Property Hub - Investment Insights & Inspiration - Get Invested: Andrew Baxter on investing in education

Starting point is 00:00:00 So, in terms of a strategy itself, and the strategy, we call it cash flow on demand. That's a way of managing risk. There are two or three other ways that we do more proactively. You know, we can insure our shares. We'll talk about that in a moment. We can use things like stop losses, which is, you know, in case of emergency, break glass, get out. So, there are things that you can do on that side. But the most important one in the first instance is to get educated very, very specifically on that.

Starting point is 00:00:23 And it's not something you're going to glean from YouTube. sure you're going to pick up bits and pieces but going to youtube to learn stuff even though there's some brilliant content there is kind of like trying to do a home renovation you might want to do the plumbing you get on the bunnings and borrow the gear to do it only to discover that you're trying to connect metric stuff to imperial and it doesn't work because it's disjointed and in the same way you need something that's going to seamlessly run through everything that you need to in this so certainly get educated to de-risk this in the first instance as an advocate for financial literacy as as as you are too educating people on what they're doing with

Starting point is 00:00:56 their money has never been more important. So get educated, get control and see what you can do for yourself because heck, you work hard for your money, get it working hard for you and trust yourself over anybody else in that journey. Welcome to the Get Invested podcast, where we share great conversations with experts from all walks of life to uncover their secret know-how and where they invest their time, their skills and their money and the benefits that this has created you see the truth is that everyone invests every minute every day we're investing our time our skills our energy and our money in something some of us are investing consciously some unconsciously sometimes for good sometimes for bad sometimes for no impact get invested will

Starting point is 00:01:40 help you to start living by design not by default i'm going to help you to make it happen not let it happen. You'll hear the top tips on how you can live with conscious intent so that you can live more, work less, and leave a living legacy by investing now. Listen to the show to discover the top tips on how to get started, make the most of your investment journey, and ultimately to be living your dream, not someone else's. More episodes can be found on iTunes or at bushymartin.com.au forward slash getinvested. Thanks for listening, and now let's get invested. Hi Fred and Fodders, who do you turn to in times of uncertainty looking for confidence in the future? And when you invest, whose predictions and forecasts do you listen to? Your family,

Starting point is 00:02:32 your neighbour, your mates at work or down at the pub, maybe a Facebook group or your accountant, a stockbroker or financial planner? Before we answer these questions, let me start with a very amusing story that I've borrowed from Ramana Kesa of PensionCraft that's taken from a thread by Robin Wigglesworth about a Norwegian TV program that decided to test the relative performance of professional share advisors. The experiment was set out to investigate just how much benefit there was in expert investing advice. Managers of stock picking funds often say that their contrarian, which means that they do their own research, make their own decisions and don't follow the herd. This is one reason they think that they're entitled to charge high fees.

Starting point is 00:03:24 So to put this to the test, the Norwegian TV show cleverly pit some professional stock pickers against an astrologist, some beauty bloggers and a group of five dairy cows shitting in a field. And what have cows pooing in the pasture got to do with selecting shares? Well, you'd expect nothing, and this is exactly the point, and the results are very interesting. The cows selected their daily share stocks by pooing on a grid that covered the entire field, with each square representing a different company share. The two stockbrokers were confident that they were going to do well, arguing that the more you know, the better you will do.

Starting point is 00:04:14 The astrologer made his selections based around the fact that it was the year of the goat in the Chinese calendar, while the beauty bloggers said they didn't recognise any of their company names on the list. So they picked based on how well they liked the sound of the company name. Now, all of their investments were held for three months and then sold off to see who had brought in the biggest return on their investment. So, who do you think outperformed in picking shares over this three-month period?

Starting point is 00:04:45 Well, the astrologist came bottom, and in fact he underperformed the whole Norwegian stock market. The professional investors drew neck and neck with the random crapping cows, including their star bovine fund manager named Gouros. But the people who did the best were the beauty bloggers. And this is not the only example of random animals outperforming professional investment advisors. In 2010, a Russian chimpanzee named Lucia

Starting point is 00:05:19 outperformed 94% of the stock analysts in the country over a three-year period. lucia made her picks after an excuse a very bad pun after monkeying around with a group of toy cubes with different company names on them now contact contests like these have been done before the economist burton malkiel argued in his 1973 book a random walk down wall street that a blindfolded monkey throwing darts at a newspaper's financial pages could do as well as the experts Since then, people have tested that theory with actual monkeys, cats, dogs, rats, and even a Swedish house plant. So it appears that bovine boughs and cowpat capital can literally dump on the performance of professional investment advisors and stock-picking sharebrokers.

Starting point is 00:06:15 Now, the Norwegian experiment was a fun gimmick, but the short time period that lent itself to quite quirky results. And it further evidences debate that was ignited by a Princeton economist in that Burton Meilke book, A Random Walk Down Wall Street, where he claimed that, again, a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio either would do just as well as one carefully selected by experts. And Malkiel's theory was not that blindfolded monkeys are as skilled as experts, but that stocks tend to behave randomly,

Starting point is 00:06:54 especially in the short term. And it also highlights a broader point. Most investors should forget about trying to beat the market. And it doesn't appear that the lesson here is that you don't follow the herd, at least not this cow-crapping one anyway. The lesson is that investing is hard, so difficult in fact that even highly trained professionals who have dedicated their lives to mastering markets often fail and perform below the market benchmark. The purpose of exercises like this is to show that markets are difficult to beat and it's often hard to determine whether those that do manage it owe it to skill or luck. So how can you stack the odds in your favour? By developing an investment plan and style that matches your personality,

Starting point is 00:07:42 risk profile and most importantly, your time availability. And this leads us to two more important questions. What's the first and best thing to invest in? Well, no price for guessing that it's always your education. And secondly, what investment principles do you adopt to guide and measure your investing. So to set the scene with this and get you thinking about this as an appetite wetter to today's great guest conversation, let me share in more detail the personal investment principles and approach that Sonia and I have adopted over the years. Now let me stress at this point that there's no way or best way or one size fits all in terms of a holy grail way to invest and if anyone says there is then run for the hills. As I reveal in my book The Freedom

Starting point is 00:08:36 Formula how you invest and what you invest in is all about time. Time is all important when investing and time is critical in the three key areas. Firstly the time horizon that you're investing for. Secondly the time that an investment takes to manage and lastly and most importantly I think the time you actually have available to manage the investment because this is the ingredient that's most overlooked and misunderstood and is likely to have the biggest impact on your investment results. Now there's no point wanting to become an active stock market day trader that takes a minimum of four to six hours a day to manage if you're a busy time poor professional trying to hold down a full-time job on top of your other commitments so the less time you have

Starting point is 00:09:27 available or are interested in devoting to managing your investment the longer and more passive your investment time horizon needs to be and if you're like me where time is your most precious asset and you want to spend as much of it as possible doing things that are important to you and devoting your energy to your family and friends, then you definitely don't want to create a second job when you invest, because this is a recipe for disaster. I've seen way too many investors come unstuck, trying to shoehorn an active trading approach into a busy career. And while we're on the importance of time, one of the key questions that my wife and

Starting point is 00:10:07 I constantly hear from potential investors is something along the lines of, how do I use the time I have left to instill the time that I've got available when I have no time to do it. This is why my wife Sonia and I have adopted a safe and affordable capital growth accumulation investment approach where time is by far the most critical determinant of wealth creation. Providing your time horizon is long, you know, over 15 to 20 years, a wise investor can commit without great anxiety to investments that appear to be risky but that will most likely produce the highest rate of return in the long run. This is due to the forgiving accommodation of market

Starting point is 00:10:51 fluctuations over time. As Charles Ellis, the author of Winning the Loser's Game famously said, time, the length of time investments will be held, is the single most powerful factor in any investment program. And to add a couple of quotes from the investment greats, as the world's most successful long-term investor Warren Buffett so perfectly puts it, wealth is the transfer of money from the impatient to the patient. So in simple terms, as a time poor professional and depending on your current net worth, you need to invest in either the highest growth or the highest cash flow vehicles that are the lowest cost, most affordable, safest, simplest and easiest assets that you're comfortable with.

Starting point is 00:11:44 Initial investment value growth that is later converted to cash flow is the key investment concept to grasp here. As a result, I personally favour a mix of investment tactics that progressively transition across the full spectrum of shares and equities, property, bonds, cash and superannuation over time. And it's why my books Get Invested in the Freedom Formula reveal what I call the Income for Life Capital Growth to Cash Flow Curve Investment Strategy that is best suited to the time poor who need low cost, safe, simple, affordable and easy investment vehicles.

Starting point is 00:12:22 On this basis, what to invest in when can simply be defined as dependent on just two critical interrelated elements. Firstly, how much passive recurring income is enough to sustain your ideal lifestyle and secondly, the income producing asset level that will generate your lifestyle income. Now based on this, if your net worth is below the required level to generate your ideal lifestyle income, you need to invest in growth assets. Once your net worth is at or above the level required to generate your passive recurring lifestyle income, you then need to convert your investment portfolio into cash flow income assets. And again, it's all

Starting point is 00:13:11 about time. If you're an established time poor professional who enjoys a high standard of living flowing from your high income, many would consider you to be rich. However, as I've said on many occasions before, there's a big difference between being rich and being wealthy. If you're rich, you probably still have to work to generate the active work income to maintain your current lifestyle. Regardless of whether you're an employee or a business owner, you're still trading your time for money. You're trapped in a pair of golden handcuffs. If you stop working, so does your income, and there goes your lifestyle. You only become wealthy, on the other hand, when you have time on your hands. When you're

Starting point is 00:13:59 in a financial position where you have the freedom of choice to do what you want, when you want. In this regard, wealth is measured by how long you could survive financially if you had to stop work tomorrow. For many of you, this time is weeks and perhaps months, but rarely years. Now this definition doesn't focus on the total value of your assets as an absolute measure. Rather, it concentrates on time and your cost of living. It accommodates your specific lifestyle and expenditure needs, which may be different from someone else's.

Starting point is 00:14:38 some people are comfortable existing on 60 grand a year while others require 300 grand a year to enjoy life or more you name the number so in these terms free time is the biggest indicator of true wealth over the last 35 years of instilling an investment by studying others doing it ourselves and helping others build their portfolios, my wife Sonia and I have uncovered a number of timeless principles that are critical to achieving this time freedom by creating a passive income for life. And it's important to note from the outset

Starting point is 00:15:18 that as time poor professionals, we're extremely conservative, risk averse investors who found that over the last three decades that the safest, easiest and most affordable way to generate and replace income by remote control is by adopting a long-term investment approach. But before getting into what I call my bushy Buffettisms that I outline in my book, The Freedom Formula, let me stress that nothing I talk about on GetInvestors intended nor can be construed as financial advice or recommendations. They're purely my own thoughts gleaned from my

Starting point is 00:15:53 experience. And I strongly suggest that you seek independent professional financial advice based on your needs, your risk appetite, and your situation before investing. So here's my bushy Buffettisms. In line with our very patient, long-term, conservative investment approach, we've adopted many of Warren Buffett's investment philosophies. Now, Warren Buffett is often referred, as I've said, as one of the world's greatest investors and wealth creators, and his investment approach is famous for the following. Focusing on long-term value

Starting point is 00:16:30 Ignoring the day-to-day fluctuations of the market Including a margin of safety to minimise risk Securing a well-chosen diversified portfolio based on reasonable prices as the soundest long-term investment Reinvesting returns Being financially and psychologically prepared to deal with short-term market fluctuations being able to say no unless all the facts are in your favour being content to hold any security indefinitely

Starting point is 00:17:04 and not trying to analyse or worry about the general economy. Buffett also argues that investment success is not the same as infallibility. Instead, success comes about by doing more things right than wrong. And to do that, you need to reduce the number of things that you can get wrong and focus on the things that you expect to get right. And again, this is where time is either your biggest friend or your worst foe, because taking time, patience and persistence to achieve success are now greatly undervalued and unfortunately quite often forgotten.

