this is it, is it?

Jon: 

And I actually was talking to a client the other week about this and they flipped it back on me and was like it’s like standing on a nail versus lying on a bed of nails, right, If you stand on one nail, if you go out there and buy one company, there’s every chance that that nail is going to go right through your foot. But if you diversify and you own all the companies, you’ve got a bed of nails going on. People walk over and line that stuff without any pain. And that’s what we’re trying to do. And I was like that’s quite a nice little analogy. I’ll steal that one.

Dr. James: 

There we go.

Jon: 

When it comes. There’s many, many sort of rules of thumb and interesting things we can look at in investing, but the only one that is 100% cast iron is diversification, diversification, diversification. We want to spread our money out to reduce risk. So we don’t go out and buy one company. We go out and we buy many companies, and different ifas and different investment managers will have different ideas on what they think. A lot of companies is um, you know, so some of those it’ll be 30 companies, for others it’s 10 000 companies, but we want to diversify okay, yeah, so, and we go about.

Dr. James: 

They go about in slightly different ways right, but they’re all of the school of thought that it’s a good thing to diversify to a greater. Yeah, yeah.

Dr. James: 

We can get into that and you know what? We can probably make a whole flipping podcast about diversification in itself. What we’ll do is we’ll cover from a high level and how that’s done. In just a moment, A lot of people who are listening to this podcast and maybe this is now where we’re catering for the people who are already investing a lot of people who are listening to this podcast will have been allocated a proportion of their portfolio to bonds, right being allocated by their FA to bonds. Where do bonds come into it in your opinion? And, by the way, I’m right in saying that it’s usually government bonds and not corporate bonds?

Jon: 

It’s a bit of both. Yeah, it really depends on the financial planner or the investment manager. I’m probably going to use a fair amount of analogies, and I do tend to lean on drinking analogies, so apologies to anyone listening who doesn’t drink. Hopefully they still carry the same meaning it doesn’t lose it. But I would describe bonds as being like the tonic in a gin and tonic Okay. Okay, it’s the thing that takes the edge off, and this is what we do with bonds in a portfolio, because the problem with equities is that they go up and down. They can be volatile. We have these I call them moments in markets, or temporary declines, where people will see the stock market reducing in value. It’s what we’re going through right now. You might hear it referred to as a bear market, and so we use government bonds. According to modern portfolio theory, government bonds will then reduce that volatility because they’re not correlated they don’t do the same things at the same time, so they tend to have a lot less up and downs.

Dr. James: 

I see. So when we’re gearing our portfolio more towards smoothing out the volatility, then we can think about allocating a proportion of that to bonds. And there’s a variety of reasons why we do that right. One can be psychological reasons, the other can be because we’re now transitioning our assets to the point that we can make cash withdrawals right yeah.

Jon: 

So I mean, I have this belief that really for most people we’re investors for life, with the need for cash flow. Love that, that. So if you think, you know, like if I think back to sort of 2008, 2009, when I was being trained as a financial advisor, it was a you know, you get to 60 or 65, you sell your investments, you buy an annuity and you retire. And in the last decade I’ve arranged one annuity for a client wait, can I just pause there for two seconds?

Dr. James: 

annuities were still a thing as recently as that. 2009. Annuities yeah, oh, so was. Was it that that was just what they taught you in fa school but in in practice, people didn’t use them?

Jon: 

no, no, they were.

Jon: 

They were still a thing right through till 2014, 2015 whoa I didn’t know that yeah, um, you know, so, um, and they’re they’re making a bit of a comeback for for low risk people, um, but anyway, the idea, you know, you sort of have this thing of 60 being the end point of our investment journey. But really, you know, we look at life expectancy of a couple. One of them is going to live to 88. Particularly once you’re retired, if you’re above average wealth, living in above average area, you’re going to have above average life expectancy. So you then, you know you’re thinking one of you’s going to live to 88, 90 and you’re retiring at 60. You’ve still got a 30 year time horizon and all you’re wanting is cash flow. You’re wanting money to, you know, go on holidays and to treat the kids and the grandkids and to replace the car and do the extension and sort this out, sort that. But you’re never going to cash it all in at once, not if you’ve planned properly and done a good job throughout your working life real quick, guys.

