SIMON SHEPHERD | Stock Market War Stories

In this episode I'm joined by Simon Shepherd from The Investment Newsletter Group. Simon has a wealth of experience in capital markets working at Deutsche Bank during the 90s. I've called this episode Stock Market War Stories as I believe there's valuable lessons for newcomers and seasoned investores alike.

Simon shares his experience of living and working through the collapse of Long Term Capital Management (LTCM) and the upheavals of the Asian Currency Crisis.

LTCM was a hedge fund founded by some of the most brilliant minds in finance, including Nobel laureates Myron Scholes and Robert Merton. The fund's strategy was built on the premise of risk-free arbitrage, leveraging enormous amounts of capital to amplify returns. However, when the strategy failed, the high levels of leverage turned against them, leading to catastrophic losses. In September 1998, a consortium of investment banks and the Federal Reserve had to step in with a $3.65 billion bailout to prevent a global financial meltdown.

Simon recounts his time at Deutsche Bank during this period, working on the convertible bond sales desk in Tokyo. He paints a vivid picture of the panic and fear that gripped the financial markets as LTCM's collapse reverberated through various sectors. The episode also delves into the mechanics of convertible bonds, explaining how these instruments work and why they were attractive to hedge funds like LTCM.

But the late 90s had more in store. The Asian Currency Crisis of 1997 saw investors fleeing Southeast Asian markets, leading to massive devaluations of currencies like the Thai baht. This crisis was fueled by overvalued assets, weak banking systems, and fixed exchange rates, creating a perfect storm that swept through the region. Simon explains how the contagion spread, infecting other capital markets in the search for liquidity.

One of the key takeaways from this episode is the importance of mental stamina in investing. Markets oscillate, and even the most experienced professionals can be swayed by fear and greed. Simon emphasizes the need for a solid investment plan and the discipline to stick to it, even when the market is in turmoil. He also underscores the dangers of excessive leverage, which can amplify losses and lead to financial ruin.

The episode wraps up with a discussion on the importance of diversification and the perils of recency bias. While financial crises can seem like the end of the world when they occur, they often become mere blips on the long-term growth charts of equity markets. This perspective is crucial for investors looking to build and maintain wealth over the long term.

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

Chloe: Shares for beginners Phil Muscatello and Fin pods are authorized reps of Money Sherpa. The information in this podcast is general in nature and doesn't take into account your personal situation.

Simon Shepherd: Even the smartest people in the room sometimes get it wrong. Right, and that's the thing, because at the end of day, they're still human. We're still sitting around that campfire 4 million years ago, looking out for the tiger, out in the dark there. And whether you've got a Nobel laureate or you've run a bond desk for 20 years, at the end of the day, it all boils down to those raw emotions. And particularly when it comes to investing, testing, it's fear and greed that are just tug of war all the time.

Phil: G'day, and welcome back to shares for beginners. I'm Phil Muscatello. You might think it's hard to hold your nerve when markets oscillate wildly, but what is the true test of mental stamina? What happens to financial professionals when they're responsible for billions of dollars that can disappear at the stroke of a pen or the press of a button? Um, I'm joined today by Simon shepherd from the investing newsletter group to recount a couple of war stories that he was privileged to live through. G'day, Simon.

Simon Shepherd: Hey, Phil, how are you going?

Phil: Uh, oh, uh, good, mate. Thank you very much for coming on back on.

Simon Shepherd: A pleasure, as always.

Phil: So, Simon, we still have a passing familiarity with the global financial crisis, although it seems to be fading from memory. But hardly anyone remembers the LTCM M collapse of 1998, which could have brought down global financial markets. Tell us a story and your part in it.

Simon Shepherd: It's a great point, Phil, and I don't know whether that shows the age of us or the age of the listeners or a bit of everything, or probably just the recency bias of the human brain. But it was a big event at the time, the collapse of long term capital Management, also known as LTCM. And they were one of the sort of the preeminent hedge fund back in the day, and interestingly, set up by some very high profile financial gurus at that time, including a former head of bond trading from Salomon Brothers, a guy called John Meriwether. And actually, I dont know if youve heard of, you know, Michael Lewis, who writes a few of those books on.

Phil: The, the big short.

