David Kuo chats with Pete Comley, author of Monkey With A Pin.
In this week's episode of Motley Fool's Money Talk podcast, David Kuo chats with author Pete Comley, who believes that most private investors can't even outperform a monkey with a pin when it comes to picking shares that beat the market. They look at why 85% of fund managers underperform the market. You can listen to or download the full podcast here.
David:
This is Money Talk, the weekly investing podcast from The Motley Fool. I am David Kuo, and have you ever wondered just how good you really are at picking shares? How do you go about comparing your investing returns? Could you have done better simply by throwing darts at a page of shares in the Financial Times? Now here to look at why private investors underperform is a private investor himself, and a psychologist, and a mushroom expert, and the author of Monkey With a Pin, Pete Comley. Welcome to Money Talk, Pete.
Pete:
Hi, David – nice to be here.
David:
I'm really intrigued by this mushroom expert bit!
Pete:
Well, it's one of my hobbies, and so come the autumn time, when mushrooms are out there, it's a great thing to do. I have been eating some mushrooms I found last week. You can get 'chicken of the woods' at this time of the year, which is fantastic. You cut it off trees, and it's almost got a texture of real chicken, incredible that that might seem.
David:
And is it true that the mushrooms that look the most enticing are actually the most dangerous?
Pete:
No, it's not that simple, unfortunately. If only the hobby were like butterflies, where there's about 40 of them. There are about 4,000 mushrooms in the country, and the skill is all about trying to find ones that don't have poisonous lookalikes.
David:
And is it quite easy to do?
Pete:
No.
David:
How many years' worth of experience do you need before you can safely say that, look – I know all about mushrooms, and I can eat that one there?
Pete:
It took my wife about three years before she'd trust me.
David:
Good grief! – and she does now, does she?
Pete:
She does now – we've eaten a lot now.
David:
She doesn't prefer the ready-picked ones in the supermarket?
Pete:
I've got a fantastic variety of mushrooms that I pick and eat, but it's great fun as a hobby as well.
David:
And the other thing is, do the mushrooms just regrow in the same patches, over and over again?
Pete:
They do – how did you know that? That's the fantastic thing about it. Once you've found them in a particular place, in fact, when I issued the book the other day, I had comments from one of the readers, sort of saying, I noticed you're a fungi expert, and he sent me this picture on his allotment of these horrid things he'd been kicking over. I said to him, oh – but they're morels , they cost £100 a kilo, these things you've been kicking over. I said, I'd be very happy to verify them for you, if you put them all in a box, and pick them all and send them to me, but unfortunately he ate them.
David:
Wonderful! Now, we're going to be talking about your book. We're going to try and understand if picking stocks is almost as difficult as picking mushrooms, OK, so here we go. Your book is called Monkey With a Pin – why is it called Monkey With a Pin?
Pete:
Right, well the book is all about trying to determine what are the returns for the private investor from stock investing? – and your returns are affected by a couple of key things really: your costs, but also your skill, and there's a few other things as well. In terms of trying to determine what the average skill level is for a private investor, I initially started looking at competitions, and there's this very interesting one called the UK Stock Challenge, and when looking at it, I noticed they'd got an entry in it called Monkey With a Pin. I didn't know what it was, so I looked it up, and every year they randomly pick five stocks, and they hold them till the end of the year, and this monkey does remarkably well. So over the last eight years, he's beaten two-thirds of the competitors, and last year he was in the top ten; in other words, he beat 90% of the competitors. This year he's beating 80% of the competitors. They do a monthly competition – last month, I think he was in the top three, out of all of the contestants.
David:
You're not actually advocating that people go around picking shares randomly, are you?
Pete:
Possibly – there does seem to be something in it. I mean, as further evidence for it, the Wall Street Journal ran a competition throughout the Nineties, up until 2002, where they got the best four pros off Wall Street to come in every month, different ones each time, pick one stock each, and pitted against them, one of the editorial staff put on a blindfold, threw darts into the Wall Street Journal, and this data's all been analysed from these 147 tests throughout the Nineties, academics have looked at it recently. What was interesting is the pros did beat Vanguard's tracker funds, just slightly, but the monkey beat both of them significantly, did massively better. In other words, random stock picking beat not only a passive tracker, but also the pros, consistently over that time.
