SCOTT PHILLIPS | fromThe Motley Fool

This episode features Scott Phillips from The Motley Fool. Scott’s an investment guru, a Roosters tragic, and a master at cutting through the noise, whether it’s markets or political clown shows.

We kicked off with three simple words: Invest, add, wait. Honestly, I could’ve ended the episode right there—it’s that powerful. It’s the essence of long-term investing, a mantra that echoes Aesop’s tortoise and hare. Scott’s been at this game long enough to know there’s nothing new under the sun—Ben Graham nailed it in the 1930s, and the rest is just tweaking the recipe.

One thing that struck me was Scott’s take on his X account. If you’re not following him, you should. He’s out there calling out rubbish and aiming for balance in a world that’s often anything but. I asked how he handles the folks who take him too seriously—turns out, respectful engagement keeps his tribe solid, even if X can be a cesspit at times.

We dove into politics and investing, and Scott’s view was refreshing: don’t let your biases steer your portfolio. Elections come and go—three years in Australia, four in the US—but a five-year investing horizon? That’s where the magic happens. He cited Morgan Housel’s research showing no link between the US president’s party and stock market performance.

Volatility’s been roiling markets lately, and I asked Scott how he’s enjoying the ride. For him, it’s an opportunity—shares on sale, like jeans at a discount. But he’s real about it: not everyone’s wired to shrug off a portfolio dip. His tip? Check out Vanguard’s index chart. It’s a 30-year rollercoaster—dot-com crash, GFC, COVID—and yet, the ASX turned $10,000 into a 13-fold return. That’s despite wars, pandemics, and Aussie PM musical chairs. Today’s scary headlines are just blips on the graph.

We couldn’t skip the COVID crash hindsight heroes on X, claiming they knew the bottom. Scott called it nonsense—arrogance and hubris are investor kryptonite. He didn’t time the market; he just kept investing, dollar-cost averaging through the chaos. It’s not about genius—it’s about discipline.

With half his portfolio in US markets via ASX-listed ETFs and stocks like Berkshire Hathaway, Scott’s a fan of ETFs. For beginners with $1,000? Start with broad, low-cost, index-based ETFs—think Vanguard or BlackRock. Instant diversification, no stock-picking stress. But if you’re passionate about digging into company reports, go for it—just know it’s a marathon and something you have to take seriously over a long period of time.

Finally, we tackled governance. Scott cares—skin in the game, honesty, founders who live the legacy. But he’s skeptical of box-ticking rules. Take WiseTech and Mineral Resources—founders in hot water, yet shareholders still want them. It’s messy: do you pick squeaky-clean or value creators? Scott leans toward quality people, but admits the mercenary side—returns matter.

Cheers,

Phil

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

Get 4 months free on an annual premium plan when you use Sharesight, the award-winning portfolio tracker. Sign up for a free trial today.

Sharesight automatically tracks price, performance and dividends from 240,000+ global stocks, crypto, ETFs and funds. Add cash accounts and property to get the full picture of your portfolio – all in one place.

Portfolio tracker Sharesight tracks your trades, shows your true performance, and saves you time and money at tax time. Get 4 months free at this link

Disclosure: The links provided are affiliate links. I will be paid a commission if you use this link to make a purchase. You will receive a discount by using these links/coupon codes. I only recommend products and services that I use and trust myself or where I have interviewed and/or met the founders and have assured myself that they’re offering something of value.

EPISODE TRANSCRIPT

Scott Phillips: Democratic capitalism is the worst system ever tried, except for all the others that have been drive. What we have to remember is there is no better system with which to replace it. And that's important. So what do we do? We should focus on improving what we've got. Let's make sure regulations are fair. Let's make sure competition is working. Let's make sure political donors and others with a large amounts of sway don't have undue influence on the way our markets operate. Let's make sure that people are looked up. Let's make sure there's an appropriate safety net for people who need that support, who simply can't make it on their own. We're a mature, wealthy, caring society. We need to look after those people. It doesn't mean capitalism is broken. It means it needs to be fixed, not replaced. That's the important.

Phil: G'day, and welcome back to Shares for Beginners. I'm, Phil Muscatello. In this episode, I want to repeat three words from today's guest Invest. Add. Wait, that's it. We could end the episode there. Scott, what do you reckon? There's nothing else to say. Is there really?

Scott Phillips: You know what? The other one, I've gone with longer, I've done this the shorter. Uh, my advice is the other one is Aesop was right. The tortoise and the hair is the thing. Right. And so which, whether you best ad weight or Aesop was right, honestly. And the other thing is, nothing new in investing has been really kind of designed, invented, uh, codified since kind of Ben Graham in the 1930s. So, yes, there's different applications of it. Yes, there's different ways to explain it. There's not much new under the sun, mate, that's for sure.

Phil: Okay, well, thanks very much for coming on and we'll see you next time.

Scott Phillips: My pleasure.

Phil: But we could end the episode there, as I said that. Then we'd miss out on a scintillating conversation with investment guru roosters, tragic and observer of political clown shows, Scott Phillips from the Motley Fool.

Anthony Dart: Respectful conversations are the key to tackling politics

So, normally at this point I would introduce you, but I think our listeners do know you. But instead, I'd like to point listeners to your entertaining X account. We don't need to say Twitter anymore, do it is. It is X, which is humorous. provocvative and fun. How do you deal with the people who take you seriously on that.

