WTF ETF
Podcast Title: WTF ETF!! Taking control of your own investments and financial future
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Welcome people to I DIDN’T KNOW THAT. It’s a podcast that essentially expresses to the world how uninformed I am. I don’t mind, ignorance is not a character trait. Each moment there’s something new to be aware of. What is one supposed to pay attention to? Our monkey-brains hop from one shiny thing to another, resistant to pondering lest we miss something sweeter that some other monkey might eat. So this is an attempt to stop, pick up that shiny thing, poke and prod at it, a little. In the end, I’m looking for trends and patterns in knowledge that can provide an end-run, a shortcut to epiphany.
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So do you know how billionaires Warren Buffet & Ron Baron did it? It is, I’ve found, surprisingly simple, and there are two practices I follow based on their experience. And that’s the topic of today’s I DIDN’T KNOW THAT. The popular perception played out through TV and movie dramas such as Wolf of Wall Street, Margin Call, Boiler Room, and BILLIONS, is of cigar-clenched-in-teeth- shirt-sleeved-rolled traders climbing over each other in some kind of mosh pit of money. Not so.
If the movie world paints an unreal image, so too does the spectacle and mystery surrounding investing. Terms and jargon such as margin, shorting, and dividend seem accessible enough, but what’s a P/E ratio, EPS, ROE TTM, MOATS, SG&A. The short of it is, you don’t really need to know, and I certainly do not, and what I’m sharing here is just my experience meddling in my own financial future.
INVESTMENT PRACTICE # 1 — [AUDIO CLIP SEGMENT[Buffet Clip]] — That was billionaire Warren Buffet talking about ETFs. So WT _ _ _ _ is an ETF?
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An ETF is known as an exchange traded fund.
It’s very simple — when you buy a share in an ETF, you are buying a small piece of each of the top 500 companies on a stock exchange market. An ETF has a three or four letter stock ticker symbol and you can check the current price the same you would any stock in a company. For over 80 years the stock market, (known also as the ‘index’, so ETF’s are sometimes called ‘index funds’) has produced steady returns of about 8–10% per year. Within those 500 companies some will lose money, some will go bankrupt, and others will shine. As Buffet said, you don’t have to worry about what stock to buy, when to get in or out, or what the federal reserve is going to do, or even what the federal reserve is, for that matter. There might be some years where everything is down, but other years when everything is booming. None of that is important. Historically speaking, overall, overtime, markets gain 8–10% per year.
I was put on to ETF funds by friends. Like me, they had pension plans and mutual funds, but we were tired of seeing tiny gains over the years of just a few percent. We were seeing fees being taken by the fund managers, and for what? It was thrilling to learn there was a way to bypass and do it myself. So let’s get into some nitty gritty of how that can work.
First off, you sign up for a brokerage that allows you to make your own decisions. There will be some questions you’ll have to answer to prove that you’re not an idiot, based on the country’s regulations. These are there to protect you, and they vary depending on where you open the account. In Singapore, for instance, you have to take an online course and sit for an exam. In Luxembourg, Canada, and other places, it’s a form you fill out when signing up. I’m not promoting any one company or place, you will have to do some of your own research to find what’s best for you.
Second, you’ll need capital to get started. But it doesn’t have to be huge. You can buy just one share in an ETF if you like for just a few dollars, euros, or pounds.. Of course, the more you put in, the more you get back, just compare 10% of $5 vs. 10% of $5000, and so on.
Then you can decide what type of ETF you want to buy. There are three big companies that create ETFs: Vanguard, iShares, and State Street. There are other companies, and you can simply search for ETF’s to find them. Each company will have several different ETF’s. The most common will be based on the US stock exchanges, such as the “VOO” ETF from Vanguard or SPY from State Street. But there is a world of choice available to you, iShares, like all the ETF Fund managers, have “emerging market” ETF’s, or ETF’s based on world wide developed economies.
The ETF’s are listed on stock exchanges, such as the NYSE in the USA, or the FTSE in London, or the TSE in Canada, and others. This might give you some tax advantages, depending. iShares is one ETF company I like as they offer ETF’s with an ethical bent, avoiding companies in certain industries such as fossil fuels, or tobacco.
You might have heard me say ETF Fund Managers, but it’s not the same as a traditional mutual fund or pension fund. Once the ETF is created it’s hands off. You are not paying for someone to monitor different companies and buy/sell, and to know the intricate financial details. As a result, the fees on an ETF can be quite low, such as 0.08%, as compared to 3–4% fees on pension funds and the like. The costs to make the purchase is also quote low, often less than you probably spend on coffee in a week.
INVESTMENT PRACTICE # 2 — The second practice I follow is also based on advice from Warren Buffet, but I’ve heard the same from Ron Baron and others. That is, keep cash available to take advantage of the inevitable dips in the market. That requires patience, and to keep emotion out of it. To do this, it is important, however, to know a little bit about companies, and to understand something of the industry. But it’s not complicated.
For instance, from having worked in the field, I know a few things about the education industry, and the trends happening, and how the future will likely look for education. I also know something about the automotive industry, the selling and repairing of vehicles, after having worked with car dealerships. A third industry I’m familiar with is aviation. I’m not an expert in any of those three, but I have some experience working in them, and some understanding of how money is earned and spent, and the trends.
So based on that I compiled a watchlist of 3–4 companies in each field. Now to do that I did get some help, and for idiots like me I recommend signing up for a service such as Morningstar Premium. It’s about $200 USD a year. Note that some brokerage companies (what you would sign up for in order to buy ETFs and shares) include Morningstar as part of their package. For me, Morningstar lets me read in-depth reports, and gives me an easy to understand analysis of companies and ETFs. Morningstar are not pushing any funds, but just reporting details. There is a ton of jargon and technical language, but I’ve found that by happily ignoring them and focusing on just two details I can build my watchlist: Detail # (1) the rating of the management team, and (#2) the current price of the stock and whether it’s above or below fair market value.
Then I just wait for a dip and buy as much as possible. You have to be patient. I did this in March of 2020 when the markets fell. For over a year I had been wanting to buy TESLA, and when the stock dropped to $360 along with the market I bought as many shares as I could afford. Today, in early June of 2020, the stock is close to $900.
I’m not going to sell TESLA, or any other share, or any ETF, because once you start trying to time the market, you’re going to lose. There are always reports in the news about some impending doom about to descend upon the market, and there’s going to be cyclical events to make you think you better get out before you lose it all. Think about it. Since the 1940s we’ve had a world war, The Korean War, the war in Vietnam, the 1987 financial crisis, the 1997 financial crisis, 9/11, the 2009 housing market crisis, SARS, MERS, Covid-19, and the Black Lives Matter protests which hopefully will lead to much needed change. Despite it all, stock markets maintained 8–10% growth over time.
The one thing assumed in all of this, and both Buffet and Baron have said this, is an underlying belief that American style capitalism will continue as it has. Now, whether that is in-and-of-itself a good thing, is perhaps, a topic for another episode!
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