David:
So if that were true, Pete, how would you explain the likes of Peter Lynch, Anthony Bolton, Neil Woodford, Warren Buffett – I mean, these guys are very, very good at what they do.
Pete:
They are, and having looked at all the data, and the book is all about analysing real data out there, for most people, and for a lot of fund managers, their results are hardly better than random distribution of chance, but there is a group of people who I believe have hot hands, or whatever you want to call it, who genuinely can do better than the system, and they definitely do include the likes of Peter Lynch and so on. Having said all that, even they are not perfect all the time. We all know Anthony Bolton's one in China's not done that well, and even if you look at the likes of ...
David:
For now, yes – but he's only been at it for a few years, a couple of years.
Pete:
A couple of years, all right – but even they are not perfect all the time. If you take Neil Woodford, 2009, 2010, his sort of income strategy didn't do very well at all, and it was below market average. I think what I learnt is that every person's strategy has a time, and during that time it works very well, and I could quite well imagine why income investing over the last decade has done particularly well. Whether it will over the next decade, I'm not so sure – it might do.
David:
OK, but the other thing is, most people try and compare how they perform with regards to the general market, and fund managers are compared against the market anyway. So why do you think that fund managers, in particular 85% of fund managers, underperform the market?
Pete:
Well, I think there's a couple of key reasons there. The main reason why they underperform is the fact of their costs and their charges. We all know the average fund has a TER of 1.7%, plus you've got to add to that the hidden transaction costs, which probably amount to about another 0.6, so you're talking somewhere like a 2 or 3% hurdle before you even start. So that's got to be balanced by high alpha, to mean that they can beat the market, and certainly the evidence out there for academic research is that the average fund manager doesn't have a high alpha, and they've probably got problems that they ... two things, really. I think they end up picking bigger stocks, the more well-known stocks. They also have to appear to be fully invested all the time. They can't easily take a strategy of shorting the market, or staying in cash at certain times in market declines, which if they could, they could potentially outperform the market, in my view.
David:
But you can't levy that same thing against private investors? – because private investors, number one, do not have to be fully invested in the market; and number two, private investors can do whatever they want to. They don't have to invest in FTSE 100 (UKX) companies, they can invest in small caps, mid caps, even AIM-listed shares.
Pete:
Exactly, but the problem the private investor then hits is a whole load of other things. They end up with much higher charges. If you go and start investing in AIM shares, you could end up with massive bid offer spreads, and the actual, it was quite interesting in the book, I worked out what the costs were for the average investor, whether they invested in funds or whether they picked shares themselves, and on average it turns out that most people are losing about 6% a year, no matter which way you go, but why they lose the money is quite different. Private investors lose it mainly through charges and commissions, because even if you're trading £1,000, and you're paying commission of £12.50 to buy and sell, that's still 2.5%, and the average investor turns over their shares just far too often, and that's one of the key things that people take out of the book is to not trade so much. I know you guys keep saying this all the time, to keep your portfolio turnover rate down, but that's quite a key one.
David:
But that requires a lot of discipline, because people do tend to lose faith in their share picks, and they think, oh, I must have picked a dud here, because it's gone down, but it's gone down not because they've picked a dud, but because the market has driven down the price of that share. If they knew what they were doing, they would still be able to beat the market, because they would be saying, look – this share has been unfairly pushed down in price. I should really be buying more of this, rather than to be getting out.
Pete:
Don't get me wrong – I think one of the things I hope to do in the book is to allow people to fully understand all these factors, particularly the fact that most of us buy and sell at exactly the wrong time. In fact, there's some fantastic academic evidence that, there were some people in America who'd got hold of 60,000,000 share trading records over a period of five years, and they looked at everyone's buys and sells, and they found that, in the year preceding people's purchase of a share, an average person, the share had gone up 25%, or 26%, I think it was. In the year afterwards, it went down four. In other words, they'd bought at exactly the wrong time, and there's similar evidence that, when they sell, they tend to sell winners that then go on to do much better, but they hold onto the losers which have declined in price, and in fact would have suffered for that as much as any other person. I've still got HMV (LSE: HMV) shares, which I think I bought for about 90p, which I thought was a bargain at the time, which I think are worth about 2 or 3p now. So we all fall down these holes.
