Ep. 76 | What Most Investors Get Wrong About the Market with Apollo Lupescu

Do you need to beat the market to be a successful investor? Is cash really safe? Should you be chasing the next big trend whether that's crypto, gold or AI? In this episode, Capital Partners founder David Andrew and wealth adviser Aden Wilkins sit down with Apollo Lupescu from Dimensional Fund Advisors in California to bust 10 of the most common investing myths once and for all.

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Follow Apollo Lupescu:
LinkedIn: https://www.linkedin.com/in/apollolupescu/
Dimensional Fund Advisors: https://www.dimensional.com

Follow David Andrew:
LinkedIn: https://www.linkedin.com/in/davidandrewfamilywealthadviser/
Capital Partners: https://capital-partners.com.au/team-members/david-andrew/

Follow Aden Wilkins:
LinkedIn: https://www.linkedin.com/in/aden-wilkins-40b006105/
Capital Partners: https://capital-partners.com.au/team-members/aden-wilkins/

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Facebook: https://www.facebook.com/CapitalPartnersPWA/
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Instagram: https://www.instagram.com/capitalpartnersprivatewealth/

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Chapters:
(0:00) Welcome and Wins of the Week
(5:34) Myth 1: Past Performance Predicts Future Results
(11:44) Myth 2: You Must Beat the Market to Succeed
(15:46) Myth 3: Cash Is a Safe Long-Term Strategy
(18:08) Myth 4: You Need to Time the Market
(26:26) Myth 5: Higher Risk Always Means Higher Returns
(32:46) Myth 6: Active Stock Picking Beats the Market
(35:48) Myth 7: International Investing Is Too Risky
(40:52) Myth 8: Run for Cover When Markets Get Volatile
(45:02) Myth 9: Financial News Helps You Make Better Decisions
(49:06) Myth 10: You Must Back the Next Big Trend

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Recorded and produced by Podwave Studios: https://podwavestudios.au/

The Purposeful Investor Podcast is a public service provided for Australian investors wanting to make smart decisions with their money, avoid costly mistakes, look after the people they care about, and, have a great life!

We draw on over 30 years of experience from David Andrew and the Capital Partners team.

For more information on Capital Partners' award winning team, visit capital-partners.com.au.

Have a question? Email us ask@capital-partners.com.au.

This episode provides general advice only. We do not consider your personal circumstances when we share this information. Always refer to your financial adviser for advice about your personal circumstances. 

Capital Partners Consulting Pty Ltd AFSL 227148 trading as Capital Partners Private Wealth Advisers ABN 27 086 670 788.

Transcript

Do You Need To Beat Markets?

0:00

Do you have to beat the market to be successful? Short answer is absolutely not. You don't need to beat the market to be a successful investor. What you do need to do. So if you buy a gold stock hoping to make a quick turn, you're not really investing, you're speculating. Correct. Roughly about 53% of all trading days are positive, which means that 47% are not. The world's greatest male tennis player lost roughly half the points that he played. And if you're patient enough for the whole game, he won about 81% of the matches that he played. Last Black Friday, everything was on sale, and so people spent $80 billion over the Black Friday sale period. When the markets tank, everyone runs for the Hills, and yet it's the greatest sale ever. Don't go play out there American football without a helmet. You're not going to get paid more, and you're likely going to get hurt. Yeah. Probably gonna die. Successful investing is fundamentally easy to understand. Buy low, sell high. Not that complicated. This myth of past performance always predicts future result. Is that true?

Welcome And Why Myths Matter

1:06

Welcome to another episode of the Purposeful Investor Podcast. We're a podcast for successful families who want to make smart decisions with their money and avoid costly mistakes. We're here so that you and the people you care about are going to be okay no matter what. And we're also here to set you up to live a great life. Thanks for joining us on another episode of the Purposeful Investor Podcast. I'm joined today by Capital Partners founder David Andrew. David, welcome to the studio. As always, Aiden, it's a pleasure. And we're joined again by special guests all the way on the other side of the world in California, Apolo Le Pescu from Dimensional Fund Advisors. Apollo, welcome to the podcast. Great to see you. Thank you for the uh invitation to be part of it. So we are going to talk today about some of the myths in investing. So when you think, well, when anyone thinks about the world of investing, there's a lot of different ways you can do it. There's a lot of different schools of thought, but there's also a lot of myths. So we've got And I think a lot of people think it's really hard. They think investing is really difficult, which in some ways it is, and in other ways it isn't, right? It depends how you look at it. So we've come up with a list of 10 of the biggest myths in investing, and we're going to unpack them today, see what's true, what isn't, and what are some things that people might not have considered when they look at some of these myths. But