Starting point is 00:17:46 Unfortunately, everything in today's consumer world is designed and built for immediate use and results. Everything's short term. it's been it has a defined shelf life and unfortunately is quite often throw away the age-old values of built to last and long-term loyalty no longer seem to have a place everything from clothes to computers to cars has ever shrinking lifespans and is then thrown away and this is carried over into jobs and marriages is it any wonder that patience and persistence are muscles that no longer get much exercise.

Starting point is 00:18:26 But a review of all the great investors from Warren Buffett to Robert Kiyosaki shows that adopting a long-term strategy fused by patience and persistence produces the best sustainable outcomes. If you're going to succeed in investing, you'll need to include these qualities in your regular wealth care fitness routine. And patience is more important than smarts. And denying this is why a lot of investors don't achieve the results that the market freely offers in the long term over 10 or more years.

Starting point is 00:18:59 Unfortunately, most investors aren't long-termers. They expect quick results and are constantly seeking the thrill of something more, or the false promise of the next shiny new thing. They're either convinced of their ability to time the market, which usually leads to dismal outcomes, or their emotional pendulums, buying at the top of the market and selling at the bottom, which obviously leads to disastrous results. Volatility in investment markets is normal. As I've said before on Get Invested when quoting from the Freedom Formula, according to the

Starting point is 00:19:38 great Morgan Housel, author of The Psychology of Money, the only real difference between long-term investors and the average investor is this. Long-term investors view volatility like the flu. Yeah, it's not fun. It can hurt. But you're probably going to get it once a year. And when you do, it's not the end of the world. Drink some water, take a nap, wait it out, life will go on, and you'll be healthy before long. On the flip side, average investors on the other hand, view volatility like stage 4 cancer. Something that shouldn't occur, should be utterly feared and attacked mercilessly with the most extreme treatments. And in our currently rapidly moving world, long term investors are sometimes heckled

Starting point is 00:20:31 for being too simplistic or not astute, or ideologically worshipping a theory that for some reason, some think has now been discredited. For Housel, however, the scores are in. No true long-term investor has ever lost money, while the vast majority of short-term traders and market timers definitely have. And as Warren Buffett says, much success can be attributed to inactivity. Most investors can't resist the temptation to constantly buy and sell. And reinforcing this, the author of War and Peace, Leo Tolstoy, once famously said that the two most powerful warriors are patience and time. So remember, great achievements take time. There is no overnight success. Continuing this theme of sharing some of the best investment advice from the likes of

Starting point is 00:21:28 Buffett, Ray Dalio, Charlie Munger, and Jim O'Shaughnessy, and other investment greats, Let me share some other timeless investment principles and lessons learned that have shaped and guided my investment over the years, which has been captured perfectly, again, by Rahman Nakhisa from PensionCraft, as follows. The first lesson is to avoid over-trading, which means that you just don't trade too often. Warren Buffett's got a beautiful analogy for this, and he says that calling people investors if they trade actively, which means too often.

Starting point is 00:22:03 It's like calling someone who repeatedly engages in one-night stands a romantic. Clearly, in his eyes, if you're an investor, you just don't trade that often. And extending his birds and bees analogy, he doesn't think many others can achieve long-term investment success if they flip from flower to flower, or in other words, if they're always switching investments. In support of this, the consulting company Delbar does an analysis of investor behaviour which they publish every year where they show that over a 20-year period, the US S&P stock

Starting point is 00:22:42 market averaged an annual return of about 8.2%. And yet the average investor return over that period was much lower at just 4.7% or nearly half. and the reason for that is that the average holding period for equity funds was very short at just three to four years. During periods when markets turn downwards, the investor holding period becomes even shorter. So to be more successful, these investors could have simply held onto their funds for longer and then reap more of that 8% return. So the message again here is not to react to short-term market conditions.

Starting point is 00:23:24 Don't sell when markets fall and buy when everyone else is buying because this leads to bad decisions. Now Jim O'Shaughnessy, who wrote the amazing book What Works on Wall Street and he also hosts the great Infinite Loops podcast so make sure you check out both of these came out with an amazing thread in which he says

Starting point is 00:23:45 that often in investing the best thing to do is nothing. And yes, it's boring. Yes, it's incredibly dull. You won't have any great stories to talk about your market savvy at dinner parties or at Barbies. But he counsels that it's best to simply remain dispassionate about all the emotionally charged things which are happening. And if you do, you'll come out ahead of virtually everyone else in the long term. Another kind of bad behaviour to avoid is that you shouldn't chase returns. Or another way of thinking about this is you should try to avoid following the herd, like the cropping cows that I spoke about earlier.

Starting point is 00:24:29 In fact, Warren Buffett also describes fear and greed as being like super contagious diseases. He never tries to anticipate the arrival of these diseases, but when they do arrive, he simply attempts to be fearful when other people are greedy, which is to say he sells when markets are too high and he attempts to be greedy when others are fearful or in other words, to buy when other people are selling. One way to tell whether people are greedy or fearful is to look at how many dollars people are willing to spend for every dollar of forecast profit.

Starting point is 00:25:04 When markets are overpriced as they were in the dot-com bubble people were willing to pay about $23 for every dollar of earnings And during the global financial crisis, investors were willing to pay just $8 for every dollar of earnings. And with the current S&P 500 index running at a price-to-earnings ratio of 34 against the average mean of just 15.95, you can see that equity markets are currently expensive because people are paying a lot more than usual

Starting point is 00:25:38 for every dollar of profit that's forecast. whereas at the height of the global financial crisis, equity was cheap. This may also be why Warren Buffett is still sitting on most of his cash pile, because in this market, despite all the terrible economic news, it's very difficult to find bargains. To characterise this in Warren Buffett's terms, investors are currently very greedy, which is probably why he's being so fearful.

Starting point is 00:26:06 As an investor, you should always try and have a long-term perspective, or as Buffett says, some things just take time no matter how great the talent or effort. You can't produce a baby in one month by getting nine women pregnant. And one of the best stories which illustrates the patience of Warren Buffett is the one about his purchase of Coca-Cola. In 1988, he bought 14 million Coke shares, which was a large proportion of all of the shares he owned at the time. And when he talks about his investment horizon,

Starting point is 00:26:42 he said that he expected to hold these securities for a long time. And he said that his favourite holding period is forever. He described his company, Berkshire Hathaway, as the opposite of those who hurry to sell and book profits when companies perform well, but then hang on to businesses that disappoint. What about you? Do you sell winners too early and hold on to losing investments hoping that one day they'll come good?

Starting point is 00:27:08 Well, Buffett carried on building his investment in Coca-Cola right up until, by 1996, he had 100 million shares. Now, overall, he paid about $1.3 billion for the shares, which are currently worth about $22 billion. Now, that's an annual growth of about 10% per year, and that single shareholding shows the long-term reward of Warren Buffett's patience. now what's pretty surprising about warren buffett given he's probably the world's greatest stock picker but spends all of his time researching them is that he's quite negative about active equities management which is the ability to select stocks that outperform the broad market and one of the things he dislikes most are high fees and he says it's usually the managers who reap outsized profits, not their clients, which is why it's usually the Wall Streeters that own

Starting point is 00:28:06 most of the yachts in the marina and not their clients. And consequently, he thinks that it's better for large and small investors to stick with passive low-cost index funds. And he gives a really simple example to understand why low fees are important. If passive investors achieve average results before costs, because by definition, they just buy the whole market. And if active investors form the rest of the market, then they must also achieve, on average, average results before costs. And then he points out that whichever group has the lowest costs is therefore going to outperform. Now, this doesn't mean there are no active managers which can outperform the market. It's just talking about the group as a whole.

Starting point is 00:28:52 But the consequence of this is that the great majority of managers who attempt to overperform will fail net of fees. And if we look at the S&P's index versus active report, which is updated every six months, then over a long 10-year period, the vast majority of funds are outperformed by their benchmarks. In fact, only 3% of the funds beat their benchmark. and this represents a catastrophic failure of the entire active fund industry and also explains why many people are taking Warren Buffett's advice

Starting point is 00:29:26 and shifting to passive index funds that represent and follow the entire market. Buffett rather unkindly says that a thousand monkeys would be just as likely to produce a seemingly all-wise profit than stockbrokers with one major difference. the lucky monkey wouldn't find people standing in line to invest with him. Now, the next lesson revolves around diversification. It's very important to keep a handle on the risk of your portfolio, and one way to do that is to diversify your investments.

Starting point is 00:30:01 The famous investor Ray Dalio has described this as the Holy Grail, which is to achieve return while taking very little risk. and he's got a beautiful graph which shows the risk of the portfolio on the vertical axis with high risk at the top and low risk at the bottom versus the number of assets in your portfolio increasing along the horizontal axis. Now, the key thing here is as you add more uncorrelated assets,

Starting point is 00:30:32 which means investment assets that generally perform out of sync with each other, and another way of saying that is if two assets are considered to be non-correlated the price movement of one asset has no effect on the price movement of the other asset. For example historically stocks and bonds are used as examples of two uncorrelated asset classes and diversification works best when assets are uncorrelated. So as we go from left to right on Dalio's holy grail graph the risk gradually drops on a descending ski slope curve until it reaches a plateau. If you combine assets with low correlation, the overall level of risk

Starting point is 00:31:15 that you can achieve is much lower. And the key thing here is the probability of losing money in a given year if you don't diversify at all with just one asset is about 40%. But it's dramatically lower if you do diversify. For example, if you have 20 different investment assets with zero correlation, the probability of losing money plummets to just 11%. The key thing here is that when you choose multiple assets, or as Dalio calls them, return streams, you never know which one is going to outperform. But by diversifying this way, it reduces your risk while you wait for at least one or more of them to generate that income. So the goal of diversification is to increase the number of units of return you receive for every unit of risk that you take in order to generate

Starting point is 00:32:11 those returns. Or in finance speak, you're maximising your risk-adjusted return. So however you invest, you need to maximise your diversification by choosing investment assets that are uncorrelated. For most investors, holding a combination of stocks, bonds, property, cash and gold over the long-term will do the trick. These assets all tend to perform in a less than correlated way and in combination can help dampen the overall volatility of your portfolio. The final investment lesson is to be very wary of market forecasts and projections. Not ignore them, but just take them with a pinch of salt. Charlie Munger, Warren Buffett's long-term business associate, puts it very merribly when he says he doesn't use formal predictions,

Starting point is 00:33:01 projections, he says, I don't like, or I don't let people do them for me because I don't like throwing up on my desk. But he sees them being made in a very foolish way all the time. And he says many people believe in them, no matter how foolish they are. Similarly, Jim O'Shaughnessy amplifies this point of view, starting with a quote from Warren Buffett, where he says that Jim points out that people tend to take recent events and project and forecast similar returns into the future, which is a mistake, relating to what's called recency bias. He quotes David Drummond's book,

Starting point is 00:33:47 Contrarian Investment Strategies, The Psychological Edge, where he studied analyst and economic earnings growth estimates over a 30-year period and looked at the average annual percentage error in those estimates. For the share analysts, it was a huge 81% error and for the economists, it was a 53% error. So, share analysts were only right about 20% of the time and economists were only right about half the time.