Scott Phillips: Man M. It's a fun exercise, isn't it? My problem is mate, I. I'm an investor by trade. I live and breed this stuff. But also I think we each have a responsibility to the greater good, to the public good, to policy, to other things. And so because I kind of can't help myself, I figure that it's worth kind of trying to be some sort of voice for something. Reasonableness. That's probably the best thing I'd go for. I'd have no lofty ambitions other than to try and kind of call out the rubbish. And as I have a bit of fun along the way, so plenty of opinions. What I do appreciate is on exc Twitter you get the followers you deserve, generally speaking, not always true. And I'm white and male, right, So I have much less of the trolling that people of color or women get. But generally speaking, even though I have lots of followers with very different opinions to each other, as long as you engage respectfully and thoughtfully, you generally tend to be able to kind of get a decent sized tribe together. So I'm pretty happy with that and pretty lucky I've got some good followers. But yeah, it can be either a cess pit or a source of great mirth depending on how will you do it.

Phil: It's just great I think, to have conversations which point out the failings of all sides of politics. You know, no one's perfect and there's policy missteps from both sides of the ale, aren't there?

Scott Phillips: Of course they are. And honestly and by the way, some both cases as well as the brick bats, if they're doing something good, I try and do that as well. But yeah, you're right. I think that's's, that's the challenge, right, just to, to bash past the partisanship, so called rusted ons as people call them, to get to the actual issues themselves. And every get someone says he get off the fen pick a party. I was like I'm not going to pick a party. I'm going to give my thoughts on policy and then at election day I'm going to weigh them up and say, well which one do I like least worst? Which one is not going to go last? And that's kind of how I think we should have those discussions and debates because constructive disagreements, how things move forward. If we're all agreeing, no one's thinking and if we're all shouting at each other, no one's minds are changed. And I'm, I Don't know, expert, I'm no great psychologist. They just figure if we do things respectfully and reasonably and try really hard to base it on the basics of the policy. By the way, crossover to investing too, right? Get rid of your biases, keep them aside. Just focus on what actually matters, what you're actually seeing. It's really hard to do because we're not built that way as humans. But to the extent you can do it, I think it's well worth what it're trying to do.

Phil: Respectful conversations are the key and I think just one of the mistakes that I used to make and that I've seen other investors m mistake is putting too much weight into who's going to win an election because in the long run it really doesn't matter, does it?

Scott Phillips: No, it doesn't. I mean I've said the same about Don.

Phil: I mean from an investing point of view.

Scott Phillips: No, that's exactly the point, right. So you have to have two parts of your brain. One part is the part that does care about policy and does want to improve things and does and whenever, whatever way you lean or. I'm not saying I have the only answer, I'm just, I try and say, okay, well I think this policy is good, this policy is bad. Separately to that to your point, I mean my investing in Horizon Phil is 5 plus years. I have always, since I started when very started I was India when I first started, I had to learn a few things but once I kind of codified what I was doing the last 25 plus years, five plus years has been my horizon. Now think about an Australian political term of three

00:05:00

Scott Phillips: years. Think about you as presidential term of four years and they have their midterms every two years. And so whatever you think of Donald Trump or Anthony Albanese or Peter Dartton or anybody else, by the time your thesis plays out or the timeframe you're investing on, at least I am none of those people are going to be in their current terms. It doesn't mean they can't have second or third terms. But the long term trajectory of stock market is not going to be swayed meaningfully by a political term or two. In fact, in the US's been research done by Morgan Haell who's a wonderful writer and basically showed that the party of the President had no bearing at all on the stock market over that period of time. Sometimes it was good, sometimes it was bad from both parties. There was nothing statistically significant about the party in power and the way the stock market went as a result. And so yes, you're absolutely right. Bringing your political biases to your investing is almost certainly going to lead you astray.

So how are you enjoying the volatility currently roiling markets

Phil: So how are you enjoying the volatility currently roiling markets?

Scott Phillips: So'm uh, I've got two answers to this Phil. It's a really important one because I we got a lot of members of the motleyool and for me personally volatility is a massive opportunity and it doesn't fase me at all. Now that's not because someone who enjoys pain, it's not because I don't care and for our members it's really important that I don't come across as for your listeners are saying who cares if people losing money. I don't care if your portfolios down you it sucks to be you stuff that's not the approach. What I have is a very very strong conviction that the share market's long term direction is up and to the right. In other words things get better over time. And if you have that view and that could be mistaken and misplaced but it hasn't over the last 120 years and I don't expect it to be any different soon. If that's your view then you can only see volatility as just the wiggles that happen uh over uh the long term time horizons that fade when you look over a longer period. And so on that basis firstly it doesn't matter that share markets are volatile at least not to your long term returns. And secondly it actually provides you with opportunities if you can keep that long term potential in mind. And so hang on, I think this company's worth twice what it what worth now I just pick, pick it up, it doesn't matter. And yet the shares down 10%. Well hang on, I've now got 110% upside rather just a double. And so if your long term view is that market will be much higher over 5, 10, 15, 20 years and you get a chance to buy shares because the market's currently offering you a discount. That's the way you should see it, right? It's the pair of jeans on sale. Just because you pair of jeans on sale in the shop doesn't mean your jeans are worth any less Lund you than you cupboed. It just means that the price is temporarily lower and that's the important now it's not easy to do. I've been doing this for a very long time and I've developed it over time and I don't expect your listener to have all got to that point. Some never get to that point by the way. But once you've really been through enough as an invest, you've had enough experience and you've absorbed the lessons of the past when it comes to the value creation that share markets offer and the long term value creation, you really start to see the short term is just, you know again speaking of Ben Graham, Warren Buffett talked about the Mr. Market parable. You know the Mr. Market can be either really excited or really pessimistic. He's not going to determine the value, he's just offering your price. And our job, our choice, uh, you know, our opportunity is to take advantage of unusually high prices if we want to sell something or unusually low prices if we're in the market to buy.

Phil: And we can always bring out all of those hori old chestnuts and the other.

Scott Phillips: Correct.

Phil: I think yeah. The share market's the only store that all the customers leave when there's a sale on.