Wins Of The Week

2:23

before we go into the content, as our listeners know, we'd like to start off with a little win of the week. So it's something you can reflect back on in the last week that was a little win. So David, I'll start with you. What was your little win of the week? I'm nearly at 30 years leading this business. And um every four months, six months, because we've always been growing. We've always got new people starting. I get to take a group of new starters out for lunch. And we just go to a quiet restaurant and we order some food and some soft drinks and um we have a chat about Capital Partners' values and the story, I guess. You know, 1st of July 1999, me backing out of the driveway of our then home, my wife with two little boys and one on her hip, another one on her hip, and um backing my little white Toyota out the driveway with a with a laptop computer and not much else. And so the time I spend with our new starters, just sharing some of that backstory and how we've evolved and it's just so cool, and I love it. Every time I do it, I love it, and I never want to give it up. Nice. What about you, Apollo? What's your little win? Uh I think my little win, if I were to be faked back over the last week, I think it had to be with uh on a personal level with my family and uh the fact that uh uh my son uh uh you know ended up moving back to uh Los Angeles and got into the uh the business that that he always wanted to in the entertainment business and uh and and the fact that that we're all together, uh that was uh that was a that was a win for me. Although it wasn't my win, it was his win. But as a parent, I feel like I'm I'm grateful that that he is uh uh you know close to home because how old is he? He is 22 years old. Has he been studying at uh college or yeah, he finished uh college and then he actually dabbled into the investment industry. He worked for uh another very large investment company, and it took him three months to realize that that's not what he wanted. Uh and good for him that he uh that that he decided like I want to take a chance and uh now he works for an agency in Los Angeles and uh you know I'm I'm very proud of him and very excited that that uh we get to be close again. That's lovely. Love it. The world's his oyster. How about you, Aidan? Uh I'm gonna go a personal win. So coming up in a couple of months, we've booked so a group of friends who booked a trip to Vietnam, which I've never been to before. It's a couple of birthdays, the 30th in it. And I've been tasked with um booking the golf courses when we're there, and then in Vietnam they've got really good golf courses. So this week I've sort of done a bit of the due diligence looking in and planning, and um, for a lot of our listeners may have picked up, I love sort of having something to look forward to in the year. Yes. Um so that's my little in it. It's a little bit um preemptive, but yeah, I'm looking forward to that trip. What what cities are you visiting? Uh so we are going flying into Ho Chi Minh City to start off with, and then um we're doing Dunang. So a bit of the coastal side of it, and then that's sort of where do the golf golf courses as well. So nice. Fantastic country. Yeah, it's it's I was there last year and you love it. It's fantastic. Yeah. And that's nice for you because you work incredibly hard, like you cover a lot of ground, but then you make sure you schedule time out, which is a really smart thing to do. Yeah. Always have something to look forward to. Yeah, great. So as

Myth Busting Setup And Context

5:35

I alluded to, let's start off with so we're gonna go through a few of the myths in investing. So we we need some Ghostbusters music. Is it can someone cue the Ghostbusters music? Because we're myth busting. Exactly. But I think it's actually really important to do because given the world that we live in where there's so much information, there's you call it dad, so many voices, so many choices, it's almost it becomes really difficult for people to make rational decisions or know what to do with all the information at their disposal. So that's why we want to take some time today to go through some of these myths and hopefully give our listeners um and the broader audience a bit more context behind what are some of the things they say and what should they be listening to and what can they sort of park to the side. So

Past Performance And Gold FOMO

6:16

to start off with, I want to go with this this myth of past performance always predicts future results. So is that true? Well, I just want to at the moment with gold, gold's been on a tear, right? And we have had individual investors lining up out in one of the busiest malls in Sydney, in New South Wales, to go to a bullion store and their taxi drivers and housewives and company uh office workers and so forth. And so they're looking at the past performance of gold. They've got a pretty strong view that that's indicative of future performance. So what do you reckon? Well, I reckon that it's um it's human nature. And I think it's uh um it's this uh uh you know, people want to believe they have some control and then they want to not miss out. I think that a lot of it is uh when past performance happens, you're like, well, look, how well it does, I don't want to miss out. I mean, that we we saw it over and over again, whether it's in gold or the tech stocks or whatever it is, uh AI, like I don't want to miss out. And I think that that element is is is is a real emotion and it's part of our human condition. Uh at the same time, you've got to be careful because to your point, um past performance, particularly short-term performance, is not uh indicative of of the results that you like forward. And then I'm gonna pick up on gold. If you look at gold, uh it used to be tied to the US dollar. And in the mid-70s, it it not only that it got unplugged, uh cut the link between the dollar and gold, but by mid-70s you can actually trade it freely. Uh and what you saw is that people jumped to the same point, like let's go buy gold. Let's go buy gold because that's something that it went up in a in a few short years, five-fold increase. So not only that it's a great protector, but we can make money. And that was because there was anxiety about what's going on in the world and and you had the world crisis and you had a lot of things going on, the dollar, the Fed was not independent. Uh so people ran and bought gold. And the thing that's interesting is once that panic subsided, the anxiety subsided, if you look at the history of gold, it's quite remarkable because uh the performance in the mid-70s, when it went up five fold, once we get to 1980, it took 20 to 25 years for the gold price to recover. And if you simply follow all the past performance of what happened over the past few years, uh is gonna is gonna keep going. It didn't. And then you had the panic and uh uh away uh when people thought, oh, the world's falling apart with the GFC. Once again, let's go to safety in gold. And one, you know, the world was still around. What he had is another 10 or 15 years when gold was on the water as an investor. Uh and now we kind of have a little bit of the same, whether it's anxiety or whatever the there's so many reasons, but when you look at it, history doesn't repeat, but it certainly rhymes. And and what do you see is that investing in gold, like to your point, past performance, is not necessarily uh gonna repeat going forward. Um and over the long run, by the way, in the from the 1970s, a dollar invested in gold would have increased 26-fold, which is a nice increase. Uh at the same time, when you say yes to gold, you're saying no to something else. And something else could be participating in the market, in the stock market. Uh and over the same exact time frame, a dollar invested in the stock market did not go up twenty-six-fold, but rather two hundred and ninety-three-fold. So I think that that's kind of what we're talking about. Past performance is not uh gonna reflect um now with that being said, there's one thing that one that's so important to know. Right now we have AI. AI has been on the tear, and the expectation is like, let's put money in AI because it's gonna continue. Is it possible to continue? It might be. But do I expect that that the performance of, for example, the Mag 7 over the past 10 years is gonna repeat? The rest of the S P 500 over the past decade went up by 200%. The Mag 7 went up by 999%. Do I expect that to continue? If they don't need Trodhada. Yeah, exactly. So it is interesting that you look at the past performance and you say, well, they're they're gonna continue. It's possible, but it doesn't have to. So to me, you gotta be very careful not to invest based on what happened recently. And recently might mean, you know, one year could even mean five or ten years. That's relatively recent. You have to look, and if you really want to understand the behavior of the market, you have to look at a much longer time period. It would almost be interesting to um do an analysis of um you'd have to pick your time frame, but looking investing in the worst stocks versus the best stocks and see what happens. Because I I wouldn't be surprised if investing in the worst stocks sometimes might be a better strategy than investing in the theory. Before you jump to point two, Dave, I just want to touch on but the time frame is so important, as you said, Apollo, because particularly with active funds management, if you're looking at a really short-term time frame and say a star manager's got a couple of calls absolutely bang on, in that short time frame, the returns might look really good. And then a lot of investors pile in, but they don't get the benefit of those returns. And even if it as it like sort of plays out, all the returns are in the first one or two years, but then it's sort of still looking at that longer term time frame. So I think it's really important to be clear on that. Yeah, and um star managers. There's a whole lot of stories we can tell about star managers from from our our past. You need

