Is an unrealistic portrayal of investing success holding you back? Mark and Shani speak about a few lessons that they’ve discussed in their new book, Invest Your Way.

You can find the transcript for the episode below:

Shani Jayamanne: For the past five years, we’ve released a weekly podcast to arm you with the tools to invest successfully. We’ve always strived to provide independent, thoughtful analysis backed by the work of hundreds of researchers and professionals at Morningstar.

Mark LaMonica: We’ve shared our journeys and you’ve shared back. We’ve listened to what you’re after and created a companion for your investing journey. Invest Your Way. Invest Your Way is a book that focuses on the investor instead of the investments. It’s a guide to successful investing with actionable insights and practical applications.

Jayamanne: You’re able to pre-order the book through the links in the episode description.

LaMonica: Thank you for your continued support and we look forward to helping you invest your way.

Jayamanne: Welcome to another episode of Investing Compass. Before we begin, a quick note that the information contained in this podcast is general in nature. It does not take into consideration your personal situation, circumstances or needs. So you have been absolutely smashing it at squash, Mark. You’ve been, you’re a very good squash player.

LaMonica: I lose every match.

Jayamanne: No, you don’t. But being a squash player, when you’re a very good squash player or any sports person, you have transferable skills for other sports.

LaMonica: Go on.

Jayamanne: And you did something that was new to you recently.

LaMonica: You’re talking about last week.

Jayamanne: Yes.

LaMonica: The yoga.

Jayamanne: Yes.

LaMonica: You have to give a little bit of background because I didn’t just go to a yoga class. I did it to help you out.

Jayamanne: Okay.

LaMonica: So really, I did that to support you.

Jayamanne: Yes. We had a morning yoga class at Morningstar and it was pelting with rain that morning. So I didn’t think the attendance numbers were going to be great and they weren’t. So I asked Mark.

LaMonica: Shani is in charge of the Women’s Organization in our office and you set up this yoga class and I told you I was very uncomfortable doing it. And you said, if I don’t get all of the signups, you have to do it.

Jayamanne: And you did it, which was great. What did you think?

LaMonica: I think I’m really bad at it. A picture was taken and I don’t know what pose this was in, but it was like a very simple, you’re like sitting cross-legged and you’re supposed to move your knees down to the mat. And so I’m not flexible. Everyone else’s knees were on the mat, not me. So anyway, it was very embarrassing.

Jayamanne: But did you feel relaxed afterwards?

LaMonica: I mean, I felt relaxed after you do something that terrifies you, like the relief that it’s over. So I felt relaxed in that sense.

Jayamanne: Okay. All right. Well, that’s something.

LaMonica: Yes. And so I was not successful at yoga or squash for that matter, despite whatever you’ve created in your head. But we want to paint a picture today of success. And we’re of course going to talk about success as an investor. So normally this is a thing, when you envision things, you close your eyes. But we’re not going to ask people to do that because we know people listen to this when they’re driving and that’s just not safe. So you don’t have to close your eyes, but think about the ideal of investing success. So what traits does this person have? So, Shani, what are you thinking? Keep your eyes open. What are you thinking?

Jayamanne: Well, the first trait is confidence and successful investors are supposed to be confident. They are always sure of themselves and they are bold and action-oriented. And these two traits go hand in hand. They have the confidence to act when they see an opportunity so they can exploit and profit off whatever is happening in the world. I think intelligence is an obvious trait, but it isn’t just intelligence. It’s being widely informed about what is happening with lots of different companies, currencies and asset classes.

LaMonica: And I suspect a lot of listeners are picturing the same thing. And it’s worth asking why we all have a similar view of success and a cynic. And I think, Shani, we are both pretty cynical about things. But a cynic would say it’s because that view is intentionally presented to the world. So this image is sold to people so that most of us feel inadequate and unworthy. And when we feel that way, it’s more likely we will pay somebody to help us.