David:
So the most important thing really is to take the emotions out of the equation and be as clinical as you can. So therefore, I'm going back to what you were saying about Anthony Bolton. You pointed out that Anthony Bolton has not done particularly well in China in the first couple of years of his new fund out there, but that doesn't mean he's a bad stock picker. It just means that he hasn't done particularly well for these first two years. If people were prepared to give him the benefit of the doubt, they could find that maybe in ten years' time, that we were wrong – we were wrong about him, because we should have stuck with him, because he's actually come good.
Pete:
Yes, but similarly, if you'd have invested in an ETF that tracked the Chinese market, you may well probably have performed almost as well as Anthony has done. Who's to say he would have performed better than that? – and also the charges that you would have racked up in that time would be less. There's certainly a lot of argument for choosing passive trackers, I think, as a way of reducing your costs, in some markets.
David:
Yeah, now then, we have a couple of newsletter services here at The Motley Fool – I don't know if you are familiar with them. I can't really say an awful lot about them, for regulatory reasons, but we have one called Champion Shares PRO, and one called Share Advisor. Now, all I can say is that they're not doing that badly – they're actually doing quite well. So what are you saying? – are you saying that they're only doing well because of luck? Or that we might just as well have a couple of monkeys in the team, and get the monkeys to throw darts at the Financial Times?
Pete:
I'm not saying that some people can't correctly pick stocks. I'm just saying that the average person out there who is trading shares, the average private investor like me, is not very good at it. So it's clearly possible, but for us, the best strategy probably is to dust down your dartboard in the garage, and throw darts into it.
David:
Or alternatively, buy a tracker ...
Pete:
Or buy a tracker.
David:
... because if you have a look at the stock market returns, there does seem to be this relentless rise in the stock market, year after year after year. Over the long term, it has done particularly well. Why do you think shares do particularly well over other forms of investment?
Pete:
I suppose ... I'm just going to slightly pick you up on on that, that you think that shares go up, or the FTSE goes up, relentlessly over time. If you look back at the historical records, with something like the Barclays Equity Gilt study, which goes back to 1899, and you look at the raw index returns, without dividends, and you take out inflation, that index, for 80 – 90 years, from 1899 to about 1983, went nowhere – didn't gain at all. The only increases during that time were to do with dividends. So the index itself didn't go up, and we had this very strange period during the Eighties and Nineties where we created infinite money, and that spilled over into assets like shares, which increased their value. The long term picture for something like the FTSE going up is not quite how, or at least, as far as I can tell from the real evidence out in the world, is not quite how everyone believes it to be.
David:
So whose fault is that, then?
Pete:
It's not anybody's fault, that the index hasn't gone up.
David:
But isn't it? – or is it just the news channels that continually talk about, the FTSE has reached 6,000 points, the FTSE is approaching 10,000 points, or 7,000 points, and the Dow is approaching 10,000 points, but they never talk about the real returns for investors, which actually comes from dividends.
Pete:
Correct, and I totally agree – the real returns do all come from dividends, that you guys at The Motley Fool have been harping on about this so often, that it does come from dividends. But looking at the data, it really does support that – buying and holding, and getting dividends, is indeed one of the key things that I've learnt by doing that book.
David:
Yeah, and do you think that, for the private investor, it is better to hold cash, or to hold shares, Pete?
Pete:
I think the industry has been misreporting the value of cash again.
David:
Really?
Pete:
Yes. I mean, most of the comparisons, and I take any of the big studies like the Credit Suisse Sourcebook, or the Barclays one, when they compare stuff against cash, they compare something against cash which is not a product which the private investor would use. They are using the 90-day treasury bill rate, which, unless you happen to have a spare half a million around to invest, is not something which I currently buy in my portfolio, and that doesn't actually reflect what the average building society rate is, and some of them do look at the building society rates, I know that Barclays does in their appendix, but where they are looking at building society rates, they're not using representative rates with what the private investor would use. For example, since 1998 they have been putting in building society rates for a postal account at the Nationwide, called Invest Direct, which currently pays 0.2% interest, which is hardly reflective of the 3% or so which most instant access accounts can get, for a shrewd investor. So there is a bit of a big problem, that all the comparisons out there in the world which compare equities and cash are slightly flawed, because they're not comparing like with like. The other issue you have to say, and look back over the last ten years, where we are in this consolidation phase, or secular bear market, or whatever you want to call it, shares have hardly gone anywhere, and during the last ten years, you would have been better off in cash. Do I think you'd be better off in cash over the next ten years? – the answer is, no – I don't think you will.