Success Means Goals Not Benchmarks

11:45

to beat the market to be successful. There just seems to be so much effort by financial institutions and individual advisors and their marketing pitch to investors is invest your money with me, Apollo, because I'll help you beat the market. Yeah. And um it seems to me that what you want to do is make sure you're achieving your goals. Like I what's the market to beat? Like what's the goal? What's the what's the price? Right. Is there an elephant stand? Yeah. Like what do you have to be do you have to beat the market to be successful? Uh and the short answer is absolutely not. Um and I think it goes back to um uh you word the word successful. How do you define success? And the first thing that you have to do as an investor is define success. What is success? And there are many definitions, but to me the the two that jump to mind is success might be that this period, whether it's a quarter or a year, uh a particular m metric of the market did X and I did more. And that's successful. That's one way to define success. And I think that's a very short-term metric and it's very short-sighted metric as well. The other one, which I think is the real one, is how am I on track to meet my financial goals? And in that respect, the the biggest one is like it's not how did I do relative to a yardstick, how am I on track? And it could be that the market's down, it could be that that you know something didn't work out in one particular group of investments that you have as part of your plan, and yet you are a hundred percent on track. It could be that the market's down significantly, but if you build up enough assets in reserves and defense, then you're gonna be fine. And that at that point, it's a different definition of success, and I think that is the right one. So the answer is no, you don't need to beat the market to be any a successful investor. What you do need is a plan. You absolutely need to understand what am I investing for? When do I need the money? How much money I need. And once you have that, move towards that goal and make sure that you're on track for that. It's uh sailing is a beautiful analogy for investing, and and that is, you know, you're you're in a safe harbor today and you want to cross to the other side of the ocean and you know that you're gonna get blown off course. That's uh you know, or or you're gonna be be calmed, or you're gonna hit a storm, or there's something it's not all gonna be smooth sailing. And the idea that it is gonna be smooth sailing is just crazy. Yeah. Like you you can't can't expect that to be true. But I look back on the global financial crisis, and through all that tumult, because our clients all had a plan, very few of them ever even got off track. Like they're there whilst it was so uh challenging emotionally in terms of what was going on in the world, most of our the vast majority, I think all of our clients were still on track to achieve their goals. Even through those course corrections. So interesting. Because the plan was built accordingly. And that is the most important uh uh uh element of a successful investment experience, in my opinion, is the plan. Making sure that the plan is built robustly enough. Um I don't know. I mean in the US there was a uh a channel on cable called Discovery Channel. And uh on Discovery Channel they hold all these historic things. And I remember seeing these um shows about the first airplanes, and they're all these like beautifully designed with a thousand little strings and they look beautiful and all that. The problem is that if one string broke, the whole thing blew up in fire. That's not a good plan. What you want is a tank. You want to plow through whatever, and I think that's the difference. If you have a robust plan, it is built to go through all these market cycles uh rather than hey, why it all hinges on this one little wire, and if that breaks, the whole thing explodes. That's not what you want. Yeah. Yeah, absolutely. So number

Cash Feels Safe Until Inflation

15:46

three, and this is talking to cash is safe. And I'm not talking about last minute, you need passports for a different nationality and some unmarked bills to get away. The idea that cash is safe within a portfolio over the long term, how do you how do you think about that? Aaron Powell I mean the first thing that comes to mind is that emotionally it might feel like, oh, I'm sitting on cash and it's all safe. I think uh the reality is that it's a myth uh because while you sit on that pile of cash, everything around you, from groceries to clothing to petrol to you name it, to lease on cars, everything goes up in value. And it costs more. That is called inflation. And if you're just simply sitting on cash, those dollar bills, they're not gonna make babies and you know give you more dollar bills. They're just gonna be exactly the same number. So you need to stay ahead of inflation. You need to protect your uh ability to buy the same things. And cash, it does not give you that. Cash is simply just sitting there and you miss on on the potential to keep up with uh inflation. I think the everyone always likes an analogy with inflation and sometimes it'll be the bread or the milk. The one that always comes to me. So when I was younger, um if I was really good, I'd speak to my own dad and say, I'd can I get some cash when I go down to the bakery. I love a you don't have them in the US, I don't think, but we have these things called pies. It's basically pastries stuffed with meat. Oh wait, I always get a pepper stack pie, but pies and you're not as common over there. But so this is going to catch up with you now. What do you know? But so it used to cost about three Australian dollars when I'd so I'd get a couple of coins off mum and dad and go. But as I get older, now if you go to the bakery, it's about $7.58 for a pie. So whenever I think of inflation, I would think of a meat pie. That's what I comes to mind. It's very tangible to you. A man who lives on his stomach. Now, one thing that we get all the time As much socially from people just people you meet at a party or a dinner or whatever. Oh, yeah, yeah, yeah. You're in the money business. Um what do you think about the market right now? You know, um do you reckon it's a good time to be in the market? You know, as and and by extension, should I be selling my super or should I be buying my crazy, right? Tell

