Why should business people and professionals look at investing in other people’s companies, not just in their own? I will give you lots of valuable, insightful things, making it more interesting.
I’m a hedge fund manager, so I’m a specialist in investing, but I’m not giving individual investment advice, obviously. I have to say this and let you know because I don’t know your individual circumstances.
So this is more generic advice on why, as I said, you should be investing yourself, whether you are a young professional or a business owner. And I’m not representing a brokerage or a fund management house or anything like that. So this is, there’s no conflict of interest with you whatsoever.
I’m going to break this into two parts. First of all, why aren’t people making the most out of investing in the kind of returns that they can get from other companies?
And secondly, well, what are some of the things that funds like mine, like Goldman Sachs, like that Warren Buffet likes, those things whether you are. As I said, whether you are somebody in their 30s or 20s who’s looking at just starting out and has only got, say, £5,000. Or whether you are somebody who’s got their own business and has got millions sitting in the bank account.
There seems to be a lot of dormant cash already in your account, or you plan to have it because you plan to grow, which is why you’re here. So we need to plan ahead and work out what you should be doing.
Do connect with me if you wish. That’s just me showing off about my background, and that’s why I thought, so you don’t think I’m totally arrogant and unapproachable, I took a picture of my alter ego, Apu, just to make it a bit more realistic of what I’m really like.
As I said, I’m a hedge fund manager, I’ve also written about investing, and that’s the insights I’m going to share with you, both as a practitioner and as somebody who’s written about it.
I’ve written about it, including in the FT, for about the last 20-odd years. So there’s a lot of experience to share with you. Also, from my programs, I want to share with you.
As I said, I’ve got no conflict with you because we don’t deal with retail clients, so that’s simple. But I want retail clients to know what we know about investing because a lot more regular people, whether they’re professionals or business owners, leave it too often and pay fat fees to fund managers, or at least don’t even know what questions to ask them. Or, you spend their lives working incredibly hard in your businesses professions and don’t have your money working hard for you.
So you bust a gut making 100K a year or 50K a year, or I don’t know, maybe even bust a gut making a million a year, but the money just sits there, whereas that money could be earning more than you’re doing in your salary, and that’s the point of it, okay?
So let’s focus on what I’m going to be talking about in particular, which is, well, how do I get my money working harder for me if I don’t know where to invest, and how to invest? And I’m going to focus on the public markets.
Why? Well, because at the click of a keyboard button, you can exit, but we need to know, “Well, how do I pick stocks?” That’s just the last six months.
Some people have been banging their heads because they’ve picked the wrong thing when the market is at an all-time high. Others have banged their heads because they didn’t do anything about it at all at any point. Those are the problems we’re going to try and resolve.
How do you know what to do? Where to put that capital and be independent about it and say, “Well, actually, you don’t have to go to a particular fund manager or a particular broker or particular IFA. You should at least have some knowledge of that because it’s like I said, you’ve spent your life earning that money, that passive income should be earning a dual income. You’re basically cloning yourself. That’s the point of it. And the way I want you to look at it is this.
Whether, as I said, it’s 5,000 you’ve got or five million, when you invest in a public company, so we’re not talking private companies, we’re not talking about the risk of your money being locked up. We’re talking about public companies, the names you’ve heard of.
I want you to think of it like this. It’s like hiring somebody in your business. If you’re hiring somebody in your business, you want to look at about 10,000 CVs; I would have thought. You want to look at as many CVs as possible because when you invest in a company, a listed company, a public company, you’re asking them to manage your money.
To make your return, either because you’re in your 30s or 20s, you want to get rich when you’re older, or you’re retired, and you want that money to give you a comfortable retirement. They are essentially managing your capital. If they’re managing your capital, they better be the best of the best in the world.
How do you make sure they’re the best of the best? Well, you look at many CVs; in other words, you look at a lot of companies. That sounds like you’re going to spend the rest of your life doing that. But that sounds complicated.
So we need to find a more straightforward way of doing it. Thankfully, there are so many free tools on the internet to be able to do that, but first of all, you need to know, “Well, how do I do that? Where do I begin?” And like I said, it might not be that you’ve got the capital today. It’s the fact that you will have the capital.
