We are all flying through life. Busy busy busy. Important things to do. So very important. Can't talk, can't stop, can't go, can't come, can't make it, can't do it.
Busy. We all have our own reasons. I write an average 6600 words a day, 250 days of the year. That's 1.65 million words per annum. The average length of a novel is 60,000 words. I write 27.5 novels a year. Excuse me then if I'm a bit busy. Then there are four kids that demand a little bit of attention.
We all worry about money but the truth is that the most precious gift you can give anyone these days, especially your family and kids, is time, and all this technology-driven rushing about that's going on has elevated its value to immeasurable heights.
Simply turning up, ringing up, listening and being there is now the biggest compliment you can ever pay anyone. I remember a story about one of Packer's Birthday guests famously saying when asked whether they had bought a present for Packer's birthday, "I'm here, that's enough isn't it?" It is. The next time someone turns up on your doorstep give them a big hug and say "Thanks".
Time. The most valuable asset on earth and the most generous of gifts. Use it or lose it. Make it or waste it.
With this in mind I am going to tell you how to save time, in the financial markets, because when it comes to the stock market there are a lot of things that waste your time. They include:
Sorry. But without us really noticing, software has killed the art of presenting. PowerPoint has sucked the art of entertainment out of the presentation process by empowering even the most unimaginative, reclusive, bland but credentialed introvert to present ''well''. It's that good. But I think the time has come to call the ball, we've seen enough.
Presenting is a privilege and an art form and that art isn't found in the reproduction of a text book in slide form, Presentations take originality, imagination and some hard work. Presenting is a “Show” and presenters have a duty to the audience that have donated their time, to perform. There is a fantastic book called “Storytelling in business for Dummies”. You’ll get the idea in the first couple of chapters. It talks about left hand brain and right hand brain and how a lot of presenters appeal to the left hand brain, which handles information. But if you want to make an impact you have to present to the right hand brain. That means telling a story full of courage, cowardice, bravery, success, failure, character, luck, anything that provokes emotion, because emotion engages the right hand brain. You can present information, even really important information, but, if the audience can’t remember your name, you have failed.
In the days when a small USB can carry more information than many of us could ever absorb in the whole of our lives you begin to realise that the big issue with humans is that their input mechanisms are terribly slow. We have eyes and ears not a USB drive. You cannot download to a human the way you can to a computer.
On that basis humans are completely overwhelmed with the volume of information they could absorb, which means we have to choose very carefully what we bother to read and listen to
Listening is the slowest input method, reading is faster, so if we are going to listen to anybody it had better be good because if you’re just passing information, sorry, but we can read that 1/10 of the time. So put on a show. Bottom line, face-to-face contact is very inefficient so choose carefully who you listen to, otherwise you’re simply wasting your time.
I am appalled at the way the Internet has shredded good content. It used to be that intelligent considered people provided us with thoughtful, intelligently crafted content, through mediums like the newspaper. But, faced with the limitless pages of the Internet the institutions that are (soon to be 'were') responsible for the integrity, quality and value of financial content, have sacrificed it in the pursuit of the volume of clicks, and a legion of intellectual, interesting and committed journalists has been sacrificed with it.
An example for me was an editor telling me that I should write using financial 'click words'. He sent me a list of the top 35 financial click bait words for stock-market content. I only had 700 words but I managed to weave the 35 financial bits of click bait into the article numerous times, which involved mentioning Warren and Buffett as many times as possible. 'Warren' and 'Buffett' are the two most powerful financial click bait words by a mile, and whilst I understand their use, I abhor the relentless use of that click bait in the output of many of my financial colleagues and competitors, even the previously insightful ones. They have debased themselves.
At the end of my click bait article I wrote, “This is possibly the most valueless article I have ever written, but it will almost certainly be the most popular”. It was the only article this particular editor has ever refused to publish, before, since or after. The point being that any writer or corporate that uses click bait has perverted the integrity of their content to suit the Internet not the reader. To me, the "10 best stocks" and the "5 things you must know about investing" is an insult to, in my experience of thousands of Members, the quite sophisticated financial press readers.
Click Bait articles might be an imperative these days for the marketing department of a financial product, but it is a sad evolution that has forced good content into the background. I hate the idea that I have to write articles about “the 10 dividend stocks you have to own” but my business will get left behind if I don’t. Bottom line, financial click bait is a disgusting degradation of financial content, but what are we to do? Not read it is the answer. Or in my case, not write it.
Media talking heads
This one is from experience (!). Imagine if you will a daily coin flipping contest conducted across the whole of the Australian nation. Everyone’s in. On the first day 24 million Australians flip a one dollar coin. The rules are that if you flip heads you stay in, if you flip tails you give your dollar to the ones who flipped heads. Every day the losers drop out and the $24m pool of money is shared amongst fewer and fewer people. After day one there should be around 12m people left in the game and each will have won a dollar and each, and, if they were smart, could write books called "How I doubled my money in a day". This process goes on and every day the value of being in the game grows and the stakes rise for those left in.