Market Timing And The Two Decisions

18:08

us about timing the market. Do you do you have to be able to time the market to be a successful investor? Aaron Ross Powell Yeah, and that's uh that's another myth that that is really important to debunk because timing the market for folks who might not be familiar with the jargon basically means that you find the right time to get out of the market so you protect yourself against a downturn, because nobody wants to lose money. Let's be candid. I mean, I i i if I if I see that the market's going down, why would I want to stay in there to lose money? Nobody wants to do that. Trevor Burrus, Jr. Especially if you can jump on that exactly. Let me go down. The train's coming. Why not get out of the tracks? I can see the lot. Trevor Burrus, Jr. Exactly right. So uh I think that that intuitively it is an incredibly appealing proposition. Get out of the way, don't get hit by the train, and then great, you save yourself uh a bunch of money. In practice, in practice, the trouble with the strategy is is uh uh is is not twofold, more than twofold. But the first one, that the reason that it's a myth, is because when you decide to sell, there's an equally important decision that you have to consider at the same time, which is when you get back in the market. So there are two consecutive decisions. And when you look at the history of the markets, nobody has been able to consistently make these two correct decisions. They might make one, but not the other. They might happen every once in a while, but consistently to be in and out of the market is just nobody has ever done it. And the reason for that, David, is because the market is driven primarily by unforeseen events. And uh and sometimes even if you had a crystal ball like I do, uh and and and you kind of look and say, I can see what's coming. So let's say you're in December 2019, your fairy godmother comes and tells you, listen, there is a little bug coming from somewhere that's going to shut down the world in 2020. And you know that before the word COVID or uh uh whatever it's the the virus the virus is called, uh uh, you know, uh uh and you know that. What would you do? Well, I this doesn't seem like the good time, get out of the market. And yet for 2020, the U.S. stock market was up 18 percent. So even if you knew, you still uh uh you wouldn't make the right decision. But I think that when when you look at the market being driven by unforeseen events uh and the fact that you have to um really know when to get out, but also when to get back in, what we see over and over is that um that that investors end up getting hurt uh rather than protect themselves. And ultimately the the main reason that I personally is I'm a numbers guy, statistics is huge. And and I think every smart business person today doesn't make decisions based on certainty, but understanding the odds, statistics and probabilities. So when you look at the odds, what's really important to know is that uh the odds of of um investing are not stacked in your favor if you leave the market. Because what happens is on a quarterly basis, about historically over the past 50 years, about 71% of the quarters have been positive and only 29 negative. So you get out of the market for a quarter, you're a lot more likely to miss a positive than a negative. And you could miss a negative and pat yourself on the back and say, ah the boy, I save money. The reality is that what is it more likely for you to miss? It's like you play at a table where you stand to lose 71% of the time. Why would you do that? Uh so What about daily? Daily? Oh, that's that's an interesting statistic because uh I had this uh uh um um interesting experience at a retirement community in Northern California when an advisor kind of asked me to go talk to an investment club. And the investment club are basically the retirees that Every day they watched the market and they wanted a perspective on what's going on and all that. And after they watched the market, they all went to play tennis. Life of a retiring. And what was interesting is that when I looked at the statistics to kind of talk that group, what was fascinating is that on the daily basis, if you look at the SP 500, uh roughly about 53% of all trading days are positive, which means that 47% are not. So on a daily basis, it's a flip of a coin. It's crazy. Like you watch the market daily, you're going to drive yourself nuts. Half the days you have a spring in your step, half the days you're depressed, that's par for the course. So it's not obvious that he make money. But to your point, if you now look at the market on a quarterly basis, 71% of the quarters are positive and only 29% negative. So you tilt the odds in your favor if you give the market some time to work for you. And if you're really patient enough for the whole year, uh what you see is that over the past 50 years or so, about 78% of the years have been positive and 22% negative. So the the more time you give the market, the better the odds become. It doesn't mean that you're not going to lose money, it's just the odds improve. But what was fascinating is that uh this talk to this community uh was roughly the same time when Roger Federer retired. And I thought, like, okay, maybe it's kind of nice to tie the statistics to the uh uh to the great uh tennis player. And what was fascinating is that if you look at his lifestyle statistics for Roger Federer, he won roughly about 54 percent of the points that he played. The world's greatest male tennis player lost roughly half the points that he played. If you watched him play any one point, it wasn't obvious that he would win it. Loser. Loser. But, you know, as long as you don't pack the bags and say, I'm going home, he lost a point, great. Because if you give him time and you ask not what percentage of the points that he went, but what percentage of the sets, well, that number goes up to about 75 percent. And if you're patient enough for the whole game, he won about 81 percent of the matches that he played. And I thought it was fascinating the connection between the statistics of the market uh and uh um and and Roger Federer. And and and and the story to me is that if you want to become a great tennis champion or you want to be a successful investor, you have to stay in there and play all the points. And uh, you know, the more time you give the Roger or the market, the more likely it is to see a positive outcome. Uh so that to me is the reason that I would not bet against the market and say I need to get out any more than, oh, I'm going home because Roger lost a point. Yeah. It happens. We know that's the case. Trevor Burrus,

Speculation Versus Long Term Ownership

24:42

Jr.: Yeah, and it almost comes right down, doesn't it, to the difference between speculating and investing. Like if you're if you're buying a w Western Australia, you know, very um strong emphasis on mining and exploration and the like. And so if you buy a gold stock hoping to make a quick turn, you're not really investing, you're speculating. Correct. If you're investing, you're buying a quality company that you want to be an owner of and you're holding it for a long time. Trevor Burrus, Jr. And you expand that thought to 13,000 other quality companies around the world. Yeah. So you're not really placing a big bag. So I mean ultimately, in that scenario, uh when you use the word speculator, what came to mind is a casino player. Yeah. Trevor Burrus, Jr.: I think a lot of investors and maybe some of our listeners who are new to this podcast might think that investing in the stock market is like a casino. Trevor Burrus, Jr.: It is if you're placing bets. You are the casino player if you're placing a bet on a company or a particular time period. Then you become the casino player. The way to become the casino house is to place all the bets around all the company all the time. That's how the the the casino wins. The casino tills the odds in their favor by looking at all the bets all the time. And I think that that's the way to become the casino house, not the casino player. It doesn't take long to by extension, say, okay, so your Kruupia is your stockbroker. Exactly right. What do you want to be? I like that uh tennis analogy. And we we do sponsor the Claremont Tennis Club, which is a local tennis club here at Capital Partners. So I know a few of our listeners that'll probably that Roger Federer comparison will definitely.