Scott Phillips: I love that. It's great. It's so true too.

Phil: Yeah. Yes.

Vanguard produce an index chart every year that shows long term value creation

So um, I mean it's very difficult though to explain to listeners to be patient and to take these kind of opportunities. There's so much fear involved in it. It. Are there any little tips you've got for dealing with the psychology of the fear in the markets that we're feeling especially right at the moment?

Scott Phillips: Yeah, the best one I may have missed this last time we chatted. Vanguard produce an index chart every year. It's normally released about August and it'called the Vanguard Index chart. You can google it, you can find it. Vanguard's website has it. I've written articles about it because think it's so important and what it shows is 30 years of history just they advance it one year every year. So the last 30 years every 12 months kind of gets advanced a bit and it really shows you the long term value creation of the market. But what I love about it is not just that chart which is impressive in itself but they also overlay it with political terms we've just talked about but also big world events. And so if you go back to the one they released last year, this year obviously isn't out year in've got to August $10,000 became $130,000 on the ASX over that 30 year period was a 13 fold return in three decades. And that's despite all things that happened now. Last year was 2024. So 1994 is where that chart started. So think about the dot com crash, think about terrorist attacks in the US and Bali, think about the war in Ukraine, Think about the gfc. Think about the COVID crash by the way, is already in that data. All those things happened. I think one of the Iraq wars, maybe we'still in that period. I'd have to double check my timing. I'm getting old mate. So everything, everything feels like it was recently, but it was all a long time ago. For those 30 years the market went up 13 times in value. Not in the absence of these things, but despite the things actually happening.

00:10:00

Scott Phillips: If we 101994 look, there might be a war in Iraq, another one in Ukraine, there'll probably be two or three terrorist attacks, there'll be at least three big market crashes.com crash, the GFC, the COVID crash. There'll be a once in a century pandemicow. There'll be changes of government. Australia will have 84 prime ministers in about four years. Or at least that's why it seemed at the time with the kind of Turnbull, Rudd, Gillard, Morrison kind of is, all of that actually happened. So it wasn't like we had a great 30 years because all those fears weren't founded. They absolutely were well founded. And yet the market did well. And if you can internalize that, then what you can see is everything. Every time there's a uh, scary headline and the Financial Review or the Herald or the Age or the Courier Mail, you look at that and go, that's right, this happens regularly. I've seen that before in the chart. I can see where the COVID crash was and the recovery since. I can see the long grinding 16 month GFC and the recovery. I can see the NASDAQ fell 85% during the DOT com crash and then recovered to go to new heights. And new heights and new heights on top of that. And that's the long term perspective that if you can internalize it helps you put any current or potential risks into perspective. And again, it's not easy, not simple. But that's the best way I've been able to do it myself mate, is to kind of go, okay, this sucks. During COVID I invested money in February and March of 2020, right as the market was falling. Now by the way, I got some wrong. I invested a webjet in late February because I thought, oh co, this cover won't be a big deal. That was a silly mistake obviously. But I kept investing after that. Not because I wanted to, not because it was Fun to see 38% of the ASX value wiped off in a month. It was scary. But uh, I literally had, speaking of two parts of My brain, the one part of my brain which is, ah, I'm scared, this is emotional, get me out of here, I want to stop the pain, make it go away. The other part of my brain which was, I knew you'd feel like that you're going to keep investing anyway because you decided before this you would do it. And you know that history says, and unless this is the first year of 120 where history doesn't continue on the same path, the future will be brighter, human endeavor will continue. People will find new and better ways of solving new and old problems, old needs and wants. That's kind of what capitalism does. It gets a bad rap because of the extension of crony capitalism or kind of, you know, the hyper capitalism in some places. But capitalism lowercase C, which is just the incentive for people to go and do things that make other people's lives better, that remains as strong as it ever has in myview feel. And that's why I'm super confident that whatever volatility we're going through, both that very concept and a look at the vanguard chart are the two best ways I know to stay on the straight and narrow. Super is one of the most important investments you'll ever make. But how do you know if you're in the best fund for your situation? Head to lifeshherra.com.au to find out more. Life Sherpa, uh, Australia's most affordable online financial advice.

Do you think capitalism is getting a bad rap at the moment

Phil: Do you think capitalism is getting a bad rap at the moment and they're not understanding the value that it's created in our lives To a certain extent?

Scott Phillips: Oh, massively, yeah, massively. And it's two reasons, mate. People see the misuse of, uh, what I call crony capitalism. So the, the market actors that are taking more than their share or the market actors that are, uh, persuading governments to regulate in a particular way to advantage them and disadvantage other people. And the fact that right now whenever you're feeling pain, you want to lash out at whatever the status quo is because you want to change it. Right. So part of it is the last five years have've been really tough for a whole lot of people. We're in a capitalist system, therefore capitalism must be the problem. And I get all those thoughts and uh, it's massively imperfect. So let me, I stoleen one from Winoodston Churchill on this one, Phil, which is. And Churchill said, I'll give my version of his words. But democratic capitalism and the democratic bit'important because it means government is involved and regulating and controlling Democratic capitalism is the worst system ever tried, except for all the others that have been tried. And so that's kind of the story, right? Doesn't have to be perfect. What we have to remember is there is no better system with which to replace it. And that's important. So what do we do? We should focus on improving what we've got. Let's make sure regulations are fair. Let's make sure competition is working. Let's make sure political donors and others with a large amounts of sway don't have undue influence on the way our markets operate. Let's make sure that people are looked after. Let's make sure there's an appropriate safety net for people who need that support, who simply can't make it on their own. We're a mature, wealthy, caring society. We need to look after those people. But that together is what again I say lowercase capitalism. Uh, people confuse capitalism with you. Free market anarchy, who cares? Youviveival the fittest, some sort of Darwinian thing. And it is that at a business level but a societal level. It's in the context of our broader social, uh, contract, uh, and our broader democracy. And that's if you keep that in the right space, by the way. Just not acknowledging the fact o no, capitalism is fine. Don't worry about it. You're not going to win anyone over again. It's that nuance of he, you've got problems. I actually agree with some of the problems. Doesn't mean capitalism is broken. It means it needs to be fixed, not replaced. That's the important bit.