David:
And why is that?
Pete:
Because of something called financial repression, which some of your listeners may know of, but for those who don't, it's worth googling. It's a policy which is probably one of the few ways out of the debt problem that we have. The UK government has a track record of using this, back to Napoleonic times, as a way of getting out of it, and it does two things really: one, it creates inflation, so that the value of their debts effectively whittle away to nothing; and the other one it does is, it ensures that interest rates are kept low. For example, in the 1930s and ‘40s, we had base rates of 2% for those 20 years. We're going to have the same happening over the next ten years. So that means, if you hold your money in cash, you are going to lose money versus inflation. There's no doubt about it.
David:
Yeah, so what is the best way for the private individual? – I call them private investors, because we are talking about investors here – what is the best way for these people to increase their wealth over time?
Pete:
Well, I suppose I should probably first say that I couldn't advise them, because I'm not an IFA. All I can tell you is what I personally would be doing. I do believe that the best place, over the next ten years, is going to be in shares, and it's going to be adopting a long term buy and hold strategy. But where I probably differ possibly to you, and The Motley Fool really, is that, in terms of the timing and also the picking of those shares. When I pick my shares, I'm going to do them with the dartboard. I'm going to pick enough, I'm going to probably pick 40 or something like that, to ensure that I don't have risk of ruin of more than 2% of my portfolio in a particular share, but also I'm going to pick the timing of when I buy them. I'm going to hold cash until I think the point when shares are more likely to go up than down. I don't like the idea of my capital being eroded, and I think there will be two scenarios where the value of shares will be more likely to go up and down in the near future, and that is if the FTSE puts in another market low, and by low I mean somewhere below 4,000. I think that's not impossible in the next two or three, four years. The other possibility, to me, is if the FTSE breaks out of its trading range that it's been stuck in for the last decade or so, and it gets above 7,000. If it gets above 7,000, to me, I reckon we're back in the secular bull market at that point, and then we're talking FTSE 10,000, 20,000, or something like that. So both of those scenarios, to me, are points when I would invest. Why delay till the FTSE gets to 7,000? – well, because I think, to me there's a bigger chance that it will go down to 4,000, and I'd do a Buffett and buy my shares cheap, thank you very much. If it gets to 7,000, and it breaks out of that range, there is just a wall of cash out there – loads of other people are holding cash, there's loads of people in bonds who are going to switch across into shares when that happens, and the FTSE is going to rocket – that's my personal strategy.
David:
At the start of this podcast, Pete, I introduced you as a psychologist. Why do you think people are so risk-averse at the moment? Why do you think they look at companies that are yielding 4, 5, 6 and in some cases 7% dividend yields, and they're saying – I tell you what, I know this company is yielding 7%, and I know it's a good company. I even use their services, and yet I am quite prepared to stick my money in a building society in an instant access savings account that's paying me 0% - why is that?
Pete:
I hope they aren't paying them 0%, they're paying them 3%, so it's not quite so bad, but why are they doing it is because they fear, and don't forget a lot of the market is ruled by fear and greed, isn't it? – that they fear that the price of those shares will go down at some point. As an example, I remember a year or so ago reading a stock tip about, I think it was Portugal Telecom. I can't remember who it was I read this tip in, and I nearly bought them actually, about two years ago – I nearly bought them, because again it was being promoted to me, having a yield of about 7, 8%, which is way above what I could get in this country at that time, and the only thing that stopped me was that my broker wouldn't allow me to trade on the Portuguese exchange, so I didn't buy them in the end. I haven't even looked what their price is now, but I bet you it's a hell of a lot lower than what it would have been if I'd bought them then. I don't know what its claimed dividend yield would be now, but it's probably, 20% or something like that. But that's my point, is the fear that things will go down, and I think that's what stops people. But I agree – it seems a bit illogical, because dividend yields are high. The other thing I think probably people need to think about is, all investing goes in fads and phases. The fads and phases are ruled by the market. When the market at the moment is moving in a secular, downward sort of consolidation phase, things like dividend investing are going to be a great strategy really, because you're not going to be going for growth, because there isn't much growth on them. We will hit a period soon where growth becomes the key area to be.