Simon Shepherd: Yeah, so he wrote a book about five books ago of which John Merriweather was one of the characters about days of the bond trading, uh, desk at Salomon Brothers in the eighties called Liars poker. So anyway, John Merriweather was one of the founders of long term capital management, but pretty prestigious board and high profile names, including a couple of Nobel laureates, Myron Scholes and Robert Merton. So some real big hitters right in the finance world. So they set this fund up and thought they had this bulletproof strategy to effectively make risk free money or arbitrage or whatever, and invested in a whole bunch of different assets. And I suppose the thing that really killed them at the end was a strategy didn't work, but mainly they just had extremely high levels of leverage. So in other words, using a very small amount of their capital or shareholders capital and borrowing stack loads from counterparties, mainly investment banks or commercial banks, whatever. And so as they got into trouble, the returns, or the losses rather, were amplified by that leverage. And so it reached a point in 1998 where they effectively raised the white flag and said, were in big trouble, we need some help. So a consortium of investment banks, again, all the big names you would have heard of, Goldman, JP Morgan, I think some of the big commercial banks, possibly cant quite recall, sat down with the Federal Reserve. So effectively the central bank in the US to put together a bailout, and they injected $3.65 billion into LTCM in September 1998 to stop that sort of contagion and systematic risk, right, where the problems that one fund is having start spreading to other parts of the market or other funds or, you know, banks, et cetera, who might be heavily exposed in lending to LTCM at the time. Is that making sense?

Phil: It is, but I just wanted to dig deep into what they were actually doing. Now, first of all, we're talking about bonds here. Are we talking about government bonds, corporate bonds?

Simon Shepherd: Good question. So I guess they had a whole bunch of different strategies and some of the areas where they got in trouble, they held russian debt, for example, which on paper, probably at the time, provided a really high return, which is what you'd expect, because you're taking a heck of a load of risk. Nobody needs to explain why Russia is a dangerous place to invest, even back then. A broad bunch of different strategies, but effectively finding assets that were looking like providing very attractive returns, leveraging the hell out of it, trying to offset that risk somehow with some kind of hedge. Again, hence the name hedge funds, but without going too much technicality and sort of rinse, repeat, rinse, repeat. So the area that I was involved in, I moved to Tokyo in 1996 and spent four years mostly at Deutsche bank on the convertible bond sales desk, dealing with hedge funds like long term capital management. And so the japanese convertible bond market was one area where they were quite heavily invested. And at the time when convertible bonds became sort of a product,

00:05:00

Simon Shepherd: Japan was one of the biggest issuers in the planet, in the globe. Back in the sort of early to mid nineties. It really was a very large market and hence attracting hedge funds into that space. So that was one of the books that they were running. And I don't think that book specifically got into trouble. The problems were in other areas. Like I mentioned that they also got in trouble with the asian currency crisis in 97. So the roots were planted already before things escalated in 1998. Might be talking about that next as well, the asian crisis. So effectively the bailout meant that they had to unwind everything. So it wasn't every single strategy that got in trouble, but it only takes one or two cards to sort of to bring the house down. Does that answer your question?

Phil: It does, but I just wanted to dig deep into convertible bonds. So presumably a bond, of course, is a loan to someone. You're loaning someone in a bond.

Simon Shepherd: Correct.

Phil: I'm assuming it's going to convert into some sort of asset. Is that how bond works?

Simon Shepherd: Yeah, that's right.

Phil: Do they still exist?

Simon Shepherd: They do, yeah, absolutely. Still a pretty big active market, so, you know, globally and, yeah, as far as I know, Japan's still a big part of that space. Been in financial planning land for 15 years, in self employment, but yeah.

Phil: Is it analogous to a bank hybrid, for example?

Simon Shepherd: No, not really, because the main.

Phil: Okay, no, forget about that.

