Danielle Ecuyer - Shareplicity
"I can't save for a deposit. Yet, I have my money in the bank and I'm receiving absolutely nothing for it. Why wouldn't I want to be a part of this new investing paradigm and revolution?"
Danielle Ecuyer pursued a successful career in Institutional Equities Stockbroking and Wealth Management for 15 years after completing her Commerce Degree at the UNSW in the early 1980’s. After retiring to have her son, Danielle became a full time investor on her own behalf. With over three decades of successful experience in share investing both domestically and internationally in both a professional and personal capacity, Danielle has brought all of this and her expertise together to create Shareplicity: a simple approach to share investing.
“A lot of the investing is not about being able to calculate every single number yourself, but to interpret what the 'experts' are telling you.”
Danni and I spoke about her books and:
- The corporate culture of car companies
- Inflation and the impact on interest rates
- Discounted cash flow
- Knowing the ratios that are spoken about in the industry
- The way people were burnt during the GFC
- How young guys are wired to do crazy things
- The role of dividends
LINKS TO DANI'S BOOKS
EPISODE TRANSCRIPT FOLLOWS BELOW
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Shares for Beginners
A lot of investors that experienced the GFC have been permanently, literally traumatized by that event. People who had margin loans were wiped out and they will never touch shares. However, the new generation goes "I can't save for a deposit. I'm going to be here forever. Yet, I have my money in the bank and I'm receiving absolutely nothing for it. Why wouldn't I want to be a part of this new investing paradigm and revolution?"
G'day and welcome back to Shares for Beginners. I'm Phil Muscatello. There's a certain simplicity to owning shares. It's not like the commitment required to buy a property. You can buy a tiny bits of the largest companies in the world across a vast range of industries. All you need is a broking account and a will to learn. My guest today is Danielle Ecuyer who has written a couple of fantastic books called Shareplicity and Shareplicity 2. Hello, Dani.
Oh, thank you, Phil. Lovely to chat with you.
Phil (1m 2s):
Lovely to meet you finally. I've been stalking you on Twitter for years.
Dainelle (1m 7s):
Oh, well hopefully I didn't say anything too bad.
Phil (1m 9s):
No, no, no. It's all good. Danielle you pursued a successful career in international equities, stockbroking and wealth management for 15 years. You trained and worked as an Australian equities analyst in Sydney and in 1990 you moved to London where you were employed as a director in senior positions at some of the world's preeminent financial firms. How was London in the city in the nineties? Must've been a fun place.
Danielle (1m 33s):
It was amazing. It was seriously good fun. Particularly at Bearings where I spread my wings and went on to do emerging markets. So that was an incredible journey because it was a bull market at the time, like we're seeing inequities here in the US and Australia. And overseas institutions, large pension funds unit trusts could not get enough of emerging markets so we were very spoiled up until the Asian currency crisis.
Phil (1m 59s):
So what sort of work were you doing there? What was the role?
Danielle (2m 2s):
Basically I transitioned from being an equities analyst to institutional sales and I moved from Australia to do smaller emerging markets and then global emerging markets. And basically, we would be the interface between the research departments and the clients in terms of advising senior clients on what stocks to hold, what sectors to hold, what country allocations for their emerging market portfolios.
Phil (2m 27s):
So presumably you've got some experience in this space.
Danielle (2m 30s):
Emerging markets, yes. I don't touch them.
Phil (2m 35s):
Okay. So then you retired to have a son and become a full-time investor on your own behalf. That was a, must've been a big decision to leave a well-paying job.
Danielle (2m 45s):
Yes it was. Life is a journey and it has many twists and turns. I did make that decision when I moved home from the UK, when I got divorced I actually decided not to go back into the industry. Personal decision so I could actually be full-time raise my son because it's such a demanding job. And over a period of about seven years I tried a whole lot of different other fund managers, basically stockbrokers like I was, they're renowned for being very poor managers of their own money or other people's money. So a lot of us were always not predisposed towards managing our money. But by the time I had kind of cut my teeth on a few different fund manager options and decided I could lose my own money with little costs, I decided to take control.