David:
So do you not believe in the Warren Buffett mantra of, be fearful when the market is greedy, and be greedy when the market is fearful?
Pete:
I totally believe in that mantra.
David:
But you're not practising it, though?
Pete:
No, I'm holding my cash to when the FTSE goes down below 4,000. That's what I'm doing. I totally believe it – that's why I'm holding cash. It gives me optionality, over the next few years, to buy my assets really cheap, and that's the way to make money.
David:
So you think that the market still has some way to go downwards, before it starts to rise?
Pete:
I think, if you look back at history, and in the book I'll show you a nice sort of graph of the FTSE, well not the FTSE, but the UK index over the last 100 or so years, I think from that graph, I think there's a reasonable chance we will put a new low in at some point in the next few years. I think it's got a reasonably high enough chance, and who knows what it might caused by – it could be Europe falling apart, it could be anything – it could be Iran. I don't know what it could be, or it could be the fact that the whole monetary system collapses around the world. I don't know what it will be, but I think it could happen between now and 2016, and I want the cash to invest in it at that point. I want to buy those assets at rock bottom prices.
David:
OK, wonderful – if you can time the market, that's great. Now, let's go back to your book, Monkey With a Pin. When you wrote the book, Monkey With a Pin, first of all, how long did it take you to write this book, from beginning to end?
Pete:
About five or six weeks – not very long.
David:
OK, no – that's pretty good going. And what was the motivation? What was it that inspired you to actually write this book in the first place?
Pete:
I suppose it was partly ... well, in fact bizarrely it was your podcast that caused me to write this book. I was on my allotment last spring, and I was digging away and listening to your podcast with the students in the school competition, and you quipped them about the fact that 85% of fund managers couldn't beat the market, and that this school up in wherever it was, Manchester or Liverpool or something, couldn't do the same either really, and I thought – no, you can't be right. That's not true. And I came home and sort of googled it, and of course you are right – it is true, and it set that whole train of thoughts going in my head really, of thinking, well, exactly what are the returns for a private investor? – if that's what happens to fund managers, what happens to a private investor? And so for the whole of last summer and autumn, I was just sort of ... every time I read something, like most days I get your newsletter, and I click on one or two articles, I've been culling bits out of those articles. So this book is very much a summary of everything I've read on The Motley Fool and various other places in the last year. So I sat down in January and wrote it really, but it is true – I'm an addict, I'm sorry.
David:
So what are your views about the financials? – about the finance industry, after having done the research and written the book? What is your gut feeling about the finance industry?
Pete:
I'm afraid it's declined a bit really, sort of in having written it, and you don't want to believe how many times I've had to re-write sections of this book, particularly over fund charges, as I discovered more and more, and I gave it to people to look at, and they said, no no – you've missed swings and levies, and all these other things. I don't know – I think they have got a bit of a problem really, and it's one of honesty over some things, and therefore that leads to a lack of trust, and that's not really helping things. I slightly fear for what's going to happen to them, over the long term. I think they're going to suffer what's called disintermediation – in other words, cutting the middle man out.
David:
Is that a good thing, or a bad thing?
Pete:
It's an inevitable thing – I've seen it in, I mean, if you're an optician or a bookseller or anything, or record companies, they've seen all these things happen. It's happening to my industry in market research. It's going to happen to these guys as well. I wonder, in a decade's time, will there be many fund managers around? Why does Hargreaves Lansdown (LSE: HL) offer all these funds? – they could just offer their own funds.
David:
But is it also not happening in the book industry? – I mean, let's take an example of your book. How are you distributing your book? – not through HMV, is it? Not through Waterstones, is it?
