Basics: 5 Styles Of Investing – From Balance Sheets To Super Computers

Bryce: [00:01:29] Equity Mates, the podcast where we break down the world of investing to make it easy and accessible for you. Welcome to Episode 17. And for the first time in a long time, I am here with my equity buddy in real person. We're not recording over Skype like we usually would. I'm down in Melbourne. How are you, Ren? [00:01:49][19.8]

Alec: [00:01:49] I'm really good Bryce. Good to be with you. [00:01:51][2.2]

Speaker 2: [00:01:52] Yes, it is great. [00:01:52][0.7]

Alec: [00:01:53] Great to be seeing you in person. I know it's been a long time. It has. It has. [00:01:58][4.9]

Bryce: [00:01:58] So this episode is all about investing styles and what works for you. And there's five investing styles that we're going to be going through today. Something that we have discussed in previous episodes of is that we may have briefly touched on or we thought we'd take this opportunity to really go through some of the key characteristics of these investing styles to sort of find what may work for you. Yeah, that sounds good for you. [00:02:26][27.4]

Alec: [00:02:26] I know when I started investing, I would have really liked to know the different ways people invest because you can get lost in all the charts and the different numbers and the different things that different people talk about. And it's good to just know what the different styles are, what you should look for, what what styles you understand. So and it's [00:02:46][20.3]

Bryce: [00:02:46] a good basis as well, you know, when you're reading articles, doing research to get an understanding of what these guys are talking about. Because if someone's talking about quantitative investing, yeah, I have no idea. So this is going to be the podcast that lays it all out for you. And as always, we're going to start with what have you learnt this week? Yeah. So do you want to keep this on front? [00:03:10][23.3]

Alec: [00:03:10] Yeah, sure. Well, look, after your Netflix recommendation last week. [00:03:15][4.4]

Bryce: [00:03:15] Exactly. Yeah. [00:03:16][1.1]

Alec: [00:03:17] Yeah, I, I haven't yet. I haven't yet. But I thought I should bring a Netflix recommendation to the table to start with our movie review. [00:03:25][8.3]

Bryce: [00:03:26] Yeah. [00:03:26][0.0]

Alec: [00:03:26] Yeah. Now look, this isn't the my what I want but just I didn't say something on Netflix that I thought people would appreciate. OK, it's called Silicon Cowboys and it's about Compaq, the computer company, and how they took on IBM, who was the only player in computing at that time or the biggest player in computing at that time. So if anyone interested in the early days of Silicon Valley could want to check out, you see. Yeah. [00:03:56][29.3]

Bryce: [00:03:56] And what was the result of the documentary, we would give too much away. [00:03:59][2.8]

Alec: [00:04:00] Well, they are still a company, so. Yeah. [00:04:05][4.9]

Bryce: [00:04:07] Now, what's been your major learning and outside of Netflix. [00:04:10][3.0]

Alec: [00:04:10] Yeah. Okay, so I have just finished a book called Buffet OLogy Now. It was written by Mary Buffett, who is Warren's daughter in law, married one of Warren's sons. And it's a great book. I highly recommend it. Check out the upcoming book review that will be putting on Facebook and on our website. But there was something I took out of it that I thought is a really useful learning. Now, the book was written in nineteen ninety six. So we're looking at about twenty years ago now. And at the end of the book, Mary lists 54 companies that Warren has invested in, and that gives us a great insight into some of the things he looks for. But my biggest takeaway from that is that you don't have to 100 as an investor. No one nails every one of those stock picks. And you can you can become the richest man in the world like Warren Buffett without nailing all of your stock picks. So I thought I'd run through some of them just to give you an idea of how poorly some of them have gone, but also will celebrate some of his successes as well. Good idea. So, you know, there was some absolute cracking investments in that. Now, there's a term that I'm going to use here. It's called it's split adjusted. And what that means is if I buy a stock for two dollars and then they split it. So as a shareholder, if I own one stock and they do a two for one split, then I have two stocks. If I pay two dollars for that one stock and then they split it, my split adjusted price is one dollar, [00:05:45][95.1]

Bryce: [00:05:47] value [00:05:47][0.0]

Alec: [00:05:48] is total value is still the same. But because they doubled the amount of shares that I own, you have the split adjusted price that you paid. Yeah, the reason that I want to introduce that term is that a lot of the stocks that Warren bought have split. So we'll talk about what he paid in split adjusted terms. OK, so let's go through some of his big winners just to give you an idea of some of the ones he hit on. [00:06:10][21.8]

Bryce: [00:06:10] A quick question before, is this 54? Did she give a reason why they split before they or fifty four at the time of writing that it was invested in whether any others that he was invested in, she hadn't mentioned? [00:06:21][11.0]

Alec: [00:06:21] Oh probably. Yeah. Yeah. [00:06:23][1.6]

Bryce: [00:06:24] So this is just a list of notable ones. Yeah. [00:06:26][2.2]

Alec: [00:06:26] Yeah. And it was. Some of the ideas she's talking about in the books are in the book, some of the things that he looks for, ways picking stocks and yeah, just to give people something to start their research, I guess. But yet some of some of his big win. And so Coca-Cola, he paid for Dollars, 64 a share in split adjusted terms then. Now in twenty seventeen with forty five dollars. So he's done pretty well with that. He's made 10 times his money. Walt Disney, he paid six point forty eight and split adjusted terms now one hundred two dollars. Wow. And McDonald's eleven point twenty five. Now one hundred and fifty nine dollars. Tiffany, the jewellery maker. Seventy eight cents a share now. Eighty eight dollars. Wal-Mart, five point fifty seven now seventy eight dollars. So I mean, like Wendy, when you pick a winner and you hold a winner, you can do very well for yourself. And these are the companies that want sort of known for and is obviously where he's made most of his money. But yeah, there's always a bottom line. He also has had some shockers and we all have shockers. I very publicly on this podcast talked about one of my early shockers with Slater and Gordon, but some of Warren shockers, there was a company called Circuit City that was a big technology retailer, I guess in Australia equivalent would be like Harvey Norman or something. He bought them for about 30 dollars a share in 1996. Well, that's what they were trading for in 1996. By 2009, they were four cents a share and then they declared bankruptcy. So lost everything. Wow. Another one best. Now, some of you guys might have heard about this from the financial crisis when they had trouble finding their 1996 share price. But they floated in the 80s at around twenty five dollars a share price. JFC they got up to one hundred and eighty dollars a share. But then after the GFC, they got bought out for ten dollars a share. Wow. Yeah. So he would have lost money on that. You can look at some companies that still exist and they wouldn't have done that well. So he bought there's a company in America, the Federal Home Loan Mortgage Corporation, that it doesn't really matter what they do in 1996, that a split adjusted. They were trading at about five point thirteen a share then now two point forty seven. So the value is more than halved. Another one, New York Times, everyone's heard of them. They used to be a huge company. Yeah. Rivers of gold because of the advertising in the mid 90s, they were trading around fourteen point fifteen dollars a share split adjusted now that only eighteen dollars. So, you know, in 20 years they've increased a couple of dollars. Yeah, I'm [00:09:17][170.8]