This has become urgent because my fellow British pensioners and company owners and business owners and professionals are getting poorer while the overseas ones are not, for a very simple reason. When you’ve got a job and are putting money into a pension, most people don’t even realize that it goes into a fund that invests in the stock market.
Or if they know that, they don’t realize that they could ask questions; where the heck is that going? And most fund managers will invest in the domestic market—nothing wrong with that. I’m British; I’m delighted they’re investing in the domestic market. The problem is, since 1999, the hundred largest British companies have increased their values by 0%.
So chances are your pension stinks compared to, if you happen to be American now, governments of both colors, Conservative, Labour, want pensioners to be rich, believe it or not. Politics aside, they do. So they don’t mind if you invest in non-British companies, in global companies, and that’s the first thing. We will look at those 10 CVs, not just from a narrow gene pool of UK-only companies but also from a global gene pool.
So when you invest in an American company, let’s say, or a Chinese one, or whatever, and we’ll narrow it down what you might want to look at, at least you have the security you can click a button and exit. Still, more importantly, they’re earning and, you are bringing that return back to the UK and spending it in Britain anyway. So it’s good for your pension, it’s good for the country.
Reasons Why People Don’t Invest
So why don’t people do it? First of all, I’m going to give you two reasons why people don’t do it, and then we’ll talk about the meat of the problem, which is “Okay, well, how do you go about it? What should you be asking an IFA? What do you do about a SIPP, doing it yourself? What are the questions to ask, and how do you do it?” The first problem is really this. That sums it up. It’s fear that you’re going to get it wrong and the market’s going to come crashing on you. Well, I’m afraid you’re already invested, and if you’re not, then that money’s going down because of inflation. Or it’s overconfidence.
You think, “You know what? I’ve got the best business in the world. It’s going to make me all the money I ever need. I don’t need to invest in other people’s companies, Microsoft, PayPal, or Oracle. I don’t need to invest in those companies. Yeah. I hear Apple hire a lot of clever people, but no, my business is going to do better than theirs.” That’s fine. I’m not saying don’t do your business. I’m saying when you’ve not even diversified by investing a bit of your pension elsewhere, we’ve got an issue, okay? We’ve got a problem.
The other reason you don’t do it is, you might look at CVs of people like people in the industry or me, and you think, “They walk around a bit cocky. I don’t really want to ask them. I don’t want to ask them because they might think that, what the heck, you don’t even know what to do.”
You know, there is that feeling that “Oh, I don’t really want to deal with investing. Those are people who I don’t really want to even speak to.” Follow me. Feel free. Follow me on LinkedIn. So there’s that fear of knowledge. So we’re going to remove that fear. We’re not as bad and unapproachable as you might think. I’ll show you a bit of what you need to know.
The other main problem, you need to do this, and it’s urgent. I’m self-employed because I run my own company. Thank God I set aside extra capital, which had nothing to do with the business but had to do with investing in other businesses through a SIPP.
Whether you are self-employed or whether you’re in your own company, giving it to a fund manager has problems. I’m not saying you shouldn’t at all, but one of the biggest problems is they’re charging you fees so their little Johnny and little Jane can go to private school. At the same time, you’re being stiffed by those investments being in an index that goes nowhere for 20 years. Where are your yachts and private jets?
That’s the basic problem, which is why, again, I want to show you what you need to know and it’s even better if you’re in your 20s because you’ve got more time to apply it. And that’s the sort of pension gap. It’s difficult for you to see at the back, but let me show you what that is.
That’s the difference between if you were just even tracking a broad index of listed stocks and you followed the UK over the last five years. It’s the same over any rolling five-year period since the Second World War, you’ve got pretty much 0% from what your fund manager’s doing, and you’ve doubled your money by having a broader gene pool of global companies, including some of the big American ones.
You might say, “Oh, that’s just for now, Alpesh.” No, it’s been the case for a long period of time, and you can invest in those directly. And if you’re not confident, then at least you can ask the fund manager or the pension provider, “Hey, mate, what have you invested in?”
