10 Things I Wish I Knew Before Investing

Hey guys, welcome back to the channel. In this video, I'm going to be going through 10 things I wish I knew before I started investing, so hopefully we can get through these 10 in around about 10 minutes. So, time is on, let's get stuck into it.

The first thing that I really wish I knew before I started investing is that the pros that you see on TV, they rarely get it right, and you definitely shouldn't trust them. When you watch shows or when you watch programs like CNBC, they will have one or two people on to talk about a stock with the positive sentiment, you know, notable names. They'll talk up the stock, and then later on in the day they'll get another two people, again notable names, and they'll come on and they'll talk crap about the stock and tell you why you shouldn't buy it. So if you just trust what you see on TV, you'll probably end up with about a 50% success rate.

The other thing to consider when you're listening to experts talk, whether it be on YouTube or TV or whatever, is that the experts when it comes to stock market investing, they're playing a completely different game to the rest of us. Right? These guys are managing millions or billions of other people's dollars, okay? And they're operating to win reputation and to win clients. A lot of the time their funds have rules as to what they can and can't do, what they can and can't hold. So at the end of the day, the people you see on TV are playing a completely different game to us. So it's best just to let their recommendations or their tips just fly on by, in one ear and out the other. Because really, at the end of the day, it's like listening to and taking on board rugby strategy when you're actually playing cricket.

So, that's the first thing I wish I knew. The second thing I wish I knew before I started investing was that the brokerage costs can really impact your returns as a new investor. So for those that don't know what I'm talking about, if you're a brand new investor and you want to invest through your online brokerage account, you have to pay your online broker a fee when you buy a share or when you sell it as well. So on the way in, you have to pay them, and on the way out, you have to pay them too.

The reason for this is because that's essentially what that brokerage site does. So it's like you're paying the brokerage site for their services of helping you buy or sell shares. But the thing is, if you are a brand new investor, maybe you're only starting out with a thousand dollars, say your brokerage cost is ten dollars. You have to pay that on the way in and the way out. Well, already you have to get a two percent return just to break even. So you have to already get two percent on that investment just to not lose money, okay?

So it's small, but it's something to factor in. Whereas if you're with a brokerage site that, say, had thirty dollar brokerage, that's a significant amount more, right? You pay thirty dollars on the way in, you pay thirty dollars on the way out. All of a sudden, your one thousand dollar investment has to get at least six percent, plus six percent, just to break even. So there is a definite advantage in shopping around if you're a new investor for different brokerage options.

For me, here in Australia, the best I've found for Australian shares is SelfWealth. I think they do 9.50 brokerage. If you are in Australia and wanting to invest over in the US, I would definitely recommend Stake. Of course, Stake do brokerage-free share trading. The only fee you have to pay is the foreign exchange fee, which is not like a Stake special. All of the different brokerage sites also charge that fee when you're investing overseas. But usually other brokerage sites also charge you international brokerage fees, whereas Stake doesn't. So definitely recommend if you're looking to invest overseas, have a look into Stake.

But anyway, with that said, that's the second thing I wish I knew: that brokerage charges can really hurt you if you're dealing with small sums of money. Anyway, number three, the next thing I want to talk about, things I wish I knew before I started investing, is that you don't have to be a stock picker. When people think about investing, they think about having to pick the winners, right? "Oh, I'm an investor, I bought that company and I bought that company." But some people don't know that you can just buy a small sliver of the whole market.

Tracking the market history has proven that that's actually a very viable and lucrative strategy. I mean, if you look at the Australian market, we've got 115 or years, or something, 117 years of stock market data, and the data shows that just the market in general goes up at about 13% each year. That's their average annual return. If you look over at the US, the S&P 500 goes up at an average of seven to eight percent per year. Now, it doesn't always do that, right? So you can't trust in that number that that will happen every year. But if you zoom out and take an average over a very long period of time, that's what the average comes out to.

A lot of people don't know that you can just invest easily across the whole market. So there are these investments called ETFs. ETFs pool up all the investors' money, they take that massive pile of money, and they just invest it across the whole market. So by buying a share in some of these ETFs, then you're literally getting diversification across the whole market. But you're only buying one investment, so it keeps the brokerage cost down, gives you exposure to the whole market, and it's a stress-less way of investing, right? You don't have to pick individual companies and read their annual reports. You just trust in the whole market and let that compound for you over time.

Now, following on from that, the next thing I wanted to talk about, the next thing I wish I knew before I started investing, is that, to be honest, most people don't beat the market when they're investing. Most experts, most expert investors don't beat the market when they're investing; it's just a fact. You might be saying, "Oh, you're probably overstating that a little bit. I'm sure a lot of them do." Actually, no, not very many active funds actually beat the general market return, okay?