Bryce: [00:09:17] at a loss. [00:09:18][0.2]

Alec: [00:09:18] Yes. So it was just an interesting takeaway that you hear about his success. But even the greatest investor of all time, he doesn't pick every he doesn't nail every pick. It is impossible to do so. And it's silly to think that anyone can. Yeah. Yeah. So, you know, take you take your beatings and just keep trying. And, you know, [00:09:39][20.3]

Bryce: [00:09:40] I wonder if those companies that he's had windows on or even all of those companies I mean, I guess he obviously still holds a lot of them because that's his strategy. But would he necessarily buy them from scratch again? [00:09:53][13.0]

Alec: [00:09:53] Yeah, that's a good question. Yeah, because [00:09:55][1.9]

Bryce: [00:09:56] those companies back in the day certainly probably don't have the growth prospects today, but. Yeah, yeah. [00:10:02][6.5]

Alec: [00:10:03] I mean, especially a company like Coca-Cola, you think, you know, people's aversion to sugar and stuff like that. More competition in the drink space. Yeah, yeah. They're very, they're much more expensive than they would have been back in the day, but who knows? You know, the thing is, in the mid 90s, these companies were household names like Coca-Cola, McDonald's, Walt Disney, Tiffany, Wal-Mart, or Fulminant like those big brands. So it's not like he's, you know, picking obscure stocks that no one's ever heard of. He's just recognising that what they're trading for then is good value. [00:10:36][33.2]

Bryce: [00:10:37] Yeah, he's always been one for foreign powers. [00:10:39][1.9]

Alec: [00:10:40] Yeah, yeah. [00:10:41][0.6]

Bryce: [00:10:41] Yeah. Nice. [00:10:42][0.3]

Alec: [00:10:43] Yeah. Okay. So what do you want. [00:10:44][1.7]

Bryce: [00:10:45] Well, I promised that I would step up my game last week, which is purely a Netflix documentary, which I still recommend. Well we'll get to it. [00:10:56][11.3]

Alec: [00:10:56] Yeah. [00:10:56][0.0]

Bryce: [00:10:58] So there's been a lot of chat and we've spoken a lot about Amazon. Yeah. The online retailer. But what we haven't really spoken about is the other hidden giant in Alibaba. For those that aren't aware of what Alibaba is. And it's that [00:11:17][19.8]

Alec: [00:11:18] kebab shop, isn't it. [00:11:18][0.8]

Bryce: [00:11:18] Yeah, it's down from my street. Yeah. So yes, there is Alibaba Kebab Shop. The one I'm talking about is the Chinese online retailer. Yeah. And a huge company, the equivalent of Amazon. But for the Asian market. Yeah. And in fact it's bigger than Amazon. Two things that I've learnt and that I want to highlight they have just done and in line with our reporting season episode last week they released a number of figures that for their last financial year that I thought I would point out just to give everyone an indication of just how big these guys are to sort of paint a picture of it. And so let's just start with annual active buyers on the Chinese retail marketplace reached four hundred and fifty four million people. Okay, so that's more than the population of the United States. [00:12:14][55.7]

Alec: [00:12:15] Yes, but still is only one third of China's population. [00:12:17][2.5]

Bryce: [00:12:18] So their growth potential. Yeah. [00:12:20][2.0]

Alec: [00:12:20] Is enormous, you know, if that's all in China. [00:12:23][2.3]

Bryce: [00:12:24] So it says that now in their financial report. So it's an annual. Advised on our China retail marketplaces. It was 450 [00:12:35][11.5]

Alec: [00:12:36] million. So in China. [00:12:37][0.7]

Bryce: [00:12:38] Yeah, that's right. So that just gives you an idea of the scale in which these guys are operating. Now, to give you an idea of their revenue, they had an increase of 56 percent to 22 billion in revenue from cloud computing, increased 121 percent, up to almost a billion there in digital media there in innovation initiatives. And the increase in the Chinese marketplace was 31 million. So I just want to highlight that this goes into my next point, which is they are now going into retail stores, bricks and mortar. So they like Amazon. They're recognising that they need a footprint on the ground. And what they're doing is like China, I mean, like Amazon is merging retail bricks and mortar with technology. And so what they've done over the last 12 months has blended that online marketplace so that customers can order, buy and also get delivered. Products from these bricks and mortar shopfronts, so they can go in with the app and do all of it on their phone and walk out. OK, so that cuts down on the labour costs, right? [00:14:00][82.6]

Alec: [00:14:01] So you don't go through a checkout. You just you like you pick something up off a shelf and buy it on your phone. [00:14:05][4.4]

Bryce: [00:14:05] That's right. That's right. And they're integrating food, clothing, electronics, all into this model and exciting thing for Australia is that the demand for produce specifically fresh and also a lot of our top quality nuts wine baby formula. Yeah. Is now being driven by this model. Okay. And so they're trying to stop the supermarkets that they're developing with Australian produce and product. Right. So I just wanted to say that, you know, both of us work in retail. And so it's interesting to see that the growth is massive if the market's huge and, you know, everyone's talking about Amazon and the effect that it's going to have on the Australian retail market. But you've just got this hidden giant in Asia slowly ticking away. And who knows, one day they might be coming to Australia just now. But, yeah, it's interesting that combining technology with bricks and mortar stores in a way that is almost they're trying to make it seamless. [00:15:11][65.2]

Alec: [00:15:11] It's funny that they both Amazon and Alibaba start as online e-commerce retailers and then they both go into cloud computing and now they're both moving into bricks and mortar retailing, charting very similar paths. [00:15:25][13.9]

Bryce: [00:15:26] And I just think it's really hard to go the other way [00:15:29][2.8]

Alec: [00:15:30] and go into a corner [00:15:31][1.4]

Bryce: [00:15:32] for, you know, the Australian retailers who aren't known for their e-commerce. I think it's going to be very hard to get that brand image in consumers minds. That's an option as well. [00:15:44][11.5]

Alec: [00:15:44] I mean, brand image and then also just the logistics of it all. And, you know, it's it's a completely different ball game to filling a big store or a big supermarket or anything like that. [00:15:55][10.4]

Bryce: [00:15:55] A real battle especially. Yeah, it's it's going to be. [00:15:58][3.1]

Alec: [00:15:59] So yeah, it'll be it'll be interesting to see if they ever directly competing in a new market together, you know, like Amazon's currently competing in India, but maybe they both go to Vietnam at the same time or something. And it'll be interesting to see how these two giants are doing very similar things. Erwin's. Yeah. [00:16:19][20.3]

Bryce: [00:16:20] My bets on Alibaba [00:16:21][0.7]