Assuming the honesty of the losers, after ten days of flipping there will be around 23,500 people left in the game and each will have won just over $1,000. At this point there will be 23,500 people walking around Australia feeling pretty chuffed with themselves and their ability to turn one dollar into one thousand dollars in ten days. Pretty impressive. And no doubt some of them would begin getting a bit of mileage out of their position, dropping it into the conversation at nightclubs, expounding their theories on how to throw heads at dinner parties and generally making hay. The media would be stirring and the water coolers abuzz with talk of the local hero still in the game. Five days of flipping later there would be 732 people left, each worth $33,000.
Another five days later and there would be just 23 people left. By this stage, each flipper would have thrown heads twenty times on the trot and each would have cracked the magic sum of just over one million dollars each.
From one dollar to millionaire in twenty days. Wow.
Stop the contest and Australia would be swarming over the twenty, the flipping “elite”. The “Smartest” flippers in the nation. And they would make global headlines. And they would write books. “Flip for Success”. “20 Top Flips”. “The Psychology of Flipping”. “Flipping for Dummies”. “The Idiots Guide to Flipping”. “Rich Flipper Poor Flipper”. “The Way of the Flipper”. “Common Flips and Uncommon Profits”. “The Intelligent Flipper”. “Mastering Flipping”. “The Flipping Way”. “How I made one million flipping dollars in twenty days” and the most recent record busting bestseller of them all, “Coin Flipping Secrets” by Marcus “The Big Flipper” Padley.
And we would buy them. And some would arrange motivational seminars on how to flip yourself into a luxurious retirement, starting with just one dollar.
The investment banks would launch capital guaranteed leveraged flipping products that charge you a hidden 16% before you make a dollar. And we would buy them.
And we would trade online with E*Flip and CommFlip for a fraction of the cost of a full service flipper and the unsuspecting would trade highly leveraged “Contracts for Flippers”. And we’d buy ten CD Flipping Courses plus steak knives in three easy payments on the 1300 number on the late night infomercial. And the irrefutable proof of the benefits of flipping would be the 20 people left in and their results. How could we argue with that? They exist. Flipping can clearly transform your life and yes, you too can flip. Of course the results would have been the same had twenty four million Orangutans been doing the flipping, but then Orangutans don't have the skill to build a CFD platform that allows you to trade flipping forex, and they don't look quite as good on the ABC as people like Marcus Padley.
The point being that you can waste a lot of time listening to orangutans like me on the TV. Most are 35 year olds with no assets, a million dollar mortgage and no investment portfolio anyway, despite the fact they talk as if they run a billion dollar hedge fund. Yes we are on TV but we have no more ability to predict the future than anyone else. So don't credit us with anything more than looking good and sounding intelligent. It’s a show, but for an investor, it’s a waste of time.
The talking heads in the media speak daily and react by the second. That is their gig. And because of their focus on each 'moment' they will always paint a picture of disaster when the market falls and a bubble when the market rises. They will also miraculously appear to be vastly more intelligent than you or I (well…you) and all of them will have “bought the stock last month” before it went up and “never liked the stock” when it goes down. But the truth is they are there to further their businesses by looking clever, and the quality of their commentary is, by the nature of their daily appearance, very short term and on that basis of little value.
The fact that some TV programs use a count down clock to economic numbers, and that most of their presenters breathless shout before it’s too late, tells you, this is about trying to generate urgency, and the urgency, I can tell you, does not pay.
If I have learned anything in the stock market game over 35 years, it is that you will not make long-term progress with a short-term focus.
You cannot stare at your screens all day and make money. Being first does not matter. Being right matters and in the stock market game the only edge the average Joe need concern themselves with is on the horizon, there is no edge reacting to breathlessly urgent talking heads. The game is to assess which stocks have a future over years not over the next half an hour. Tomorrow all the urgent talking heads will be over-reacting again. Best you ignore them (me). It is just a commercial show.
We are building our brands and wasting your time.
There are a number of ways to approach the glorious game of stock picking, but let me tell you what you already know, there is no Holy Grail, and I get particularly irritated with the quotation, adulation and promotion of Warren Buffett and the idea you can do it "The Warren Buffett Way". It is my contention that 'The Warren Buffett Way' and the way investors and advisers alike have skimmed the surface and pretended to apply his methods, has cost the average investor more money than it has ever made them. I have no problem with Warren Buffett himself, but with the popular delusion we can and should do what he does, or at least, has done in the past.
