TONY KYNASTON - KNOW YOURSELF
Tony's been on the podcast several times and I always enjoy our chats. We started this discussion with one of my rants about how beginners need to understand who they are before they invest a single dollar.
Learning how to become an expert stock picker is not something that happens overnight. It takes years of learning, expensive experience when you will be making costly mistakes, managing risk, and dealing with the emotions that are inevitably attached to money. Many people think that it's just a matter of being given the right "tips". It simply doesn't work that way. As Tony says: "We're trying to teach people how to fish, not give them a fish dinner every night."
"If you're a growth investor and that's the way you invest, then at least try and put some science into it. Don't just follow blindly because someone's tipped it to you or because you like Elon Musk. My investment journey started off with that way of thinking, following tips. And I used to work for an oil company. So we'd go around and talk to the guys who were working in the exploration sector and say, give us a hot tip. And we'd lose our money. So I came to what we'll call value investing, which to me is investing." Tony
TONY'S INVESTING LADDER
Four steps for anybody who wants to get started in the share market.
The first step is investing in index funds. Either ETFs or Listed Investment Companies, I would buy listed investment companies because they are closed funds. Generally a big index fund will trade around it's NTA (Net Tangible Assets) and you don't get the big movements. That's fine if you're the kind of person who's busy with their life, has some money to invest, is happy to get market return, then do that. That's the first step on the investing ladder. And I kind of equate that with people who buy their own house. Most people, you know, at some stage have made an investment in a house. They understand if I'm buying something for the long term. I'm going to get the sort of property market return generally over the years, and I put a fair bit of money into it, but once it's done, I move on with my life and that's a bit like putting your money into a listed investment company that hugs the index. That's the first step.
The second step in the investing ladder is looking at the discounts and sometimes the the overages for the price against the NTA and buying them when they're undervalued and waiting for them to climb back up to their NTA price. And that's the second step on the ladder. So I'm starting to understand how to value a company, and I'm starting to look for undervalued companies and buy those.
I'd stick to the larger index known funds, because sometimes, ETFs and Listed Investment Companies can trade to a discount for a very good reason. They might be shorting the market at the wrong time, for example, and so the reason they're trading below their NTA is that people think their assets are going to go down. So stick with the big the big ones. Morning Star has a list of investment company reports listing the market capitalization of all Listed Investment Companies and you can see which are the big ones.
The third step is to realize that if I'm buying an index fund, I'm basically only buying about 20 or 30 stocks on the share market. And I think from memory, something like 70% of the ASX 200 by market cap is in the top 20 stocks. So, if you focus on those top 20 stocks, and start to get an idea for yourself about the ones you wanted to invest in or not, you can put together your own index fund, where you can put together your own index fund any way you can just go and buy the top 20 stocks, every year and as and check it either monthly or an annual basis. As one drops off the ASX 20 sell it and as one comes in, buy it. So you're basically doing your own index fund investing, but you're not paying any fees, and you're doing it yourself on the brokerage, apart from the brokerage, you're buying in and out using com share or etrade or something like that it's a fairly low, sort of, cost, so that's a low cost index fund.
Step four in the ladder is saying, hang on, I'm buying 20 stocks. I really don't think the banks can kind of add to that index already, or I don't think that Woolworths is going to add to that or whatever the stock is. Start to take an opinion about which of those 20 stocks are going to go up and just buy those. And if you sort of step up those four rungs, you become an investor at the end. You've done it just on the index on maybe 20 stocks but you've sort of learned as you go.
Then I would say if you do that, you can then go and look at the other two and a half thousand stocks on the share market and start to form opinions about whether they're investable or not.
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.