Dr. James: 

I’ve put together a special report for dentists, entitled the seven costly and potentially disastrous mistakes that dentists make whenever it comes to their finances. Most of the time, dentists are going through these issues and they don’t even necessarily realize that they’re happening until they have their eyes opened, and that is the purpose of this report. You can go ahead and receive your free report by heading on over to wwwdentistoinvestcom forward slash podcast report or, alternatively, you can download it using the link in the description. This report details these seven most common issues. However, most importantly, it also shows you how to fix them. I’m really looking forward to hearing your thoughts there. We are right. So it’s all about cash flow, right. And then bonds come into it, or at least they can come into it when we want to transition our stock portfolio to cash flow, to cash.

Jon: 

Yeah, yeah. And the biggest reason why we use bonds at Juniper is to help with behavior. You know, we have clients who are nervous investors. Maybe they’ve never done this before, or they’ve sold a business, a practice, and they’re suddenly sitting on a lot of money and it can be very difficult. And I had a meeting, just today actually, with a client who sold his business in January 2020. We invested the money from his business in February 2020. And so you can imagine the journey he’s had. In that time. We deliberately put a reasonable amount of bonds in his portfolio because we knew, if something happened, his life’s work we can’t, he won’t be able to stomach that dropping 30% there’s no way, you know. And then then look what happened March 2020, suddenly everything’s falling and his portfolio dropped, I think, 10%, which he could live with. And then he stuck it through and we’ve dialed up the equity content since, because he’s now used to this, he trusts the process, he believes in the equities and they’ve done this journey before.

Jon: 

And I think, as financial advisors, it’s very easy for us to forget that we’ve done this our day in, day out. It’s the same as a dentist Pulling a tooth it’s very easy for us to forget that we’ve done this our day in, day out. You know it’s the same as a dentist pulling a tooth it is your day job. But for that person in the chair they may never have had a filling or a tooth done before. And it’s the same for my clients. You know I’ve been through this journey a number of times. You know 2008, 2009. Great first year’s experience there for a new, newbie financial advisor. So you get used to it. So we use these bonds to kind of particularly for nervous clients or for clients who are, um, you know, new in the journey. We’ll use bonds to to just even things out a little bit and then dial equities up to the point where they fully trust the process that we’re taking them through very, very, very cool.

Dr. James: 

Okay, cool, thank you for that. So let’s move back to equities now, and we we use the d word diversification and we kind of have explained it. Yeah, what is it that we need to know in order to diversify our equities portfolio suitably?

Jon: 

Yeah. So if you go back 30, 40 years, the common wisdom was 30 equities, 30 stocks was diversified. Okay, which is? You know? When we think about that now, it’s madness. You know that 30 stocks is a very concentrated portfolio.

Dr. James: 

But the Dow is 30 and it’s all flipping train companies, you know, and some people used to buy the Dow and just say there’s my retirement fund, but anyway.

Jon: 

so yeah, well, this is it. Now. You know, there are in excess of 20,000 listed companies across the world that we can invest in Now. Some of those are so small that they’re not worth buying as retail investors or as in-funds. But when we’re looking at diversification, the first thing we’re looking at is global diversification.

Jon: 

The biggest mistakes that I see when it comes to diversification is buying the S&P 500 and thinking you’re diversified, because if you’ve just got the S&P 500, you’ve got 20% of your wealth in four companies. And yet there are thousands and thousands of companies out there to be invested in. And if you look back a decade, who the top companies were in the S&P 500, they weren’t the same companies that they are today. There’s one or two of them that are still the same, but a of them aren’t, because it’s very hard, when a company gets very, very big, to continue to be the innovator. Um, so you, you want to to diversify, so we diversify.

Jon: 

It’s the same with the footsie 100. I’ve come across clients with. I have a foots 100 tracker. That’s my diversification, and what you’ve got really is a very, very small part of the world economy. Here’s a question for you. I’m going to put you on the spot here. If you were to put the global stock markets into an, allocate them as a percentage and allocate them as a percentage, okay, what percent of the world stock market do you think the UK is?