Danielle (3m 32s):
Which is basically what I did at the start of the GFC. And I've been managing my money ever since.
Phil (3m 39s):
So that's really interesting that you say that. That stockbrokers aren't very good at managing their own money. Why is it like the plumbers who don't have good plumbing or the home or the sound engineers with crappy loudspeakers?
Danielle (3m 52s):
So stockbrokers are very good at advising people on what to do. But sometimes, for some reason, they're not always that great at managing their own risk and managing their own money. But I have learned over time how my risk tolerance works, what I like to invest in and I'm far too headstrong now for anyone to advise me. Wouldn't be a good idea.
Phil (4m 13s):
Are you a bit of a rev head? You seem to like your car analogies. Tell us about those.
Danielle (4m 18s):
When I started writing the first book, the hardest thing for any author is to start the first chapter because you have one chance of engaging a reader. And a lot of books on share investing are very dry, are very bland, are very numerical, are very about the analytical process of fundamental analysis or technical analysis. And for many, many years, I had been engaging in shares about the culture of companies. Companies are ecosystems of people and they all tend to vary substantially. So when I was sitting watching Ford versus Ferrari, which I happen to adore as a film, the first chapter of the book started to write itself in my head.
Danielle (5m 2s):
And the reason was is that here I was presented on screen with two very, very different corporate cultures with two very different outcomes of what they were trying to achieve. And I felt it was a great way to explain to new investors or existing investors, that culture, quality of a company are incredibly important. But because they're sometimes deemed as qualitative analysis, not quantitative analysis, a lot of people find it very hard to understand. So that was the premise for the first chapter of Shareplicity: A Simple Approach to Share Investing.
Phil (5m 40s):
And so with the second book you continued with the car analogy as well.
Danielle (5m 44s):
Yes. Again, I started with a transformational company, Tesla, that I believe is changing the world. It's furiously contested on Twitter, whether or not this is a well understood company or a well understood company. I used it as a company that was synonymous for change and an analogy for what the book was going to present going forward by comparing Tesla against Ford motor vehicles.
Phil (6m 11s):
So in the first book you cover the basics of investing in shares. What are some of the economic fundamentals that you start talking about in the book?
Danielle (6m 20s):
So there's two ways to look at the share market you have what's called the macro-economic view, which is the big picture economic view. And it has had a very material impact on not only shares but all asset classes over the last four decades. So I described in both books how you look at the likes of inflation, how that impacts on the likes of interest rates, how central banks have used monetary policy, i.e. changing the interest rate settings, to create growth or to slow things down. And it's very important because interest rates have a direct bearing upon whether or not we want to take our money out of the bank, put in the share market, but also on valuations in terms of some people that do discounted cash flows and general PE analysis.
Danielle (7m 9s):
So we always start with the big picture and then we move to what's called the bottom up approach. So the big picture is the top down. And then we moved to the bottom up approach.
Phil (7m 19s):
Can you explain discounted cash flow please?
Danielle (7m 21s):
Discounted cashflow is basically an analyst sits there and forecasts 2, 3, 4, 5, 10 years out the profit and loss statement of a company. Once you derive the profit, you calculate the payout ratio, how much you expect they're going to pay out in dividends. You calculate the for dividend stream, you apply what's called a discount rate, which is an interest rate attached to what you expect will be in the future to bring it back to a present value. It's quite complicated but basically you're trying to attach a value in the present to what you think you are going to receive in terms of a dividend income stream in the future. But in terms of analysing companies, it doesn't just have to be, you know, dividend discount models.
Danielle (8m 7s):
It can be just purely discounting out into the future the profits that you expect to company is going to make in 10 years time. And then applying a PE multiple of that to try and work out a future price in 10 years by way of example.
Phil (8m 23s):
So how would a beginner, you know, start to look at these kinds of figures? It might be a little bit hard right from the beginning. And if you want to take, as you say, a bottom up approach, you're going to start to need to understand some of these concepts.