Simon Shepherd: I said that in the sense of converting it, is that the bond eventually converts to shares, but it has a built in call option, so it's a little more flexible and I guess a little more protection as the owner of a bond versus, say, a hybrid, where if things get really bad with a bank hybrid, you're going to get jammed with stock from the company, the bank that's getting in trouble or whatever. In the worst case scenario, the difference with the convertible bond is effectively just to very basic. On the derivatives lessons 101, a call option is a right to buy a share at a preset price, but it's a right so you're not forced to buy it. So the convertible bond, let's say Sony issues a, uh, convertible bond to raise some money, and Sony share price might be at ¥800 and the bond might give you the right to buy the shares at ¥1000. So at the moment it's worthless because why would I buy shares at ¥1000? When I can buy them in the market at 800. But the idea is that this bond might be issued for five years, and you hope that over time, of course, the Sony shares go from ¥800 to, uh, the moon, and you're owning this option within the bond. Right. Hence the word convertible, because at the moment, it's a bond. But sometime in the next five years, if you want to, you can convert it into Sony stock at ¥1000 per share. You're hoping that over those five years, the stock goes to the moon and you've got this, effectively, really cheap access to Sony shares. Does that make sense in terms of the basic structure?

Phil: Yeah, very, very good.

Simon Shepherd: Yes. And so because there's an option attached to the bond, what the, uh, hedge funds would do is try to arbitrage that away. And what I mean by that is, again, a different hedge fund in the early nineties worked out a way to price these bonds. A guy called Ken Griffith from Citadel, which are still around, massive, massive hedge fund. And they're in a couple of these micro Lewis stories as well, actually, including the last one, the most recent one, the 2010 book on the GFC. So effectively, what hedge funds would do is they buy these bonds, they work out what the, uh, or effectively, again, trying to keep it simple. What tended to happen was when the bonds were issued, that the options, so that call option were issued at quite cheap levels. And so the opportunity for a hedge fund to make money is to buy the bond and effectively trade the option around within the bond. Again, try not to get too technical and nearest explanation, but that was effectively in a vertical arbitrage for many years. Those bonds were issued pretty cheap because the companies are trying to raise Money, right? So they're raising this Money, they're issuing a bond. Eventually it might turn into more stock. In the meantime, you've got this option attached to the bond, which if the stock is moving around a lot, effectively the value of the bond will change because there is an option attached to it, and the value of the option varies with the value of the underlying security into which it converts, which in this case is the Sony shares. And so the hedge funds would buy these. They trade them around, they buy and sell them with each other. Long term capital was one of the many big name hedge funds that were out there with very large books of these bonds.

Phil: Wow, sounds like they were just too smart by half. Yes, exactly one of those. So, uh, let's go back to that time in 1997, and you're working on the japanese bond desk. Then you got I'm presuming a fax or a phone call or there was a meeting where something was announced. Can you just tell us what it was like that particular day when everyone found out that shit was going down?

Simon Shepherd: Yeah, I guess panic. We're all human at the end of the day, right? Even the smartest guys in the room or girls in the room. And whether you've got lots of experience or limited experience, yeah, it's panic, it's fear. Nobody wants to lose money. No one wants to be caught on the other side of that trade when a massive hedge fund that's getting into trouble is trying to wind their book down. So in a way, it was kind of the worst kept secret because we all knew about the bailout. We all knew that they had to sell and unwind, and that created some really good opportunities for those funds and banks on the other side side of that trade.

00:10:00

Simon Shepherd: But, yeah, it was panic. It was fear, the uncertainty. That's how I'd sum it up for sure at that time.

Phil: And you got to know the head trader for their japanese book. This is Deutsche bank, or the company that went down.

Simon Shepherd: No, so when I was Deutsche. Yeah, the guy that was one of the, you know, the team that were unwinding the book for the japanese bond book. Yeah, at the time.

Phil: How was he feeling?

Simon Shepherd: Nervous. He had his work cut out for him, that's for sure. And look, he, he did a good job, right? It was the worst kept secret on the street that, uh, you, every time someone would ring up for a price. Can you show me a bid for, uh, whatever $100 million worth of bank of tokyo Mitsubishi, 2032 born. Whatever it was, we all knew who it was, right. But you still, the guy had to do his job and keep his sanity. So he did a great job. And at deutsche Bank, I mean, we were one of many, right? We weren't any. Again, all the traditional investment bank names that you would care to roll off, they were on his Rolodex, so to speak. But Deutsche bank, like a lot of the banks, had a strong, big balance sheet so they could make prices for those, for LTCM to sell into. And then part of my role was to layer that off with another client, right? So there were hedge funds on the other side going, great, this is a once in a lifetime opportunity if they didn't panic, right. And say, okay, this is a great buying price, or this is a chance to clean up and really get some good quality assets on our books, but without panicking, without sort of worrying. Okay, well, how much worse is this going to get? How much lower can these prices go? Right? Just like if we're buying or selling a share individually, it's the same kind of emotion, just on a much larger scale.