Starting point is 00:34:19 You might as well go and flip a coin. So in summarising these timeless investment principles and lessons learned, 1. It's all about time. 2. Don't waste your time and money trying to outperform the market. 3. Investments behave randomly in the short term. 4. Avoid the traps and costs of overly active trading. 5. Don't chase returns. 6. Diversify across uncorrelated assets.

Starting point is 00:34:48 And seven, be very wary of investment market forecasts and projections. And the best way to inculcate these and other investment lessons is to continuously improve your investment education, which is where today's guest, Andrew Baxter, may be one of your options to consider when it comes to stock market investing. Andrew is the founder and CEO of Australian Investment Education. His career started at the hub of global investment markets in the city of London. There he worked for some of the largest institutions, building up a broad-based expertise in trading and investing across global markets.

Starting point is 00:35:24 Since he moved to Australia back in 1999, he's been on a mission to educate and empower everyday investors on how to build better returns, manage risk, and ultimately enjoy a richer life. He's been invited to speak around the world alongside some of the biggest names in the personal development and wealth space, and in Andrew's own words, his flagship Australian investment education brings together the complexities of financial markets and distills them down into simple bite-sized chunks that just about anyone can follow. In addition to training and education, Andrew Baxter is the owner and director of a number of companies

Starting point is 00:36:01 ranging across areas such as advisory, financial technology, brokerage, financial planning and accounting. You can find out more about Andrew and Australian investment education on his Money and Investing podcast or at www.australianinvestmenteducation.com.au and their Facebook page. Now, I need to point out that Andrew reached out to us to appear on Get Invested, so I can't personally vouch for him

Starting point is 00:36:28 or the quality of the education and investments that he delivers. But I can say that our investment philosophies and approaches certainly appear to align in many areas, as you'll hear in our conversation today. So if you reach out to Andrew and the Australian Investment Education team after listening to today's conversation, you'll need to do your own detailed due diligence

Starting point is 00:36:48 before deciding to proceed. I also stress that Australian Investment Education's cash flow on demand options trading strategy is not for the beginner or the uninitiated. There are inherent unseen risks in options trading if you don't know what you're doing. So ensure that you fully educate yourself and historically backtest your trading system in detail

Starting point is 00:37:10 before you put your hard cash on the dash. Again, it's all about investing in your education first before investing in assets. Now, in our lively and entertaining chat today, Andrew talks about a way and towards values and what this means. We discussed that the danger of assuming your work success will translate into investing success. He outlines his cash flow on demand options income strategy.

Starting point is 00:37:40 He talks about the importance of intention and motivation and self-reflection on your investing success. Andrew stresses the need to really know yourself and where you want to get to, along with the importance of developing your process in line with your skills evolution. We cover indices versus stock picking, exchange traded funds, passive investment, diversification, and Andrew shares his view on the risks of the unregulated maverick crypto market and the future potential of blockchain technology plus much much more and if you're interested in increasing your self-health wealth investment education feel free to join me and many other

Starting point is 00:38:22 like-minded investors in our get invested community and i'd love for you to join us right now i send you a free and exclusive monthly email full of practical self-health and wealth wisdom that our current freedom fighter subscribers just can't wait to get every month it's full of investment and lifestyle tips my personal book recommendations apps i use to enhance life and a whole bunch more just visit bushymartin.com.au and sign up at the bottom of the page because this is just the beginning and it's also the beginning of my great chat with andrew baxter Hi Freedom Fighters, now since early last year we've been buried in a non-stop deluge of mainstream

Starting point is 00:39:10 media fear feeders painting often conflicting stories of gloom, doom and boom for both industries and individuals and the constant threat of reactive rolling lockdowns is seeing the majority of Aussies confined to their homes at the moment and with international borders closed indefinitely, population growth has ground a halt. Yet despite this negative backdrop, asset prices continue to boom. So how do we make sense out of this enormous dynamic complexity and uncertainty and invest with confidence in the current climate? Well, it all starts with investing in your knowledge and education so that you're better prepared to read the winds of change in order to adopt different investment strategies that are applicable and adaptable to the world

Starting point is 00:39:50 of constantly shifting sands. So to assist empower you to build better returns, manage risk and ultimately enjoy a richer life, we're joined by a successful investor turned educator, Andrew Baxter. So welcome and let's get invested, Andrew. Great to be on the show and thanks for having me. Thanks, mate. Look, for those who don't know who you are and your background, can you start by just giving us a rundown on who you are, what you do and most importantly, why you do what you do? So my primary role, I'm the CEO and founder of an organisation called Australian Investment Education. What we do in a nutshell is educate everyday people on how to better manage their money with a focus predominantly toward the stock market and in particular some

Starting point is 00:40:39 pretty smart strategies within the stock market that can then help them with their income and most importantly, manage risk. Why I'm in that space? Look, my journey has been an interesting one. I'm from a pretty humble start in life, and I feel that I'm on a mission to help everyday people get access to some of the information that the big end of town have really been able to enjoy for decades, if you will, level the playing field and give people a fair go. Yeah, and a very fair call. Well, let's dive into that history, if you don't mind, and take us through where you've invested your time your energy and your money over your life journey today with a particular focus on what you've learned from that and how it's shaped where you are and what you're doing now

Starting point is 00:41:22 look i think like most people um you know we start with a blank canvas which is colored into an extent i think from the the stories our parents give us and and the role or benchmarking if you will that our parents give us and you know for what it's worth my parents you know they work both work pretty hard they're working class saved their money paid their mortgage off and saved for a retirement. And I think, you know, that's the atypical path for a lot of people. But early on in my life, I was very, very fortunate. I had a part-time job after school, which most people have. I think it's called slave labor these days. But my father was very, very keen to push me into doing that to get what he referred to as a

Starting point is 00:42:06 degree from the University of Life. So, yeah, I worked pretty hard. I saved my money from there, had a couple of sidelines and built up a bit of a nest egg. And my first investment was actually in some shares. We'd been learning about the share market at school, so I thought I'd give it a go and put some of my very hard-earned money, I was earning a pound an hour at the time, so it certainly was hard-earned money, into the market. Awesome. Well, let's talk, I'm going to drill right in there. What did you, can you remember way back when, how old were you then and what did you actually invest in at the time? I was probably about 15 years old, and it wasn't a great investment because I lost a decent chunk of my money, which was a bit of a wake-up call.

Starting point is 00:42:51 And I think, you know, people typically can have quite a strong emotional attachment to money, particularly if you've had to work hard for it. And at a pound an hour, I'd certainly done that. And it was a real wake-up call at that tender age to say, listen, son, before you go doing this again, and I wasn't going to give up. I'm quite a stubborn and determined person, as I'm sure you'll glean over the coming conversation. If you're going to do this, don't be so stupid. Work out how this is supposed to work and start learning a little bit more, particularly about risk management. So literally from my very first investment, risk management was drilled in. From there on in, I invested in my education heavily, and it's paid off in spades over time for sure.

Starting point is 00:43:35 Awesome. It takes a fair bit of balls for a 15-year-old to have a crack at the share market. There wouldn't be too many 15-year-olds who have actually put their hard-earned into the market at that stage. So you've got a fair bit of courage right off the bat. Talk to us about where that led you to, both professionally and investment-wise from that point on. Well, investment number two was a totally different kettle of fish. I learned a little bit more and I invested. there's actually a company called abbey national which was uh which was a building society in the

Starting point is 00:44:07 uk and i put about my second investment i went big i put in i think it was something almost 5 000 pounds and over the course of a fairly short period of time uh turned that into um over 25 grand and and for me it probably little candle more than anything because i'd watched both of my parents work hard you know my dad worked in a car factory you know there's no overtime there worked on a building site to make more money for us. And my mother was a cleaner. So I'd always seen my parents work hard exchanging their time for money. And I'd never really seen money work hard for them or for me. And in that investment, turning that five grand into 20, 25 grand, well, firstly, that was more than what my dad was earning in a year, busting his back in a car

Starting point is 00:44:55 factory. But number two, all I'd had to do was at that time, there's no internet and there's no clicking a button to buy shares, but all I'd have to do is fill in some paperwork. And that money had magically grown passively for me. And it was like, heck, this is all right. It's a lot better than earning a pound an hour at the bakery. So this might be worth spending some time on it. And so that kind of was where I got hooked, if you will. And that was really the start of what now is being, you know, several decades later, where my career path has been in trading and investing and helping people do the same. Right.

Starting point is 00:45:29 Well, that certainly would have whet the appetite, no doubt. Talk us about that journey. So you left school. Where did you go to from there and how has that sort of guided your trajectory since then? Well, I finished school. I worked pretty hard at school. My mum and dad always said work hard at school so you can get a good job. I worked hard at school and got into university.

Starting point is 00:45:50 I graduated with a Bachelor of Science with Honours in Economics and Finance. and for anyone listening to this that doesn't have that background lucky you uh because one of the things that i've come to uh observe and i don't say that flippantly you know education is not a heavy burden to carry around it's a it's a great it's a very important piece of paper that can help open a door but the reality of my experience particularly over the last couple of decades where i focused on teaching people is that the more letters people have after their name the more they already think they know everything about everything and they're less open to being educated perhaps than someone that doesn't have that background and that's a really interesting

Starting point is 00:46:31 distinction certainly within the education journey so you know I graduated it's actually right in the middle of a recession in the UK when I graduated there weren't a lot of jobs around I was contemplating joining the Royal Marines as a matter of fact and fortunately I did get a job in a bank, a temping job initially, and then very quickly progressed that through to where my career really started properly, I suppose, in the city of London, working for a couple of fairly substantial investment management firms where we managed billions and billions of dollars. So that was a baptism of fire, that's for sure.

Starting point is 00:47:06 Absolutely. How did that lead you to the good old land of Oz and what you're doing now? What was the transition? Look, I was doing quite well at what I was doing, and I'll make no secret about it. It was also pretty stressful, you know, being a trader in, you know, what is the hub of the world's financial markets for a large institution. Just to give you a bit of a metric on that, I worked out one day I was drinking about 23 cups of coffee a day. You know, some of my colleagues had other vices to manage the stress, but that happened to be mine.