Danielle (8m 35s):
I think for beginners it's really important that you don't have to do these calculations. I don't think that is what you should be trying to do. And I think that too many people get totally bogged down in trying to say to people, "you have to sit there and calculate the PE of every company you buy". Companies now are so well covered, whether it's institutions, so credit Suisse, Morgan Stanley, JP Morgan, there are online financial information news surfaces, which will give you all of this information. What retail investors need to understand is what those ratios mean and how they interact on a relative basis.
Danielle (9m 22s):
And this is something that I really believe firmly in. A lot of people would say, "well, that's too simplistic". But it's not really because understanding the difference between how a valuation on a cyclical company versus a growth company is as important as knowing how to do it. But as a retail investor, you don't have the time, the resources to sit there and analyse and do your own spreadsheets. And why would you reinvent the wheel when you've got, you know, 50 plus excellent brains doing all of that for you? Your job, in my humble opinion, is to look at that information and be able to differentiate between who is a good source of fundamental analysis and what position they're coming from versus somebody that you would maybe question.
Danielle (10m 14s):
And that's really how we had to operate as institutional salespeople. We would have, you know, 10 inches of paperwork, fundamental analysis, arrive on our desks every two days. To think we read that cover to cover, although some of the guys tried to, but they're still dreaming. You basically had to absorb who you felt was a good analyst, the premise on which they were making their forecasts is incredibly important because the forecast is only as reliable as the inputs that they put into it. So again, in the books I explain the technical aspects to people. When I say technical, you know what a PE ratio is, what a dividend yield, but I don't think anybody should be trying to do that.
Danielle (10m 57s):
It's different if let's say you have lots of money and you say, "I'm only going to buy 10 stocks" and I've got, let's say $10 million, and I'm putting a million dollars just into those 10 stocks. So you're taking what we call high conviction bets. Then you really want to be very comfortable that you understand the risks that you are taking per each stock. But for most people, they're not going to take those high conviction bets. And if they are doing it, they really have to understand their risk of what they're trying to achieve. And this is why a lot of the investing is not about being able to calculate every single number yourself, but is to interpret what quote unquote, the experts are telling you.
Danielle (11m 39s):
And I think this is where most people come terribly unstuck because they do not understand why one expert says this and then another expert has a completely diametrically opposed point view. And that's really where the books try and draw out how you have to come to terms with understanding the premise of their assumptions.
Phil (12m 5s):
People hear the terms growth and value investing. And they're not mutually exclusive and you don't need to get caught up in that, I believe, from what I've seen in your book. And so explain to us the difference between growth and value and also what interest rates may have to do with that.
Danielle (12m 23s):
Absolutely, so typically value shares are what we call cheaper, which means they're on lower price to earnings multiples. They typically are cyclical shares. So more traditional, sometimes old economy stocks. So you're talking the banks, the materials companies here in Australia, they could also be overseas the likes of a Procter and Gamble. And the thing about those shares is that there are investors that always want to buy everything, cheaply. Cheaply being on a very low price to earnings valuation. On the contrasting side, you have growth slash technology companies, which have a completely different business model.
Danielle (13m 9s):
And that business model is that they are investing heavily to grow for the future. And Amazon is the classic case that is always trotted out. Amazon would not declare any earnings because they were reinvesting to build another billion dollar storage facility. So the point with those growth companies is, is that their earnings are very forward-looking. They're not 6 months, 12 months out. So applying a PE multiple to something that makes no earnings makes no sense. But for you as the retail investor, again if you're listening to a fund manager because there's a lot of information that comes to Australian investors now from fund managers, those experts, you need to understand when you are listening to one, that they will be a value investor and they will push really, really hard to buy this stock that's really cheap and it's been underperforming for a long while.
Danielle (14m 6s):
And that's absolutely fine as long as you realize that they are never going to tell you to buy an Afterpay, to buy a Amazon or to buy a Xero, for example. Because it just will always be too expensive. And the argument is because interest rates have been trending down for the last 40 years is that interest rates, the lower they are, the more they support investing for growth as in growth companies. And only this time round in this economic cycle have we been seeing a big switch back to value companies because we had such a sharp, short, severe recession that those companies bounced back very strongly.