Pete:
No, not at all. I must admit, the book industry is also a bizarre industry that works on deadlines of like six months, and things like that. I just threw my hands up, and gave up with it, and I self-published, and so you can get my book by just going to monkeywithapin.com, and the book is free. Similarly, I've even got an order -
David:
So bang goes my royalty, then?
Pete:
Bang goes your royalty, really.
David:
For providing the inspiration for this book!
Pete:
Yeah, exactly, and I've even done sort of a free podcast version as well, so that's free too, so you can listen to it, so you don't even have to read it.
David:
But it just shows the way that things are moving at the moment – they are getting rid of the middle man these days, and everybody is just simply trying to go from the source to the end product.
Pete:
Yeah, and there is a number of benefits of doing that as an author, because people came to me immediately with comments. So I issued a new version of it within about two or three weeks of launch, because I had hundreds of comments and little errors and typos and things like that, and I corrected them all, and the new version has got all those in, and it's got extra sections in it, in a way that any other author wouldn't get. There's thousands of readers of it, and lots of them have told me what they think, and it's great, to be able to get that instant feedback.
David:
It's wonderful that an online version is available for this book, but we also have a paper-based version, which we'll be giving away at the end of this podcast to a lucky listener, but before we actually go down that road, I would like to know you invest yourself – what are your investing strategies, Pete?
Pete:
I think I've sort of fallen into all of the holes that I write about in the book, of things that you shouldn't do. I know when I started, a decade or so ago, I bought into just a few top FTSE shares. I then bought a few funds as well, and I was monitoring them every, it seemed to be like every few minutes really, it was on my desk, sort of seeing what had happened, and some of them I managed to bank profits as much as £9.50 out of, and other ones I cut my losses on when they appeared to go down. I did all the things that you shouldn't do really, as a fund investor, and I bought all the funds that had all gone up in the last year, and then sold them all when they went down, and then went into cash for a whole period, because the market had crashed, and then only came back into equities long after it had gone up. I mean, I've done them all, right? – I've even bought the zeroes, I've bought the Equitable Life. I've got all the track records of things that you shouldn't do, really. So what am I doing now? – I suppose I have a moderately balanced portfolio, I've learnt that bit, so I've got some bonds, I've got some gold, and a lot of the rest of it is waiting in cash. I still have some investments, in fact they are basically the dogs of investments that I should have got rid of long ago, really.
David:
Why don't you?
Pete:
I suppose now, I've lost so much on them, they're sort of like, one's in somebody's share tip for some gas development off Portland Bill, or something like that, which sort of plummets in price. Maybe one day they might get planning permission, and maybe it might be worth a fortune. It's worth so little now, I might as well just leave it there, plus every time I log in, I see it – oh well.
David:
When you talk about those blue chip shares that you had, did you hold them long enough to actually get the dividends?
Pete:
No!
David:
That, I think, is a big mistake, because I have a portfolio of shares -
Pete:
No, that's not true – some of them I did, but not many of them.
David:
OK, but I have a portfolio of shares, and because I've been accumulating and growing them over time, I get these whacking great big dividends that turn up in my account, and then I just go, right – where shall I reinvest these dividends now? And that is part of the fun of investing.
Pete:
It is, and certainly from all the analysis I've done in the book, without the dividends, the returns, it's not there, so it is the key aspect of it really. But also a key aspect is capital growth too. As we know, it's a combination of both. To me, there's nothing more depressing, as a private investor, than logging in and looking at your portfolio and seeing you've made, or you've got capital losses on all your shares. Even though they might be paying the dividends, I just don't like seeing that.
David:
And you call yourself a psychologist – you should be able to shut all of that stuff of, and just go, I'm not looking at that.
Pete:
I know! I'm a private investor – that's the problem; I suffer.
David:
But do you know my trick for overcoming that?
Pete:
How?
David:
I don't know what my buy price is. I only know what the price for the shares are today, and what they are likely to be tomorrow, so I have no idea what the price was, unless I go back and have a look to see what I bought them at, because what I've bought them at is completely irrelevant. It is no longer relevant to be now, because it is a sunk cost. It's already been bought, so whether or not the shares have gone up or gone down, as far as I'm concerned, doesn't matter.