Starting point is 00:47:40 and um as it happened i was dating an australian girl and she knew i was you know the irony was my goal at that stage in life having sort of grown up in a fairly financially poor environment very loving environment but certainly not wealthy by any stretch of the imagination was that i was in the pursuit of money and whilst i was making a lot of it and i know this sounds crazy particularly when you're talking about you know you were in the genre of wealth creation and helping people learn how to do that but I wasn't fulfilled in the slightest because I think money yes you know you need some you've got to have a roof over your head and all the different needs that we have but it's a very very hollow goal because it doesn't matter how much you have if

Starting point is 00:48:19 someone's got more you're going to be pretty dirty on yourself for not being ahead of them it's a very very difficult benchmark to have and and I was making great money I was doing beyond what I ever expected to make but I wasn't fulfilled and I wasn't happy and and for me you know she said She said, do you want to come out for a holiday here, which I did. And on that rather lengthy flight from London, I guess there's a couple of things you could do. If you're David Boone, you can drink, you know, 50 cans of beer. And in my case, I picked up a book at the airport bookstore

Starting point is 00:48:50 called Rich Dad, Poor Dad by Robert Kiyosaki. And that transformed my thinking and it certainly transformed the journey that I was on because, you know, I devoured that. I went back to London after my holiday but I realised that I was done in the UK and I wanted to go somewhere where I felt there was more opportunity and less old-school Thai. Going to the pretty rough comprehensive school I went to in Swindon in Wiltshire in the UK,

Starting point is 00:49:15 there was no old-school Thai network or advantage to be had from that and you're kind of up against it in a city like London. So I decided I would up sticks and I moved to Australia just under two years later in 1999, best decision I ever made. Yeah, well, it's interesting, mate. We've had similar roads. The book that changed my thinking was that very same one. I call it my Kiyosaki moment, actually.

Starting point is 00:49:40 Yeah. Completely flipped my lid, and I've lived a very different life ever since. And you make a very good point that's worth touching on, because I often say to people when they come to talk to us about investment, the first question I ask is, how much is enough? Because if you're clear on exactly how you want to live and you know what that lifestyle costs, all you need to do is invest to a level

Starting point is 00:50:04 that's going to generate that income without requiring you to be doing it 40 hours a week and you've got your time back to put into things that matter rather than chasing the elusive rainbow and the gold consistently to the point where you're killing yourself and hating life as a consequence. 100%. I was chasing the wind, I guess we all do when we're younger

Starting point is 00:50:26 and perhaps less evolved and I was turning into a really cranky person, stressed, which is not my natural disposition at all. I wasn't happy with the person that I was becoming. Yeah, awesome. So you got over to Oz. Talk to us about what happened from there. Obviously, it sounds like you probably got married to the lady.

Starting point is 00:50:49 No, no. No, you didn't. Okay. No, that didn't work out, unfortunately. I'll always be grateful for her opening the door up and her family for opening the door for me to come over here. but no she I went through a fairly hedonistic probably 15 or 16 year bachelor period after that but I'll probably leave that for a different podcast than today so look I originally rocked up

Starting point is 00:51:11 into Brisbane and it's a city I still hold very dear it's a wonderful place and I'm a very proud adopted Queenslander I think looking for a job initially was pretty difficult and I remember I did have an interview with a stockbroker and they said how many people do you know and I said well four and they said well you've got no chance of uh of uh of cutting it in this sorry we can't hire you see you later and and interesting enough to square that story off i bumped into that particular ceo of that stockbroking firm about two years ago at the stockbrokers association dinner and and he said oh go on then how many clients i said i've got over 60 000 clients now he said i should have hired you shouldn't i said i'm glad you didn't because it forced me down a very

Starting point is 00:51:54 different path and i think every time there's a setback um you can look at it in one of two ways you've stubbed your toe and it hurts but you've got to get past that emotion stop babying yourself get back up and come out swinging and find the next opportunity and that's something that's really important so you know i traded from home and it was a good time to trade from home because uh you know the dot-com boom this was back in 1999 the dot-com boom was was running hot yeah And for some people that perhaps are a little younger, listening to this, to hook into online trading, which was this new thing, you had to pull the cord out the back of the phone and tuck it in your computer and have a go. That's how long ago we're talking. I'm right there with you.

Starting point is 00:52:35 I was doing some day trading around that time, and it ain't anywhere as easy as what it is today. It's so easy now. People don't realize how easy they have it now. But so, you know, it's going pretty well, making some great money. and I ended up getting some software to help with my trading and the dude that was selling it said, look, I've got – and it was really good software. And he said, I just can't get people to subscribe.

Starting point is 00:53:01 They sort of – they kind of have a go and they blow up. So I said, well, have you considered teaching people? And I actually wrote a training program for him based on what I used to do in London and it didn't particularly work because it was too technical. And I think that's probably one of the big learning points for me is that part of the reason we've been so successful with Australian investment education, much like yourself, is taking the complexities of the investing landscape and being able to break them down into bite-sized chunks that anybody can follow. So, I met this dude I was

Starting point is 00:53:35 playing golf with and he was sort of retired and he said to me, you know, how come you're not at work today? I said, well, what do you mean? How come you're not at work today? He said, well, well, I'm retired. What's your story? I said, well, so am I. And he practically fell off the golf buggy when I told him that because, well, how? And I said, I trade. And he actually became my first personal client that I taught how to trade. His name was Ray. And he came to my house and we'd huddle around the computer. And over a period of six or seven weeks, we'd trade together and I got him up and running. And I thought, hang on, this is crazy because this is second nature to me. I've spent a long, long time in this space learning it. And I take it for granted

Starting point is 00:54:10 that it's normal knowledge and it very clearly isn't and seeing the transformation that it made for him and the timing of this was good too because it wasn't just the dot-com boom of course it was a dot-com bust so that really helped me develop risk management for my clients and and they did very well through that period of time he was my first he referred me to some friends next thing you know i've got this little cult going on at my house where there's sort of eight or nine people coming over every day and my my girlfriend at the time's going who are these people. We're on a journey together, leave us to it. And it's crazy when you look back at it, but that's how this whole thing started. It was embryonic. And that's how it started back in 99.

Starting point is 00:54:46 Love it. Love it. Well, let's project forward a minute. You may already be living your ideal lifestyle, but paint a picture for us. What does it look like? What are you doing? Where, when, with who? And what does that cost? And what are you investing in and have invested in to make that happen? Look, I've invested across a lot of assets and I still do. And it's, you know, oftentimes, you know, you've got the age old battle, you know, property versus shares, for example. You know, it's like having a discussion of Trump, Biden or oil and water. You know, the people always say it's got to be one or the other. And it really doesn't have to be. In fact, it should be both. And, you know, I've done my fair share of property investing

Starting point is 00:55:21 and it's been very, very kind to me. I've had a couple of doozies in that space, too. But by and large, property has been very kind. I've developed, I've bought and renovated and I've had other investment properties so I've done a few different things in that space and it's been it's been very very good to me and continues to be good to me my main bread and butter is is in the stock market and and and we've got a particular way of of approaching that and COVID and the lockdown that's gone around that I think has been a huge huge positive and I know it's hard to and I go back to what I said before when there's something that happens to you that's that's not necessarily a positive thing to be seen. You've got to find the good in it. You've got

Starting point is 00:56:03 to come out swinging and find the opportunity. And COVID, I think, has forced an awful lot of people to realize that just relying on a job is A, something you can't rely on and there's no permanency to it in today's economy. And number two, having a second form of income is no longer a luxury. It is a necessity. And so, you know, we've had a huge influx of people looking to do this. I'm sitting in my house here. I live on a farm with my family. I've got five young kids. My wife's here. We're down at our farm down here in Byron Bay. And life is good. I couldn't wish it to really be any better. My income, if anything, has probably increased through the period of COVID because markets have been very conducive. And technology has really facilitated

Starting point is 00:56:50 that. You could be anywhere on the planet and trade successfully. I'm on a farm where there's no internet so i've got a 22 meter tower at the end of one of the paddocks here and is powering our internet i could probably cook food between the tower and the house there's a fair bit of data going that way and that ability to to be flexible and live where you want to live on the terms that you want to live doing what you want to do without it making any impact at all on your income is incredible and i've got a picture sitting in my office right now behind me of my days on the trading floors in London. And there wasn't one window on the life floor in Cannon Street, not one window. You didn't see the sun from 8 o'clock in the morning

Starting point is 00:57:30 till 4.30 in the afternoon when I finished. Didn't see the sun for probably four months of the year through the week. And yet I can sit here overlooking a beautiful vista and make more money doing that. That's how much the world has changed. And that's what's called opportunity. It just comes wrapped in some extraordinary wrapping paper that doesn't always look that appealing at times totally agree and and uh i'm starting to realize we're a lot more similar than than what i uh what i thought andrew because uh made very similar decisions and very similar life lifestyle decisions and i'm with you i i think great periods of change create the best opportunity actually if you're nimble and adaptive enough to take advantage of

Starting point is 00:58:15 and have the courage to follow through. And you're right, I think COVID has been a massive wake-up call and a shake-up call. And as you say, you know, a second form of income is now mandatory because for those that are living hand-to-mouth, and unfortunately there still are a lot of Aussies who put themselves in that position, and their whole world revolves around their work or their career.

Starting point is 00:58:39 Now, there's no certainty in that anymore. And if that dries up, then life looks pretty challenging. So unless you're investing beyond your work, your business, then you're putting yourself in a major risk position given the winds of change that we're going to continue to have to contend with as we move forward. So I'd love your thoughts on that. Let's define success if we can because everyone has their own definition. What's your definition of sustainable success?

Starting point is 00:59:10 and I'd like to underline the sustainable piece because there's a lot of wonders out there at the moment. How would you define it, mate? Look, I think that's definitely something that's changed in terms of the lenses I look through. You know, if I look in my younger days, it would have been just about money and income and probably ego, which, you know, as a young man probably comes as no surprise.

Starting point is 00:59:36 I think as I've gotten older, I've come to realise that success really comes through choice and I think it comes through control. And I don't mean that you need to be a control freak, but you certainly need to be able to be master of your own destiny in order to give you the freedom, if you will, to make the choices that you want. And over time, I think my measure of success has gone very much

Starting point is 01:00:04 from being just simply about dollars, and don't get me wrong, they're still important they pay for the ability to buy your time back to genuinely wealth which i define in quite a different way and i think we're again probably quite similar in regards to that that wealth is about choice as to how you spend your time who you spend your time with and what you spend your time doing and so that's definitely where i would see the benchmark for success now is having more wealth not measured by money but measured by time and particularly not just time as an overarching title, but discretionary time that you can choose what you want to do with that time. Spot on. Absolutely. Yeah, we're on exactly the same page as far as

Starting point is 01:00:47 that goes. Let's sort of jump into the world of investment and trading, given your expertise in that area. And I think given some of the educational work you're doing and some of the programs and courses you're running, there's some particular opportunities at the moment in the context of what you're doing there but to kick that off i'd love for you to again i'd like to define the ground so that we're all talking about the same thing and the audience are understanding what what we're talking about how would you define the difference between speculating trading and investing so i think a speculator is someone that's that's that's taking for want of a better description, a punt on the direction that something is going to move in. And look, it's not unique to

Starting point is 01:01:36 the stock market. You could be talking about crypto. You could be talking about forex. You could be talking about property. You're taking the punt that I'm going to buy this and I want to look to move it on as and when it hits my price target, hopefully sooner rather than later. And you're kind of working your account, turning it over reasonably aggressively. An investor is someone that's probably defined by time as someone that's taking a much longer perspective. They're playing the long game so rather than put the pressure on themselves of having to get the time right and and and making a guess and and that's a very deliberate word by the way that i'm using you could call it a forecast if you preferred to uh sound more sophisticated but the reality is a

Starting point is 01:02:16 guess just like everybody else it's just a question of whether your guesses are better than other people's um you know an investor is taking a little bit of the guesswork out because they're giving things longer to work and i guess it's one of those things if you give anything long enough you'll be right you know there's a there's a particular speaker out of the us i've done work with over the years who's been calling for a collapse in the stock market and the property market for the last 15 years and the irony is one day he will be right but then so too is a broken watch it's right twice a day it doesn't mean to say it keeps time and so you know as an investor if you give something long enough your view is is likely to be right at a point in time in the

Starting point is 01:02:53 future so you take that that pressure off of the time frame of what you're doing so broadly speaking I would say that's probably how I'd see the two, and both of which carry with them fairly substantial flaws as an approach. There are much better things that you can do where you can apply a blend of the two in a very, very smart way to help stack the odds more in your favor for success, removing the reliance on guessing it right and removing the reliance for it to have time to be right and actually stacking that in a different way.