Alec: [00:16:22] in Asia might that would be on Alibaba. It would be very interesting to say in an Australian context, Amazon, you know, obviously they they've got a little bit of a footprint here. They're already starting to roll some things out. You know, they've got experience going into new markets. But Alibaba is from China, Australia's biggest trading partner. There's probably some efficiencies I can get there. [00:16:43][21.5]

Bryce: [00:16:44] Those sides of media attention that Amazon [00:16:46][1.9]

Alec: [00:16:46] does know that is true. [00:16:47][0.9]

Bryce: [00:16:47] Yeah. Yes. On its authority. And yeah, [00:16:49][2.0]

Alec: [00:16:50] if you want to say something crazy, just talking about Alibaba, Google, China Singles Day, it's the biggest e-commerce. It's the biggest trading day in anywhere in the world. And it is just like a 24 hour biopharma and Alibaba, Alibaba have like, you know, they get Western celebrities in and, you know, do concerts that are televised and they are advertising their products through this day and they sell. You know, I think at this stage it's like billions of dollars worth of product in one day. Wow. Yeah. China signals that everyone should Google it. It's crazy. [00:17:25][35.0]

Bryce: [00:17:27] All right. So now to the main segment. As we said, we're going to break down five fundamental well, we're going to break down five investing styles and go through them. We're going to talk about some of the characteristics. I want to play a bit of a game with Ren at the start knowledge, say, 31 through now the [00:17:44][17.2]

Alec: [00:17:45] lawsuit and you passed with flying colours. [00:17:47][1.9]

Bryce: [00:17:49] We'll give you some tools that you can use. We will talk about some of the books you can read for these styles and also make mention of any notable investments that are out there utilising this style to their advantage. [00:18:02][12.4]

Alec: [00:18:02] So I reckon the best thing to do is to listen to the different characteristics and think about what resonates with you and what makes the most sense to you. Yeah, because I know for me personally, there's one that just intuitively makes sense to me and the others, not as much. And so I naturally resonate towards that. [00:18:21][18.6]

Bryce: [00:18:21] And we'll do a wrap up with that at the end. So here we go. I'm going to do who am I to Ren and who am I going to be based around the characteristics of the investing styles now. So it may maybe a bit left, but we'll start with the with one of them and see how we go. So one of my goals is to determine the intrinsic value of a company and to compare it to the market price. My analysts determine the health and performance of a company by looking at key numbers and economic indicators. If you're an investor evaluating financials, company management, macroeconomic industry conditions, then you're investing in my style and using financials such as return on equity, earnings, future growth, cash flow. Warren Buffett invests in my to find underlying value of a company. [00:19:16][55.0]

Alec: [00:19:17] OK, who am I? Who are you? That would be a fundamental investor. Yes. Okay, so [00:19:25][8.0]

Bryce: [00:19:25] the first investing style we're going to discuss is known as fundamental. And as I mentioned in there, it has a few characteristics that we've generally spoken about a fair number of times podcast. So Ren, do you want to give a couple of characteristics about investing in a fundamental [00:19:46][20.9]

Alec: [00:19:47] way in a nutshell? Think about stocks as the companies that they represent and you look at how the company is going to look at its financial statements and say how much money it's making. You look at its competitors and demand and stuff like that and say how much money it could make. And then you invest in it. If you think it's a good value buy or, you know, it's going to grow a lot. You don't worry too much about the day to day fluctuations. You think about with the long you think in a longer term manner. Yeah, about the stock as the business. Yeah. [00:20:22][34.7]

Bryce: [00:20:22] This is where you're buying the actual business, I mean in investing. But yet that mentality, you look at everything from management through to, as you mentioned, the financials, profit and loss statements and you try and come up with your own underlying value. [00:20:38][16.0]

Alec: [00:20:39] So I guess on the fundamentals, so fundamental as like a broad label, you're looking at companies and how they're going to go and how they're performing under that. There's probably three different ways that you can go about it. So you doing your fundamental analysis and looking at the companies, you can try and look for value, which is the first one. And that's when you're looking for companies whose share price is lower than the intrinsic value, which is just a term that loosely means what the company is actually valued at based on how much money they're making and how much money they can make in the future. Yeah, this the second one is you do your fundamental analysis to try and find growth opportunities and so that you're not so much worried about the price you're paying now, but you're projecting forward based on the opportunities and how the company set up and their management, that they're going to grow a lot in the future. And even if they're relatively expensive now because of the growth opportunities, they will they'll still make money on them in the future. And then the third time is which we might get some noise about. But I think it comes down to fundamental is you could be looking for income and so that you're still doing fundamental analysis, you're still looking at a company. Sometimes you can be looking at other asset classes like bonds, but let's not get into that too much. But essentially, you're looking at whatever the investment opportunity is and looking at how much money it will make and how much of that it pays back to its investors in income. And you're trying to find good income streams from it. Yeah, yeah, yeah. So although those three types of investing lead to very different companies. Yeah. But they all require the same fundamental analysis to make those decisions. [00:22:29][110.3]

Bryce: [00:22:30] Yeah. Yeah, definitely. I agree with that. And you know, overall the five I couldn't really put them on but anything else. Yeah. [00:22:37][7.3]

Alec: [00:22:38] Yeah. Now do we don't know any fundamental investors. Do we have any Equity Mates that. [00:22:44][6.1]

Bryce: [00:22:45] Well the very first interview that we had that we had on the show, Andrew Brown episodes five and six I think it was. Yeah, he is a fundamental investor. [00:22:58][12.8]

Alec: [00:22:58] Yeah. He truly puts the fun in fun. [00:23:01][2.3]

Bryce: [00:23:03] Yeah. Andrew Brown. So he he actually sits down and knocks out. We were in his office and it's pretty crazy some of the stuff that he's doing. But yeah, whole heartedly looking for truth. Value. Yeah. And his investment. Yeah. And he is sitting there day in and day out trying to find stocks that he think are undervalued to Afterpay on the stock market. So if you really want to go back and have a listen to him, he was a fantastic interview and really knocks out what it means to be a value investor. And what are some of the things he does to look for value in a company? [00:23:36][32.7]

Alec: [00:23:36] Yeah, and to illustrate that example of growth, value or income. So Andrew was talking about companies like Channel Nine and Fairfax Media who hated his fundamental. Analysis looked at the balance sheet, looked at their annual report and thought that the price on the share market was lower than their actual value. And so they're the companies that he's attracted to. But if you're a growth investor, you would look at those companies and be like, well, there's not a lot of opportunities for growth and you would be led towards companies. You know, these days it's more like Secombe, real estate, car sales, those kind of companies. But then you could do your fundamental analysis. And if you were interested in income, you would you wouldn't be interested in any of those three sets of companies. You'd be thinking more along the lines of some of the big miners like BHP and Rio or Telstra. Yeah, companies like that. So you do you do the same analysis. You look at the same information. But depending on what you're interested in and where you think you know, the investment strategy, what investment strategy you think makes the most sense, and you're going to be attracted to very different company. Yeah, yeah. [00:24:44][68.1]