Danielle (14m 54s):
But don't get too, as you say, mixed up between value and growth, it's more important that the business model that you're buying into you understand. And whether the relative valuation of that company is at the higher or the lower end of where that type of company should trade.
Phil (15m 17s):
Why are shares the way to build real wealth as opposed to say property?
Danielle (15m 21s):
I don't think it's an either or. I think that because property has become very expensive across the globe for owner occupiers, people are looking to shares and you've had this incredible confluence of events that has occurred as a result of the pandemic. So suddenly people are locked at home, they're working from home, they receive stimulus payments stock markets crash and there are all these low-cost trading platforms. It was the retail investors that led the markets out of the malaise of the March 2020 crash. And I think that a lot of investors that experienced the GFC have been permanently, literally traumatized by that event.
Danielle (16m 6s):
People who had margin loans were wiped out and they will never touch shares. However the new generation goes, "I can't save for a deposit. I'm going to be here forever. Yet, I have my money in the bank and I'm receiving absolutely nothing for it. Why wouldn't, I want to be a part of this new investing paradigm and revolution?" Which has obviously been supported by the strength in the markets. So I've always said one differentiates between what the assets that one holds. I would probably never have a hundred percent in shares, nor would I have a hundred percent in property. I however was fortunate enough to be able to get on the property ladder very early.
Danielle (16m 49s):
What I would say is that both asset classes are now inextricably linked, and that is not going to change. Central banks have almost wedged the financial system into a position where there is so much debt and asset prices are so high and interest rates so low. We can't even envisage rates going even back to 4% without the whole system unravelling. And I think that's a really interesting topic, not for today, but how do we actually take the financial system forward? But I think for most people at the moment, buying great quality shares that are operating in what I called secular growth markets, these mega trends that are existing, you are trying to buy what was an Amazon 20 years ago, or even 10 years ago.
Danielle (17m 45s):
And you literally just ride the growth that that company can produce
Phil (17m 50s):
Why do blokes like stock tips? Is it fear of doing hard work?
Danielle (17m 55s):
No. If anything, I think guys usually spend a lot of time doing a lot of work I've yet to work out what they're doing. But they do do a lot.
Phil (18m 3s):
They appear to be doing a lot of work.
Danielle (18m 5s):
They appear, exactly. Gosh, my former colleagues would be furious with me if they could hear this. I think women probably are a little bit more cautious and conservative. I've read a really good piece by a guy, professor Scott Galloway, who is a professor out of New York, a marketing guru. And he did a piece on Robinhood and Robinhood has promoted young men punting on options because they make a lot of money out of it. And they also sell the data to big hedge funds. And I think the lure of getting rich quickly is so, so strong. And it's a very, very basic instinct.
Danielle (18m 48s):
And I think men are quite hardwired into that. I haven't seen gambling statistics whether more men or more women get addicted. I have no idea. But for some reason guys really liked to take that high risk punt that they feel can bring home the bacon. And it's kind of like "if I get rich just once, then I give up for life". But it takes nothing into account in terms of the risk of what they're actually doing. It's probably something as simple as it's some form of hardwired disposition that men have to risk-taking. And younger men is we all know, I don't think I'm stating anything that hasn't been said many times by medical experts, their brains take longer to develop.
Danielle (19m 36s):
And that's why young guys kind of do crazy things. And it probably plays itself out, I think, in the share market as well. It's funny because guys go, "you know, you can't possibly buy Tesla", I'm a huge Tesla fan as you've probably worked out, you go and buy this small gold miner instead or something, some small biotech. And I go, well, "how does that work?" I don't understand how you can say yours was a definite punt and it's not risky when Tesla of course has risk, but they're actually producing, you know, potentially up to a million cars this year. Like disconnect, don't see it don't understand it.
Phil (20m 12s):
Yeah. Let's face it. That small end of the ASX is littered with the bodies of investors who've gone into biotechs and gold miners aren't they?
Danielle (20m 20s):
Absolutely. And I just don't understand. I guess the lure of like a shared that doubles goes from one cent to 2 cent is very compelling. But they can also go to 0.01 cent as well. And that's what people always forget.
Phil (20m 34s):
And a one cent share can still drop by 90% can't it?