Phil: Okay, so this was 1998, and there was a crisis a year before, in 1997 as well. Tell us about the asian currency crisis.

Simon Shepherd: Yeah, that's right. So it was, uh, late nineties was a busy time. When isn't it? When it comes to markets, I guess. But yeah, the asian currency crisis was, I guess, more specifically Southeast Asia. So what they call the asian tigers, you know, Thailand, Taiwan, other countries, South Korea, that sort of area, that geographical area. And it wasn't one thing in particular, but effectively the outcome was flight out of those currencies. So a bit like the 98 russian ruble crisis. And again, emerging markets, uh, they go through cycles, right? And those cycles tend to be a lot more volatile than developed market cycles, although the GFC was an exception because everything got smashed very badly, whether you're in America or Russia or whatever. But the asian currency crisis was, as it says, the currency crisis, and effectively everybody, investors just flee, right? They just dumped the currencies, dumped the assets in those countries and left. And so that put a huge amount of pressure on those economies, on their banking systems, on their currencies. And I guess for a few main reasons, that started happening was very loose banking regulations, a lot of those countries, or weak banking systems, overvalued assets. So real estate bubbles, stock market bubbles again due to easy credit, lots of speculation, fixed exchange rates, so no ability for the thai bar to adjust, to respond to what market forces are doing, generally pegged to the us dollar. So they've taken away those main buffers in an economy for when these things are happening. So all those combinations of different things, of events at different levels in the different countries. But the net effect, as I said, was just everybody was getting out of Asia. And the other problem they had was that a lot of them were heavily indebted. They were big on the export model, like Japan, the economic success story in the sixties and seventies, sort of trying to replicate that, but that's very debt intensive and requires a lot of investment. And where does that Money come from? Overseas? What currencies are borrowed in, usually us dollars. What happens when your currency starts devaluing the thai baht will pick on Thailand again, is that it gets harder and harder to. You need more of your thai baht, obviously, to go and convert to us dollars to pay your debtors back. So it was just, again like a house of cards and long term capital management, who we were talking about earlier, uh, they also had investments in these areas. So their 98 crisis didn't just start in 98. It was building up over time.

Phil: So in this case, we're not talking bonds, we're talking about currency. So is that foreign exchange, forex markets, is that sort of thing we're talking about.

Simon Shepherd: At the end of the day, the currency is a mechanism, not only, but in the financial sense, with these kind of things. Because if you want to buy property in Bangkok or shares in Taiwan, you've got to first go through the currency to get those assets. And then in reverse, if you want to get out, it's a two step process. A, you got to sell in local currency, and b, you then got to sell the local currency, if that makes sense. And therefore, that's the funnel. Right. For stress and risk and contagion and everything else, it all ends up going through the currency because investors want to get their money out of that particular, uh, country or area or risk. So that's where it was most amplified in the currency markets.

Phil: And what was the path of the contagion? Did it get into convertible bonds as well?

Simon Shepherd: Yeah, look, great question. And that's the thing with contagion in general, is it's not the crappy assets, excuse my french, that I mean, yeah, they get in trouble, but generally it becomes a liquidity vacuum. And this is what we saw a lot on the trading desk, and it still happens today.

Phil: Right, liquidity,

00:15:00

Phil: that's an interesting concept, a liquidity vacuum, which means people aren't buying or selling. Is that the case?

Simon Shepherd: Yeah, we're usually not buying. Right. Because usually liquidity vacuum, like good news, takes care of itself. So when things are going well, you don't usually see too many issues trying to buy more, but it's when things are going bad, everybody's running for the exits and there aren't any buyers. And hence the word crisis. And generally where that evolves is in the less liquid markets to start with. Right? Because that's usually where the problems start. And because they're less liquid, you have less pricing transparency. All of a sudden, momentum builds and prices are gapping down, right, whatever that asset is. And hey, panic sets in and then funds go under. And all these things we've been talking about time and time again, it happens.