Risk Does Not Always Pay You

26:25

So number five. So it's the talking about high risk always means high return. So you've to make the big money, you've got to go out and do the bold things, take on the risks. What do you say to that? Generally speaking, you have to associate some level of connection between the risk and the expected return. Yeah. But I think the the myth there is that taking risks automatically pays off. What you have to be smart about is know which risks are worth taking and which risks are not. So not all risks are the same. And uh, you know, like in in American football, you get paid as a player to go and put your body on the line and you get dressed for that and all that, and you have a helmet and pads and all these things. Great. You get paid for that. Now, if you decide to go on the field and play without a helmet, well nobody's gonna pay you more for that. So you know, that's the idea. There are some risks for which you get compensated and some that you do not. So pretty smart investors try to figure out what is the risk that I can eliminate, and what is it that's something that that uh um eliminate because I don't get paid for, and which one's the one that I get paid for. So don't go play out there American football without a helmet. You're not gonna get paid more, and you're likely gonna get hurt. Yeah. Or you're probably gonna die. Um That's a crazy game. Um

Private Markets Hidden Risks Explained

27:50

I I'm fascinated with this because especially you know new new prospective clients of ours will have a conversation. They might have sold their business and they're quite affluent. And they have this thing that they have to be in private credit and private equity. That the that the public markets, and when I talk about the public markets, I mean the bond market and the share market, where you're buying a share in very liquid, sometimes very large, safe operating companies, Apple and the like. But they have this sense that they they have to be in private credit and they have to be in private equity. What what would you say to our listeners about the relative risk of of those two asset classes, in particular relative to the public markets? So when when um a lot of people think about the conventional investing, I I think it is about stocks and bonds. And owning stocks and bonds has been the traditional way in which people have invested money. And what's really interesting about stocks and bonds is that they have four features that are really important to everyone. Uh and and they have to do with risk. And and the first one is they are very well regulated. Very well regulated. Uh they are very transparent, so you know exactly what's happening. Uh they have good liquidity, you can get in and out uh without much trouble. And the last but very important fact as well is they have good price discovery. In other words, every day millions of people are transacting, and that gives you an idea of what the belief is about on the worth of that company. And more recently, we had an emergence of alternative investment, uh, which includes private uh uh credit but also private equity uh as being an option. Why not choose that? So I think that that to begin with, the risk of these companies is not even necessarily specifically on loss, but there is a much more fundamental risk. Let's take the first one, uh regulation. Very loose regulation, very loose regulation, sometimes none. Uh on the second one, transparency. What transparency? It's a private business. Like I don't need to tell you anything. Uh liquidity, forget about it. I mean, sometimes your money is locked out for years and years, and then the price discovery is absolutely minimal because you're transacting with just one party and they might actually have more information than you sometimes. Uh so when it comes to these four elements of investing, uh you know, regulation, transparency, liquidity, and price discovery, uh, they exist fundamentally as the core of public stocks and public bonds, uh, and they're non existent in the private equity and private credit. So I'm not saying that private equity and private credit is necessarily a bad idea. There are certain institutions, there are certain investors uh that can certainly benefit. Uh to begin with, private equity, I think it's an amazing opportunity for people to participate in if they own a business. You know, I'm my guess is that you're not publicly owned, so you are an owner of private equity. But you are private equity owners. So it's a great thing to have. But if I try to barge in and say, hey, I want to buy some ownership, okay. Well, I'll certainly take advantage of you, little buddy. Yeah, yeah. No needs, but you know, there is no prize discovery, no trans. So in other words, there are risks associated that are hidden. Uh, and it's not even the risk of loss. It's just a much more fundamental risk. Bitcoin has the same issue. Bitcoin, the the biggest risk is not that he lose money in value, the biggest risk is operational. You have a private key that's on a blockchain, you lose the private key, the whole money's gone. There's no law enforcement over there. Like, you know, nobody touches, there's so a lot of fraud. There are other operational risks that exchanges that he used can go under, like FTX or Montgogh. So there are other things. So I think that when you think about risk, there are so many facets to it that it's very limiting to just say the only risk is that you're not going to make money or not or lose money. That's one of the many risks. But I think specifically the ones that he mentioned, private equity and private credit in many cases make sense maybe for a large endowment like Yale or a pension fund that has liabilities that that are coming down the road. And they know that I'm not going to need to touch this money for a long time. And in that case, maybe yes. But individuals, human beings, people that you work with, they have cash needs at different times. And uh and there was also uh um a bit of a herd mentality among individual investors, and and that could be really damaging to those funds holding private equity and private credit. So because of that, I think there is a role. I'm not I don't believe that at the moment, like it's absolutely crucial for anybody to participate in private equity and private credit, unless you are a business owner. Then great, yeah, private equity owner. Works well for me. Um