Bryce: [00:24:45] In terms of tools that are used in this technique. Well, in this style, I guess all three of them would be looking at the basic financial segments of the business. So that would be a good place to start. Now, obviously, for beginner investors, if someone wants to say, let's find the value of this company, like, where do you start? You know, it's a very skilled thing to be able to do. And everyone has their own idea of what's important in the financial sector and what's not. But it's worth highlighting that the general tools used to begin with in this financial statements, profit and loss. When you look at the things like that, cash flow, that sort of stuff as well, as we mentioned before, you can look at their annual reports to get an idea of management and in a general sense of the industry as well. [00:25:33][48.8]

Alec: [00:25:34] Yeah, definitely. [00:25:34][0.4]

Alec: [00:27:29] on any books or anything that people can follow up if they're interested. [00:27:33][4.0]

Bryce: [00:27:34] Yeah, I've read well, I think both of us have read the intelligent investor stuff. Yeah, yeah. Which I think is definitely a great place to start. Yeah. Very well [00:27:41][7.0]

Alec: [00:27:41] mean. It's, it's sometimes a bit of a slog through. Very old. Yeah. It was written by Benjamin Graham who was Warren Buffett's mentor and was really the father of value investing. Yeah. And then the book that I spoke about earlier in the episode, Buffett OLogy by Mary Buffett. I reckon that's the best book I've read on Warren. Wow. Just some of the detail and it gets very specific, which is which is nice. So I would highly recommend that one as well. [00:28:10][29.3]

Bryce: [00:28:11] I to get into that and one that is a very easy read, very, very easy read and really lays out in very clear and easy to understand fashion. What is the value investing as well. It's based on value investing and really gives some tools that you can use right off the bat to try and start finding values of companies as a book called Shopping for Shares, which is why I'll review a few episodes coming up. So I know Ren got his ideas about the book. [00:28:44][33.1]

Alec: [00:28:45] Bryce has been telling us that he's going to do this. They serve you for about six. It's going on, correcting your [00:28:54][9.4]

Bryce: [00:28:56] prejudice on so and we're just finishing on fundamentals with some famous investors of this style and I guess, yeah, Warren Buffett and as I mentioned, management Bryce the two big dogs, the fathers of this [00:29:12][16.1]

Alec: [00:29:12] one other that I'll throw out there just to plug one of my old blog posts. Seth Klarman is another very famous value investor. Check out my review of his book, Margin of Safety, [00:29:24][12.1]

Bryce: [00:29:26] which was also recommended by Andrew Brown. So that's the first cyl, fundamental. As Ren has said, it covers value, income and growth. That's our way of looking at it. [00:29:38][11.9]

Alec: [00:29:38] And it's just in a nutshell, it's all about looking at the company. [00:29:42][3.7]

Bryce: [00:29:43] Yeah, it's about the company. All right. So let's move on to the next. Who am I? [00:29:50][7.0]

Alec: [00:29:50] Kai. [00:29:50][0.0]

Bryce: [00:29:52] I pay extra close attention to the numbers and not the intangibles and operate at incredibly high speeds. I use complex mathematical models to try and identify any investing opportunities. I don't care about the management or value of the company computers. And I would my style of investing in teams of mathematicians, programmers and investors work to build proprietary models to try and beat the market. It's often said that my style of investing never loses money. Who am I? [00:30:22][30.2]

Alec: [00:30:23] Never loses money. You say Equity Mates hypothetical? Well, no. This would be quantitative investing. Correct. [00:30:34][10.5]

Bryce: [00:30:35] Quantitative investing. Now, some of you may have heard of it. Some of you may not have heard of it. I wouldn't be surprised if you hadn't, because on a historical scale, it's a reasonably. Yeah. New Yeah. Style interesting. [00:30:49][14.6]

Alec: [00:30:50] Probably started to make ground in the 80s, but really has shown its potential in the 90s and the 2000s. [00:30:58][7.7]

Bryce: [00:30:58] Yeah. And what's the reason for that. [00:31:00][1.5]

Alec: [00:31:01] Make computers a good choice. Yeah. So straight up I think it's important that we make it clear that computers are now used in all types of trading. You know, like fundamental analysts will use computers and they will use algorithms to try and identify trading opportunities. Yeah, when we're talking about quantitative trading here, we're talking about things that only computers can do. So it's not you know, I've built an algorithm to try and find growth companies or value companies. That's not what we're talking about here. We're talking about things outside of that realm where the computers are executing trades that humans can't. [00:31:41][40.0]

Bryce: [00:31:42] Yeah, yeah. And these are these quantitative traders that technology companies. [00:31:48][6.6]

Alec: [00:31:49] Oh, crazy technology. [00:31:50][1.2]

Bryce: [00:31:51] They don't want to have. [00:31:52][0.6]

Alec: [00:31:52] These are maths and science days in a building. Just the most outrageous algorithms. And yet just. Oh, it is. It is pretty phenomenal. [00:32:03][10.3]

Bryce: [00:32:03] I didn't sit there and study a Bachelor of Commerce. So this is a serious computer. Yeah. Yeah. You are making a lot of. [00:32:11][8.1]

Alec: [00:32:11] Yeah, yeah. So I guess maybe we can. The best way to explain it is by way of some examples. Yeah. So what are some of the, the main ones, one that you might have heard of is high frequency trading. And so that's essentially where the algorithms trade on that, the tiniest differences in price on different exchanges. And we're literally talking about them in milliseconds here. So there's a fibre optic cable wire that runs from New York to Chicago in America. And it was built to get the time it would take to execute a trade or for information to flow through from 17 milliseconds down to 12 milliseconds, [00:32:56][44.9]

Bryce: [00:32:57] which which leads to millions and [00:32:59][2.0]

Alec: [00:32:59] millions of dollars, billions and billions of dollars. Think about building a fibre optic network from Chicago to New York. Think about how much trouble Australia's had. [00:33:07][8.0]

Bryce: [00:33:09] I mean, the difference in that point, five of a millisecond is billions of dollars. [00:33:14][4.9]

Alec: [00:33:14] Yeah, yeah, yeah, yeah, yeah. It's so much so. So that's what we're talking about here. They literally trade so quickly and just on tiny little differences in, you know, the bid or the asking price for certain stocks or, you know, the what it's listed on in the Chicago Commodities Exchange versus the New York Stock Exchange. And they just trading such high volumes so quickly that, you know, they make like a fraction of a cent here. Fraction of a fraction of a cent. Yeah. The bang in the day. [00:33:47][33.3]

Bryce: [00:33:48] And as you mentioned right at the start, these algorithms don't care at all what this company is. The companies could not be named A, B, C, D, E, F, G. All they're looking at is making taking advantage of the price movements of the stock on the market. They don't look at anything to do with the fundamentals of the company at all. They're just algorithms that are trying to capitalise on the early days well on investors buying and selling and then trying to make a buck [00:34:18][29.7]