Let's have a look at the actual statistics right now. I'm going to draw up the chart on screen. If you have a look here in Australia, right over the past five years, 80% of active funds have not been able to beat the ASX 200. That is the index that tracks the Australian market. How about we look over in Europe? Maybe Australia’s an outlier? Nope! Europe is the exact same: 80% of active funds have failed to beat the S&P Europe 350. And then, well, what about in America? Well, in America, the story gets even worse. 82% of active funds have not been able to beat the S&P 500 over the past five years.

So it's truly staggering. These are the experts that you do see on TV. They are the ones that are controlling these funds, managing millions. And that's another reason why you shouldn't really listen to what you hear on CNBC, etc. Most of these guys perform really poorly; they just do not beat the market. So there's a definite power in passive investing—that investing strategy I was talking about before, owning a little bit of the whole market and just letting that go over time.

Anyway, that is the fourth thing I wish I knew before I started investing: most people actually do not beat the market. Now, the next thing, the fifth thing that I wish I knew before I started investing, I wish I knew about this book—this is "Rule One" by Phil Town. In my opinion, this is the most criminally underrated stock market investing book of all time. People always list, you know, "Barefoot Investor" or "The Intelligent Investor" or whatever. This book, if you are new to investing and you want to learn how to pick individual businesses to invest in, read this book. Trust me, it's a pretty easy read; it's not very long.

The reason I like this book by Phil Town is that this book details the Warren Buffett method of picking stocks: understanding the business, checking for competitive advantage, analyzing the management team, and valuing the company, and making sure you're only buying a margin of safety. While many other books, they kind of just dance around the surface, yeah, Warren Buffett, he says you've got to always understand the business—no, no. Phil Town actually goes in-depth and says, "All right, we're talking about competitive advantage. This is how you assess for a competitive advantage in a particular business."

Yeah, we talk about margin of safety: this is how you actually calculate whether your stock is at a margin of safety price. So that's why I really like this book. It is well written, and it actually goes into depth telling you about how you actually implement the strategy. So there you go, I sound like a salesman for this book, but seriously, I do recommend it. If you haven't read it, do yourself a favor; it doesn't matter regardless of your investing experience. If you haven't read this book, definitely read it.

Anyway, moving on to the sixth thing I wish that I knew about investing before I started, this one is relevant to Australians, and that is that here in Australia, without taxation rules, if you hold your investment, if you hold your shares for longer than 12 months, only half of your capital gain gets taxed.

So the way it works here in Australia is when you sell, when you realize a capital gain—so when you sell your shares or you sell your property or whatever it is, your investment property—then the capital gain that you make in that year, in the year that you sell that asset, gets lumped on top of your taxable income and then you pay tax at your marginal rate. However, for Australia, we have this awesome rule where if you hold your assets for longer than 12 months, then basically only half of your capital gain gets lumped on top of your income and assessed, and you pay tax on that amount.

So it's a really great rule; it encourages Australians to hold their investments for longer. It definitely helps Australians be less speculative and think more about the long term. So that is something that I wish I knew definitely. If you are staring down the barrel of a large capital gain, that's going to be particularly relevant for you—just to think about whether it's going to be smart tax-wise to hold it for longer than 12 months so you get that 50% tax reduction on the gain.

So that is the sixth thing that I wish I knew about investing before I started. The seventh thing I wish I knew is that it's okay to be slow. Okay? It's totally okay to be the world's slowest investor. If it takes you a month, two months, six months, a year, or two years to actually study the stock market and understand whatever strategy you’re looking at—whether it be passive investing or individual stock selection, Warren Buffett style—it is okay to take your time.

It is a much better strategy to take your time and get it right than to have a half understanding and just try and get into the market as quickly as possible. I know that what we always say, you know, when we talk about investing, is it pays off to get into the market as early as possible. And that's true to an extent because, obviously, the longer our compounding period, the better off we'll be because compound interest works exponentially.

However, it is much better to take the time to really understand what you're looking to invest in before you pull the trigger. I know when it comes to investing, there's fear of missing out; it's a particularly big issue, particularly with new investors—good old FOMO. But trust me, in the long run it is better to take your time. Relax; the stock market's still going to be there in two months. The stock market's still going to be there in five or ten years.

So it's okay to take your time. Try not to succumb to the fear of missing out, okay? Make sure you fully understand what you're looking to invest in before you invest in it. With that said, moving on, the eighth thing that I wish I knew before starting out on my investing journey—this is another one relevant to tax—and that is that capital losses can be used to offset your capital gain.

Again, this is here in Australia. I'm not sure if you're watching this from outside Australia. I'm not sure what the tax rules are in your country, so make sure you check that. But here in Australia, if you make in one financial year a capital loss and you make a capital gain, the losses can be used to offset the capital gains, so overall you pay less capital gains tax.

So this is particularly relevant if you've realized a large capital gain, okay? And you're staring down the barrel, maybe it's close to the end of the financial year, you're staring down the barrel of quite a substantial capital loss. You can realize that loss in that financial year to reduce the tax you'll pay on that big capital gain that you made, okay? That is completely legal—you're allowed to do that; you're allowed to realize a capital loss to offset your gain.