Dr. James: 

I actually really recently talked about this to someone and off the top of my head, it’s 3%, very close, yeah, that’s really good. Yeah, yeah, it’s just under 4, four percent oh, okay yeah, and america is something I’ve seen, like 50, right, yeah, 60, 60, oh, 60, whoa yeah, yeah, and there was a point.

Jon: 

It’s, it’s um, it’s. It’s dropped off a bit since, but there was a point where apple was bigger than the entire uk stock market. Oh, oh, that is just crazy. These numbers? I’ll give you a couple of numbers. This is at the end of 2021. Apple was worth $2,154 billion and the whole UK stock market not just the FTSE 100, but the FTSE All Share and the AIM market was worth $2,450 billion.

Dr. James: 

That’s insane, you know? I’ve got another fun one which is similar to that. Do you know, in the 80s, when Japan’s stock market peaked out, it was bigger than America’s. Yeah, briefly, yeah, yeah. And that’s a nation of 120 million versus a nation of I think it was like 250, 300 at the time. That’s how successful they were back then. But then they’ve had this whole stagflation thing. It’s kind of petered out. Population decline hasn’t helped them. But anyway, I love little factoids like that.

Jon: 

This is it. And so the UK used to be about 11% about 15, 20 years ago, and so the UK has been on the decline about 15, 20 years ago, and so the UK has been on the decline. So why don’t we diversify globally, and not just the S&P 500 or even the US whole market? Because you don’t know which country is going to come through and which currency is going to outperform over time. You know there’s all sorts of theories out there about the changing political order. If you’re a Ray Dalio reader or any of these sort of things, you know we’ve got the rise of China. Or you know India and the BRIC countries. We’ve got the EU. You know, we don’t know. There’s no predicting it. So we need to diversify across all of these countries to make sure that we’re in with the chance, over our 30, 40, 50-year time horizon, of protecting the value of our money and being in the great companies of the world. So we diversify.

Dr. James: 

Lovely job, lee, so that’s why we do it. I know we’ve got to be a little wary about this. Yeah, given that we don’t want to contravene any rules about financial advice or anything, let’s take it one step further, as much as we can. How would we do that? How does that actually translate to the actions that we’d undertake?

Jon: 

Okay, yeah, so we’ll talk in theory and try and avoid any. Oh, press the button. I’ve got a stand-up desk and I’ll press the button. That’s why my camera’s moving and people are watching this on the camera.

Dr. James: 

Oh, there, we can cut that bit out if you want.

Jon: 

So we won’t mention any funds or anything like that. But in essence, there’s three ways that we can go out and invest in the stock market. We can go out and buy companies directly ourselves Okay and we can try and decide for ourselves which companies are going to outperform or which ones we believe in. Achieving diversification will be very, very hard if you do that, because you’re going to be buying such tiny fragments of some of these companies that you just won’t have the scale. So you end up with a quieter, concentrated portfolio which will either do really well, because you got lucky and picked some good companies, or really badly, because you got unlucky and pick some really bad companies. It can also be complicated trying to buy in foreign markets, depending on the platforms you’re using. You can go out and buy an active fund where we’re essentially paying a fund manager to make those stock picking decisions for us. Some of those will buy a specialism in a specific market. So you can go out and buy a FTSE 100 active fund and they will just play in the FTSE 100 and try and outperform. Or some of them have global remits where they will try and pick um, you know, from the global market and you then rely very much on that fund manager’s skill um, which is, uh, well, there’s various studies that have shown most of them don’t have a lot of skill. Um, there’s a there’s a few maybe less than 1% who do. You’ve got to pick the right ones. You’ve got to back the right holds on the active fund game, but some people do enjoy that side of it.

Jon: 

Or you can go out and you can buy an index fund. Sometimes these are called passives and with an index fund, you are buying a basket of investments within whatever the remit of that index fund is, and sometimes you can look at, say, ETFs as well, or another type of index fund or passive instrument. What you’ve got to be wary of with an index fund is just because it’s an index fund doesn’t mean that it’s going to be diversified, because you can get really niche index funds. You can get the ones that only invest in companies that are in automation, and you might have an index fund with like 15 companies in it, etc. So just because it’s an index fund, you got to look at what is that index fund and what’s it going to do within my portfolio boom, there we go.