Alec: [00:34:18] out of it. Yeah. Now, the big question is, is this trading? Like if these computers can just kill us as human traders, like, what's the deal like? Oh, what's the point of even trying? I mean, I'd do it if I could. Yeah. If I was in Afterpay each day, I'd be working for them but not look. So they, they invest very differently to the way that humans invest. And so it would be silly to try and beat them at their own game. But at the same time, if you have a longer time horizon and if. You are looking for companies that will grow and computers can do them, but they are not necessarily doing them better than humans because, for example, if you're trying to identify growth companies, the computer can look at things like financial statements and, you know, different ratios and pick things out. But at the end of the day, it comes down to human judgement about Ren market potential trends, branding, all that stuff. So stick to what humans can do better than computers, at least until I comes along and focus on that as well. [00:35:25][67.1]

Bryce: [00:35:26] Well, this is not really investing in its purest form, really. No, it's it's, as we said, just making use of incredibly powerful computers to take advantage of in and. [00:35:38][11.2]

Alec: [00:35:38] Yeah. And, you know, people there are arguments for this like high frequency trading and some of the different other, you know, statistical arbitrage and stuff that are do it gives markets liquidity and stuff like that. It closes the bid. Ask spread. These are all terms that a lot of listeners won't understand. Don't worry, I don't really either. And you don't need to like it is a different world and it's a world that I'm fascinated by, but I'm not smart enough to be a part of that. You know, it's not it doesn't mean you can't make a lot of money. Warren Buffett has never used high frequency trading algorithms here, and yet he is doing better than all of those investors, at least for now. [00:36:22][44.0]

Bryce: [00:36:22] So, yeah, yes. It's a really intriguing industry. [00:36:28][5.9]

Alec: [00:36:29] It is. Yeah, it's fascinating. So I guess maybe to ask the level of intrigue will tell you just how successful some of these companies can be. So the most famous one is a company called Renaissance Technologies. Yeah, they were founded by a physicist, James Simons. [00:36:49][20.1]

Bryce: [00:36:50] They study [00:36:50][0.7]

Alec: [00:36:50] finance. Yeah. Yeah. Not he well, he's now a, you know, 18 billion. Yeah. But to give you an idea of just how good these trading algorithms are, the company has a basically it's an employees only fund. So only people who work for the company can put money in this fund. This fund from 1994 to 2014 has averaged seventy one point eight percent return per year. That means every year you're getting 70 percent back. [00:37:24][33.8]

Bryce: [00:37:25] So most of the time they'll be multimillionaires. [00:37:27][2.0]

Alec: [00:37:28] All right. How do you get involved? So to give you like some perspective, Warren Buffett, if you average if you annualise out his return, it's about in the low 20s, I think. Yeah. Yeah. And these guys, [00:37:44][15.2]

Bryce: [00:37:44] which is considered incredible. [00:37:46][2.0]

Alec: [00:37:46] Yeah, phenomenal. Yeah. Yeah. I mean, it's made him as wealthy as he is now. Yeah. But these guys for 20 years have averaged 70 percent, 70 percent know. [00:37:58][12.2]

Bryce: [00:38:00] And that's why I said in the start in the Who am I? You often hear that people say quant funds don't lose money. And that's because, I mean, you're not going to programme an algorithm to put a trade through when to lose money. [00:38:12][12.2]

Alec: [00:38:13] So on be killing it. The the 1997 recession was partly caused by trading algorithms because the way they were programmed was when the bottom fell out of the market. It triggered certain things in the algorithms that. Yeah, and that exacerbated the market collapse. But, you know, at this stage, these funds have figured out all the kinks. And yeah, they don't lose money because what they've been through, the 87 recession, the dotcom crash, the global financial crisis, like they've figured it out now they know what they're doing. [00:38:50][37.0]

Bryce: [00:38:50] I'd like to really to give an example of, like, how these equations are built and what they're looking for, a bit like I wouldn't even know where to start. Yeah. [00:38:57][6.4]

Alec: [00:38:57] So it's things like when they say a difference in the it's like the difference in the bit in the ask price on different markets, then they they get that fraction of a difference. [00:39:10][12.7]

Bryce: [00:39:10] That's like putting to betting companies next to each other and sort of arbitrage. [00:39:14][3.7]

Alec: [00:39:15] Exactly. Yeah. That's a big one. Yeah. Yeah. But you know, to be honest as I understand it. [00:39:21][6.8]

Bryce: [00:39:22] So do you want to add anything else to our volatility question to wrap that one up. [00:39:28][5.3]

Alec: [00:39:28] Not far away. [00:39:29][1.0]

Bryce: [00:39:30] The question I have is what does what does this mean for the broader investing industry? If computers can be programmed to do this and they're getting returns as such? Do we have a problem in terms of investors losing their jobs down the track [00:39:47][17.8]

Alec: [00:39:48] or are it's it's [00:39:49][1.4]

Bryce: [00:39:49] tough when I bring in I. How can these [00:39:52][2.1]

Alec: [00:39:52] so I mean, because you would say that investors weren't some investors would have lost their jobs because these trading algorithms and systems are doing so well. But then by the same token, all of a sudden, all these maths and physics PhDs have jobs to build the algorithms and build the supercomputers and all that. So, I mean, I don't know if it would be a net loss or gain. I think what we're going to say is that investors have to specialise in certain ways. So, you know, you're going to have you're going to have less and less investors. You know, that old school stereotype on the floor or on the phone, like buy, buy, buy, sell, sell, sell, like looking at charts, like writing bits, yelling all that, like that sort of generalist investor probably won't exist anymore. What we'll have is incredibly smart computer scientists and maths genius building these algorithms and building stuff like that. And then we'll probably also have more sort of fundamental focus analysts who look at qualitative factors that computers aren't particularly adept at doing so well. They'll be jobs. They'll just be different. [00:41:00][67.5]

Bryce: [00:41:01] As an investor, though, if you have the option as a mom and dad investor and you have the option of putting their own money into the fund, which has an investing style where analysts are looking at fundamentals, for example, or option of putting money into a fund. Why wouldn't you just go straight to the fund? [00:41:19][18.7]

Alec: [00:41:20] Yeah, I guess. But the thing is, like this is this is how bubbles form. You know, like everyone is like quant funds are going to make so much money. And so everyone starts putting all their money into these quant funds. And then the opportunities for these trading algorithms become less and less because there are so many more trading algorithms going for those. So then they have to start taking more and more risk for less return. Bubble forms keeps growing all of these value investors and growth investors who are doing fundamental analysis because they're being left out in the cold. There's all these opportunities because no one wants to play in their field and they start making more and more outsized returns compared to like the risk reward skews. And then people recognise that there's money to be made over there and then money flows in the other way. I mean, just all these things are cyclical. Yeah, yeah. Yeah, exactly. All right. [00:42:12][52.6]