It's particularly efficient when it comes to tax, so definitely consider that if you didn’t know that. There you go! But yeah, definitely being able to offset your capital gains with capital losses—that is a very handy rule. If you make a capital loss, that can be carried forward to future years, right? So if you make a capital loss in one year, you had an investment that went bad on you, you had to sell it at a big loss, and then you don't make any capital gains in that year. But next year, okay? So next year you make this massive capital gain, but you don't have any capital losses in that financial year.

Your capital loss from last year carries forward. It continues to carry forward indefinitely. So you can use those capital losses to offset those future capital gains. So that's another one to consider. Anyway, almost at the end of the video, the ninth thing that I wish I knew before I started investing is that there is definitely a difference between speculating and investing.

This takes a little while, if you're new to the game, to fully understand, but a lot of people think they're investing, but they're actually speculating. They're just gambling in the stock market. You know, "Frank told me last week that this share is going to go up 100%. This week I'm going to buy into it." That is speculation; that's not an investment.

The way I like to define an investment is going back to that Benjamin Graham definition. He said, "An investment operation is one which, upon thorough analysis, promises safety of principle and a satisfactory return." Okay? That is the important thing. You have to take the time to understand what you're getting yourself into. Understand the company. Understand the cash flows that you're going to get out of that company as an owner of that business. You have to make sure that it's got low debt, you know, that it's not a high-risk business.

So you protect your principal; you protect your capital that you've put into the investment. And then once you've got that protection, then you try and make that modest return on top of that. That is investing. Investing is not, "Oh, I really like the look of this company. You know, I really like the name. I've heard of the CEO before; I'm going to buy shares in it. Why not?" That's not investing; that's speculating. Investing is taking the time, understanding your investments, finding that competitive advantage, doing your due diligence on the management team, checking for margin of safety and the valuation—all that stuff—that is investing.

Anyway, with that said, the last thing that I wish I knew about investing before I started was that you can literally see every single quarter what the best of the best are buying and selling. True story, okay? If you didn't know this, this is called the 13F filing over in America. This is for, yeah, for American people, American businesses. Essentially, I'll read you the Investopedia definition: A 13F filing is a quarterly report that is required to be filed by all institutional investment managers with at least 100 million in assets under management. It discloses their equity holdings and can provide some insights into what the smart money is doing in the market.

So, for instance, you can, you know, Warren Buffett. Straight away, you can log on to a website, something like Guru Focus. I'll show you this example with Guru Focus. You can log on, and you can look at what Warren Buffett's last 13F filing looked like, and you can see what he's been buying and what he's been selling.

So you can see here, this is at the end of Q1 2020. Warren Buffett, he reduced in Goldman Sachs, he reduced in JP Morgan. You can see he's sold out of Phillips 66; you can see he added Delta Airlines. Now, the thing to remember here is that the 13F filings are always backwards-looking, right? They're always looking backwards because they get released after the fact, after the quarter's finished. Then you get to look back at what the investors actually did.

So if you have a look at this example, it says here that for the most recent Warren Buffett 13F that we've got, that he was buying Delta Airlines. But in reality, he's actually since sold out of that position completely. So you don't want to be fooled looking so far into the past and making an investment decision, you know, based on what one of these guys are buying into, but in reality, they've actually sold out of it.

To be honest, buying a stock or a company because one of these guys has bought it is a terrible investment decision, anyway. But the thing that's useful about 13Fs is that it can put new companies on your watch list, right? So you can see, "Oh, Warren Buffett's making a substantial investment in XYZ company. I might go and have a bit of research on XYZ company and try and figure out why he's bought into it. Is there a competitive advantage there? What price was he buying in at? Okay, is that a margin of safety price getting in at?" You can learn a lot from looking at the 13Fs and keeping track of what the best investors of the world, how they're going about their investing, what they're buying, and what they're selling.

So anyway, guys, with that said, that was way longer than 10 minutes, but these are some really interesting points. They're definitely 10 things I wish I knew before I started investing. I probably didn't know any of these, to be perfectly honest. I didn't know any of these points before I started, so these are all true points that I definitely wish I knew.

I hope that maybe that helps you out if you are someone that's looking at getting started with investing in the next little while. Definitely, definitely listen to those points because they are 100% very important. Anyway, guys, that is it for this video. Leave a like on the video if you did enjoy it or if you found it useful. Make sure you subscribe to the channel as well if you like the content. If you watch it regularly, maybe if you're not subscribed already, just click the subscribe button—it's of course the easiest way to support the channel as well.

So, thanks very much for doing that. Of course, check out Profitful if you would like a full step-by-step walkthrough on either the active investing Warren Buffett-style strategy or if you just want a walkthrough of the passive investing market tracking ETF kind of strategy that exists out there, then definitely check out Profitful. Links in the description below. But that will do me for today, guys. Thank you very much for watching, as always, and I'll see you in the next video. [Music]