Phil: Just pick the race to the exits, isn't it?

Simon Shepherd: Exactly. Right. But if there's no buyers, how do you exit? So what happens with contagion is systematic risk. Again, sort of slightly different sides of the coin. But the economic impact can be the same. Is the contagion, is the spreading of that selling to good quality liquid assets. Working in Japan at the time, what we saw was, okay, there's nothing wrong with the japanese convertible bond market. It's stable and it's orderly. But those funds that are getting into trouble with their other asian assets have to raise Money, right? No matter what. They've got their bankers calling and saying, you've got a large collateral, right. You guys are in way underwater, uh, like a margin call. If you're an individual investor, there's a trigger at which the bank's calling you, saying you need to post more stock or you need to post more cash. So what do you do if you're a fund in trouble? You raise cash wherever you can. You go to an orderly, liquid, deep market like the japanese convertible bond market, and you sell. And so theres the contagion impact, because all of a sudden, everyone in that market is going, hold on a sec. Theres rumors that XYZ funds in trouble and theyre raising Money by selling their japanese bond book or whatever it is, and hence the contagion impact, and then it spreads through other markets. Does that make sense?

Phil: Makes a lot of sense. Were equity markets affected by these crises at the time?

Simon Shepherd: Raoul? Yeah, they would, absolutely. If you look at all the indices, there was huge volatility, right? Again, started in Asia, but it was impacting globally. And it's that contagion effect, liquidity. People will get money wherever they can if they're being forced to do so. Good quality assets, whatever they can do to raise money. And hence the panic, it builds and it compounds. So, yeah, it's fascinating is not the right word, but it's, uh, for lack of a better word, it's a fascinating thing to watch, except that if it's your money that's on the line, that's the problem, right. And if there's contagion and systematic risk, everybody is exposed, potentially. Hence, like the GFC, etcetera, or the bailouts that were required, super is one.

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Phil: So were you like sailors in a storm? You were just trying to batten down the hatches and hang onto any piece of rope you could find? How did it feel for you emotionally and personally?

Simon Shepherd: Yeah, I think it's a good analogy. I mean, you know, I wasn't directly impacted like my personal wealth, although my job was tied to, and bonuses, whatever, to the success of how we managed our situation on the sales desk and the trading desk. And luckily we had some really good traders who kept their heads and good risk management, right. So we weren't getting into the trouble that some of our customers were. And, um, again, using the asian crisis as the example, you know, that was part of the problem was the banks there had very weak controls and weak oversight. So it was just, you know, cowboy, right, wild west. So in terms of steadying the ship, we had a good captain and a good executive officer and good navigation systems. So no matter how bad the storm, we had a plan to get through it, to get out. And that was, I think, the really important thing.

Phil: So what does this tell investors about long term holdings in growth assets, you know, equity markets obviously being the main growth asset that we're all invested in.

Simon Shepherd: It's a great question. I think one of the takeaways from most crisis, but certainly in my career and lifetime, is leverage, right? It can be is a killer or excessive leverage and poor controls around that. So I think that's because end of the day, you're just amplifying whatever you're doing wrong, you're amplifying it, right? And when I say wrong, you're losing Money and you're leveraging, you're just amplifying those returns or those losses. So it can, it's a very slippery slope, right? It can quickly go bad very fast. And again, if word gets out that there's someone in trouble, then everybody runs away. Nobody's going to show you a bid, right? Nobody's going to buy those bonds off you or the shares or whatever. Uh, so maybe that's less of an issue for our listeners because we don't. I mean, some listeners might, or they might use cfds or they might have a margin loan.

Phil: Well, they're tempted by it. I mean, there's a lot of advertising out there saying, oh, you know, go to cfds. Here's an option strategy that'll make you, uh, lots of money.

Simon Shepherd: Yeah, I mean, that's the thing, right? That's, we're all after the golden ticket or the golden goose.

00:20:00

Simon Shepherd: And I think if it's managed, managed well, it can be successful. And if you reverse that and think about what do most Australians have the biggest leverage in? What would it be?

Phil: Our homes.