Jayamanne: Now, as listeners may be aware, Mark and I are very different. We are different ages. We have different backgrounds and we both take a very different investing approach. But we do share some beliefs. We believe that not only is the way investing success is portrayed is wrong, but it’s also detrimental to the outcomes that most people achieve.

LaMonica: And we believe that there’s lots of different ways to be successful as an investor, which is why we’re both comfortable talking about the different approaches that we take. But we do believe that there are some fundamental factors that lead to success.

Jayamanne: And Mark and I had a version of this conversation around this time last year.

LaMonica: And we were at the Red Fern Pub.

Jayamanne: We were.

LaMonica: Your favorite.

Jayamanne: That opens at 10 a.m. That might not be why it’s my favorite.

LaMonica: Well, we were probably there around 10 a.m.

Jayamanne: And we were sitting at the pub that day and we decided we wanted to take this basic premise and we wanted to turn it into a book.

LaMonica: And so we’ve talked about this, that we wrote a book that’s coming out. But, the book that we’ve written has several different elements to it. So we wanted to show people how the portrayal of success that we talked about earlier actually hurts investors. How trying to live up to the standard of success is leading to behaviors that are the ones that end up hurting these investing outcomes that people achieve. And a good deal of the book is talking about how overcoming these bad behaviors and putting the structures into place that we think investors should have in order to be successful.

Jayamanne: But the book isn’t just about being a practical guide to getting the best investing results. It’s also about us.

LaMonica: Yes. And I think we’re both pretty uncomfortable with that.

Jayamanne: We are. But we wanted to use real life examples, not because we think anyone should copy what Mark or I do, but because we wanted to demonstrate how you can apply the principles we outline in real life. So today, we want to tell you a couple of stories, brief outlines of stories we’ve told in the book and the lessons that we’ve taken from them.

LaMonica: So we’re going to start with you, Shani, which I know makes you feel very uncomfortable. And I often joke with you about your former pet. Now, I don’t do it in front of your current pet. That’s Priscilla, your dog. I don’t want to make Priscilla jealous. But your former pet was some sort of fighting fish. And you named it Alpha.

Jayamanne: I did. Rest in peace.

LaMonica: Yeah, sorry. Alpha is no longer with us. This was not some sort of mutual departure. Alpha unfortunately passed away. Cause of death unknown. But the part of the story that I really want to stress is not the limited lifespan of fish. It’s the name. So what does Alpha mean, Shani?

Jayamanne: So Alpha is return in excess of benchmark.

LaMonica: Exactly. And we started this podcast with the traits of successful investors. And all those traits translate into actions that successful investors take, or at least they think they should take. And the goal of these actions is generating alpha. And, Shani, I think it’s safe to say that when you decided to name your goldfish, you too were focused on alpha. So, why don’t we talk a little bit about that and we’ll get into the evolution of you as an investor.

Jayamanne: Sure. So, well, the background is that I took my second job after university. And my first job was in financial advice. But the part that really interested me was the investing part and the investments part. So I took a job at a fund manager. And for listeners who haven’t worked for fund managers, you have to understand that at the top of the pecking order are the portfolio managers. And these are the people who make the ultimate investing decisions. And you can get caught up in this. And I was getting caught up in it.

LaMonica: And to be fair, it’s hard not to be impressed. So we spend a good amount of time on this podcast talking about how most active managers don’t beat their benchmarks over the long term. And that is true. But it isn’t because fund managers are idiots. It’s because it’s extremely hard to beat a benchmark. And professional fund managers face lots of structural limitations that make it even harder for them to do that. But most fund managers you meet are incredibly smart, really hard working, they’re articulate. So it isn’t surprising that they are compelling when people meet them.

Jayamanne: And that’s true. And when you’re first working in the industry, especially when you’re young, it’s very easy to get caught up in the hype. And because of the way the whole firm is orientated around the notion that these experts are the people that should be making investment decisions for you.

LaMonica: So I think the point of all of this is that this influenced the way that you invest.