Danielle (20m 38s):
Phil (20m 38s):
Just as easily. Yeah.
Dainelle (20m 40s):
Yeah. That's right.
Phil (20m 40s):
Exactly. What role do dividends play in an investment strategy?
Danielle (20m 45s):
Dividends should be considered in association with the capital appreciation of the share price. So people often look at dividends in isolation. They say, "I buy the share and it's got to yield". So the income produced as a percentage is 2, 3, 4, 5% in some cases. And of course, if it's Australia, you have your franking credits. But it needs to be considered in conjunction with the capital appreciation in the price. And what the first book explores is those companies that have the ability to not only grow your profits, you can also grow your dividends, but you also have significant enough cash flow to reinvest for the future. And that's the sweet spot of a company you want to own.
Danielle (21m 27s):
You don't necessarily want to buy the highest dividend yielding companies because normally they're the companies that have not invested for the future. They become what we call a value trap. There's lots of examples in the ASX. There's lots of examples in the US I think. I can't remember off the top of my head.
Phil (21m 45s):
Danielle (21m 46s):
Yes. Banks are a classic case in point. Particularly, not Commonwealth Bank, but the other three. Absolutely. Very, very much so. And they're also, I think increasingly you're going to see it in the like of some of the companies like ExxonMobil. There's a lot of them out there. So on a relative basis, if you see a very high yield, you have to have a serious look at the earnings profile of that company. If you were to take Apple, which I've been looking at recently and comparing it, well Apple and Microsoft, two top performers. Their performance over the last five years they've well exceeded that of BHP and Commonwealth Bank.
Danielle (22m 27s):
Even though BHP is at record share price, that's going to have record payouts because of the high iron ore price. The thing about both Apple and Microsoft is they've being able to consistently generate above average earnings growth and pay dividends. So that's kind of the sweet spot. And I think companies like Tesla will be generating so much cashflow. One will be, have to ask oneself, are they going to pay dividends or will it come and share buybacks? So it's that Goldilocks scenario. You don't want it to necessarily cold, like a really super high growth company with big losses for a long time, or too hot, like wow, big fat juicy dividends, but oh my gosh my shares just halved in value.
Danielle (23m 11s):
As in Telstra.
Phil (23m 13s):
In the second book you move on to international shares. How do you start venturing out into the big wide world here in little old Aus?
Danielle (23m 21s):
The easiest way for most people is through exchange traded funds. And there is an increasing list of ETFs here in Australia that will provide exposure to the broader indices: NASDAQ, S&P. But also those secular themes. So that's the easiest way to do it. Then they've got all the different low cost options with Stake for example. I haven't been on to their platform but they make it much easier for investors to buy into US shares and probably fractionated US shares I imagine.
Phil (23m 55s):
They are. Yes. I've had a little, a bit of a play around with it. I've got some, nice little biotech company, in fact. Fractions of shares of that and GoPro via Stake. Yeah. Just giving it a go.
Danielle (24m 5s):
Yeah. It's interesting because an investor approached me the other day from one of those, you know, investing groups and started talking about custodian risk for owning US shares. And it's just worth pointing out to everybody. It's a bit like when you go and buy Bitcoin. You've got to be really careful to know where that's sitting. It's the same with US shares. So I use CommSec who use Pershing, which is part of Bank of New York Mellon, who did not go under, quite obviously, in the GFC. So my counterparty risk, as in that trustee that's holding those shares on behalf of me, I know they're not lending them out, I know they're not doing anything silly. So the one thing I would say to people with all these new platforms, you really need to do your homework to find out how your shares are being held.
Danielle (24m 55s):
And I haven't had the time yet to look into all of these. I think probably for most people, ETFs are a good way to go. And you start until you evolve up to a certain amount of money in an ETF and I call that the backbone of the portfolio. And then you put the ribs on to give you a bit of kicker and performance, which you can start adding stocks to by way of example. If you want to open a US account, it's not terribly difficult. You will have to fill out a tax form and it has more relevance for the dividends you receive rather than the capital gains tax. But you can buy directly obviously into the US markets, which increasingly I think some younger Australians or actually a mix of Australians are doing.