Your confessed mistake about webjet was part of your relaxation about diversification

Phil: Just getting back to yourselff confessed mistake about webjet was part of your relaxation about the situation to do with diversification as well?

Scott Phillips: Oh, absolutely, yeah, totally. I wasn't selling everything and buying webjet. And you know what's funny?

00:15:00

Scott Phillips: That mistake was born out of. So when we make mistakes as investors, we've got to be careful not to learn the wrong lessons. In other words, if you get one wrong, don't assume you retire. Investing thesis is broken. Peter lynch, one of the, uh, better US fund managers in relatively recent history, said, if you're right, if you're good in this game, you'll right six times out of ten. In other words, whatever you do, the approach you make that actually is market beating or gives you, you know, good investment results, we'll still have mistakes in it because not every circumstance can be done correctly. So my optimism with webjet was two things. Firstly, in the long term it'll be fine and optimism wins. And I think that's Absolutely still true. The other one was I looked at Covid and said, well we've seen, remember sars, remember mers, all these acronyms that were these respiratory diseases that originated in Asia. And I kind of honestly at the time thought, well, Covid's probablyn toa be like one of those. Now statistically, it's still unusual for a respiratory outbreak to be a once in a century pandemic. Unfortunately for, uh, bigger reasons and frankly just my finances for people that died and were sick and economy shut down and lots of bad stuff went on. It was the exception that proved the rule. It was a respiratory disease that wasn't just isolated or low key or never spread or died out. It was one that was, you know, ravaged the world. And so I was wrong. I think even still for the right reasons. Phil on that might make me just arrogantbe m maybe I'm uh, not taking enough blame, but I think in that context, had I bought webjet where each of those market panics happened, I'd probably be ahead. Now, in the event it was a silly thing to do. But to your question, it's absolutely about, it's always about diversification. Speaking of old horary chestnuts, uh, diversification, the only free lunch in investing. And if you're appropriately diversified, then no one investment again, appropriately is the important point here. No one invest will bring you down and you can afford to say on balance, I'm, um, optimistic on balance. I like to buy things when they're cheaper than they were. Not catching falling knives just because if I liked it at a higher price, I should like it more at the lower price. Quality businesses tend to keep on winning. Those things are true. And so the mistake of webjet is also the success of other investment selections I've made for exactly the same reasons. And that's why I don't want to learn the wrong lessons. If I said I should never buy anything that's down, I should never buy anything that might have some risk. I should never buy anything that might, you know, something might happen to then I would be in a world of hurt. Now I bought, by the way, other companies at lower, much lower prices. M the month after that, in March, when things were even lower again and I got those ones right. And again, I'm not trying to big myself up here. I'm just saying the context is important. We should own our mistakes, we should acknowledge them and learn from them, but also not to learn the wrong lessons. If the lesson of webjet was don't buy anything when things are down, I would not have bought things later in that month or the next month when there were actually better price on offer. And those companies did do extraordinarily well after that period. Not because it felt good to do it, not because I wasn't worried like everybody else about what happened to the economy, but because I believe the long term future was probably right.

There were certain people who said they knew when the market was going to turn

Phil: I, uh, sometimes see, because, you know, we're both on X and we see a lot of people commenting on investments and talking specifically about the COVID crash and how quickly it recovered. There were certain people who authoritatively say, okay, I knew this particular moment was the point, that the market was going to turn. And they show their reason. Of course, with 2020 hindsight, you're not looking for signals like that, are you?

Scott Phillips: No, it's nonsense, Phil, absolute nonsense. It is arrogance, hubris, call it what you want, ego. Uh, by the way, the thing I detest most in investors, not as individuals, I don't distest anybody individually, but if I'm looking for attributes that I want to avoid, arrogance and hubris in an investor is absolutely deaf. I'll give you the inverse example. A couple of significant investors, really well known people during the COVID crash, sold everything in, uh, February and March and said, I won't get back into the market until the pandemic is over. Now, the pandemic took I want say about two years to be formally declared over by the World Health Organization, uh, over which time shares were up something like 60 to 70% from those lows. Now, both of those things to your point, pretending you can in hindsight know exactly when something was going to happen, but also trying to time the market and say, well, I don't think shareas will rec cover until we talk about politics and the market. Same with economics in the market. Same with any macro issue in the market. Right? What happens in the macro world? Share prices improved as the death count increased, the case count increased as lockdown continued, and as economies fell under recession, the share market improved during that period. Why? Because people took the view that things would get better over time, even despite what's happening right now. And again, that. I know it's starting to sound like a theme of this particular interview, but that was the problem. So those people who said, I know better, I'm gonna wait until this is done and then I'm going to work out what to do, they absolutely missed out on huge gains, probably once in a decade type gains in that sort of time period because they were trying to judge the market based on these External macro factors not remembering that the market is a mechanism looks forward, it says what is the future likely to look like. And the overreaction that was to me frankly very, very clear to them wasn't. And I'm not saying I'm a genius again. My point is just I invested anyway because I had money to invest. And when I say invested during the crash, I wasn't mortgaging the house to do it, Phil. I wasn't. I wasn't selling off my first

00:20:00

Scott Phillips: born. I just had money that I was saving regularly when I got paid. And I invested that money because it was time to invest that money. I was dollar cost averaging something I know you've talked a lot about. And it was, that was all it was. It was just say the course, do the right thing. Ignore the noise, ignore the, the headlines and the shrieks and everything else. Ignore the pain frankly of my portfolio being down a lot. Just keep going. That is again, invest ad weight. You kind of mentioned at the top that'that's exactly what, what it is. It's that in, in action right through. By the way, same this month and the same six months or 12 months ago. And the market's been up and down a sideways over those periods of time. I do it anyway because I think in my view it's the very best way to invest.