Starting point is 01:03:26 and that's very much the place that we occupy within the markets. Not speculative, not investing, just a very, very strategic strategy that sort of comes, I guess, from learning this at the Coalface in London, you know, 30 years ago. Well, you've sort of opened the gate to talk about that. Let's dive in there right now and sort of give us a bit of an appetite wetter on what your approach is and who that's relevant to. The approach that we take for our ecosystem, for our clients, is rather than base your investment decision on a forecast or a guess.

Starting point is 01:04:06 And most people's investing is based on, in order for them to make money, the market. Irrespective of what asset, as I say, it could be Forex, it could be crypto, it could be property, the asset needs to appreciate in value for you to make money. But particularly when it comes to stocks, they don't always go up. Sometimes they go down, sometimes they go sideways, sometimes they do all three in the same day. It's like Melbourne weather. It gives you plenty of excitement. The reality is if that's the foundation of your investment strategy where you've got to guess it right and any one of those three things can happen, your odds of success are about one in three. They're terrible.

Starting point is 01:04:39 You'd be better off going to the casino playing red or black, and that's by no means my investment advice is, but the reality is the odds are stacked against your success before you even start. So rather than base your investment decision on having to get the direction of the asset right, the strategy I use, and I use a particular type of investment class called a derivative, which some people have horror stories around, and it's probably because they don't know how to use them. And what it enables me to do is base my whole strategy around a guaranteed event. Now, guarantees are very interesting to talk about when we talk about the stock market. And the guaranteed event I'm talking about is time passing by. And what I'm effectively looking to do is to get paid for time passing by. And it doesn't matter who you are and what you've smoked. If you're listening to this, you would have to universally agree that time passes by.

Starting point is 01:05:28 You know, we've been talking for 27 minutes. 27 minutes has passed by. You can't argue that that hasn't happened. And so if you construct your investment about being paid for that time to pass by, you're now on something that is a certain event. your probability of it being an effective outcome is significantly higher, maybe 80%, 85% as opposed to one in three, you've tilted the deck in your favor and now you've got a playing field that you can run on

Starting point is 01:05:54 with a level of confidence and certainty as to what you do. Okay. Now, I'm guessing you're talking about options here given the impact of time on that exercise. Can you put a little bit of color around that because it's probably an area that a lot of listeners don't really, would understand, or if they do, again, they'd probably know enough to be dangerous. So you're able to shed some light on that for us?

Starting point is 01:06:18 Let's start with the dangerous side of options. A lot of people do see them as being dangerous because they haven't been taught by a pro. In just the same way, I mean, you could argue that your motor car, do you see your car as being dangerous? Well, if it's in the car, you're driving to get a latte with your partner on a Sunday morning, observing the speed limit and not using your phone, it's probably reasonably safe but if we're talking about three o'clock in the morning and you're doing donuts in the bunnings car park at mooney ponds high as a kite then the car is it's the same vehicle but the way

Starting point is 01:06:51 it's being used is is in the wrong way and it's going to be quite dangerous and and really investment assets are just the same if they're used in the right way they're not dangerous so in a nutshell if you own a portfolio of shares whatever it may be let's say it's cba for example What you're effectively doing is holding an asset in the hope that it's going to go up in value over the course of time, which it's done quite well over the last 18 months. And the payoff for you holding that asset is that at the behest of the company, twice a year, they're going to pay you a dividend. There's your income. The big challenge for most people is that they don't get bills twice a year. They get bills more regularly than that.

Starting point is 01:07:28 They need income to be flying more regularly than that. And secondly, companies can turn down their dividend, as we saw last year during COVID. So, all of a sudden, if you're a retiree, for example, and you're relying on dividends to fund your retirement lifestyle, and all of a sudden, the company comes out and says, we're not paying a dividend this year, that's your income turned off and you've got no control over it. So, what we do instead is rather like property. If you own a portfolio of shares and you don't use the strategy I'm talking about, it will be just the same as owning an investment property and neglecting to put the tenant in. You've got the asset, and the asset may well go up in value over time. but you're missing out on that weekly or monthly rent check which is the whole gig and so in a nutshell what we do is use options to help us harvest that weekly or monthly rent

Starting point is 01:08:14 over shares as opposed to over a property yeah love it yeah really good analogy the way you describe that uh tell us about uh the risks that are associated with that because again And for those that have a lot of courage and a lot of time, they might jump off this podcast and race out and throw some money in options. Talk to us about what they need to be aware of and how they can protect themselves to make sure that they aren't sort of running the gambit on risk as far as that goes. Yeah, and that's a massive thing to flag.

Starting point is 01:08:50 If you're thinking of running and diving into this place, please don't just now. You know, it's kind of like learning to swim. get in the shallow end first get to see what water feels like splashing on you and then over time gradually move up to the deep end don't don't don't don't jump in and drift down to the bottom and bob back up gasping for air that's not not what successful investing is it's pretty stressful thing to do and ultimately it's probably not an experience unless you like being waterboarded in your part-time activities probably not something you want to do too often so you know very very

Starting point is 01:09:19 specifically any kind of successful investment you know success leaves clues an overused cliche but nonetheless true and and i think you have to build up a process in the first instance you don't just oh here's some shares let's sell some options and see how we go there are nuances within there that you need to get right in order to really a de-risk what you're doing and then b actually fully understand the ups and downs of where you're at so in terms of a strategy itself fund. The strategy, we call it cash flow on demand. That's the name that we've given this particular strategy. And it's a lower risk strategy than simply owning shares for the simple reason the money you get paid on the option side of the ledger is gradually reducing

Starting point is 01:10:04 the break-even or your average cost for your shares. So, you're actually dropping your average entry costs for the shares by doing this, meaning you're taking some air out of the balloon and de-risking the trade. So, that's a way of managing risk. There are two or three other ways that we do more proactively you know we can ensure our shares i'll talk about that in a moment we can use things like stop losses which is you know in case of emergency break glass get out so there are things that you can do on that side but the most important one in the first instance is to get educated very very specifically on that and it's not something you're going to glean from youtube sure you're going to pick up bits and pieces but going to youtube to learn

Starting point is 01:10:40 stuff even though there's some brilliant content there is kind of like trying to do a home renovation you might want to do the plumbing you get on the bunnings and buy all the gear to do it only to discover that you're trying to connect metric stuff to imperial and it doesn't work because it's disjointed and in the same way you need something that's going to seamlessly run through everything that you need to in this so certainly get educated to de-risk this in the first instance secondly is is where you choose to play in the markets there are things that can draw people in which i've seen you know a couple of promoters around and about doing this well my clients make you know five six seven percent a month yours make one and a half to two and a half

Starting point is 01:11:15 yeah, but mine do that every month as far as long as they want versus, you know, being a shooting star where you might do it two months in a row and then your account is decimated. So, you know, picking the right kind of stocks to do this is crucial too. And probably the best way to explain that to someone is to use a parallel example of, say, Indian food. Now, obviously, I grew up in the UK, so Indian food is my national dish over there. And over time, your palate changes. If someone's never had Indian food before, it'd be pretty cruel, and we've probably seen people do it to take them out to a restaurant and order a really red hot curry just to sit there and watch them you know die and be licking bread and drinking milk trying to get rid of the pain

Starting point is 01:11:51 you know start off with a butter chicken or a chicken korma and gradually move up through the ranks until you get to a level of spiciness that you're comfortable with and trading and investing is the same you can have butter chicken in terms of a trade or you can have a hot vindaloo if that's what you're after but it comes down to your own particular taste and learning how to grade your trades to make sure that you're not diving into the super hot chilies when you want something quite mild, is a very, very important learning point for people on this journey too. Yeah, brilliant analogy there, mate.

Starting point is 01:12:22 You sort of circled around this in what we've been talking about already, but the role of psychology and mindset and understanding yourself in investing, what's your thoughts around that? It's an area I think that people like to gloss over, Bushy, for the simple reason that if you embark on education, you want to get into the nuts and bolts of it and see something that's new and exciting. And in my game, not that I'd describe it as exciting,

Starting point is 01:12:51 I've seen too many of them over the last 30 years, but it might be looking at a chart or your analysis or your indicators that you're putting on there. And talking about who you are as a person and understanding what makes you tick is something that most people want to just leave in the cupboard because they're very familiar with who they are. yet it's probably the most important platform to get right before you start

Starting point is 01:13:11 and this whole area whether you call it personal development which is a terrible term or financial education or expanding someone's horizons for life they're all great things to look at and it's not about changing who you are as a person it's helping you become the best version of you that you can be so anybody can be a trader anyone can be a property investor anyone can be a successful entrepreneur but they need to play within the confines of what their personality strengths are not their weaknesses and so learning your personality type what makes you tick what motivates you you know if i've got someone that's like an uber achiever in life um you know they might be very successful in business or in industry and quite high profile we've got clients in that

Starting point is 01:13:52 space they automatically project that success on starting trading oh i've been successful as a businessman so this will be a walk in the park let's go big here's half a mil let's kick off with that there's more to come it's like no no no no no we have to start just like snakes and ladders at square one just like joe bag of donuts does as well and you're going to grow your knowledge together and go on that pathway properly and it's very very hard for people that have been successful to park that ego to the side and take it back to tintax and go okay i'm novice i know nothing hold my hand be gentle with me walk me through from ground zero and it's the most important part of the journey start it right get it right first time and you'll build a platform for your success

Starting point is 01:14:31 But if you jump ahead, often because your confidence or, let's use a different term, arrogance, overshoots your competence and skill set, you're riding for a fall. And when it goes wrong, it's going to take an awful lot of bark off and it'll stop you going down what could be a very successful pathway because you tried to skip steps. Don't shortcut. Sure, you can fast track, but do not shortcut. Get the mindset, the psychology stuff right. Work out why you're doing it and you'll crush it. Yeah, love it. Love it.