Danielle (25m 41s):
But it's very exciting today, Phil, because Square is going to have a dual listing in Australia and the US.
Phil (25m 48s):
Is it Afterpay or Square?
Danielle (25m 50s):
Phil (25m 50s):
Oh Square are going to be dual listed as well are they?
Danielle (25m 53s):
Well not Afterpay because Square's taking over Afterpay.
Phil (25m 55s):
Danielle (25m 57s):
So you will receive Square shares. And for Australian shareholders, they will get the equivalent Square shares that're listed in Australia. There'll be like a depository receipt. So yeah, that's really exciting. That's a really big deal. That's a big deal for the Australian market. That's like seriously important.
Phil (26m 16s):
It is. And that's because Jack Dorsey's the owner of Square, bloke that owns Twitter as well. We often talk in the finance industry in this perfect world where people have got mortgages and they've got superannuation, they've got good paying jobs and they've got the capacity to have excess funds to invest in markets. There are some people that don't have this kind of wherewithal. Where can they start investing? How can they be helped?
Danielle (26m 42s):
That's a really good question because at the end of the day, even to use the Raiz platform, micro investing so if you go shopping and every 10 cents they rounded up and it goes into an ETF product, you still need to have access to debit cards, a bank account and all of these things. And they're obviously large chunks of the population that really, really struggle. I don't have the answers to that. I do think though that technology has really opened everything up substantially. So I saw an ad that Square has done in the US: through your Square payment system, or actually it's their cash app that they have, you can start to invest with as little as a dollar in shares in the US.
Danielle (27m 33s):
And I think that in the same way as technology came to our saviour during the pandemic to allow us all to interact at some level when we couldn't do it physically, I think that technology is going to continue quote, unquote, the democratization for smaller investors to be able to get involved. That of course, leads to the next question of how does central bankers and governments then control the beast that they are creating? Because the way that monetary policy has evolved, it is forcing pretty much everybody to invest, which is great.
Danielle (28m 16s):
We need people to invest. We want them to invest in ways that can change the world for hopefully a positive. But it equally means that that system can never be allowed to shake or have an earthquake because the tentacles are so deep into society. And I think this is probably one of these things that while we're all bullish and it's all very positive, we do have bull markets at the moment and of course, everybody wants to be part of that, but we also have to realize that at some point there will be a correction in markets and people have to prepare for that and be ready to say, well, don't panic at the first instance.
Danielle (28m 59s):
But generally speaking, I think technology is going to allow for many more people to hold their favourite shares. And that's kind of exciting because I'm a great believer that it's the younger generation now. It's their world. It's their vision, how they want to see it, how they want to grow it. And I'm hoping that they have the ability and the wherewithal to start to use their money to create the world they want to see.
Phil (29m 30s):
Yep, that's right. They're in charge now aren't they?
Danielle (29m 33s):
Well, they're not in charge, but they have the potential to, let's say, exercise their democratic rights in ways other than the ballot box.
Phil (29m 44s):
So tell us a bit about the books and where people can find out more about you and more about the books and to buy the book as well.
Danielle (29m 51s):
Both of the books are online. So they're Booktopia, Amazon, all good bookstores. My website, you can find a lot of information. You can buy author signed copies from my website. But also there're interviews, media pieces, blog articles, I've started doing my own Shareplicity talks with different interesting people, although that's very embryonic. And I'm across Twitter, Facebook, LinkedIn and Instagram. I draw the line at Pinterest.
Phil (30m 23s):
Where are you going to get your recipes from? We'll put all of those links in the show notes and the blog post as well so people can find them easier. But Danielle Ecuyer, thank you so much for joining me today.
Danielle (30m 34s):
Oh, pleasure. Thank you so much for having me, Phil.
Shares for Beginners is for information and educational purposes only. It isn’t financial advice, and you shouldn’t buy or sell any investments based on what you’ve heard here. Any opinion or commentary is the view of the speaker only not Shares for Beginners. This podcast doesn’t replace professional advice regarding your personal financial needs, circumstances or current situation