Learn to invest in 15 minutes or less

Bryce: [00:00:31] Welcome to get started investing a podcast where we help you learn to invest in 15 minutes or less. Each episode we take one real world business story and apply a key investing lesson to help you build your investor toolkit. If you are joining us for the first time, welcome. We do strongly recommend that you scroll up and start at episode one. So let's crack on. My name is Bryce and as always, I'm joined by my Equity Mates Ren. How you. [00:00:56][24.9]

Alec: [00:00:57] Oh, I'm very good. Bryce excited for this episode, excited for this new format. So we took a week off where we've been reflecting on this for a while. Explain. What are we doing here? [00:01:07][10.4]

Bryce: [00:01:08] We've got a new format where we are now changing, get started investing to learn to invest in 15 minutes or less. Well, we're not really changing Get Started Investing feed, just changing the format of the episode. So we're taking one story each week that we've come across and applying one key investing lesson in each episode. [00:01:25][17.7]

Alec: [00:01:26] Reflecting on Get Started investing and how we can best help people. I think the two biggest challenges that we've faced and that most investors are facing. Number one, having the confidence to actually put their money to work in the market. And number two, having the knowledge of how it all works, you know, there's a whole world out there of what can I invest in? But for people at the beginning of their investing journey, the how is the important question, how does the market work? How do I put money in it? How do I sign up to a broker account? So we want these episodes to be short, sharp and practical. Yes. Take a story from the investing world, help you understand it, and then help build your investing skills, your investor toolkit. I don't know what we're going to call it, but one story and one lesson in every episode. [00:02:12][45.8]

Bryce: [00:02:12] In 15 minutes or less and already 2 minutes down. So let's go. So the story that came across the desk this week ran was that Australian Super Super Fund here in Australia, if you are listening overseas, has posted their first loss since the financial crisis in 2008. [00:02:28][16.1]

Alec: [00:02:29] Yeah, a headline that probably had Australian Super's almost 3 million members a little bit nervous. Super accounts for those listing overseas pension account retirement account for one K that tax advantaged retirement savings account. First of all, with this story, it's important to remember that the overall market was down. In this time, America's market was down 15%, Australia's market was down 10%. So the headline could have been rewritten. Australian super outperforms Australia's share market by 7%. [00:03:03][34.4]

Bryce: [00:03:05] That's much more positive. [00:03:06][0.6]

Alec: [00:03:06] Probably not as good a click as Australian super post first loss since GFC. [00:03:11][5.0]

Bryce: [00:03:12] Yes. Yeah. And not as not as quick badly, that's for sure. So what's the lesson that we're taking from this, though? We've there's two alternatives to a headline here. Let's build the the toolkit. [00:03:24][12.7]

Alec: [00:03:25] Well, I think the lesson for us was when we were writing this article and the commentary about this article, there was a lot of concern about the loss in itself. And it just made us realise that for a lot of people, especially people who started investing, when we started investing, there's an expectation that you make money every year and we want to reset that expectation in the next 10 minutes. Yes, because and it makes sense when we and like we're guilty of this as much as anyone, when we talk about long term investing, when we talk about compounding, when we talk about the market's average return over time, the image we create is gradual, small gains every year that add up and compound into big amounts. You know, the market returns 7% a year on average. You sort of expect that sometimes it might range between like 9% and 4%, but on average it gives 7%. Yeah, that's not the case. [00:04:21][56.3]

Bryce: [00:04:22] That is not the case. It's not as smooth as it sounds. It does mean, for instance, we saw last year the market ripped almost 25% over in the States and this year we're experiencing a drawdown of over 20%. So there are definitely instances where the range is huge. And that compound effect that you mentioned when the slow, gradual increase isn't as smooth year on year. So the expectation I think the lesson here for us is to that reset, that expectation that you're not going to make money every year as an investor, but it is about that long term effect. [00:04:57][34.9]

Alec: [00:04:57] So let's look at a historical example here. America's share market, the S&P 500, the index that tracks the 500 biggest stocks in America over the past 30 years. So from 1992 to 20, 21 year I was born, I I'm almost 30 in that time it's delivered an average of 10.7% per annum. Great. Yes. So with that you could build a very comfortable retirement getting 10.7% per annum for 30 years. But it didn't go up every year in 2000 and 2001. In 2002. In 2008. And in 2018, it went down. Yeah. And let's call a spade a spade. It's going to be down in 2022 unless. [00:05:47][50.3]

Bryce: [00:05:48] Some turn around. [00:05:49][0.6]

Alec: [00:05:49] Miracle happens towards the back end of the year. Now Bryce the best year in that time. [00:05:53][4.6]

Bryce: [00:05:54] 1995, shortly after both of us were born when we were alive, up 37.6%. Incredible year. [00:06:02][7.9]

Alec: [00:06:02] And the worst year. [00:06:03][0.9]

Bryce: [00:06:04] 2008 down 37%. So wild swing. [00:06:08][4.3]

Alec: [00:06:08] The range there from -37 to positive 37.6. But the average over that 30 year period was 10.7%. So I think what we're trying to do here is just reset that expectation that the market being down, being in the negative isn't something to panic about, isn't something to fear about. It's a natural part of riskier markets. The stock market being one of those risky markets. [00:06:37][28.3]

Bryce: [00:06:37] Yeah. And right after the outbreak, we're going to look at how one of the greatest investors of all time has also managed to lose money, but still churn out incredible returns. So we're just going to take a quick break. To hear from our sponsors. Ren resetting expectations to expect moments in time where the market does go down and even the greatest investor of all time loses money. And that is big, bad warren Buffett over at Berkshire Hathaway. [00:07:03][25.4]