Stock Picking After Fees And Incentives

32:45

So um this is a bit related to the uh beating the market idea, but the um I I got a piece of research across my desk the other day that said for 2025 in the Australian stock market, 75% of stock pickers, so people who are trying to pick the best, best stocks and concentrate the portfolio, 75% of them failed to even beat the market after their fees. And yet it seems to me that a lot of new investors seem to think I have to I have to be able to pick the best stocks, I have to be very active in order to be successful. It's a myth. And the myth starts with the economics of the industry. That if you are a um a manager who manages money, and basically what does the manager do? They take money from different investors, and and instead of the investor choosing what to buy, well, I'm gonna choose for you and I'm gonna charge you a fee for that. Uh and and and and if you think of a manager, if the proposition is like, give me the money and I will invest broadly across all the stocks, and I'm gonna be very diversified, very disciplined, uh, those funds are either dimensional funds or index funds, they tend to be very, you know, very value priced. They don't cost that much. Uh there they do a really good job of giving you exposure. The trouble is that if you're a manager and you offer this, you're not gonna make much money. So how do you make more money? Well, I can do this, but I'm gonna charge you more. But to your point, the evidence is that when you look at these, they're not able to do it, particularly after their fees. So it's why pay these folks to actually do worse than the market? Uh but I think it's the incentives that they have to create the perception that we are the wise ones. We can do things like this uh because it's there uh it's in their self-interest. And there's an armada of marketing that's targeting individual investors and targeting their fantasies, like, oh yeah, they can do it, uh, whereas the data suggests otherwise. So um it's it's just a lot of fantasy. And by the way, uh David, when I look at in uh Hollywood, I live in Los Angeles, you know, the the biggest blockbusters are not documentaries. They're fantasies. It's everywhere like you know, fantasy sells better than reality. I laugh about this because at university I studied anatomy for two years. So in the lab with the cadavers and it was so interesting. I really, really loved it. And um I never actually came across this, but now as an investment advisor of of 30 years standing, I'm absolutely certain there is a little gland here somewhere called the greed gland. And all we have to do is stroke it for people to say, oh man, I'm missing out. I've got to I've got to invest in this. And I'm willing to be for it. I'll pay I'll pay extra for it. But I never found that greed gland.

Global Investing Means Owning Companies

35:47

Trevor Burrus, Jr. So number seven, and this probably feels particularly relevant for us as Australians, and even more so maybe in WA, just because we're sort of very proud of our own patch, we're very mining heavy over here, but it's that international investing is too risky. And so we sort of hear this a little bit from people from time to time, with all the headlines you see, particularly with the US, and say, oh no, we we know our BHP, we know our Rio, we know our Commonwealth Bank. We love Commonwealth Bank. We love Commonwealth Bank. Well, in Australia, you've got you've pretty much just got banks and resources. And if you look at the whole global share market, I think Australia makes up about two percent of it. But so but we do hear from time to time oh no, it's it's too risky to be investing overseas. We sort of we'll stick to what we know over here in Australia. But what would you say to that, the idea that international investing is too risky? Yeah, and I think that um to the point that he made, um you're not investing in countries. I think we need to demystify that. You're not investing in a different country. You're investing in companies. And company companies can be based anywhere, all over the world. And in fact, if you redraw a world map and you plot the value of all companies that he can buy in any one country, again, companies that he can buy, what you see is to your point, Australia is about 2% of the value of all companies. Uh the U.S. is the largest market. It's about 65%, and there are about 3,000 companies in which you can buy ownership, and there are about 40 different other stock markets with about 10,000 other companies in which you can buy ownership. So the question is, what's the point of doing it? Well, the first one that I would start is that is it risky? Um when you're buying, you are buying into companies. And is it risky to buy into different companies? Well, let's take uh uh something that that is interesting, which is uh car manufacturing. And I've heard the same argument not only in Australia but in the U.S. People are like, I want to buy in the U.S. The U.S. has done so well, why not just put all the money in the U.S.? Well, if you want to invest, let's say only one country, let's say the U.S., and you're interested in car companies, well, that's great because you will own uh uh Ford GM Tesla, which are great car companies and they're based in the U.S. That's fine. Now, you know, at the same time, you have to think, okay, great, are these the only cars that you see in Australia or the U.S.? No, there's certainly some BMWs, some Mercedes Porsche VWs, and those brands are owned by German companies. Even great American brands like Jeep and Chrysler, uh, they're owned by an Italian stock, uh, Italian company that trades in Milan, that's Italian investing. You know, all the Japanese Toyotas that you see everywhere, uh, that's that's uh in international investing. Uh ironically, great British brands like Land River and Jaguar, they're now owned by an Indian company. Uh my kids uh drive Volvos, and that uh brand is owned uh by a Chinese company and uh MG. MG, exactly. You have uh BYD and all these uh Chinese uh car uh electric uh makers. Uh and then you also have the Korean shops, they're making big inroads around the world. So international investing says something like this: if you want to own Ford and GM, what's wrong with considering BMW Toyota NG for that matter? Because that's what international investing is. You're investing in companies. And these companies, you're seeing them around you every day. What's the r is is it really truly riskier to invest in Toyota than it is to invest in GM? I know about that. I look in our business and and I just look around the office and there's iPhones everywhere, and there's Samsung phones everywhere, and there's Dell computer products and HP computer products, and there's mic every single computer in our office has Microsoft and it has cybersecurity software and all of the things. And you just think, wow, if we limited our opportunity set to Australia, we would miss out on most of the innovation that's happening in the world. Because as much as I love my fellow countrymen, we're we're not as entrepreneurial and we're not as innovative as U.S. entrepreneurs are. I mean I just don't think looking at you folks, so you get very entrepreneurial. Uh I think there's a lot of entrepreneurship. I think that that the U.S. has built an advantage in the capital area. Like there's a lot of capital that allows these companies to uh start and then and then develop. And that's that's something that is harder to overcome for any country. Uh and that's why uh Silicon Valley in particular is such a an important hub, is is not just the talent, but the fact there's capital behind it. That's just quickly as well. I th I love the distinction you made between countries and companies, and particularly when there's things going on in the world in different areas, because of globalization, so many of these big companies have headquarters all around the world. They've got revenue streams all around the world, and they've got customer bases all around the world. Absolutely. So it exactly challenges to think of the company rather than the country. Yeah, well, there are Australian companies that get most of their earnings from the United States. Exactly right. So it makes sense.