Phil: Okay, let's do some tortured analogies now. I'll just um, pre. I'll preface this by my son in law who's a pan?thers tragic. You know, they've had a couple of very good years. Let's think of the Panthers as a company this. Yeah, they've had a bit of a bad start, you know and uh, I'll just point we've got a little bet going on about how much and even though we're recording on the six, this is going to be coming. Sorry, we're recording on the 2nd of April and this will be coming out on the 16th of April and I believe the Roosters will be playing the Panthers in the coming weekend. And so we ve got a little thing going on about whether the Roosters are going to beat the Panthers by more than the Bunnies beat them last weekend. You have any, any intel on that?

Scott Phillips: Well, I'm gonna. You know they say you as good as your last game. I'I'M just going toa get back to the previous one we beat the Panthers in, in round two. So I'mNN I'm go goingna hang my hat on that one. That might well be The Roosters best game this season. I've got to say with the season only hardly underway. It'snn be tough. It's a rebuilding year for the Chooks as they, as they euphemistically say. We lost a heavy heap of I think seven first graders in the last year for different reasons. So I got, you know, getting.

Phil: Getting back. Yeah, getting back to the analogy though, it's like my son in lawoy hi Brad. He's invested heavily into the Panthers. M. You know after, you know, looking back and saying there's been a couple of good. Well no, he's a lifelong Panthers support but's it's like that. It's an analogy, isn't it? Like some teams are going to do well and other teams aren't going to do so well in at different times.

Scott Phillips: Yes, that's exactly the point. And you know I love sport for this because I even't take the single games. You know, if you think about a game of football and your team misses a tackle, you're not jumping ship and they're not going to necessarily lose because they've got more to come. They make a couple of attacks, they score try now they're ahead, then the other team scores now ahead. And that can feel like investing, right? It's the up and down of the market. Now it's not a perfect analogy because in sport there is one winner every year and even over long periods of time there'll be one term that has been most dominant over a decade or an era or a generation. The great thing about investing is it's not a zero sum game. In fact, as long as you're not playing silly things like trying to trade options and derivatives and all that sort of rubbish, it's a positive expected outcome as the statisticians say. It's a. Everyone will make money on average. Now not everyone makes money, but the market goes up over time. So if I come second or fifth or 100th or frankly 2 millionth in terms of my ranking within the Australian investment community, I'm still going to make money and probably a lot of money. Now if I come 25 millionth because I've bet on specy mining stocks and you tried to time the market and use leverage and all this sort of dumb things and yeah, I can lose money. It's not saying no one can lose money. Let me be really, really clear. You can lose money with shares and people do, but if you're sensibly diversified, you have a long term view, you invest regularly, you give it enough time, the odds are very very good, you'll make money. And if you beat the market, which I'm trying to do as my day job and my portfolio, then great. If I only get the market return, that's almost as good. If I even lose to the market over 50 years, I'm still going to make a lot of money if I'm investing regularly. So that's why you're right about the analogy. I don't want to, I don't want to diss your analogy but what I do want to point is even in that context, while it's useful to use use sport a lot analogies investing most will win. You know in rugby league we don't, we don't assume that if you 12 or the 17 teams are uh, winners and five are losers. And yet in investing it's probably going to be something like that and probably even more than that. If you do those very sensible basic things and not everyone does and you know, there's no guarantees but if you do them, you're very lucky to win anyway. You might come first but you'll have more, much, much, much more money. Think about that index chart I mentioned. You have much more money by investing regularly, letting it compound being diversified all those sensible things when you're finish. So you know rugby league, someone wins and you know the runner ro is the first loser when it comes to investing almost all of us win almost all the time.

About half of your portfolio is invested in US ETFs

Phil: Scott, do you have ever look at overseas market? So are you mainly concentrated in the asx?

Scott Phillips: No, I do actually uh, about half of my portfolio by value is invested either in the US directly or via ASX listed US ETFs. So yes, I'm a big fan of the US market. Most of my investing is done here. But by weight about half of my money is invested in the US And I'll separate that for a second. Uh, just as a quick aside, firstly I use ascessed etf. So I'm not doing any active stock picking to make those decisions. I own Vanguard WorldX Australia ETF. I own the NASDAQ ETF. My young bloke, I've got a little bit of money put aside for him. He's invested in the Vanguard US Total Market etf. So those are the ETF based investments. I don't spend a lot of

00:25:00

Scott Phillips: time picking the stocks in the US My personal portfolio, I own a very large amount of Berkshire Hathaway proportionally, I mean largeount big note myself but proportionally, uh, Berkshire is about 2/3 of my US portfolio. Amazon's probably another 15% or so, which by the way, would be stupidly concentrated, except I don't just look at my US portfolio, look at my total portfolio and also Berkshire Berkshire. So no guarantees, will do fantastically well. But I feel very good about owning the shares. But yeah, I do invest over there. Not particularly actively. I buy really rarely. But I think sensible diversification to overseas markets, either directly or via ASX listed US ETFs I think is a smart approach.

Scott Phillips: I would recommend ETFs over single stocks for beginners

Phil: So speaking of ETFs, would you recommend ETFs over single stocks for beginners getting in the market? If they say, got $1,000 to start their investment journey?