Simon Shepherd: There you go. And you'd argue that's been successful by every measure globally. We've got the most expensive houses in the world or one of the top countries. So that's an example, if you want to say, well, that's kind of leverage managed well. Right. But the difference is the price of your house isn't displayed on a screen every day and it's hard to know exactly where you're at. And also the banks won't lend you more than what the house is worth. In fact, they, they won't lend you more than usually, what, 80%, whereas the.

Phil: Hedge fund can on a bank valuation, which is lower to start with.

Simon Shepherd: There you go. So there's all those built in buffers, safety nets, haircuts, whatever you want to call it. But in some of the things we've been talking about, either they existed and they weren't followed or they didn't exist. So I think, yeah, with growth assets, if it's done well, then it does and you've got the right horizon and some kind of process and a system which is what, again, what ting looks at and what we study with our panel and services, we look at it can work well. Right. But I think the takeaway from, again, these crisis is that even the smartest people in the room sometimes get it wrong. Right. And that's the thing, because at the end of day, they're still human. We're still sitting around that campfire 4 million years ago looking out for the tiger, out in the dark there. And that hasn't changed. Right. The programming of the brain, whether you've got a Nobel laureate or you've run a bond desk for 20 years, at the end of the day, it all boils down to those raw emotions. And particularly when it comes to investing, it's fear and greed that are just tug of war all the time. And I suppose the other takeaway is with growth assets, is, again, you want to diversify. Part of the reason the asian crisis was a problem, because it was concentrated, it was all in the same area. And again, the russian debt crisis and the ruble crisis, I think the takeaway is you've got to be really mindful of things like geopolitical risk and look at what's happening with Russia right now, for example. So I think there are takeaways about investing in long term growth assets for sure, those kind of things.

Phil: So it sounds like part of the lessons of this story, going back to LTCM and being too clever by half. Is that simple? Often beats complex.

Simon Shepherd: Exactly. Right. Yep. I think that's another takeaway that these so called sophisticated hedge funds sometimes smart, too smart by half. Too smart for their own good. Again, how does it boil down for your listeners and our listeners and my clients, etcetera? I think simple is the way to go, right? Time and time again, we've seen with these various crisis, it's leverage upon leverage, and it's trying to arbitrage or whatever it is, and it usually ends up not working. So I think that's a really good rule to stick by as well. Uh, avoid, uh, having too many moving parts and relying on every one of those parts to work at the time they're supposed to, because life doesn't fit into a box like that when you're investing. Nor does life anyway. Right. So there you go.

Phil: And you mentioned the recency bias, because if you look at a long term chart of any equity markets, the main equity markets, you'll see there's this long upward trend, you know, these crises that we're talking about, and the tech wreck a couple of years later, and the global financial crisis and the european currency crisis, they barely show up, don't they?

Simon Shepherd: Yeah, exactly. Right. They're just blips on the long term chart. But at the time they're happening, they don't feel like blips. Right. They feel like life is ending for some people. And again, it's all that, you know, I'm not the behavioral finance expert, but it's the. Is it the amygdala or whatever, the different receptors in the brain, and it's as if that line's going to come and eat you, right?

Phil: Apparently, that's the same thing, the reptilian part of. Of our brains, isn't it?

Simon Shepherd: Yeah. You probably had a few guys in the podcast about that, or if not, I'm sure they're. They should be, or they're on your list, but, yeah, that's exactly what's going on, from my understanding. So.

Phil: So why do you describe this as a test of mental stamina, having gone through these yourself?

Simon Shepherd: Well, it gets back to what we've been talking about. It's the fear and greed, right? Which one's gonna beat you? Which one's gonna force you to panic or act? And that's the test, right? To, uh, again, if you bring it back to your listeners, individual investors, it's, how do you overcome that? You've got to have the stamina to deal with those days when things are going really bad and not making a short term, sort of, you know, irrational decision.

Phil: It's been plain sailing for a long period of time. I mean, we've already even forgotten about the COVID crash, which seemed to last two weeks or something. I think a lot of listeners and a lot of people think that this is the way it's always going to be and it never is, is it?