Bryce: [00:42:13] Well, we've done fundamentals. We've done quantitative investing. Now, for the third one, who am I? My style evolves from the study of overall political and economic views and conditions of countries, I try to understand large scale events to consider and then predict what impact it will have on companies and investing opportunities. Major considerations for me are things like interest rates, GDP growth rates, trade and foreign relations and complex systems. One of the most recognisable examples of an investor using my style was George Soros making billions of dollars from investing against the sterling investments I made across all asset classes using my style. [00:42:58][45.1]

Alec: [00:42:59] You are a global macro. [00:43:01][2.1]

Bryce: [00:43:01] Yes, yes. Global macro. So that's our third cycle. And for those of that you are unaware, macro in finance and economics means that the bigger picture. And so that's what this investing style is all about. And, you know, for me, there are some parallels with Fundamental in some way because you will use a macro approach in fundamental in in terms of an industry scale or trend scale. But macro doesn't necessarily look at the fundamentals. So like, [00:43:41][39.8]

Alec: [00:43:42] yeah, I guess the distinction is in a fundamental view, you're doing a bottom up approach. So you're looking at the company and then you're looking at how that company is positioned in a broader environment, whereas in macro Dollars, it's top down. So you're looking at how whole economies are performing and how whole political systems are elating and then you identifying the opportunities there. [00:44:04][22.0]

Bryce: [00:44:04] Yeah, yeah, yeah. That's a good way to put it. And that's pretty much it in a nutshell, really. [00:44:10][6.0]

Alec: [00:44:11] So probably the best way to explain this for people who don't quite get how you can trade based on like political outcomes and stuff is by way of some examples. For example, right now, Venezuela is collapsing as a country. Nicolas Maduro is has seised power. After Chavez died. There is riots in the street. There's catastrophic food shortages. And obviously, like in a situation like that, you don't want to make money. Well, it's not the first thought that macro trade is out there. A lot of them will have made a lot of money by shorting the Venezuelan currency because as part of all this instability, the currency collapsed. So that's the way that you could capitalise on that political event. Yeah. You know, another one, Brexit. If you shorted the pound when Brexit happened, you would have made a lot of money. Yeah, I mean, if you look at something like what's happening in North Korea at the moment, because of all this global instability, you see people fleeing to sort of safe haven assets. Yeah. So you look at going long gold, you can look at going long. The US dollar, things like that, [00:45:23][71.9]

Bryce: [00:45:24] I would say is one that I can think of is looking at things like the relationship that has going on. You know, the oil companies. Yeah. How they decide how much oil they're going to be producing. That has flow on effects on a global scale that you can then make decisions on. Yeah. All that [00:45:43][18.8]

Alec: [00:45:43] stuff. Yeah. And I mean, so you can do macro analysis down to a company level. And what do I mean by that is rather than looking at the company first and its balance sheet, you can look at what's happening globally and then make decisions about investing in certain industries. So you could say, you know, military tensions are on the lot on the rise. Trump is demanding that night or pay two percent of their budget to military spending. China is building up its military to really fast. Right, as is Russia. I'm going to go long military contractors because of that. Like global macro trends. [00:46:25][41.7]

Bryce: [00:46:25] Yeah. Yeah. Just to can you explain what Longman's. [00:46:28][2.4]

Alec: [00:46:28] Yeah. So that means you going to invest in the companies, you're going to think you think that they're going to go up in price rather than shorting, which is when they go down, which is when you bet on them going down in price. Yeah. [00:46:39][11.3]

Bryce: [00:46:40] Yeah. To give another example of that sort of train of thought relates back to what we're speaking about Ali Baba before. If you start at the top and think, OK, so China is going through great structural change at the moment, we're seeing a huge increase in the number of middle income earners that's going to generate a lot more revenue or expenditure from this population. Where are they going to start spending their money? Then you look at places like Australia, what they're going to be spending their money on, and then you look at companies that you think are going to benefit from this huge increase in consumer spending from the Chinese. So that's another macro approach. Yeah, OK, so [00:47:24][44.7]

Alec: [00:47:26] we should we've got to give Daniel one a plug here, because he is the very definition of the macro trade off big time. Yeah. And his interview, like he's a seriously smart guy. So if you haven't listened to that interview, definitely check it out. Yeah. He is a good idea of what matters, right? Yeah. [00:47:46][19.9]

Bryce: [00:47:46] Yeah. I also want to mention that macro applies to all asset classes. And what I mean by asset classes is it's not just about stocks and companies. As you mentioned, Ren, you can look at gold, currency, oil, [00:48:02][15.3]

Alec: [00:48:03] bonds, [00:48:03][0.0]

Bryce: [00:48:03] bonds, anything that you can literally put money in and get a return to macro effects. [00:48:08][4.6]

Alec: [00:48:09] Yeah, things like commodities. Yeah. Wheat, corn, nuts. Yeah. Yeah, literally. Yeah. Like another macro thing, there's a drought in California. The global nut price will rise because California is the largest nut producer in the world. Yeah. Let's go long cash. Not, you know, like [00:48:23][14.9]

Bryce: [00:48:25] what's happening in Southeast Asia. The rice paddies aren't producing as much as they were. Price of rice is going to go. [00:48:31][5.7]

Alec: [00:48:31] Exactly. Yeah. So when we say we've said in previous episodes you can apply anything that's going on in the world, you can apply that to investing. This is sort of why you say that come through. Yeah. [00:48:43][11.9]

Bryce: [00:48:43] Yeah. Reading the news. That's the way you start your macro approach. [00:48:46][3.1]

Alec: [00:48:47] Yeah, definitely. [00:48:47][0.4]

Bryce: [00:48:48] So, yeah. Daniel, want check out his interview. As you said, Ren very interesting guy, incredibly smart and famous investors in this style. As I mentioned, George Soros, he he made a billion dollars from betting on price movements in the sterling. Yeah. Which the British pound, which is the British pound. Yeah. So I'm not going to say much more about that, but just going to Wikipedia and check it out. Yes. Very interesting story. And he had a very macro approach. Yeah. So we've done macro, we've done quantitative and we have done fundamentally. That leaves us with two to go so far in your own three out of three [00:49:27][38.3]

Alec: [00:49:27] may kill you. [00:49:28][0.7]

Bryce: [00:49:29] I thought we will go to. [00:49:30][1.2]

Alec: [00:49:31] Well, don't tell me the [00:49:33][1.5]

Bryce: [00:49:34] charts and statistics are my best friend. The psychology of the market is often considered when investing in my style. One of my basic assumptions is that price changes are not random so I can profit from trends as I look for patterns in price movements, volumes and averages to try and predict what's going to happen. I believe that past price behaviours are likely to influence future price movements, more so than the intrinsic value of the company. Who am I? [00:50:03][28.7]

Alec: [00:50:03] You are a technical analysis, correct? [00:50:09][5.6]

Bryce: [00:50:10] Four out of four. So unless you really Kocot, you're going to have to. [00:50:14][4.1]