Some stocks, particularly resources stocks, have extremely high correlations with commodity prices and other stocks with other major share price drivers. Doing in-depth research on Oz Minerals, Fortescue Metals, BHP, RIO, Whitehaven coal, Woodside and many other stocks whilst getting the trend of the copper price, iron ore price, coal price and oil price wrong, is an utter waste of time. You can go and visit BHP’s Brazilian subsidiary and work out the return on capital employed but when the share price is a slave to the iron ore price, the coal price, the copper price and the oil price, again, you are wasting your time.
The game is not to analyse the companies, the game is to second guess the trend in the underlying commodity prices and, through them, the share prices of these highly correlated stocks. On that basis most of these stocks are only ever cyclical commodity price led trades, not investments. If you think you can analyse them and get an edge, you are wasting your time.
How many more articles does our industry have to rehash about cognitive bias, emotion and anchoring before everybody gets the point that to be successful investors humans simply have to put their human traits aside. You have to be cold about investment and trading, Spock like, logical, unemotional, detached. When you are losing money it is normal to become emotional, but it is pointless. There is no certainty, there is no Holy Grail, there is just a process of narrowing the probabilities as much as possible in your favour and the understanding that once you have done your best to narrow the odds, absolutely anything can happen next.
Humans are wired for hope, to like, to hate. But there are no “good stocks”, or “bad stocks”. This is why Vulcans make much better investors. They are wired to coldly process the information and make a decision, whilst we get confused, depressed, optimistic, pessimistic, we worry about whether we are in loss, or profit, anchoring ourselves to some previous share price that is now irrelevant to tomorrow's share price. These are all things that add no value when it comes to clinical decision-making. There is no liking or hating. What you paid for a stock is irrelevant. The bottom line is, when it comes to investment, being human is a waste of time.
Economists from big institutions
The essence of investment is what stock you hold and when. But 80% of media focus is not focused on this eternal conundrum, it is focused on what the economists and strategists are saying. So you need to understand this about economists, almost all of them, certainly the well known ones in Australia, are representatives of large product selling institutions.
In Australia the best-known economists are from the major banks and the major fund managers. Understand that each of them has a legion of salespeople behind them whose job it is to sell financial products under the same brand. Because of that they will never, ever, ever tell you to sell. They have one simple imperative, calm the clients down, keep them happy, keep them invested in their company’s products. They do that by presenting a calm, intellectual persona that suggests the markets are predictable and understood and there is no uncertainty. On the contrary the financial outlook is certain and optimistic. Their job is to keep the clients in, not let them out, and they do that by presenting some level of non-existent certainty.
Certainty sells financial products
They are all intelligent, educated, presentable, economists and strategists, but their opinion is not independent because if they were to ever say “sell” they would have the thousand product salespeople that work under their brand, most of whom would have sold a financial product to a client the day before, calling for them to be sacked. Because of their corporate responsibility, most economists are, a waste of time.
I have a theory. If I was to tell you exactly when interest rates are going to be raised or lowered and when, you would not make any money out of it in equities. Bonds maybe, but not equities. So why do we spend so long talking about it. You will not make money second-guessing Janet “the chicken” Yellen or Mario “more boring than an economist” Draghi.
I can tell you what’s going to happen with interest rates, growth, and inflation. They are going to be at 2%, 2% interest rates, 2% GDP growth, and 2% inflation for the rest of our known lives.
This is not 1980. Interest rates do not move from 10% to 17% and back anymore. Assume a 2% world.
Now get on and pick some stocks, because all that macro crap, is a waste of time.
Do I really have to explain this one. Most broker research is a cross between a marketing document and sucking up to the companies the research is written about, in the hope of a corporate relationship if one doesn't exist, or to service the existing relationship if it already does. The analysts aren’t stupid, the research is worth reading, they've done more work than you, they have better access, they know more, but understand that it is not independent advice. Also understand that by the time you read it, if it actually does have some insight, all the important clients have had it for the last week. You are there to ice the price not take advantage of it.
Broker research is tainted with corporate purpose and is rarely written with the singular motive to make the end reader money. Here is an extract from the Marcus Today Shorter Melbourne Dictionary of stockbroker recommendations, which just about sums it up.
BUY – It’s listed.
HOLD – It’s a SELL and we’re not about to ruin years of relationship building between the analyst and the company and the corporate department and the company.
SELL – We pitched for a role in the capital raising and another broker beat us. .
We are moving from BUY to HOLD – SELL
We are moving from HOLD to UNDERPERFORM - SELL
UNDERWEIGHT - SELL
Oversold – It's a terrible company but we’re the broker.
BUY (on a small company from a big broker) – We are about to do a capital raising.
Conviction BUY – Same as a BUY but we’re a small broker craving attention.