Dr. James: 

Lovely, hot, take on that. I wanted to chuck something in on top as well. You know, whenever it comes to this whole active versus passive thing, right? So you’ve got the people who are just like, okay, I just want somewhere to store my wealth, okay, and that because that’s basically what investing is it’s just a better place to store it. Right, is another way of thinking about it. Right, and I get that philosophy where you buy an index which has, like flipping 60 years of history, to say that it’s appreciated, okay, which you know.

Dr. James: 

That history is on your side at the very least, doesn’t mean that it’s a guarantee it’s going to continue. Of course you have to get that little disclaimer in there, but at least, at least, you’ve got a huge amount of history on your side and you’re also literally using the methods that an FA would use. Anyway, you’ve just educated yourself in it, right? So you’ve got that weight behind you. Let’s say that. So you’ve got that philosophy.

Dr. James: 

And then you’ve got the people who fancy it a little bit and they’re like well, I’m going to go buy this company and see how it does, and or I read this thing that says that apple’s gonna have a good year so I’m gonna buy apple and blah, blah and all this stuff, right. So, with that whole philosophy, right, and take you know, take this from someone who’s been there and done it a million times right way back in the day and and and now does it purely passively, okay, and the reason for that is what I always noticed is you’ll do well, you might even do well for a start. You’re either one of two things will happen right, it’ll go really well, or it won’t go so well and you’ll be like screw this, I’m just gonna go passive, right, but when it goes well, right. The whole psychological phenomenon you have to work against is where you think you’re hot, hot shit, basically okay, and you’re like, yeah, I beat the market.

Dr. James: 

Yeah, I’ve been investing for two months and I’m beat the market, right. Yeah, it goes well, okay. But then when it doesn’t go so well because you’re not to consistently beat, it, is very, very, very, very, very difficult. Like if professional fund managers can’t do it, the amateur, the beginner, has little hope, right. So let’s say it does outpace at the start and then if we got it after that point where it starts to not do so well, that is actually tougher than when it does, than when it does do well by an absolute mile, right.

Dr. James: 

Because then you start to think to yourself jesus, what am I doing? What I like, have I got in over my head here? What do I do next? Right, and the whole turmoil that you put yourself through in that scenario consumes so much brain space, right, so many times that the eventual conclusion that it led to for me, where I was, just like you know what, I’m just going to go passive, just buy a fund that reflects an index that is 50 years of history.

Dr. James: 

Then I know that there’s a huge amount of history on my side and, whether it goes up or down, I know that the trend is upwards. The trend is the friend is your friend to the bend. At the end is the last bit and it goes from bottom left to top right. And for me, I was like, all of a sudden, I was getting consistent rates of appreciation over many years. Of course, consistent because it’s a long game. Consistent rates of appreciation over many years. Of course, consistent because it’s a long game. Consistent rates of appreciation that consumed exponentially less headspace. And I was like, right, this is for me.

Jon: 

So this is it, our investment philosophy. At Juniper we’ve got an awful lot of research that’s gone into why we invest the way we invest, including a document that runs to about 7,000, 8,000 words that details our investment philosophy. Because for us, when we put something in our client portfolio, we really need to know the rationale of why that’s there. Because then, when the market changes or when the world does something you weren’t expecting, you’ve got to ask yourself was the rationale right? Is the rationale still right? And and what did I base those decisions on? Would I you know? Was it a good decision?

Jon: 

And it’s the same when you’re doing this diy, you have to know what is the reason you picked this company or this fund. What did you believe about them that made them deserve a place in your portfolio? And I’d almost encourage people to write it down, even if it’s a couple of bullet points I bought this company because I believe X, y and Z. And then, when you doubt yourself in a few months or a few years, go back and ask yourself how often you got it right. And the other thing that they’d even do is just sit down and play the game of up or down Just for a week, two weeks is the general stock market. Pick an index S&P 500, ftse 100, and just play the up and down game. Is it going to go up? Is it going to go up, is it going to go down?