Pete:
I suppose the problem is, that's all very well in theory -
David:
No – in practice, Pete – in practice. I do this in practice.
Pete:
I agree, all right.
David:
And whether I hold or buy more of that share depends on what the price is today. If I think that the shares are overvalued, grossly overvalued, I will sell them, even though they may be less than what I paid for them, because what I paid for them isn't going to make a jot of difference to my decision today.
Pete:
Yep, well that's jolly good advice.
David:
OK, so anyway, my final question for you, Pete, is, what do you hope private investors will take away from this book of yours?
Pete:
OK, the key thing I don't want them to do is to stop investing. When you read the book, you'll realise that there's a lot of things in it which sort of say, and you might be starting to think, well ... if I could potentially lose 6% a year, why am I even bothering here? – but the answer is, there is no need to lose that amount of money a year. By being smarter about what you do, you can be a much better investor. I think the other thing I want people to take out of it is that investing is not just a simple panacea to the low interest rates that we've got at the moment. I know lots of people have come in to starting investing for the first time, because they look at the bank rates, and think, well they're not even meeting inflation, so they think, I'm going to go and make money on the stock market, and I'm just going to chuck some money into an ISA, and it's going to magically grow for me – well, it just isn't that simple. You've got to spend some time and work at it. You've got to learn it, otherwise keep the money in the bank, not lose sleep at night, is probably my recommendation to them. I suppose the other thing is really just to learn about the behavioural biases, try and control them. I do my best, but I don't always succeed. Make sure you understand the system, so that you can best profit from it.
David:
That's wonderful. I hope my son is listening to this, because when he turned 18, the two of us just went down to the building society where he holds his account, and we started a stock and shares ISA for him, and every month he just drips money into this stocks and shares ISA, and I think later on, as he becomes a little bit more mature with regards to investing, I will sit down with him, and explain to him why his stock market has performed the way it has, and then hopefully he'll be able to pick some shares himself to go alongside the index tracker, making the index tracker the main part of his portfolio, and then have a bit of fun picking some shares alongside it.
Pete:
That's good. You could maybe give him a set of darts, to pick his shares.
David:
I don't think so – I think I will have shown him how to do discounted cashflows, and try and understand what he's buying.
Pete:
Right, OK.
David:
This is where the two of us will have to part ways, because you believe in the darts – I believe in rigorous analysis, which is slightly different. Thank you ever so much for coming in today, Pete.
Pete:
That's all right, OK.
David:
Now, I have a signed copy of your book to give away to a lucky listener in today's podcast, and to win a copy of Pete's book, you have to answer this very very simple question. I think you'll like this question, Pete: what was the name of Tarzan's pet monkey that appeared with him in the television series? I knew that, straight off! And also before we go, I have to end today's podcast with a quote, which I hope will sum up today's podcast. Today's quote comes from Jean-Claude Killy, who said: "To win, you have to risk loss".
Pete:
I think that's very appropriate.
David:
That's right, and hopefully you don't lose too much. Now, please email your answers to that quiz question to moneytalk@fool.co.uk, for your chance to win a copy of Pete Comley's book, Monkey With a Pin. Now, thank you once again for coming in today, Pete.
Pete:
That's OK – it's nice to meet you.
David:
Well, I hope to have you in again, when you write your next book, which could be Gorilla With a Pin, maybe.
Pete:
No, I think it's going to be Monkey, something to do with pensions, really.
David:
Or the monkey goes mushroom picking?
Pete:
Yeah, so it could be that.
David:
OK, so thank you very much for coming in today, Pete. This has been Money Talk, I have been David Kuo, and my guest has been Pete Comley, author of Monkey With a Pin. Don't forget to tune into our new podcast hosted by Sonia Rehill, called Ask A Foolish Question, and don't forget to get your questions in for that at foolishquestions@fool.co.uk so that Sonia can get them answered for you. So until next week, have a great week!
David Kuo challenged his Motley Fool analysts to pinpoint the attractive sectors of 2012 -- and they delivered! Discover the industries they selected in this new Motley Fool guide -- "Top Sectors Of 2012" -- while it's still free!
> The Motley Fool owns shares in Hargreaves Lansdown.