Starting point is 01:15:00 You know, extremely well said there. And you've touched on some of the mistakes that particularly early investors make. And you're right, the people who have been successful in other spheres just automatically assume that they can go gangbusters in something they haven't tried before. What are some of the other, you know,

Starting point is 01:15:18 mistakes that you're seeing investors and traders make when they're starting and in the current atmosphere? Look, I think you've got to get a gauge on what your motivation is for doing anything as well and and if you sit down and talk to someone early doors and i'm sure you've had conversations with people that you've mentored in this space so why are you doing this i hate my job that is not a good reason to do something you know that's a that's an away value you've got to have a reason a towards value to want to do something say look i'm looking at trading because i'm interested in this and i want to develop a

Starting point is 01:15:52 second form of income to help support my family or pay down my debt or buy my next that's a different story to i hate my job and i want to find something else to do um so finding that positive momentum for wanting to engage with something i think puts a really different sphere around it secondly and again it sounds a little little crazy but i i guess i've had the privilege now of educating you know 50 60 000 people around the world on this stuff and that is if your focus in the early days is to make money it's the wrong focus now i appreciate that probably sounds a little crazy but in the early days your focus needs to be on building a consistency within your process and confidence within the process that you're using because if

Starting point is 01:16:35 the process is right the results always follow but if you just focused on trying to get a quick win here or there to make some money go look i'm being successful i've made a thousand dollars today or five hundred dollars this week or whatever it may be that's great but if you haven't laid in the work to build a process that's able to do that over and over and over and over again you're not building a sustainable future for yourself and the second the wheels come off and you stop making that thousand dollars a week or five hundred dollars a day whatever it might be all of a sudden your confidence and your momentum and your motivation is decimated because you skipped that crucial step consistency building your confidence and nailing that process is the thing to focus on

Starting point is 01:17:15 And this was really noticeable probably over the last 18 months where you talk to somebody, perhaps a self-managed super client, for example, where they go, look, I did really well last year. I made 30%. I don't need to learn about the stock market. I made 30%. What did you make the year before? That ought to be interested in. Because last year just about anybody should have been making at least that and probably more because markets offered way, way more than that. yeah so what you've got is a situation then where someone um you know because they've been

Starting point is 01:17:48 initially successful with that conditions have changed this current climate that we're in the economy the economy has changed an awful lot we don't have job keeper lots of things have shifted the skill set to be successful in this market now is very very different that may have been beginner's luck and i've seen people try and say no i'm not going to educate myself i just keep doing what i did i made 30 last year i'll do the same this year and they don't they actually blow up and all of a sudden they sort of come limping back tail between the legs assuming of course they're humble enough to say i was wrong can you help me a lot of people just disappear off the radar um and um and and you can sit down and you can rehab those people because they then understand

Starting point is 01:18:24 the importance of getting a process in play as opposed to blind luck luck always runs yeah and you make a good point i think unfortunately some people need to get a blood nose before they're ready to really start learning, and you touched on the importance of a consistent process and a system in relation to getting good results from your investing. Do you want to share some of the key components of that process so that the listeners are starting to get their head around what sort of things they need to be doing before they start to leverage up and ramp up the level that they're putting into the market. Sure.

Starting point is 01:19:06 Look, I think a really good comparison, for someone that's, let's say, currently has cash, which, let's face it, is a dead asset, 0.1% before tax and inflation, you just put your money to sleep, you've got to get it working. And if you're looking to, say, diversify, so say you're a property investor looking at the stock market, say you're in self-managed super, you've had managed funds, obviously So we know 70% of those underperform the index. So you might be looking to do something different there as well. Think, well, I've never actually done anything in the stock market.

Starting point is 01:19:36 And I don't know if it's my thing. I don't know if I can do it. If you think about, say, companies like Marley, Spoon or HelloFresh, you know, the food delivery company, you may not enjoy cooking and you may not be a good cook and you may not even know how to cook. As long as you know where the kitchen is and where the box is being delivered, you can open the box. all the ingredients are in there that you need there's nothing missing the quantities are in

Starting point is 01:20:01 the right quantities you look at the card there are six or eight steps to follow with some photos to help you along the way if you follow that process to the letter and then flip it over lo and behold what's on your plate looks exactly like what's on the card the reason for that is they've taken the time to build a process that just about anybody can follow it's paint by numbers and that's exactly what we do in the trading space so for somebody looking at this you need to have that process in the first instance, because over time, as your skill sets evolve, you might choose to add more salt and pepper or some chili or whatever it may be to enhance the taste to be to your palate. But you've got to have a core process to come back to. But before even

Starting point is 01:20:38 doing that, you've got to have an idea of what your end game is. And I think, you know, do you want to be someone that has an income flow? Do you want someone that wants to have growth in your portfolio. Are you someone that's investing with a environmental and social bias, which again is another area we can dive into. Knowing what you want before you start is key because if you have no idea what the destination looks like, any road's going to take you nowhere. And you can bimble around and spend years trying to, okay, we're gradually getting there. The saddest thing for most people, it doesn't matter how much money you have, you never buy time back. Take the time to plan first. What do you want this to look like? Are you looking to have 100 grand in the market,

Starting point is 01:21:19 half a million in the market, a million dollars in the market? What does your timeline look like for ratcheting up? And more importantly, what are the milestones that you'll need to tick and go past to feel confident to go to that next level? So start small, build up some consistency. And when you've hit that consistency goal, then you move up to the next level. It might be adding more to your account and maybe adding some variety within your process getting consistent with that and then leveraging up but if you haven't taken the time to work out what the end goal looks like you're never going to get there you're chasing the wind just like someone that's chasing money is their goal yeah it's absolute uh magic to my ears andrew uh i often talk about you know getting

Starting point is 01:22:01 really compelling about your why and and making sure that you're absolutely clear on what the end game is because that becomes both a magnet that'll make sure you jump the inevitable speed hurdles and and bumps and lumps that you're going to have on the journey but also a compass in terms of making sure that what you're doing day-to-day is taking it closer to that absolutely further away yeah love it love it and let's face it it's not always easy there are going to be times that you're going to stub your toe and if you don't have a clear enough intention if it's not a strong enough reason why that's where people give up oh didn't work move on to the next thing chase something else that's shinier and have a go instead of just rolling the sleeves up and going okay what

Starting point is 01:22:40 went wrong post-mortem okay that was it I can learn from that my intention my goal is strong enough to motivate me to want to do that hard work and that self-examination not to beat yourself up psychologically and go you're a nimrod what did you do that for everybody makes mistakes I've yet to meet anybody that hasn't made a mistake that's achieved any success in life I've got a wardrobe of t-shirts here for lessons that I've learned along the way as most people have so if you intention and your motivation is strong enough you'll push through those hurdles if you haven't done the work to build a really strong emotional connection with what you want you will give up and then you'll not get it yeah love it absolutely beautifully said uh let's sort of dive into uh

Starting point is 01:23:20 some specific commentary uh if we can uh around some of these aspects then because uh I'd love to get your views on, because everywhere you look now, there's an investment expert or so-called trying to tell you what to do. And there's a lot of debates. You touched very briefly on the property versus shares exercise, and I'm with you.

Starting point is 01:23:47 I'm an inclusive investor. It's not or, it's and. But your thoughts on stock picking versus indices, for example. okay so that's a that's an interesting one because indices and the ability to invest in an index in an index has probably never been easier one of the big growth areas the biggest growth area in fact in financial markets over the last seven or eight years has been an area called exchange traded funds and what that can enable and these can be a very very useful tool for someone that's fairly new to this because instead of looking at the screen and going, okay, do I buy

Starting point is 01:24:27 BHP or do I buy Commonwealth Bank or do I buy Telstra or what do I do? You could buy an exchange traded fund that invests in all of those companies. It gives you a level of diversification. It's a very passive way of investing. And it's been a huge, huge growth area, particularly for people starting out and particularly for micro investing, actually, where you're sort of saving those small amounts of money every transaction you do, and you want to put it in something. So there is definitely a role for that. The value add by trying to pick stocks is an interesting one. And I mentioned this in passing earlier, and it's good to return to. 67% of active fund managers underperform the index over a five-year period. So nearly over two-thirds of them can't

Starting point is 01:25:12 beat the index by picking stocks or trying to pick stocks and again i go back to you know and if you're cynical listening to this you'd be going well you know you've just been talking about trying to make better returns by buying stocks no i haven't if you're trying to buy stocks to outperform the index chances are you're going to be like most fund managers unless you just happen to have a very very strong natural talent if you do that send us your resume and you know you may have a very strong natural talent for doing this which is great we're not trying to pick stocks to outperform the index what we're trying to do is generate cash flow from those stocks by that known event of time passing by to outperform the index and

Starting point is 01:25:52 in fact you know cash on demand the buy right index does outperform the the all ordinaries over any given time frame so you know buying specific stocks can be a little bit more challenging but it can also be an awful lot more fun because if you've got a particular view and let's say, you know, you've got a predisposition that lithium, because of what's going on in the future is the place for you, you could buy the lithium ETF, and I happen to be invested in that at the moment over in the US. Or you could buy a lithium mining company that you perhaps know a little bit about, maybe you're in the mining industry, you've heard a rumor, and you start to go on a more stock specific journey. There's a potential for a much higher return if you get it

Starting point is 01:26:30 right. But there's also inherently significantly more risk there as well, because maybe you're not right and you're not diversified you've got all your eggs in one basket so there's a really strong argument that investing in the index can can can sort of smooth that out but it's a fairly dull process and rather than just pick stocks pick stocks and then use a strategy like cash flow on demand and you will get an out performance don't just pick the stocks on their own yeah i love that and uh something i know that uh my understanding and correct me if i'm wrong here that Australian investment education does is not only educate, but you've actually got a brokerage that actually assists your clients

Starting point is 01:27:12 to be able to select stocks that suit them. Am I right in saying that? That's exactly right, yeah. We've got some technology there called EasyTrade. You just literally three clicks and your trade is done. It's a very, very powerful system that we've built. But again, you know, the reason we provide that for our clients it's a kind of serendipity you can as a walk-up start access our broking or easy trade service

Starting point is 01:27:36 you need to be a graduate of our education because that's as an advocate for financial literacy as as as you are too educating people on what they're doing with their money has never been more important and you know fairly topical this week if we if we look at APRA with the review of the my super the legislation now is that if you are an underperforming super fund you're obligated to write to your clients and say we've done an appalling job do you still want to invest with us which is huge right it's something we've been requesting and lobbying and and being part of for years that there should be more disclosure in that space and if people learn what they can do with their money i'm pretty sure they can outperform some of the the the underperformers

Starting point is 01:28:19 that are on there you know we're not talking a handful of funds of 13 funds they've named and shamed but there's over a 1 million australians have had their money put to sleep it's a disgrace So get educated, get control, and see what you can do for yourself because, heck, you work hard for your money, get it working hard for you, and trust yourself over anybody else in that journey. Absolutely agree. A couple of the sort of trendy exercises that come in and out of Flava and they've been doing so for the last 10 years or so is the crypto craze.

Starting point is 01:28:49 What's your read on crypto generally both now and in the future? That's a very interesting one, isn't it? And, you know, it's funny that you can see on social media when crypto is doing well because all the ads and all the posts pop up. And then when it's getting flayed, it all seems to evaporate just as quickly. And look, if you'd have had this conversation with me probably six months ago, I'd say it's not something I've got any interest in. I dipped my toe into the crypto space a few months ago, actually at the request of my barista of all people. We were talking about it and he's going to you and I'm not. And he said, well, why not?