Scott Phillips: Yeah, uh, I really would. I'm a stock picker by trade, by the way. If I work for any other company that does this, I'd have to say no, no, no, buy stocks, no, start with ETFs. In fact, we've got a service called Multile ETF Investor for that reason. Something I wanted to roll out and I was lucky enough to get the Boss to agree. ETFs are wonderful, wonderful, wonderful things. So I think there's money to be made stock picking. If you're good at it and you want to do it and you have an aptitude for it. But for most people you don't need to, uh, you probably shouldn't, frankly. Why? Because the market, I believe, will continue to do what it's done in the past, which is go up over time, 8 or 9% a year on average over the long term. Let me put those disclaimers in. And if you can get that result with a tiny, tiny, tiny fee, 0.04% or something, 0.07 like fractions of a percent. If you can get the market return with a fraction of a percent in fees and compound that for a long period of time, you're going to do really, really well. And if you're getting started, the benefit of an etf, it'instant diversification. If I say I've got a thousand dollars now, I'll buy shares in, I'll pick a company, Woolies, just for the fun of it, and no shares for 30%. A few things are going to happen. Firstly, you're not diversified, so you've got to take the full loss. Secondly, you're going to feel like investing sucks and it's a terrible idea. I should never should have done it. Doesn't mean ETFs can't fall, by the way, but individual company risk is far, far larger than that. And then it takes a Longer time to build a diversified portfolio. So, yeah, I would absolutely start with an ETF or range of ETFs we've got. And I'm. This is not plug MA. I'm not going to do it. But there's four individualtf's. We've got this in that ETF investor service. Here's a sensible diversified ETF portfolio for ETFs. Knock yourself out. That's as much as you need to do. Now, I do think I invest in individual stocks. I think you have the opportunity to do better than that. If you put some time and effort in, you understand business and you want to have a go. Doesn't mean you will. Maybe you'll try and go. Yeah, I sucked at it. It's not for me. That's okay too. So I think you can, you know, add to your ETF returns with good stock picking, with good company analysis and valuation, but you don't need to. ETFs are perfectly fine for almost everybody. There's no, no one should feel like they need to. That somehow m the smart money buys stocks or that somehow there's massive gains on offer that they can't get. Yes, Warren Buffet's made a fortune by investing individual companies. We're not. I'm not Warren Buffett. You're not Warren Buffett. Listen to Warren Buffett. That I have so far been able to beat the market with my individual sock selections. But that's. Maybe, maybe I wouldn't have, maybe I could have done better doing something else. But ETFs are wonderful things. I'm a massive fan. Can I add one quick, uh, but to this one, Phil, and that is ETFs used to be the generic name for an index fund that was listed on the stock market. That's how the first et, because exchange traded fund there was an index fund was listed on an exchange, then it becomes exchange traded, hence etf. They are wonderful. So I'm talking here about broad index based, low cost ETFs. Those three phrasesput broad index based, low cost. The problem is now anything can be an etf. You and I could start the shares for beginnersash Scott Phillips etf and we could take on a million dollars in debt and go and buy crypto coins. And that would be an etf. It was a fund that was charated on the exchange. So what I want your listeners to know is not all ETFs are the same. Please, please, please don't get sucked into the exciting, you know, this theme, that theme, this investment idea. That leverage that view on the market. I'm talking about the plain vanilla stuff really. Plain vanilla, Invest, ad Weight, Vanguard BlackRock. There's a few of them. Uh, most, the ones I own are almost all Vanguard, just basic plain vanilla. They track an index, they a broad index by the way. Not a little tiny index but a big one like the S&P 500, NASDAQ, the ASX 300 by that and keep your costs low, diversified that way. So ETFs. Absolutely. But those ones in particular don't go and grab the CyberSec Securityity ETF and think you've got a diversified portfolio or the bare double leveraged whatever it is. That's all product stuff. They create those because they suck you into wanting to buy them. That's not how you should invest. Start with what should I want to try and do and that is mirror the market return. Keepit my cost low.

Phil: Yeah. I think it's worth pointing out that many ETF providers do spend a lot of time trolling social media and uh, trends to see what people are talking about and then they'll create a fund based on that because it's a marketing exercise for them to make some money as well. So don't get sucked in.

Scott Phillips: Of course it is. Well done. Yeah, well said.

If you're going to choose individual stocks you've got to be passionate about it

Phil: Okay M so I think it's all so worthwhile that if you're going to be wanting to choose individual stocks you've got to be passionate about it. It's not something that you just do for a couple of weeks and think you're going to make a lot of money. It's just something that you've got to be in for the long term. You got

00:30:00

Phil: to be passionate about it. You got to like to read numbers and read company reports and follow it up. And I just wanted to point that out because some listeners are going to be taking that step and they're going to be suited for it because they will be imbued with that passion. But most people, as you say, just.