Volatility Is A Sale If Prepared

40:50

And this is very topical right now because of what's happening in the Middle East and um you know, the Trump White House is is unconventional. And um this idea that we really should run for cover when markets get volatile. Trevor Burrus, Jr. And I think it's a part of that human condition that we talked about earlier. It's the the the flight to safety, and and and I think if you look historically at our ancestors, that that probably helped them because if they get attacked by a tiger, I'm gonna run. And that saves my life. Uh and that principle helped when you know people lived in cages. But on caves, it's uh it's the same physiology. Yeah, but it's the same it's the same thing. Same psychology. But it's exactly the same thing. We are wired that way. Absolutely. Today as it was when our forebears preservation, a saber-toothed tiger. Trevor Burrus, Jr.: Absolutely. And that's exactly what is triggering some of these reactions is that I I I want to protect myself, which is again, it's a legitimate emotion. I don't know. But it's a bit different. It's a bit different. Versus a volatile, say we're talking about life and death. Absolutely. Absolutely. But yeah, I think that fundamentally the idea of emotions and maybe the part of the brain that triggers these might be in some way connected. Um I think that the the risk there is that when the market gets volatile, you know, there are two things that happen. Selling is exactly the opposite of what you do, because volatile typically reflects on the markets going down. And it, you know, successful investing is fundamentally easy to understand. Buy low, sell high. Not that complicated. Now, if you let emotions drive this, what you end up doing is when the market chanks, you sell low, and you typically want to buy back in when the market went up. So instead of buying low and selling high, you do exactly the opposite. So that's where you have to be careful. Trevor Burrus, Jr. And I find it this human behavior is so interesting because up until very recently in Australia, it was the Boxing Day sales. So Christmas Day, the day after Boxing Day, the the big super the big stores, the department stores open their doors and there's this mad rush of people. Now, of course, it's the Black Friday sale. And I can't remember I'm making this number up, but I think it's pretty close, and that is that last Black Friday prices everything was on sale. Yeah. And so people spent eighty billion dollars over the Black Friday sale period. When the markets tank, everyone runs for the hills, and yet it's the greatest sale ever. Yep. So why why it's crazy, right? Yeah, absolutely. You're right. That that's the time to buy. And the most successful investors in history, they get to go to Warren Buffett. I mean, he kept saying, you know, buy when there's blood on the streets. I mean, in other words, be fearful when others are greedy, and be greedy when others are fearful. It's just that I I think part of it is that it's twofold, that that uh there's a human condition that's hard to overcome. But the other big one is that most people are. People are not really experts at investing. And most people are dabbling into something that ought to be handled by a professional. And if you are an amateur trying to get in there and make decisions and you feel like, well, maybe that's just the right decision, it's not only the emotion, but the inexperience that you have. And to me, that is a huge need for an advisor. That's why you absolutely need to have a competent advisor because that advisor can educate you a little bit and prevent you from making these costly mistakes. I'll never forget during the global financial crisis when Warren Buffett at Berkshire Hathaway took equity in Goldman Sachs to shore up their balance sheet. I am. And I just thought, wow, that's just so He he's known for pithy cut-through statements, but anyone who followed his lead would have done very, very well. Yeah, exactly right.

Financial News Sells Fear And Greed

45:01

So number nine, if I'm so personally, I think this is the most difficult part of investing in modern society, and it's where all the noise comes from. And it's this myth that financial news helps you make better decisions. So in Australia, it's probably the biggest financial publications, the Australian Financial Review, the US it might be the Wall Street Journal or something, but there's there's so many headlines and there's so much noise. And I think that's what, at least from my experience with clients and prospective clients, the thing they have the most trouble with because there's so much in their face saying bloodbath on the markets, get out now. Is the market overvalued? Is it time to buy gold in your portfolio? There's always a headline trying to get you to do something. The Christmas New Year break is always fascinating. Yeah, the stocks you must own. The stocks you must own for 2026. And by the way, your clients probably own them anyway, despite the verse of April. Well we have we haven't touched on this in this podcast, but you know, NVIDIA is an overnight success, of course. But it's been around for years. And our clients have owned NVIDIA for 20 years. Before it got to be on. Before it was an overnight success. Which is what you want, right? Yeah, but so on that. So financial news though, does that make you help you make better investment decisions, do you think? Before in the press? The short answer is absolutely not. And you know, there's been a lot of demonizing of the media lately, and I'm not here to necessarily demonize the media. What I al you know, on the other hand, what I would say is that most people confuse entertainment with advice. And the media's role is not to provide advice. They kind of say it very clearly, we're not advising. It's entertainment. That's what they're selling. They're selling ads. So how are they selling ads? They need eyeballs, and how do they get the eyeballs? They tap into the emotions of people, either greed or fear. And I think that's uh really important to know that it is not upon the media to change what they do because they won't. They need to make money and it's advertising. If they tell the people, hey, you know, buy a diversified portfolio, stick with it, and don't worry about it. Well, how many other brochures will they sell? How many people are going to keep watching it? Trevor Burrus, Jr.: It's a bit like the health magazine that says that says exercise every day, eat in moderation, keep your alcohol under control, and get a good night's sleep. That's it. You don't sell a lot of magazines on the second issue. Trevor Burrus, Jr.: Okay, I think I saw that before. But but it's up on upon us to understand that it is it is uh it is uh entertainment. And not always good entertainment, but not advice. And I think that confusion is uh I can blame it on the media. They they try to blur the line sometimes, but I think it's us, the you know, people watching it, to really understand that. That I'm not getting I'm getting advice from you folks, for advice from advisors, and that's their role. The media's role is not to make you a better investor, it's just to make money for themselves by selling ads. And the way they sell ads is make sure that either petrified of what's going on or you get really greedy. Aaron Ross Powell That reminds me of on Warren Buffett, the his partner Charlie Munger was big on incentives. And the incentive for the whether it's social media or the print media or TV is to sell advertising space. So that's their incentive. For us, Aidan as a financial advisor, his only the only way he can get paid is to get good outcomes for his clients, right? So there's his incentive. That's cut and dried, that's his incentive. So I know where I'd be taking my advice. I mean, you know, it's it's also important to know that that if you are intellectually curious of what's going on in the world, watch the media. If you're on this trend, like what's going on just as a general But understand what you're doing, but understand what you're doing. Exactly right. Don't go in there thinking that this is going to give me advice. That's a myth. It's not an advice-giving or uh organization. I mean you're talking about the media. Yeah, yeah, absolutely. Well,

