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Click to listen to the latest episode of The Richards Report featuring Ted Richards and Erika Jonsson.
Fifteen episodes in and time for a switch-up: instead of the usual format with me asking the questions, listeners sent in their questions and I provided the answers this week, with the help of Erika Jonsson, Head of Communication at Six Park.
Thanks to everyone that took the time to shoot me a question. Here is just a sample of the questions we discussed as well as links to more information.
Lou from Facebook
It’s probably pretty obvious by now: I love podcasts. I’m not really into the increasingly popular detective/criminal podcasts so you won’t see any Teachers Pet podcasts in this list! Here’s my favorite investing podcasts from around the world, with some of the best episodes of the shows too:
Every episode of Masters in Business is interesting, but I particularly liked when Barry interviewed Patrick O'Shaughnessy who has his own show ‘Invest like the Best’ which I also enjoy. This episode was recorded many years ago but remains timeless advice.
Animal Spirits with Michael Batnick and Ben Carlson is great. The most recent episode is probably as good as any. A bit more about current events rather than timeless episodes so always good to hear when they newly released.
Freakonomics Radio - The stupidest thing you can do with your money was probably my favourite episode they have produced (but for whatever reason I can’t find it???). They’ve just launched a special series on sport, which sounds interesting too (I listened to the first ep of the sport series this morning!).
Another episode of Masters in Business. This one is when Barry interviews Howard Marks. From 14 minutes onwards get ready for the knowledge bombs he drops.
The Pineapple Project is a great light-hearted podcast by comedian Clare Hooper (albeit a little more basic than those above) if you’re just wanting to get started. Well done to Clare for producing such an engaging series.
Honourable mentions to Capital Allocators by Ted Seides (Fun fact: I just realised the other day that Ted Seides was the guy on the other side of the famous bet to Buffett) and the guys at Equity Mates do a great Aussie investing podcast too.
Kate from Twitter (@KateHC77)
The first thing that came to my mind with this question was the old line ‘Nothing fixes a thing so intensely in the memory as the wish to forget it.’ My first investment didn’t go to well so it was a relatively expensive lesson, and the more I try to forget it the more I remember it! You’ll have to listen to the podcast for this story but it was a stock I purchased when I was 18.
Main couple of mistakes I’ve seen is confusing investing and speculating. A cryptocurrency that deep down you don’t know much about, or a small-cap gold miner that you heard about on Sky Business when you don’t know anything about mining is speculating, not really investing.
Since recording I’ve even noticed Sportsbet is now accepting bets on 'Which of the Big 4 parent bank-owned superannuation funds will pay out the most compensation in 2019?'.
The other mistakes are behavioural mistakes. What people need to remember is that knowledge of these behavioural mistakes won’t actually stop you from making these mistakes - they’ll just give you a better chance of not making them. They affect me too as I’m aware of them but I know that these biases still have an impact on me.
In the podcast I go through biases in greater detail but here is a quick summary;
Anchoring: getting anchored to a price that has no meaning to the market. I can certainly be guilty of this.
Recency bias: sign up and invest for the long term… but investors often monitor performance daily (or hourly!).
Endowment effect: As investors, we often over-value something we own. Could be a property, a house, a car, or a stock. There’s even a bias called the Ikea effect where it’s proven people over-value Ikea furniture that they have partially put together themself. I might be guilty of this, but I’m also proud of my daughter’s change table, which I put together!
Loss aversion: Feeling the pain of loss more than the joy of gains. I’m guilty of this in non-financial areas too as I think grand final losses hurt more than the exhilaration of winning.
Confirmation bias: We’re all guilty of this - putting the conclusion first (e.g. I’m a good stock picker), and then searching for the evidence to support that conclusion. You look for the stocks that went up to support your thinking and you attribute to your skill, and the ones you’re unsuccessful on you attribute to being unlucky. But in reality it’s hard to differentiate luck from skill.
Bobby on Twitter
I’m obviously biased about robo-advice, because robo-advice gives you the benefit of being able to set and forget, and have the team manage your own globally diversified investment portfolio for you for a minimal amount each year. So how would that work?
If you’re lucky enough to be able to invest $10,000 for a child/children at birth (assuming 8% net return per year), then on their 21st birthday they'd have $50,300. What a great head-start in life - that’s five times the initial investment.
However, even better is the same investment as above ($10,000) but adding $50 a month too. Assuming the same rate of return above it would turn into more than $90,000 (more than nine times the initial amount) on their 21st birthday.
Investing for your children as above can be achieved with the help of a a robo-advisor, and part of the reason why robo-advisors in the US are now managing over $14 billion. Obviously the earlier you start the better. As I mentioned in the podcast Buffett didn’t become a billionaire until he was 60. He’s now worth close to $90 billion through the power of compounding (yes… and prudent investing!)
Woody from Facebook
It’s a sad statistic that so many young high paid athletes end up in financial difficulty because of their spending habits, which don’t change when the salary stops. A study in 2009 found that 80% of NFL players were broke two years after retiring, while 60% of basketballers were broke five years after retirement. Allen Iverson (pictured) earned in the vicinity of $200 million during his glittering NBA career but, sadly, reports now suggest that he may be struggling financially. No matter how much you earn, the principles of managing your money sensibly need to be in place.
I sat on the board of the AFL Players Association for a few years. I’m proud that in AFL we don’t have the same level of financial hardship that the American sports have, but we’re not immune - players do fall on hard times despite being well paid. AFL players do get financial education, but that only gets you so far. The onus is on the individual to be able to balance ‘want versus need’ at the right time, and to defer immediate gratification that a new flashy car might brings.
A robo-advisor can be of particular benefit for people whose investments might not be seen as big enough for a human advisor to manage (some advisors don’t see clients with less than $200,000 of investable assets, for example). Robo-advice can also be beneficial for people who don’t require face-to-face catch-ups with an adviser.
However, I don’t necessarily think it’s binary. You don’t have to simply select either a financial advisor or a robo-advisor. In the US it’s common for advisors and robos to work side by side. Every major American bank has its own robo-advisor too. JP Morgan, Morgan Stanley - all these banks in the US have robo-advisors too.
The “robo” offering often provides the investment management side and the human advisor provides advice around retirement planning, estate planning, etc.
Automating your investment strategy through robo-advice helps investors avoid the biases I mentioned earlier, such as recency bias, anchoring, and even home country bias. It does this by making your strategy as automatic as possible and removing the emotion.
Thank you to Erika for helping out in this episode, apologies if we didn’t get to answer your question - we’ll look to do this again. If you would like to receive the free weekly Six Park email that Erika sends out each week, you can enter your details at the bottom of this page.
Subscribe to the Richards Report to stay up to date with future episodes too.
Information discussed in the podcast and in this article is for educational purposes only and is not intended to qualify as financial advice.
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