And the biggest problem that people have is they don’t even know. So they look at things like this, and this is literally a screenshot of a typical fund.
They’ll say, they’ll have words like A, or five diamonds, or a score out of 10, and they’ll say, “Oh, this must be good, and it’s got the word growth in it, so I’m okay because my pension fund or my SIPP or my ISA is in something with the word growth and it’s got lots of diamonds, darling. We’re safe. Our future’s taken care of.”
No. The fund manager’s future is taken care of, not yours, for a very simple reason. If you ask them to show you how they’ve performed and they have to, by law, tell you, you’ll invariably see that over any period of three to five years after the fees they’ve charged you, they’ve delivered you next to nothing, other than a few random, and it’s been proven, random fund managers who do well for a very short period of time.
And you know why they do poorly? And the mistakes you are going to avoid? Because they spray and pray. They will invest in as many companies as they can think of. Think about it. Their marketing outfits fund manages your pension, goes to a marketing outfit. That’s why when you go down the road, and you see M&G, Fidelity, etc. They’re advertising so they can get as much money as possible under management.
Why? Because they charge fees of a percentage of assets on their management. So they need to get as much on their management. But if they’ve got lots of money on their management, they’ve got to divide it into small gene pools of UK growth. So they do geography, UK growth, Japanese income, American growth, and each one of those funds will have all those trillions divided into sub lots of maybe 50 stocks at a time. So if you put your money in just five funds, that’s five funds, 50 stocks, that’s 250 stocks.
So you look down, and you go, “Oh, it’s okay. I’ve got a bit of Amazon and Apple and Oracle.” Well, you’ve got 1/250th of your capital in those. No wonder it’s not performing, let alone the fees they’re charging. You can ask them all of this. The first thing I want you to do is to be aware of it.
Please, for God’s sake, be aware of it. If you want to see what they invest in when they call themselves growth, you can ask them that as well.
So this manager and I picked him at random, and I guarantee if any of you’ve got pensions through SIPP, and as I said, most people don’t realize their pensions are invested in the stock market.
Tobacco. This is a growth one, and he invested this genius in British American Tobacco. Who thinks tobacco’s a growth area without knowing anything about stocks? And he invested in oil before oil prices last year went to zero, let alone what’s happened now.
I’ll tell you what his stocks are like. Now you might say, “Well, Alpesh, you are talking a big game. You got a big mouth saying that regular people can be better than fund managers.”
Well, no, I think they can learn a bit more, so they’re more in control. So the FT said the same thing to me in 2004. They said, “Well, you say you can be good. How do I know you can?” So they ran a competition over 12 months, and at that time, I didn’t have a hedge fund; I was just a regular bloke like you guys.
They ran a competition with other fund managers. And I said to the FT, “Well when I beat them all, will you please put my face on the front page of your business section?” And when I did beat them all, regular retail guy, like you, guys. So it can be learned, okay? They did do that.
And you know who came 17th? One above the editor’s cat? They literally had the editor’s cat there to see if the editor’s cat could beat fund managers. The editor’s cat picked levels of stocks to decide based on random numbers. Okay? The editor’s cat nearly beat Neil Woodford, who gets paid billions, or did, before everybody else discovered that he’s rubbish. It’s the truth.
So you might think, “Well, how the hell did they get away with that?” Marketing. You don’t think fund managers with those CVs that make them seem unapproachable don’t do marketing? That’s marketing. That’s why I want you to be aware, and it’s not a new thing I’m saying. I’ve been saying it in my FT columns for 20 years.
The other problem you’ve got is this. For every £10,000, you work incredibly hard earning, or your business. You take out of your business; you pay all your taxes, PAYEs, and NIS. Everything else you’re left with that 10K, £1,000, 10% of it goes into fees over every five years to the fund manager. Now, if you could do more of that yourself, you get to save that alone. Just that, okay? But, I know, you’re probably thinking, “Hang on, Alpesh, I’m going to have to become one of these guys if I’m going to look at the stock market. I’m going to have to be junkied up on caffeine. It looks like it’s too complicated.”