Trend Chasing Versus Owning Everything

49:05

let's round this out. The last one I think is a beauty, and that is that really to be successful you have to back the next big trend. And if you miss it, then you're just not going to be successful. And I'm thinking crypto, uh more recent, we talked about gold earlier, um AI. What's your view on how our listeners should process that? When again, it's related to the last myth, right? Where you're reading all this stuff about, oh my goodness, crypto is gonna be is amazing. And next it's AI is amazing, and I don't quite know what's gonna be next, but it'll be AI related because AI is gonna be very profound in terms of the way it changes our society. But do we have to bet up on those things? Do we really have to lay bigger bets on those things? The short answer is absolutely not. Absolutely not. Because you take uh the the reason I'm saying absolutely not is is is is twofold. Uh number one is that when you look at what does well, it is quite often that that the stargy old things might be doing a lot better that that the shiny objects. So you look in Australia, like one of the best performing stocks last year. It wasn't AI, it wasn't even gold. Uh it was called, I think, drone strike. And it's a it's a small company or a large, I don't even know much about it, but I know it's small, but they they make drones and and and they're up like I don't know like 300% or something. And that's not a fad. It's like basically, hey, you you know, you need to spread your bets. And if you do that, the beauty of that that you will have companies that are associated with these new trends. In other words, you don't have to jump on any one trend because there are too many trends out there. The best way is to own them all. So at that point, you you uh uh you don't miss out, but you don't need to hyperfocus on any one of them. And the second reason why I would be cautious to hyperfocus on any one of them, something that that um it's quite interesting because as a trend becomes obvious, what happens is investors starts, they start putting uh they start pricing in. In other words, they start assessing the potential of great earnings down the road. And it is very, very quick that the price adjusts. So by the time you buy in these great trends, these fads, it's not that it's great that he owned them, but at what price? Because by the time you buy them, uh they're they're uh uh they they already priced very highly or highly, so it's not as good of a deal. Uh so the trick is how do you identify them in advance? And that's something that it's just not. I mean, you you you're gambling at that point. So you're better off holding everything, realizing that you will have the next big thing, you will have AI, you will have uh uh whatever drone manufacturing and defense contractor and oil, whatever might be next. It's just uh don't hide, don't, don't try to chase that because by the time you chase it, you're gonna be a little behind. And by being a little behind, meaning that the price that you pay might not necessarily make it a good deal. Yeah, I think that's a really interesting and timely reminder for all of our listeners, and that is that there's kind of this sense that you can front run the markets by having better information than everybody else. But if you think about it, information flows so freely in our society these days, across countries, uh uh you know to think that I might have better information than you, Apollo, is is really crazy, right? So we have to our starting position needs to be that the current price of any company, or really the of any investment that's publicly traded, all of the information is known to everybody. And that getting an advantage over that is near impossible. And so you know, you can, and I think it's a really legitimate thing for investors to do. This is not advice, but it but it's a r you know, it is perfectly, perfectly plausible that the best way you can possibly get access to the stock market is just by buying a low-cost index market. We we have a slightly different view to that. We we think that taking a structured approach makes a lot more sense. Having a broad exposure to the market at low cost, having an exposure to lower priced stocks, value stocks, having an exposure to smaller companies, some of which will become very large companies and and make a lot of money for their investors, but also having having exposure to more profitable companies, but also having some exposure to emerging markets. It just makes so much more sense. And as did you say there's 11,000 stocks? That's that's yeah, that's roughly to own a lot of those, not all of those, but to own a lot of those makes a lot of sense. Absolutely. And that's that's the best way to go.

Listener Myths Welcome And Closing

54:00

Yeah. So I think that probably rounds out the conversation. It has been great to demyth, debunk 10 of the biggest myths in investing. And what I will, I'll pose a question to our listeners and our audience. If there's any other myth that you've come across, send it through to us, leave it in the comments, and we will debunk it or prove it or go through it with you in a separate podcast episode. Um, Apollo, David, thank you so much for joining me in this studio. As our listeners know, we love it when you leave any feedback, any comments, send it to a friend, family member, but most of all, subscribe so you never miss an episode. And just one extra thing, Aidan. With the new YouTube channel, The Purposeful Investor, um you can leave a comment and we'll be keeping an eye on that. So if you want to have a conversation with us about anything we've talked about in today's podcast, leave a comment. It might take us a little while to get back to you, but but we're on it. And um we'll make sure that we um it'll only be general advice. It won't be it won't be specific advice for you, but we will make sure we uh respond to anything you put on the uh purposeful investor channel. Well, hello David, thanks for joining me. It's a pleasure. Very fun talking to you. Thank you for listening to another episode of the Purposeful Investor Podcast. Make sure that you share it with a friend or someone in your network who you think would benefit from having a listen. Both David Andrew and myself, Aiden Wilkins, are authorised representatives of Capital Partners Consulting Proprietary Limited, and we operate under the Australian Financial Services Licence 227 148.