Starting point is 01:29:23 And it was one of those things I actually found quite hard to actually say, these are the reasons why not. So I dipped a toe, had a bit of a play, went through a bit of volatility and the account was down a bit. Now it's up, but it's not really my flavor. I don't so much have a problem with crypto. I think where the challenge I see with it is the way that it's been marketed to the general public as this, here's the panacea for all of your financial woes. Put $1,000 in here and you'll be on a super yacht and driving a Lamborghini in three minutes if the adverts are to be believed. And that kind of thing is unconscionable. And it's allowed to happen in the crypto space because it's obviously unregulated.

Starting point is 01:30:01 You know, we work in a regulated environment with ASIC, the industry regulatory body, ensuring that, you know, that kind of predatory marketing isn't going on. The second part, as I say, so, you know, the actual approach to people to get them in the solicitation of the client, I think, has been very, very poor. where i see the future for crypto is not so much actually in cryptocurrency but in the underlying technology the blockchain technology particularly that's where i think we're going to see the biggest opportunities come out of this it's been a maverick play if you're someone that wants to operate outside of the system and i'm not complying with the government on my own person and it's offshore and it's hidden and you know you don't have to disclose that that's great but regulators tightening up on it every day and you're seeing that around the world as different

Starting point is 01:30:48 countries change their reporting around it so at some point it will become regulated and that'll pop that bubble for the mavericks that are out there the the canna culture folks the real underlying value i think is the blockchain technology that's been developed so far it's not been hacked and if you look at the application of that in more traditional business whether that's in music to ensure that royalty fees go to the artist and avoiding plagiarism in pharmaceuticals where you can see the development of of drug lines over time to enhance them particularly in the current environment even a company like kodak which you know was bankrupt refused to embrace digital technology even though it was the company that invented it in case it

Starting point is 01:31:31 sort of killed off its film business went bankrupt and yet now kodak is at the vanguard of using blockchain to ensure that all of the billions of images that it has are correctly copyrighted and that royalty fees flow. So I think blockchain is actually where the real play is. And crypto is rather like the little bit of chrome that's shining on top of it that's attracting people in there to explore that. Yeah, it's very well read. Given the circumstances we're in globally now and the amount of money that's sloshing

Starting point is 01:32:03 around and the cheapness of money if you need to get it on credit, we were seeing some pretty crazy activity with, you know, the example early in the year of GameStop and the sort of Reddit herd trading phenomena. What's your read on that and the likely impact that it's having and may continue to have on markets and what investors should be doing about that? I think there was a great quote, and I think George Bush Jr. managed to balls it up when he did it. You know, fool me once, shame on me.

Starting point is 01:32:37 Fool me twice, shame on you. Well, it's actually the other way around. That was the Bush quote. And in this instance, you know, the GameStop folk, you know, got one up on the hedge fund industry for sure, and no one's going to lose any sleep over that. You know, anyone that's watched the TV show Billions will probably feel much the same way.

Starting point is 01:32:56 the reality is that that happened but markets by their very definition find their own level and they are pure in so far as information flow will disseminate across a a large number of people leveling the playing field so if you've got your game stoppers on reddit in some of these private forums trying to ramp stocks just ask yourself a very simple question do you think your average hedge fund manager over in the US sitting in his, you know, 20 billion assets under management business hasn't seeded those forums with their own analysts, people that are gleaning that information and publishing their own stories now because you heard the story of GameStop.

Starting point is 01:33:38 How many has it happened to since? Yeah. Yeah. That's exactly right. That's a very good call. It's a very good call. Something that's interweaved amongst what we've talked about, and I'd like your thoughts on this.

Starting point is 01:33:50 a lot of the conversations i have with investors because they they come in with a very clear exercise of investing in equities or investing in shares and and as you well very well pointed out earlier they're chasing the money one of the big mistakes i i see investors and this is across the board make is they don't match the time they have available to the time that's required to manage a particular investment strategy and I really see themselves trip themselves up constantly on that but what's your read and your your view around the importance of matching your personal time to the time that a particular investment approach or style requires yeah it's it's a that's a terrific point and I'm not a lazy person by my disposition but when it

Starting point is 01:34:45 comes to investing, I think having that lazier, passive approach makes an awful lot of sense because for your average person, if you're going to replace one job with another, say, well, I want to be a day trader, for example, don't do that. 97% of day traders lose money. 2% of them manage to break even, and about 1% actually make a profit. So the odds are well tilted before you start. The hourly rate is appalling. The stress levels that go with it are dreadful. You're not going to look healthy because you'll be sitting indoors looking very pale probably with a catheter fitted so you don't need to go away to go to the bathroom yeah that is not living yeah that is not living at all and it's not going to enhance your lifestyle and so you know that kind of hands-on

Starting point is 01:35:27 kind of stuff is going to give you some excitement if that's what you're after and again that goes back to understand what your goal is if you're after excitement that'll give you excitement not going to make any money but it's going to give you excitement likewise anything that sort requires you know more than more than say half an hour a day i'm pretty good at managing my time as as most people that are you know successful in business are it's their most precious thing to to manage and if i had to carve out in my day with five children at six years old and under managing you know a juggernaut business that operates across numerous countries around the world and being able to go to the gym be fit have time for the relationship with my wife maybe get

Starting point is 01:36:07 out on the tractor and do some work on the farm i simply wouldn't have the time to find more than about 30 minutes a day and i use that as my benchmark uh to say if you've got something that's going to require more than 30 minutes a day and it's new to you the chances are you're not going to be successful at it because going sight unseen saying i need two hours of your time every day for the next two months and i can't promise you're going to make any money and i don't even know if you're going to be good at this it's a very very big ask of people If you ask for a minimum amount of time where they're able to start to see a return on that time dollar-wise and also in terms of their personal growth, they're likely to open the door to make more of that precious commodity that they have available to it. But you don't really want much that's going to – I wouldn't have thought anything more than about half an hour a day.

Starting point is 01:36:49 It's just too intrusive. Yeah, perfectly said. Absolutely perfectly said. Now, there's been a lot of talk, again, right across the board about asset bubbles and pending busts and bursts. So what's your read on where that's at and what should investors be doing in the short to medium term to protect themselves in the advent that there are some corrections in the near future? I've been quite vocal on this through our social platforms and my take, I guess, as

Starting point is 01:37:24 an economist by qualification too, is that interest rates are far more likely to go up in the short term than your average person is going to believe and I feel for your average investor and your average person on the street for this because the Reserve Bank of Australia were most emphatic when they came and said we will not raise rates until 2024. So to all intents and purposes anyone that's borrowing money has got the word of the Central Bank of Australia that they're not going to raise rates so it's safe to gear up and borrow at least until 2024 And that was a very, very dangerous statement to make. Central banks cannot and should not make those kind of statements

Starting point is 01:38:02 because their interest rate policy is governed by what's going on in with the economy, not any other agenda. And we're seeing now the ramifications of interest rates at historical low levels, 0.1%. The world is awash with money. You know, it's cheap to borrow. You want to borrow a million bucks, it's going to cost you 30 grand a year, which is, you know, the money is effectively free for want of a better description.

Starting point is 01:38:26 What we're starting to see is inflation really gain a toehold. You know, in the headline figure, officially in Australia, 3.8%. I think most people that order groceries each week from the supermarket or go and do their grocery shopping will know that groceries are getting a damn slight more expensive than 3.8% a year. You know, go buy your lamb cutlets, buy some steak, and see what you're paying for that kind of thing. Pretty good reason to be vegetarian at the minute.

Starting point is 01:38:49 You know, if you look at the cost of fuel, if you look at the cost of your private health care, which would have jumped by 8% over the first six months of this year alone, if you look at your electricity bill, given the fact that so many people now are spending more time at home than they have in the past, the cost of living has simply gone through the roof. And real inflation is probably closer to 6%, 6.5%. So, the Reserve Bank have got a very difficult decision to make. And this underpins the performance across all asset classes. if they make a small correction to interest rates right now there's a loss of face they broke the 2024 promise but it's going to take some of the heat out of the property market which you know has to happen you know i live in byron bay the market's at 45 percent last year it's insane i looked i just looked at a 640 square meter uh block of dirt with a three-bedroom knockdown on

Starting point is 01:39:39 it and the agent wants eight million for it you know things are insanely expensive and driving by that low cost of money. If there's a small move up, a quarter of a point, it's enough to just put a little bit of cool water in with the hot just to make it warm. It's not going to collapse the market, but it's going to take some of the speculative pressure out of it. If you don't make that move over the next, say, two, three, four months, inflation come, let's say, in six months' time is going to be sitting at 5% or 6%. And moving interest rates by a quarter of a point is going to have no effect. You're going to have to move interest rates

Starting point is 01:40:17 by one and a half, two and a half percent. You've been around long enough and seen so many cycles in the market as I have to know that a quarter point won't do anything. It's going to be a far harsher measure. And if that happens, the impact on property,

Starting point is 01:40:29 on stocks, on everything is serious and you are going to see a major pullback. So let's hope that they're prudent. And as Margaret Thatcher once said, you may not like the taste of the medicine, but it will save the patient. The sooner that medicine is dispatched to take out some of the speculative heat, I think we've got a more sustainable economy.

Starting point is 01:40:48 Let it go, harsher measures will need to be taken and it will have a much, much more marked impact on property for sure, but also stocks and also other asset classes that are out there too. Ultimately, people have got to be able to afford to live. There's no wage growth. If inflation keeps going up and property prices keep going up, rent can't keep going up to sustain those values, things are overstretched, you will get a pullback. So, I do hope that they put the ego aside and say look we shouldn't have said 2024 we've got to take some remedial action we're going to move on rates now gently just to take the heat out of the market yeah i'm sort of in two minds on that one i i my own read uh andrew is i think uh because in the old days the only

Starting point is 01:41:31 blunt lever that central banks had were interest rates uh what we've seen over the last four or five years with the much more active intervention of APRA and ASIC on the bank policy in particular is that macro-prudential changes and putting the squeeze on the banks has had probably more impact than rates in real terms. So my current feeling, a little bit contrary to what you're thinking there, is that I think they're more likely to use those macro-prudential measures in the short to medium term for two reasons. One, for the reasons you've just spoken about, it's impact.

Starting point is 01:42:10 And it could be a catastrophic one if there's a rapid raise in rates. But the fact is that the governments have also spent a lot of money at very low rates and they have a similar obligation in terms of servicing that debt. It would be catastrophic to governments as well as you and I and every investor out there if they were to ratchet up rates too quickly. So I wonder whether it's going to be a short-term increase in rates or whether they're going to tighten the screws through those macro-prudential alternatives. And we've got a finance-breaking business, so we're seeing firsthand that the banks are already starting to institute that through much more heavy imposition of things like debt-to-income ratios and other mechanisms that are starting to dampen the demand. because that's what we would need to do

Starting point is 01:42:59 is we need to take demand out of the equation given that we've got a sort of hyper-demand that's been fuelled by the massive amounts of stimulus money, the incentive programs and the cheap rates that you've spoken about. So I think there's a number of ways it's going to go. I think anything you can do to keep things growing in a sustainable fashion has to be good, whether it's an increase in LVRs on investment properties,

Starting point is 01:43:23 any of those measures that just take the speculative heat out of it and keeps the show on the road has to be good news. I agree, but I think the important point underlying that whole discussion is that investors of any description need to be very mindful that we're at the bottom of the barrel right now and there's only one way that costs are going to go and that is up. So whether it's now or at some point down the track, And investors need to be taking that on board with their approach to investing.