Simon Shepherd: No, it isn't. In other words, I know I say it a lot, but the good news takes care of itself, right? Just something will come and we don't know what it is, but it'll be panic and there'll be drawdowns of ten or 20% within the space of a few months. And the last major one was, what was it? Late 21 when tech had a bit of a sell off. But we know how that turned out. Like talking about blips again, right? Looking back at the almost didn't happen. So. Yeah, and that's the thing. It's just, you know, the odd time when things happen, it's really, you got to be prepared for that, right? And whatever your process is, whatever your checklist or you're going out to sale for the day you go through your safety list in terms of investing, you have to have a plan for that.

00:25:00

Phil: Just a little bit off topic. This is just something I've been thinking about lately, because I get feedback from listeners and questions from listeners and everyone. They start off with a simple ETF strategy, owning some ETF's and they get the ASX 200 and they maybe get an S and P 500, and then they start thinking about where else that they should be invested in. It's almost like ETF's now are becoming like investing in individual stocks. Oh, should I have a bit of emerging markets? Should I have a bit of bond in here? And suddenly what was passive does become active.

Simon Shepherd: Mhm. Yeah, look, it's so true. And I think it gets back to simple beating complex. And the first thing is really just start with a plan, right? And then stick to the plan. So do I want to own ETF's? Do I want to do what's called a satellite approach, which is predominantly index or ETF passive ETF exposure? But then you're cherry picking a few things around the edge, whether that's individual stocks or some of the thematic ETF's that you mentioned, etcetera. But the worst thing is to chop and change, right? As I've talked to you in previous chats as well, and I'm sure lots of other of your podcasts saying the same thing, you've got to try to stick to the plan, right? A come up with something that's most likely to work through different cycles, and b, stick with it through those cycles equals good result at the end.

Phil: Yeah, you're right. We have talked about this many times, but I don't think it's any problem beating people over the head with these tried and true lessons. You know, people need to be reminded all the time.

Simon Shepherd: All the time.

Phil: And as a financial advisor, I'm sure you find that as well. Talking to people, they all come up with all sorts of. Yeah, they all come up with hair braid schemes. Simon, what do you think about this?

Simon Shepherd: Exactly? Yeah, it's part of the fun.

Phil: Ok, so let's talk about Ting, the investing newsletter group, and more recent updates. In fact, remind listeners about what you're doing with this service.

Simon Shepherd: Yeah, thanks, Phil. So the investment newsletter group is effectively a research portal. There's a wealth of stock tip newsletters, investment newsletters available in Australia. And what we found when we started looking at this was there's no sort of independent, unaligned, or, you know, not affiliated research service that looks at how the performance of their recommendations is tracking over time. So we built this about four years ago, and we now cover nine of them, the major investment, uh, newsletters out there. And we've been tracking returns for just clocking over three years for seven of those and two for the newest two editions. And the idea is it's just to help individual, you know, self directed investors or advisors, I guess, to find the right investment service that suits them.

Phil: And what are the different styles and approaches that you found in these newsletters?

Simon Shepherd: Great question. You probably boil it down to two or three different categories. There's sort of the value investing style, there's sort of the quants or data investing style, where you're looking purely at numbers and sort of mathematical equations around that. And then there's sort of a blended style, which might be, again, fundamental or value style, but using price signals as an overlay for when to enter an example at positions, for example. So broadly, the services we look at would broadly fit into those styles, some of them, as I said, to a blend.

Phil: Okay, so since our last chat, you've gotten more newsletters on board, and you've also got a few more rankings. And tell us about a couple of the newsletters and how they're panning out.

Simon Shepherd: Yep. So we've added two new services, one called data analytics, and the other one, Markus, today is the name of the service. And I guess why we like these and why they're a bit different to the other seven that already on our coverage list is they're a bit more what I would call sort of out of the box style or off the shelf. And that means that effectively they have a bunch of preset, or what I would call model portfolios that might have anywhere from usually around 2025 stocks in them or maybe some stocks in ETF's. And you can choose which one you like and effectively track, build it and track their portfolios and they'll announce changes either in their weekly or daily etcetera. And so that might suit investors that really, as I said, they just want something out of the box. Right. They don't want to trawl through 50 or different.

Phil: Yeah. They want to be told what to buy and what to sell and when to.