Jayamanne: It did. And I wanted these fancy funds, and they all had names with alpha’s name in it. So pure alpha. Because I thought that was a pathway to success. And my whole job was to read and understand why active management was good for clients. And I remember one day at work, I applied that passively managed investments could find a place in a diversified portfolio, alongside active management. And the next day, a colleague had put out a printout of a graph on my desk. And it was a performance of the ASX 200 index against a microcap fund that had recently achieved a 60% per annum return. And there was a note on top of it, a sticky note. And it said, enjoy the very long time you have until retirement. And three years in this environment at the beginning of my investing journey meant that I had a strong sense of confirmation bias towards active management. I believe strongly in this perspective, as I had little to no exposure to any other perspectives. And being surrounded by proponents of active management, who were very vocal about the right way to invest, had not really given me any opportunity to consider one might actually be right for me.

LaMonica: The sticky note. And the graph on your desk is pretty aggressive.

Jayamanne: So it was a pretty aggressive place to work. But yeah.

LaMonica: Anyway, in the book, we go into more of your journey. I skipped a lot of parts here. Like when you realize that investing was for you, and the evolution you went through prior to working at that fund manager. And I think those are all important parts of your journey. But for the sake of the podcast, what was the ultimate lesson that you learned that changed your point of view from this, what you were getting exposed to, the way you invest now, which is very different.

Jayamanne: Yeah, it is very different. And as I’ve mentioned on the podcast, and in my articles, I mostly invest passively, and I focus on my asset allocation and the things I can control, like minimizing fees and taxes and saving the money that I need in order to reach my goals.

LaMonica: Okay, so maybe summarize how this transition happened, how you went from there at this fund manager to now.

Jayamanne: Well, honestly, it was getting to know myself better. And that is the central theme in the book. It’s that investing is about you. It’s about getting to know yourself and knowing what you want. And it’s about finding an investment approach that’s right for you, because that’s the only way that you’ll stick to it. And over time, I realized that I wasn’t comfortable investing that way. I wasn’t comfortable with buying individual shares because I wasn’t comfortable with making the decision myself. And I’d constantly seek information to prove that I was in the right investment. Not only was that exhausting, but it was increasing the behavioral risk that I would make mistakes over time. And the more I learned about investing, the more it became obvious that you don’t need to pay high fees for those star fund managers to achieve your goals. I learned that doing that actually made it harder to achieve your goals.

LaMonica: And I think that’s a really important lesson. And there is a reason, Shani, that we called the book, Invest Your Way. I think, as you said, because it is all about you, investing is all about you. And, what I love about Shani’s story is that, it might sound trite to say, figure out the right way to invest for you. But it also takes an incredible amount of confidence because it means developing a worldview that can resist all that noise out there. In ways like your colleague putting that sticky note on your desk. So there’s all these compelling advocates for other investment approaches. And you just have to ignore all of that. And a good deal the book is helping readers do this by building a plan and a strategy that you have confidence in. So you stick to it.

Jayamanne: Enough about me, Mark. That was a lot about me.

LaMonica: It was a lot about you.

Jayamanne: Let’s turn to you. I want to hear a variation of a story that you told on the Equity Mates podcast, actually, about you standing on a train station platform. And in the book, you reiterated that story, but also went a little bit further. So maybe let’s start with the train station platform.

LaMonica: Okay, so the basic premise of the story is I was living in Boston, working. I had meetings in New York. My parents lived outside of New York. So I went down spent the weekend with them, and then I was taking a train into the city the next day. And the suburb that I grew up in and my parents still lived in was an affluent suburb. And so it had all those trappings of wealth, big houses and fancy cars and all that. And that’s sort of setting the scene for the town I was in. But also I want to set the scene for this train platform. You were talking about. So it’s early in the morning, it’s still dark out, you’re in the northeast of the US, it’s freezing cold, it was winter. And so all the commuters are standing on this train platform. And you know, I had done this before, I knew the drill. So, the train pulls up, there’s limited seats. So chances are you aren’t going to get a seat.