Scott Phillips: Stick with ETFs and that's the great thing mate. Back in the day you couldn't do this. The ETFs didn't exist. It was really hard for an individual investor. The index fund itself is only 50 odd years old, which is old if you're your young person now but, but not that long ago. And in frankly the first ETFs I did the numbers, it was something like 2010s or something like was it feels like they've been around forever but they really haven't been around that long and back in the day you had to say well I guess I'll buy some BHP and some Woolies and some CBA and I'll throw some old names in, some Elders and some, you know, HH or something you thought. And you kind of had to build your own diversified portfolio because you couldn't do it easily on the market there some individual fund manage that give you something similar and listed investment companies have been around for a while. That was the other way you used to have to do it. But the innovation, the invention of the ETF is just such a great thing. And I love your point about being passionate about it Phil, because if you don't want to pick up the afr, if you don't want to read the business section of your local newspaper because it just doesn't interest you, then don T, please don't invest individual shares. Grab an ETF like the ETF will do. I kid you not. The index char I talked about by the way, that's the index. That's not stock picking. You ve got a 13 fold return just by buying the index and go fishing. And in fact it'd be better than that because the Thirtyfold return is one investment at one day and then waiting 30 is doing nothing else. It does include reinvested dividends, but doesn't include any money you add to your portfolio over that period of time. And so I hope what I'm pointing out pretty clearly here is if you can get 13 times your money by buying an ETF, you get even more than that. Well, not percentage terms but if you can add more money on top of that because you're adding regularly to an etf, that is literally as long as you're investing regularly, that has to be a large enough amount of money. If you're investing a dollar a year, I'm not going to make you rich, right? But if you're investing uh, a reasonable proportion of your income, if you can live below your means a little bit, invest the difference in broad index, ETF or a couple of, maybe an Australian one and a global one or something. And you do that for a long enough period of time, you'll be very, very, very well off, you'll be completely fine. And that's kind of the key message. So yeah, by all means, if you want to go and say hey do I think, well this is a great investment if you have the interest, the passion, as you say, the aptitude. If you're not mathematically minded, probably don't do it. Not because you're not, uh, a worthwhile person just because this particular pursuit rewards mathematical mindedness. Now I built a very bad chicken coop during the GFC during the COVID crash. Well, we all were all in lockdown. But I'm not gonna be a carpenter. Not because, you know, if someone said me looks God, unless you can kind of, you're good at this and you love it, maybe don't become a carpenter. I'd be like, yeah, you know what, that's probably right. I'm better. Uh, unfortunately for everyone sitting at a desk tapping on keys rather than wielding a hammer, I just don't have that aptitude. And that doesn't make me a bad person. Nor it makes the carpenter who doesn't want to invest in individual companies a bad person. It's just horses for courses. This is a stock picking is a pursuit for those who are passionate. I love your word. Who are keen, who are, uh, have the aptitude, who're going to put the time in and who have the stomach for that volatility potentially and being wrong sometimes if that's not, you either get your own carpenter or, you know, I don't know what the ETF equivalent is in chicken coop manufacturing, but if I could find it, that's the analogy I'THROW in right now. But yeah, horses for courses, if it's for you, do it. If it's not, the ETF will do you perfectly well. You won't lose a minute sleep, hopefully.

Any thoughts on Bitcoin? Now I'll just preface this by saying

Phil: Any thoughts on Bitcoin? Now I'll just preface this by saying I know you've had many conversations with Andrew Page, the straw man, who's a, uh, great bitcoin believer. And I think psychologically there's this thing where if people ascribe a value to something, it has value. I mean, really has got any value. I mean it's just a, just a shiny metal. And without understanding all of the nuts and bolts of bitcoin, I think that so many people are ascribing a value to it now that it does have value. But anyway, your thoughts.

Scott Phillips: So I think you've set it up beautifully. I am on the fence on bitcoin. I would not short it and I would not buy it and it's not investment grade for me.

Phil: Uh, not even just a smidge of it? A little bit?

Scott Phillips: No. And here's why. Well, firstly, the reason why not just smidgeges opportunity cost. So if I have things I actually have conviction in and I'd buy bitcoin just because maybe it might go up for me, that would be, uh, Inconsistent with my investing approach, which is I want to invest in things I have the greatest conviction. I've only got hundred bucks to invest and invest that in the things I think have the best conviction in for future value creation. Maybe bitcoin is one of those, maybe it's not. Maybe a specy miner is one of those things. Maybe a punt on the horsees is one of those things. I don't know. And I'm not trying to be againj majorative about bitcoin, but I don't have enough money. I can throw money at everything. I'm going to pick my best ideas and invest in those things. But the reason I'm not bullish or bearish on um, Bitcoin is because of exactly what you said. It's the ascribed value. Now we know what the current described value is. Same as you know the current described value of any share price. Right? Woolly shares are uh, worth in their quotes the value that they trade at today. Now you and I'BEEN around long enough to have seen companies that are horribly undervalued for a long time that finally started to go up in price and the ascribed value when they're undervalued was too low when they got to a reasonable price because the market all of a sudden understood the company. Then all of a sudden you have a fairer, uh, value. The

00:35:00

Scott Phillips: same is also true in reverse. We've both seen companies where the market gets super excited about something. Lithium stocks, by the way, is a great example over the last couple of years. Oh, it's obviously worth this price. Fast forward's worth now 85% less than that price. Now. People thought it was worth a price at that time. They now think it's worth a lower price. They both could be wrong, by the way. It could be somewhere in between. But my point with Bitcoin is I can't assess because bitcoin doesn't produce like gold doesn't produce anything. There's no income, there's no dividend, there's no profits, there's no revenues, there's no cash flow. It just is. And that's not bad. I'm not criticizing it, I'm not bearish on it at all. But we are relying on if you buy it today or hold it today, you are saying, I think people arenna pay more for it in the future. Now you can have a very good thesis for that. But I challenge anyone to make the case to justifiably say with a level of conviction and a level of proof's the Wrong work ca there's no proof about the future but some sense of here's why I think it'll be worth more now. If you think it's gonna worth more buyer, by all means. I don't think it'snna worth more or less. I just don't know. For all I know this could be the next Tesla, right? Or it could be the next what's a big next uh O got say it wrong because it's fallen a lot. But that's not fair. It was a fraud, was really expensive. I don't know, maybe it's the next dot com boom of the 1999s right? It uh, doesn't mean they're worth nothing. But is it overpriced right now? Is undericed right now and most importantly, how can you possibly seek to know that without any income, without any revenue, any profit, without any market share, without any production of something? It's important. All you're speculating on is that more people in future might want it or more people in future might not want it. But I can't handicap those odds. Feel so I'm not again I'm not bearish on it. I wouldn't short it but I can't invest it on that basis. And particularly for our um members and other people listen to me as an investor, an investment advisor and say oh Scott thinks this. I find it really hard to say to someone you should buy Bitcoin. I think it will go up because the why is so rubbery now again I can't say it won't go either but that's why I am not an investor in bitcoin. I won't be buying any bitcoin anytime soon. If I do, it'd actually be a speculation and speculation would be this thing'got cult like following and there are more members joining the cult every day and whatever that's true, there's upward pressure on the price. I think that's a perfectly good speculation and I don't mean speculation pejoratively in this case. I literally mean you can say I think more people going to use this thing and if they do, which the price should go up now, I should be able to buy it. But for me an investment is valuing something on its intrinsic value, not just the fact that more people might like it in the future.