Simon Shepherd: Exactly. Yeah. So we know we're trying to a variety of different styles on the portal. So uh, again, to appeal to as many potential and help as many potential people as possible to find the service that kind of fits the personality or the type of investor that they are. And I guess if you like market commentary, they're both pretty heavy on daily reports and podcasts, particularly the markets today. Marcus Palley's quite high profile. So is Muthan as well, who runs deep data, uh, analytics, but probably m more in the financial space, more from the institutional side originally. So if you like that, then they're good services to subscribe to. There's so much stuff they send out, but again, not everybody does. Right. Some people consider that noise and it's just excess information. So it comes down to personal preference. So those two services are in our matrix. I can't remember if our last shot I mentioned that we have like a matrix tool which lists the

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Simon Shepherd: features, the key features of each investment newsletter or the app.

Phil: Now is that new? Because I haven't seen that before. We didn't actually discuss that.

Simon Shepherd: Yeah, I think it might be. So, yeah, the third tab on the website, it's just called the Ting Matrix. And so all nine services are listed on a Google sheet, which you can, I'm pretty sure you can print that or download it. And it's sort of got all the main areas covered. So what kind of market cap they might look at, other individual stock recommendations, a little bit of a guide to the pricing links to their websites, what their investment style is, whether they have things like podcasts, extra educational services. So again, the idea is it's just a bird's eye view, right? So you're not trawling through seven or eight or nine different websites trying to figure out what they offer. We've done that work for you by just sticking it there in the matrix and welcome any feedback. Of course, if people, if listeners have anything they'd like to see added or something doesn't look right, or we try to be as accurate as we can, of course. So that would be, again, for someone who's starting out or even just wants to review what they're doing or review the service they've got or look at an alternative, that's a great place to start in the matrix, the comparison tool. Comparison matrix.

Phil: This is a passion project for you, isn't it?

Simon Shepherd: It is, yeah. It is something that has always been of interest to me. And we just want to help people to make better investment decisions or a better choice of the service they use to make the investment decisions, I guess to put it more technically correct. And so we thought what better way than to start tracking some of the recommendations and see who's actually beating the market? Because how do you know what's really working and what isn't? And you're handing over your hard cash every month or year for access to this information. You would expect a return for that investment.

Phil: And how's the performance rankings been going? What was the most recent one?

Simon Shepherd: So we're about to release July, but the April performance. So in terms of gold medal, which is basically beating the market and beating competitors, stockpedia number one at the moment, so they're what we call the gold medal winner and intelligent investor are still doing pretty well. So there's silver beating the market. The two new services we started tracking because they've been running for two years, we've got a slightly different timeframe, but so far, deep data analytics and markets today are also both beating the market. So it's nice there's more services coming onto the portal that are, uh, so far beating the market, which is good because it obviously gives your listeners more choice. Yeah.

Phil: So tell us about the upcoming July release.

Simon Shepherd: Yeah, so July for our subscribers. We'll send out the performance update shortly. The other thing, if you go to a website, the two new services that we are covering, deep data analytics and markets today, will also be shortly releasing what we call a spotlight report, which is a detailed report of the service. You know, the different areas they cover, the types of model portfolios, investment style, so much deeper, uh, dive than what you see in the comparison matrix. And they'll be published in the next month or two. There's already a couple up there for, there's one up there for Stockopedia, and that would be useful if those services in particular of interest to you. So keep an eye on that. The best way to find out when these are issued is jump on the website tinglive t I n g as in the investment newsletter Group tinglive.com dot au and just scroll to the bottom of the page and just subscribe. It's free and then you'll get all the updates as they come out. So that would be the best way to keep an eye on stuff.

Phil: Fantastic. Simon Shepherd, thanks very much for joining us again and great to hear your war stories.

Simon Shepherd: My pleasure, Phil. And I realise how old I am when we start talking about this history, so at least the memory still works.

Phil: Uh, at least you don't remember the 1987 crash.

Simon Shepherd: That's right. Awesome.

Phil: Yeah, all these distant memories and great lessons for investors.

Simon Shepherd: So true.

Phil: Thanks, Simon.

Simon Shepherd: Thanks Phil.

Chloe: Thanks for listening to shares for beginners. You can find more@sharesforbeginners.com if you enjoy listening, please take a moment to rate a review in your podcast player or tell a friend who might want to learn more about investing for their future.

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