So everyone rushes on, you’re hoping to get a seat. Then you take about 40 minutes, takes about 40 minutes to get into Grand Central Station in Manhattan. And a lot of people worked in financial services, which means they work downtown, down in the Wall Street area, which is not close to Grand Central. So that’s another subway ride. And so it wasn’t a great commute.

Jayamanne: Not a great commute.

LaMonica: So what I was thinking, and of course, there are people all over the world that commute. And including you, Shani, when you first started, you were in the Western suburbs. And I know it took you a very long time getting to the CBD. So this isn’t unusual. But I think what struck me is that all the people that were standing on this platform weren’t like me. They weren’t young. They had all made it. These were people that made it. They worked their way up the corporate ladder. They were in their 40s and 50s. They were in their prime earning years. And this is really success. All these people had achieved success in the conventional standpoint. And I think I had that realization that I did not want this.

Jayamanne: So if this isn’t what you wanted, what did you want? Or what do you want?

LaMonica: Well, you know, I don’t think I could have articulated it at the time. But I think more than anything else is I wanted to be mindful and deliberate about the decisions that I made that would shape my life. So there is nothing wrong with wanting what all my fellow commuters wanted. It just wasn’t what I wanted. And I was very cognizant that I could just drift into this life because that’s what I grew up with. And I think a lot of people just naturally find themselves recreating the life they grew up with. And there’s nothing wrong with that. But I just knew that’s not what I wanted.

Jayamanne: So in the book, there’s a clear linkage with this notion and financial freedom. So do you want to elaborate on that?

LaMonica: So I think any listeners of the podcast and anyone who reads any of the stuff we produce know that we are big proponents of creating goals and then coming up with investment strategies to achieve those goals. And in the book, as I think we talked about in the beginning, we walk through that in a step by step process. And that is really important. So it helps you pick the right asset allocation, save the right amount of money, make sure you pick the right investments. It’s all that structure we’ve been talking about. And there’s really no way to be a successful investor without going through that process. But it is more than that. I think setting a goal and setting a deeper level goal, which we’ve talked about as well, it forces you to figure out what you want out of life. So it forces you to think about what financial freedom means to you. It forces you to make trade-offs. And for most people, that’s the only way you’re going to get what you want out of life, connecting your financial resources to the things that are most important to you.

Jayamanne: And I think that’s a great way to end this. We wrote a book because we wanted to create a comprehensive guide that walked through all the steps needed to create the life that you want. This isn’t some trick. You have to do the hard work of saving and consistently and patiently following your strategy. You have to think about what financial freedom means to you. You have to figure out the best investment strategy for your goals because we don’t advocate for any investment approach. But we do think the book can be a guide as you go through this process. You can learn a little more about how we think about things and some foundational principles that we both believe in. But if you follow the steps we outline in the book, you will create a money philosophy, define your goals and create an investment strategy which acts as a plan to achieve them. So we really do appreciate your support and we hope that you love the book. We did put a lot into it. It started at a pub but took a lot more work after that.

LaMonica: And I assume the day that it comes out, it will end at a pub. But yes, thank you very much for listening and thank you very much for your support.

(Disclaimer: Any advice in this podcast is general advice or regulated financial advice under New Zealand law prepared by Morningstar Australasia Proprietary Limited and/or Morningstar Research Limited without reference to your financial objectives, situations or needs. You should consider the advice in light of these matters and any relevant product disclosure statement before making any decision to invest. To obtain advice for your own situation, contact a financial advisor.)

Invest Your Way

A message from Mark and Shani

For the past five years, we’ve released a weekly podcast and written on morningstar.com.au to arm you with the tools to invest successfully. We’ve always strived to provide independent, thoughtful analysis, backed by the work of hundreds of researchers and professionals at Morningstar.

We’ve shared our journeys with you, and you’ve shared back. We’ve listened to what you’re after and created a companion for your investing journey – Invest Your Way. Invest Your Way is a book that focuses on the investor, instead of the investments. It is a guide to successful investing, with actionable insights and practical applications.

The book is currently in presale which is an important time to build momentum. If anyone would like to support this project you can buy the book now. Thanks in advance!

Purchase from Amazon

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