Starting point is 01:43:58 And what are some of the precautions and the risk protections that investors need to be positioning themselves with to avoid any of those storm clouds that might be on the horizon? Yeah, I think getting your debt structured is a crucial one, certainly on the property side. for our guys that are more stock market focused one of the things that we advocate using is the purchase of insurance for your shares now that might sound a little bit out there too for for for a lot of people and yes you you can do that again we use options to assist us with this and effectively what it will do is give you the ability to guarantee or fix what your downside risk could be. So, you know, let's take Commonwealth Bank. You know, the stock's trading at $110. You could have insured your shares for, say, $104 out till January, February next year. So, you know, six

Starting point is 01:44:57 months of insurance, it would have cost you a few dollars to do that. The Commonwealth Bank's now $100. By buying that insurance, you would have locked in the right any time over the next four months if you wanted to, to be able to sell your shares for $104, more than what they're worth right now well worth doing to eliminate that downside risk potential of you know a real sell off in markets um you know and you can ensure your shares at at a level that would suit you you know and again it comes down to individual choice if you liken it to remember back in the day when you could go to the airport and you could hire a car um you know you walk into the avis office and they've got your hire car ready and they say okay well mr martin here the keys

Starting point is 01:45:42 for your car um just one thing the the excess today is 750 do you want to reduce that and you go yeah look you know if you're fairly um you know competent you're driving and you're going out to dalesford or something from melbourne um you know you might say no i'm pretty happy with that but you know if your car is going to be left out on the street uh for four days in braybrook and there's no garage and no street lights in the street that you're in you're probably going to want to reduce that excess a little bit and so you know you've perceived a higher level of risk so you reduce that excess down to, say, $250. Or if you're super conservative, you can zero it out.

Starting point is 01:46:15 You just got to pay more for it. And you can do exactly the same thing with your shares. You can insure them at a level that you choose. You can pay more if you're insuring them for a higher level, just like you would with a car. But it gives you that peace of mind if you put your screen on in the morning and your shares have dropped 30%. It doesn't affect you because you're insured.

Starting point is 01:46:31 Love it. Love it. And it's sort of taking the sort of stop-loss exercise or the guaranteed stop-loss exercise to another level. Absolutely. Absolutely, and that comes with huge peace of mind for people, especially if they're new to this. Yeah, brilliant, and it's something that a lot of investors

Starting point is 01:46:45 wouldn't even be aware of, Andrew, to even have the opportunity to access insurance to cover their equities. That's brilliant, mate. It's been a really good conversation. I'm really enjoying our chat. We've only really just scratched the surface, so I'm going to open the door to get you back on, get invested on a more regular basis

Starting point is 01:47:04 to dig a little bit deeper on some of these areas. but really have whet our appetite. I want to sort of transition now into what I affectionately refer to as the ambush round or the bushfire lightning round where I ask just the fast-fire questions that listeners always want to glean your words of wisdom on. Gee, you've been working me pretty hard already so I'm definitely going to be working up a lather here.

Starting point is 01:47:27 This will be easy, mate, but I'm going to get you to tap dance to this one. So what's your favourite quote and why? You've mentioned some great ones already but what's one that you haven't mentioned that would be relevant? I'll give my father credit for this. I remember working on a building site with him in my summer holidays, father-son bonding time or slave labour, depending on your definition.

Starting point is 01:47:46 He said, son, always remember this, measure twice, cut once, because when it's cut, it's done. And I've translated that across into my trading career, and it's exactly how I teach my clients to measure it twice, get it right before you hit the go button. Love it, love it. That's a cracker. Turning back to the literary field, apart from Robert Kiyosaki's Rich Dad, Poor Dad,

Starting point is 01:48:08 what's another top book that you'd recommend the listeners have a read of and why? Look, I'm a voracious reader, as you know, and as I know you are too, and it's finding something so interesting for you. I'm going to move that over one. Having read Rich Dad, Poor Dad, I then followed it up with Cashflow Quadrant, and that one for me, putting it together, I was already making good money as an employee, but it enabled me to make the shift from being an employee to self-employed to business owner to ultimately now where I am as being an investor.

Starting point is 01:48:38 And it was a very, very good nuts and bolts, easy to digest thing. And that might surprise people, you think, just because someone is an expert in their field. I'm an expert at trading. That's what I do. But back in my early formative time when I was working this out, I was good as an employee, as an investor, but I wasn't doing it for myself. And that provided me with the pathway to really starting to go, hey forget about doing this for a living do it to help other people do it to help yourself move

Starting point is 01:49:03 into that pathway great book yeah it's a great it's just a brilliant framework that uh again i was like you that was the next book i read after rich dad poor dad and just it it really allowed me to see where i was but where i needed to be if i was really going to optimize the both the financial position but also the lifestyle totally which is key driver there now it's spot on uh I love telling that story. I've had the privilege of speaking alongside Robert himself probably for about 14 or 15 years on and off. And I think he's got quite a healthy ego because he loves me telling that story. I bet he does.

Starting point is 01:49:37 I bet he does. There's no doubt about that. And I'd love to have a chat to you about your rubbing shoulders with Robert because he's a pretty interesting character. He's got some pretty strong opinions on things. Even in the current equation, he's got some pretty out there opinions. But I want to shift quite sideways to the area of tax because a lot of Aussies believe they pay way too much tax. What's the top thing and top legal thing that you've done

Starting point is 01:50:07 to minimise the tax that you pay, Andrew? Look, I think the key thing is effective life. You've got to deal with it and, as you rightly say, get it done in the legal way. One of the things I think is most important for me was getting my structuring right. When people start on a journey in the investing space, say sort of kind of just want to get started maybe they start in their own name or not the right kind

Starting point is 01:50:29 of entity and then once i get good at this or make some money or do a few things and feel comfortable with it then i'll get my structure sorted out get your structure sorted out first because changing things halfway down the line is incredibly expensive take the time get great professional advice get the best advice you can afford get your structuring right first and foremost and everything else will then take care of itself absolutely spot on yeah absolutely spot on having a really good accountant on your team is an absolute must because it will either cost you or save you thousand depending on how you set that up and also protect protect position and and minimize the risk if you've got the right structure in place as well okay i want to sort

Starting point is 01:51:13 of turn back to the investment advice piece uh for a minute and get you to share what's been both the worst and the best piece of investment advice that you've ever received today? Okay, I think best and worst, I could wrap up into the same piece of advice. And I think that was my parents. You know, they always said, you know, Andrew, save your money for a rainy day.

Starting point is 01:51:35 Great advice in the UK because it does rain a lot. But the notion of saving, I think, is key. If you can't save, you're never going to be an investor. And we're in a society these days where people don't like saving. It's not exciting. And this is where some of those micro-investing platforms have been great to kind of force people to save.

Starting point is 01:51:55 And so learning that habit of saving has been great. But saving in cash at the moment with interest rates where they're at, you're just effectively going backwards. Take out inflation, take out your tax, your money's worth less next year. So save your money for a rainy day, but make sure you invest it would be the twist on that, I suppose. Yeah, brilliant. And you're absolutely right.

Starting point is 01:52:14 We live in a world of instant everything. So people have got to have everything yesterday and the whole concept of stacking money away is just almost foreign, unfortunately, to many Australians and much to their detriment down the track. So brilliant thoughts around that. The final question then comes back to habits or what I call rewarding rituals.

Starting point is 01:52:35 What's a personal happy habit or daily discipline that you utilise that contributes most to your investment success today? I think for me, I like structure and I'm a voracious journaler and time manager. You know, it's the thing I'm most guarded off is my time because ultimately I'm never going to get it back. So I choose how I spend that time extremely carefully. Yet most people, it's the asset that they waste the most of, you know, browsing, scrolling, watching some mindless drivel, whatever it may be. And look, if that's your goal in life, great stuff, follow your goal.

Starting point is 01:53:15 But, you know, if you want to get stuff done, whether that's in the investment space or probably even as a precursor to that in the personal development space, you know, goals and personal development isn't about changing who you are. It's to enable you to become the person that's capable of getting what you want out of life. That's all. But it takes time to do that. So for me, investing my time and investing in the processes I use to help me manage my time every day, all day is without question my best investment. Yeah, love it. Absolutely love it. Brilliantly said.

Starting point is 01:53:49 Sort of coming to the close, big question, this one. It gives you a bit of an opportunity to sort of wrap up the key messages that you want to communicate. If I gave you a microphone that spoke to every single one of the 7.7 odd billion people that are currently alive in the world and I gave you a minute to talk, what would you say? Oh, gee, there's an expansive question, isn't it? I think having some level of clarity of what you want to be

Starting point is 01:54:19 and not being constrained in that thinking. Work out what your goal is. Don't be constrained or blown off course by the people. Give away the good opinion of other people. Start yesterday and make sure what you start with is educating yourself, both in terms of the skill set to get what you want, but more importantly in the daily habits and rituals and mindset that successful people have.

Starting point is 01:54:41 that would probably be it in a nutshell it's probably not taken me 60 seconds to get there but you know work out what you want don't let anyone blow you off course and take very very deliberate actions to get there invest in yourself and start yesterday definitely start yesterday or better yet

Starting point is 01:54:58 the day before love it love it and it's even better if it doesn't take 60 seconds because I think that the message is much sharper as a result I'm used to talking to my 5 year old son his attention spans about 20 I reckon it's a good place to start because I think most of us now

Starting point is 01:55:14 who are embedded in the social media world only have an attention span of about seven seconds these days. So you're right on the bullet there. Mate, really appreciated your input today. You've opened our eyes to a number of opportunities there, particularly the cash flow on demand. I think that is something that is well worth investigating further. It's something that very few investors have got their head around

Starting point is 01:55:39 because creating an income stream in the current world is going to be crucial, I think, given that there's a lot of storm clouds and rocky waters ahead of us. So I really appreciate your input on that. I would love to get you back to dive a little bit deeper on some of the subjects as we move forward. And as the economic times sort of unfold,

Starting point is 01:56:02 I would love to get your insights around that. So I really appreciate your time on the show today. Absolute pleasure, Bushy. I'm really humbled to be invited on and love to share this message with people. So glad we could help and look forward to doing more of the same in the future. Terrific. Thanks, Andrew. Talk again soon.

Starting point is 01:56:18 Cheers, mate. Thank you. To get a summary of all this investment gold in the show notes, just email me on hello at khgroup.com.au. That's H-E-L-L-O at khgroup.com.au. or check us out at www.bushymartin.com.au forward slash GetInvested. I look forward to joining you next week

Starting point is 01:56:44 for another episode of the GetInvested podcast. So thanks for listening. And as always, dream as if you live forever and live as if you die tomorrow.

Property Hub - Investment Insights & Inspiration - Get Invested: Andrew Baxter on investing in education

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.