Jon: 

It doesn’t take very long for you to realize that you don’t know. These short-term games are so, so difficult. There’s a thought experiment called a random walk down Wall Street, where a guy flipped a coin like 500 times and recorded the results and put it into a statistical chart and showed it to a load of fund managers as though it was a company and asked them to predict what was going to happen to the company next. And yeah, it was just a flip of a coin and there was no actual statistical reasoning behind it. There was no evidence, it was just. This is what it looked like historically.

Dr. James: 

Yeah interesting stuff. No, it really is so seemingly spontaneous in the short term, seemingly sporadic, and it’s it’s. That’s what. That is basically what you’re up against when you’re picking stocks and, uh, you know what? I’m sure there’ll be some people out there who can do it successfully. But here, here’s my logic.

Jon: 

Right, if you’re gonna learn how to run, you gotta learn how to walk first, at the very least, which is the yeah and I think, when people think about the people who have done it successfully, people like Warren Buffett are often their go-tos, right, but here’s the thing that Warren Buffett has that you and I don’t. When he believes in a company, he doesn’t invest in it, he buys it. He’s the third biggest shareholder in Apple, so if he has an idea about what Apple should be doing or some sort of issue with the way Tim Cook’s running the business, he picks up the phone, he takes Tim Cook for dinner and Tim Cook has to listen. The other two investors who are bigger than him is Vanguard and BlackRock.

Jon: 

That’s one person, that’s you know. And between them they own about 15% of Apple, vanguard, blackrock and Berkshire Hathaway. So when Warren Buffett is outperforming the market over a number of years, he’s got time on his side, he’s got incredible discipline and he’s got the ability to make impacts in that company that other mortals don’t there we go.

Dr. James: 

I’m reading incidentally, I’m reading this book at the minute the university of berkshire hathaway. Okay, cool, yeah, I’ve got a few books. I’m spinning a few plates when it comes to books at the minute, but that’s one of them. Uh and um, I’ve just it’s. It’s like a chronology of all the agms, okay, uh, for brookshire hathaway, right, and it’s like chapter one is 19, I don’t know 70, something like that, and then each chapter corresponds to a year, so I’m in the year 1991 at the minute, right, and he’s just bought coca-cola. Okay, we’re gonna see how that transpires.

Jon: 

I don’t think he’s invested in apple yet, but I’ll keep everybody posted, yeah anyway, in the short term, very, very hard to know what’s going to happen right in the long term. Humanity and capitalism has this ability to innovate and generate value, and that’s all the stock market is doing is capturing the value that humanity creates. So when they invent the iPod, or when they invent Coca-Cola, or when they invent open AI and chat GPT, eventually these things are all captured by companies because we love using their products and services and, as shareholders, we capture the value. So the stock market will have these temporary declines, but it goes up way more than it goes down, and so over time, it’s where we want to be, but don’t try and predict it in the short term.

Dr. James: 

Boom. Thank you for that, john, and you know what? What a nice note to end the podcast on and coming up to the 40 minutes mark, ish. If anybody wants to know more, where can they find yourself, john?

Jon: 

Well, you can find us at juniperwealthcouk. We have juniperwealthuk on Instagram. I’m juniperjohn on Instagram and there’ll be lots of ways You’ll find me hanging around the Facebook group. There is so much more that we could go into. There’s days of stuff, so hopefully we’ll do another one of these and take this deeper.

Dr. James: 

We will 100%. I need to do more tangible investing podcasts because I know that we kind of bounce around between being profitable and business and all that stuff and I want to move the podcast back to the essence, the reasons why we created it initially. So, yeah, watch this space everybody, let’s do one. I think diversification will be a good one, right or even building on what we did today.

Jon: 

Yeah, there is so much we could go into that and on asset allocation, which is the fundamental part of diversification, so maybe that’s our next one.

Dr. James: 

That’s the next one right there, Boom John. Thank you so much for your time, mate. We’ll catch up really soon.

Jon: 

Absolute pleasure.

Dr. James: 

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