Do you ever take into consideration governance when you're looking for companies

Phil: I know you're passionate about doing the right thing. Do you ever take into consideration governance when you're looking for companies to invest in and corate corporate behavior?

Scott Phillips: M that's such a great Question Yes, a lot but not in. Not all annoy some people at the ASX and asic not in the way that the rules are normally set down. You know rules and laws are set for lowest common denominator because you have to put a line somewhere and one of my great criticism I will get to what I do look to one of my great criticisms is for example Warren Buffett has been at Berkshire for 60 odd years and Jerry Harvey have been at Harvey Oman for 50 odd years are both considered to be not independent and ASX would say if you're too many people like that you should get rid of some of those people off the board because they're not independent. I think that independence is really really wrongh headed because does anyone care more about Harvey on the Jerry Harvey does anyone care more about Berkshire the Warren Buffett and in fact if Buffett who has I think, I think literally everyone on the board of Berkshire Hathaway has massive amounts of money invested in Berkshire shares. Now by the letter of the law Berkshire doing the wrong thing or not the guideline and should get rid of some of those people who care deeply about the company who know the company well, have been around for years whose wealth is absolutely tied up in it and gets some people off the street who might have a great degree or qualification or have worked in another company or done something else but have no shares in Berkshire Hathaway. Now I want the people at the top of the tree caring so deeply about the value of the company the long term value of the company that they're invested in. So I don't think that's particularly useful as an example um, there was some talk about kicking people off the boards s banks have to been around for more than 10 years and again arbitrarily um, you know if I don't pick your favorite banker who's been there for 11 years has to leave the board just because of some arbitrary timerame. I think those are really really unhelpful guidelines. What I do think is important though um, is the things that matter when it comes to governance. So we want people of massively high reputation. I want people with skin in the game. I want people who are invested in the company. I want people who are honest and candid with us. I love founders or founding families involved in the management of the businesses because again they care more than most about the future of company're not colleicking a director's fee and ticking a box. They desperately care that their legacy is followed through. So I really do care about governance. I. It's really, really important. I, uh, will plag one thing that we've seen over the past couple of years. The last 12 months, two companies, Wteick and Mineral Resources. We've seen both major figures, founders of both, get themselves into some trouble for things they've done inside and outside the company. Now, I saying into trouble. I'll say allegedly a lot here because very little has been proven. There have been some admissions made in some cases, but I won't go into detail because they don't want to get your m my own trouble, Phil. But what we've seen is investors who've said, actually, you probably did the wrong thing,

00:40:00

Scott Phillips: or at least I'm not sure you've done the right thing. But I'd like you to hang around because you create a lot of value. And so this is a really, really sticky one. I'd have a really good answer for you, Phil. Honestly. Um, at wisetech, the shares went up when Richard White came back to the company or announced he was staying with the company. Um, and mineral resources, Chris Ellisison has effectively been.

Phil: Yeah, these are people who've, uh, generated fantastic shareholder returns as well.

Scott Phillips: And that's the question, right? So you think, okay, well, how bad is the governance? And there's a really, really messy, almost bit icky kind of, uh, you know, sor of talk about capitalism. Right. This is the real question is, do I want people who tick the boxes and are whiter than white and have done the right things and have, you know, never, never, never crossed a line. Ideally, yes. But if those people make me less money than someone who maybe isn't the person I would want to have around for dinner, but, uh, or maybe, you know, has done the wrong thing by the company, allegedly, in some cases, but still created even more value than has been destroyed. And that's a really, really difficult question where you've got to say, morally, I want people running companies, and this is a power who, uh, are squeaky clean. Why? Because it's the right thing. A commercial at a mercenary level. I want to make money with my investments. Now, I'm not just who's broken the law. Let be really, really clear. I'm not saying that money should come for everything else. I am saying if I'm investing in a company and the people who are running that company can create value for me despite their failings, let's be honest, we all got failings. Do I want them there or not? Um, do I trust someone who's been doing the wrong thing? Do I trust they'll do the right thing moving forward. I don't know, maybe they're chasing and maybe they will or maybe, you know, um, forool me once, shame on you. Forool me twice, shame on me. But yeah, it's a really, really difficult one, mate. I prefer to have quality people running businesses who are committed to and trying desperately to strive for good quality corporate governance. But again, I mean that lowercase C lowercase g doing it well, not just ticking boxes that regulators put out because they kind of have to have some standards somewhere.

Phil: Scott F. Philips, thank you very much for joining me today.

Scott Phillips: My absolute pleasure. Thanks for having me. Phil, thanks for listening to Shares for Beginners. You can find more@chesforbeginners.com do if you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

00:42:11

Any advice in this blog post is general financial advice only and does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs before acting on the information. If you do choose to buy a financial product read the PDS and TMD and obtain appropriate financial advice tailored to your needs. Finpods Pty Ltd & Philip Muscatello are authorised representatives of MoneySherpa Pty Ltd which holds financial services licence 451289. Here's a link to our Financial Services Guide.