Alec: [00:50:14] It's up to Rohnert. [00:50:15][0.7]

Bryce: [00:50:16] But yes, technical analysis. Now that may sound some of the things I've said. They're charts and statistics, you know, that sort of stuff. People might get confused with quantitative in the sense that, you know, maths and all that jazz, but they're two entirely different investing styles. Yeah. [00:50:34][17.7]

Alec: [00:50:35] So this is probably the one that people associate with investing the most, you know, are looking at charts and trying to predict where the price will go. And there's a whole body of literature around technical analysis. And what they essentially do is they use charts and they use volume. So that's trading volume. How many buyers and how many sellers to try and get price movements? Yeah, and there are all these things they used in the charts. They identified different formations that they think that that lead to different things. Yeah, it's not something that I'm particularly [00:51:09][34.5]

Bryce: [00:51:12] I don't believe in it. [00:51:13][1.0]

Alec: [00:51:14] Yeah. Yeah. I just didn't want [00:51:16][1.6]

Bryce: [00:51:17] to be honest like you. You can have one technical analyst and I mean this does apply to all sorts of investing. But, you know, one technical line is sitting next to another technical analyst and that charts information could be completely different. And so it's just so hard to, you know, formulate if you're not really involved in it, looking at a chart and they literally just trying to predict how a price is going to improve, just like quantitative and unluck fundamentals. They're not investing in companies. They're not investing in the fundamentals. Yeah, you're necessarily going long either. They're investing in price movements. [00:51:51][34.6]

Alec: [00:51:52] As a technical trader, you're just as adept at trading like wheat futures as you are trading, you know, government bonds. Yeah. Yeah. Oh, God. Like, it's all it's all about the technical indicators. It's all about trading volume, trading patterns and stuff like that. Now, look, just because we don't understand it, like there are a lot of people out there who make a lot of money, including some of our friends, or believe in and talk with her. But look, there is also a large number of investors that don't think it's very relevant. My personal opinion is I think that there are some things that are that are like using volume is obviously a good indicator of where prices are going to move. Look, you can look at charts sometimes to say support levels. So if if a stock falls where it will sort of fall back. Yeah. But I think then people extrapolate things that are true to an extent where they start getting into a bit of sort of murky waters. And then there's a big situation of confirmation bias. Yes. So, you know, when you really think about it, stocks today, they're going to go up or they're going to go down. Yeah. [00:53:08][75.6]

Bryce: [00:53:09] And fit their own agenda. [00:53:10][1.3]

Alec: [00:53:11] Well, yeah. Yeah. But, you know, you could no no trader. No trader is going to get it right every time. But if you draw enough charts and then the price goes the way that you would you say it will, it doesn't necessarily mean that your theory of drawing on the chart or. Yeah yeah yeah. But yeah look we're probably going to get a lot of pissed off people listening to this at the moment because, you know, [00:53:39][28.3]

Bryce: [00:53:40] it's just not something we agree with really. Yeah. Yeah. [00:53:42][2.0]

Alec: [00:53:42] And I just don't I don't think like historical performance necessarily means things will happen in the short term. Trends are real. Yeah, but but trends are real because of the underlying business. Doing something that is causing that trend, not because of the trend, isn't cause the trend isn't causative. The trend is the effect. Yeah. Yeah. [00:54:01][18.6]

Bryce: [00:54:01] I mean there are some shops that I would look at to somehow help substantiate my thesis. And as I said, I just don't know enough about it. But I also don't really want to go down that path. Yeah, it's just not my style yet. But as we said, yeah, by all means, give it a crack. Yeah. If you want. [00:54:20][18.8]

Alec: [00:54:20] So there are some people that have made more than flukey amount of money doing it. So there's obviously something to it. And we've got two examples to just give you an idea of the amount of money you can make. Yeah. So the first one is Marty Schwartz. Now, he started with 400 grand in his account. He made it into twenty million dollars just using technical analysis. And then another bloke, exequatur, he was trading on behalf of one of his clients. And that client saw an increase of two hundred and fifty thousand percent. Yeah, that [00:54:57][36.1]

Bryce: [00:54:57] makes for every one dollar in. Yeah. You get 250000. [00:54:59][2.3]

Alec: [00:55:00] Yeah. Which is just unbelievable. Like literally unbelievable. Yes. [00:55:05][4.9]

Bryce: [00:55:05] Yeah. I want to point out as well that another characteristic of technical trading is that it's very short term. Yeah. Very, very short term trading justice quantitate quantitative. Is these companies also trade short a lot of the time, meaning that they will not only be looking at price movements to increase in stocks, but they'll be looking at price movements that are going to decrease and looking to capitalise on that by shorting. [00:55:32][26.9]

Alec: [00:55:33] Hmm. Now, look, I thought it was so unbelievable that I just double checked that he actually did get two hundred fifty thousand. It's true. He turned five grand into fifteen million dollars over 12 years. So he got two hundred and fifty thousand percent return in twelve years. Well, that's actually. [00:55:53][20.2]

Bryce: [00:55:54] So I wonder I wonder if part of that was just one massive payday of payday or if it was a paper, it was a consistent over 250. So what. [00:56:06][11.9]

Alec: [00:56:06] I'm twenty four now. Twelve years I imagine if I had five grand put it in the market and when I was thirty six I walked away with fifteen million dollars retired and if you to invest my money. [00:56:22][15.5]

Bryce: [00:56:23] So just a quick summary on technical, it's short term and it definitely uses charts and focuses on price and movement and volumes, especially as their main character is. They made tools for trying to predict price movements. They look at the historical price movements and try and make predictions on what's going to happen in the short term. So that is technical analysis as a form of investing. So to finish, we've got the final one, the final who am I? Can Ren bring it home with five out of five, the short one. I require little work or research research and I'm a relatively safe option for beginners. I track indexes and use weighted portfolios. You and I [00:57:12][48.3]

Alec: [00:57:12] can do a passive [00:57:13][0.9]

Bryce: [00:57:14] investing. Correct. Ding, ding, ding. You go. So passive investing. This is. Certainly one that is trending now in a big way, not that no real particular reason, I think maybe because, you know, we're starting to see technologies that are allowing it to happen. [00:57:34][20.1]

Alec: [00:57:34] And I mean, the reason is that actively managed portfolios where true, where people choose the stocks or computers choose stocks, aren't doing as well as just the overall market. And there's obviously lower fees involved in the overall market. So people are saying better returns if they put their money in a fund that just follows the whole market rather than giving it to a fund that's going to try and beat the market. Yeah, yeah. [00:58:04][29.7]

Bryce: [00:58:05] So passive investing comes from the idea that, you know, Buffett sort of talks about that you can't beat the market. [00:58:15][10.0]