The bottom line is that the majority of broker research is tainted by some Machiavellian purpose and on that basis, it as a waste of time.
If you don’t already know there are two spreadsheets going around the Australian stock market (and the international markets). One is from Thomson Reuters and the other one is from Bloomberg. Brokers do deals for cheap Thomson Reuters and Bloomberg terminals in return for providing these news outlets with all their forecasts. Those forecasts are made available to the customers of these institutions as a value add and these forecasts re-appear in a thousand data-dependent research and software products.
The only difference between many of these products is how much money has been spent on their website presentation. Some are very flash, some are very basic, but the core value add is exactly the same, a regurgitation of consensus forecasts. Then you need to understand that these forecasts are already 'in the market', in other words they are already discounted by the share prices. Net result, you can use this data to search sort and filter for companies to invest in, you can use these forecasts to put yourself above the few people who don't have access to them, but all you are really doing is re-sorting information that is already in the price. You will not make money out of widely disseminated information like this.
If you consider that if BHP hits its consensus earnings forecast exactly, the share price will not move. The thing that moves the share price is when the unexpected happens, because the expected is already priced in. On that basis, to make money out of shares you have to work out what’s going to happen that is unexpected.
That insight could come from many sources but it will not come from a spreadsheet of consensus estimates, and it will not come from a $1500 subscription to a fancy product that re-presents the information encased in beautiful graphics.
We should all have a subscription to one of these products, access to what the market already expects is essential, because only then can we work out what the market doesn’t expect. But the only way to make money in shares is to work out what the market doesn’t know before the market knows it. But if you think you are going to gain an advantage, by knowing what everyone else knows, you are wasting your time.
About the only thing that does pay off, when it comes to predicting share price movements, is an insight, to a company, an industry, a theme. To something that the market doesn’t know. When it comes to identifying insight one of the obvious places you would go is to some sort of stock-market forum. But unfortunately there is no forum out there that is filtered for very much more than swear words. In which case forums tend to be very short term, very dense in their information (although some providers have done their best to create search functionality) and are lacking in integrity because of the anonymity. It’s a pity because somewhere in there, there is doubtless some insight, that is being drowned out self-interested spruiking and shareholder bias. In the end most forums are a waste of time.
That’s about it for things that waste your time. Perhaps I should have included 3300 word articles from Marcus. Hopefully this didn’t waste your time and knowing what you know now, it will save you some time.
Next time perhaps… “Things That Do Not Waste Your Time"...and there are some genuine ones.
Marcus Padley is the author of the Marcus Today stockmarket newsletter.
As an individual retail investor I'd like to say thanks for being real about investing.
Great read. Thanks Marcus!
Great article Marcus, No doubt you would ask readers to view your article with the same skepticism you suggest for other market commentary. ;) Research shows that negative views expressed by commentators are seen as more "knowledgeable" than positive views so it is little wonder "experts" are falling over themselves to tell us how bad things are and the next crash is just around the corner. Regarding "consensus forecasts" I couldn't agree more. Every reporting period I am amazed how wildly negative or positive the markets react when these arbitrary targets are missed or exceeded. Just finally, your point on forums is a good one. If you can ignore the personal abuse and point scoring between participants there is often the odd gem to be found. Again well done!
Brilliant read Marcus!
Great Article - looking forward to your "Things That Do Not Waste Your Time" followup take on stockpicking. :)
Excellent. I've been a serious investor for 50 years and EVERYTHING in this article ring true.
Time well spent - to write or read. Cynicism at its best. What inspired you to write this article now? Are you about to retire and enter a Buddhist monetary, I mean monestary?
Thanks Marcus, I have been heading to this conclusion (slowly) for a few years now. You have focused the subject. Marcus for PM?
We now know the name of the little boy who pointed out that the King had no clothes. His name was Marcus !
Entertaining, and a few pearls.
Very refreshing. Thanks for taking the time to write an informative and entertaining article.
Thanks Marcus! Interesting read! Would love to know your thoughts on commissioned independent research, and the comparison in terms of risk of conflicts of interest to broker research who are influenced by fees.
Great article Marcus - as usual - thanks for the nudge!. Thankfully we still have one broker to tells it like it really is. You have again reminded me why I have keep subscribing to your newsletter.
Thanks for being candour, its an eye opener for a novice investor like me but it does not make it any easier. Great article looking forward for the genuine ones.
An amusing and entertaining article.
I'm wasting my time trying to work out if that was a waste of time or not. Well done Marcus.
A great insight to investing methods.
We need a Royal Commission into the ASX, Regulators, Bankers, Brokers, Planners and all associated people as it is a casino not an Investment medium for wealth creation eg Blackmores Revenue down, Profit down, outlook down but price up 10%, if it doesn"t make sense it is corrupt.