Alec: [00:07:03] So before we spoke about the last 30 years of the S&P 500, America's stock market and it returning 10.7%, Warren Buffett over from 1964 to now has done 20.1% a year. So almost double what the average American stock market has done. He is rightfully known as the greatest investor in history because of the size of the returns and because of the length of the returns between 1964 and today. Bryce he has returned over three and a half million percent to his investors. [00:07:41][38.3]

Bryce: [00:07:43] That is unbelievable. [00:07:43][0.3]

Alec: [00:07:45] Bar. [00:07:45][0.0]

Bryce: [00:07:46] For people. But he's lost money. So when he's lost money in 1966, 1970, 1973 and 74, 84, 1990, 1999, 2002, 2008, 2011, 2015. And you would expect him to lose money this year? [00:08:05][19.1]

Alec: [00:08:05] Big call. I actually probably. [00:08:07][2.1]

Bryce: [00:08:08] Yeah, you would. Well, his stock price is down, that's for sure. Yeah. Yeah, it's down like 23% since the start of since the start of the year. Not from its high. I think it's down like. Yeah. [00:08:20][12.0]

Alec: [00:08:20] 8% they go 2022 added to the list. Yeah. Yeah. I think that this is the best example we could find of the idea that not every year is going to be a positive year. But that doesn't mean you won't have positive returns over the long term. The range is big. His best year, 1976, up 129.3%. He more than doubled his investor's money in one year. [00:08:51][30.5]

Bryce: [00:08:51] That's incredible. [00:08:51][0.3]

Alec: [00:08:52] We'll be stoked by that. But his worst year just two years before then. Yeah, 1974 down 48.7%. So he lost almost half of his investors money in that year. That's what his investor investors lost, almost half their money. Yeah. So again, resetting expectations. Whatever fund manager you're with, you shouldn't expect every year to be up because the stock market is volatile because it's a riskier asset class and sometimes it goes down and sometimes it goes down a lot. [00:09:29][37.8]

Bryce: [00:09:30] Yeah. So again, I just want to also clarify one thing. In case people at home are thinking that their stocks aren't generating a 10% return on average, and we are talking about a market level here, we're talking about all the stocks across the index in the S&P 500 or all the stocks across the ASX here in Australia. That's what we're talking about at a market level. Yeah, yeah. No I don't expect it. Adam. At a at a stock level. [00:09:55][24.9]

Alec: [00:09:55] Yes, yes. Yeah. Now, Bryce, I think we've got a couple of minutes left. There's one important question that comes out of this. [00:10:01][5.7]

Bryce: [00:10:02] People might be sitting at home thinking, you know, it's okay. I understand that losing money is part and parcel of being an investor, but where do you draw the line? If you have money in an active manager, for example, that is losing money. Where do you draw the line and stop tolerating losses? [00:10:17][15.3]

Alec: [00:10:17] This is a great question and we've just spent 10 minutes, 15 minutes resetting expectations around some years you will lose money as a stockmarket investor, but that doesn't mean you should tolerate all losses. You should prepare for losses, but not tolerate all losses. And this is where the idea of measuring yourself against a benchmark or measuring the fund manager that is managing your money against a benchmark is important. So we said that Australian super lost 2% but the Australian stock market lost 10%. Now they invest in a variety of assets, not just stocks, but you can say that the fact that they were diversified, they did better than the Australian sharemarket and that's that's a positive sign. If they had done heaps worse than the Australian sharemarket, you'd probably be looking at them and saying What's going on here, guys? So I think that's where we talk about looking at a benchmark. Just think about like what your alternative option is. If I didn't give my money to Bryce to manage on my behalf, what would I be doing with it? I'd probably be putting it in like an index 200 index fund or something like that. And so then I say, Well, if price can't deliver me better returns than my alternative choice, then I'm probably going to get price the flick. [00:11:33][75.4]

Bryce: [00:11:34] That's very true. [00:11:35][0.5]

Alec: [00:11:36] But if price loses money, but my alternative loses heaps more money, then I say Bryce not loving your work this year, but I can say that it could have been a lot worse. So get them next year, buddy. [00:11:50][13.5]

Bryce: [00:11:50] So just one quick. Follow up over what period of time should I make that assessment? [00:11:54][3.7]

Alec: [00:11:54] Great question. Do we have another 15 minutes? No, I think the short answer is we think long term here. We spoke about Buffett investing for 60 years. We spoke about the S&P for 30 years. We can't get stupid with our timeframes. Like, you know, if you'd started investing in 1800 and you'd held to today, but today you'd be dead. So like, but you know, like the professional asset management industry, when they talk about long term, they generally talk about 5 to 7 years. Yeah. So maybe that's a good rule of thumb, medium term, maybe three years. But sort of 5 to 7 years is what the professionals talk about. Yeah. And who am I to question the professionals? [00:12:34][39.6]

Bryce: [00:12:35] That's it. Well, thank you so much for joining us as we build the skills for investing. We hope you enjoyed the episode. We'd love to hear from you. Contact@equitymates.com If you have any feedback, please also write and review the podcast. It does a lot of help for us in terms of getting in front of new audience and helping us educate and inspire new investors. So it's always a pleasure to chat and we'll pick it up again next week. [00:12:59][23.9]

Alec: [00:12:59] Sounds good. [00:12:59][0.0]

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