Alec: [00:58:16] Yeah. So there's there's a hypothesis. It's called the efficient market hypothesis. And essentially what that means is that the market has already priced in all available or publicly available information, and it is efficient at getting the right price for any security or asset or share. And therefore, you can't beat the market because the market is so efficient. Yeah. Now, I mean, if that was true, then we wouldn't have investors are getting outsized returns yet. You wouldn't have market failure, you know, people losing money. Yeah. It it just it doesn't it doesn't make intuitive sense that the market is perfectly efficient. But anyway, that is the theory. And the people who believe it, they just say, put your money in an index and just let it follow the market and you will do better over time. [00:59:13][56.8]

Bryce: [00:59:13] And that's because time is probably one of the biggest considerations in passive investing, because they believe that over time the market is always going to go up. [00:59:23][10.1]

Alec: [00:59:23] Yeah, it increases on average over the very long term at about six or seven percent a year [00:59:29][5.8]

Bryce: [00:59:30] on average over [00:59:31][0.8]

Alec: [00:59:31] a very long. Yeah, yeah. So that's when you smooth out recessions and stumbles and all that. Yeah. About six or seven percent a year. So you know, if you're 20 and you put your money away in an index for 30 years, you're going to have a nice little nest egg there for your retirement if you just let it sit in an index [00:59:52][21.0]

Bryce: [00:59:53] or something else that you mentioned before. And another consideration. And I guess the reason why people like passive investing is because of the low cost. So if you're investing privately in any of the above that we've spoken about, you're likely to pay higher management fees, you're likely to pay fees for brokerage and all that sort of stuff, whereas a passive style is meant to be a low cost option. Put it in there and [01:00:20][27.4]

Alec: [01:00:20] run the to give you some idea, the sort of industry standard for actively managed funds is two and twenty, which is two percent of all assets under management. The manager takes his fees and then 20 percent of any outsized profit over above a foot above a certain threshold. So that's you know, that's a fifth of your your outsized profit if you're you good actively managed fund. Whereas, you know, some of these indexes take less than a percent like a point of a percent in fees because they don't do anything. They just literally leave it in the index just over the [01:00:56][35.4]

Bryce: [01:00:56] long term and over the long term. That makes a considerable difference. Yeah. Yeah, cool. So what are some ways that you can be involved in possibly investing? [01:01:05][9.7]

Alec: [01:01:07] So you would be investing in index funds, which are the exchange traded funds that just buy a basket of stocks that represent a market. So we see the example that we use here is the ASX 200, which is the 200 biggest stocks in Australia. You can buy a ETF, which has all 200 companies in it. And, you know, as the market rises one percent, that ETF will rise one percent. [01:01:38][30.9]

Bryce: [01:01:38] Passive investing is considered a lower risk option, and it also requires little time. You don't have to sit back and research individual stocks. You don't have to worry about price movements of gold or oil or whatever, because, as you said, it's a weighted portfolio for all the companies in there. You just put your money in and let it run. So it's a very good option. And we've spoken about it a lot of times in previous cycles. So it's a great option for beginners [01:02:03][24.6]

Alec: [01:02:05] to have a look at. Yeah, and to give you an idea of how passive investing goes against active investing. Warren Buffett in 2008 made a bet with Protegé Partners, which is an actively managed fund. They were allowed to pick five. Funds and Warren just picked the S&P 500, which is the 500 biggest public companies in America, and they made a bet over who would make more money by the end of 2016. The S&P 500 had risen by eighty five point five percent, whereas Protegé had only seen 22 percent. So Warren literally just bought the American market and held it at that stage for eight years and he saw eighty five percent return. Wow. Whereas these protegé partners tried to pick the best of the best and they only saw a 23 percent return in a year. [01:02:57][52.3]

Bryce: [01:02:58] Yeah, there you go. So that's a great example of the passive style. Yeah. [01:03:02][4.4]

Alec: [01:03:03] Yeah. [01:03:03][0.0]

Bryce: [01:03:03] I mean, we have been in a bull market. [01:03:04][1.3]

Alec: [01:03:05] Yeah. Yeah. He got it in 2008. So like JFC and then. Yeah. He's had some good fortune. Yeah. [01:03:12][6.9]

Bryce: [01:03:12] Yeah. He did not nothing and came out on top. Yeah. So that's passive Ren. So we will, we will wrap up there. We've gone through the fundamental, we've gone through technical, we've gone through quantitative, we've gone through macro and we've gone through passive 40000 investing. And as we said right at the start, you know, there's probably a no more, but that's the five main that we consider. Yeah. I want to just quickly wrap up by asking you what's your favourite style and what and I guess that leads into what is your portfolio reflects. [01:03:45][33.0]

Alec: [01:03:46] Yeah. So as you said at the start, it's not it doesn't have to be one or the other. So intuitively, I think that fundamental analysis makes the most sense to me because it's just conceptually I understand it. And yeah, it makes sense how that that money that that company will grow over time and the share price will reflect that. So fundamental analysis is definitely the analysis that I lean towards. And more and more, I'm also getting interested in sort of macro because I'm interested in politics and all that stuff. And drawing that connexion between that sort of interest and in my interest in investing has become something that interests me. Yeah. What about you? [01:04:30][44.7]

Bryce: [01:04:31] Yeah, on the side, I will often start with a macro approach to try and identify opportunities. And then I said top to bottom and work my way and then fundamentally makes the most sense. Right. I think to me investing is buying a business and that's done through fundamental fundamental analysis. And I don't have to play to my strengths as well. I don't have the skills to get involved in quantitative. Yeah. And I just I really say I mean, I'm a strong believer in passive as well. Don't get me wrong. Yeah, I'm involved in that. My portfolio reflects that. But yeah, I just as we've both mentioned in a number of episodes, I love the way that macro and fundamental investing force you to look at the world in an intriguing way. Yeah. It keeps you very open minded and you don't have to be a waste to do it. [01:05:24][52.8]

Alec: [01:05:24] No. Oh, well, definitely not in managing growth. Yeah. Cool. [01:05:29][5.5]

Bryce: [01:05:30] Yeah, well that's a right. We've gone through the five. We have given you a few things that we've learnt during the week, but more importantly, we're doing this live together. Yeah. And yeah, it's good to be down in Melbourne and it's been [01:05:48][17.6]

Alec: [01:05:48] fun, so. Yeah. And we're looking forward to bringing you a cracking interview next week. Yes. [01:05:53][5.1]

Bryce: [01:05:53] Well, that's the reason I'm down the [01:05:55][1.6]

Alec: [01:05:55] bus, but we won't say any more. We'll leave you in suspense. Yeah, we're [01:06:00][4.9]

Bryce: [01:06:00] very excited to bring you this next guest. Yeah, we'll leave it at that. Yeah. Yeah, definitely. Tune in next week and we really look forward to bringing this guy to you. Yeah. [01:06:12][11.8]

Alec: [01:06:13] Equity Mates out [01:06:15][1.1]

Speaker 5: [01:06:16] Equity Mates in the people appearing in this programme may have positions in the company pension. This is general advice. Please speak to a financial professional to understand how they pertain to your individual situation. [01:06:16][0.0]

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