Professor John Kay is a British economist and author. He is a visiting Professor of Economics at the London School of Economics and has been a fellow of St John’s College, Oxford, since 1970.
On this episode of The Salesman Podcast, John shares the first steps to becoming genuinely wealthy by investing your sales commissions into your future.
Featured on this episode:
Resources:
- JohnKay.com
- John on Wikipedia
- Book: The Long and the Short of It: A guide to finance and investment for normally intelligent people who aren’t in the industry
Transcript
John Kay:
Let’s not pretend it’s dead easy to manage your own finances, but it’s possible. And a couple of days spent learning how to do it may well be the best paydays you ever spend in your life. You should be learning to manage your own investments. And even if in the end, you’ll pay someone to do it for you, you will know how to deal intelligently with somebody else who hand it over to. And that’s almost invaluable. Diversification is one of the most important principles of all. There’s a element of paradox, and the way in which you reduce the risk in your investment is not by finding a safe thing, but by investing in a wide range of different kinds of activities and different kinds of assets.
Will Barron:
Hello, sales nation, I’m Will Barron, host of the Salesman Podcast, the world’s biggest B2B sales show. We will help you not just hit your target, but really thrive in sales. If you haven’t already, make sure you play subscribe, but let’s meet today’s guest.
John Kay:
Okay. I’m John Kay. And I began my career teaching at Oxford University. What I most like is writing, and that’s why I write books and enjoy doing it.
Investing is Not as Complex as Most People Assume · [01:31]
Will Barron:
On this episode with John, we’re diving into very literally what you should be doing with your commission statements, either monthly or yearly with that balance. Where you should be putting it. We get rid of some of the myths of investing. We make it very simple for you to get started, or double down if you’re already investing right now. Essentially teaching you how to retire early, which is incredible, which is my personal goal of all of this. Or to retire stupid wealthy. So with that said, let’s jump right in. To set the scene here, we can focus on the UK here, because I don’t think we give a UK audience enough love, but investing. Is it as complex as what it seems outside looking in, when you haven’t done it before? Because there’s all kinds of products, fees, people telling you to go for one thing over another. Is it really that complex, or is it made out to be that complex for numerous reasons?
“Investing is made complex because people in the industry make a lot of money out of complexity.” – John Kay · [01:55]
John Kay:
It’s made it hard to be that complex, because people in the industry make a lot of money out of complexity. And well, it’s true in every business actually, that people in the business want to pretend they know more than people outside do. Because that’s how you get business. Now let’s not pretend it’s dead easy to manage your own finances, but it’s possible. And a couple of days spent learning how to do it may well be the best paydays you ever spend in your life.
Why You Should Learn How to Manage Your Own Investments · [02:31]
Will Barron:
And when you put it like that, I guess it is an investment into your own self. And you raise something really interesting off the bat here. Should we be learning how to manage our own investments? Or should we be paying someone to do it for us?
John Kay:
You should be learning to manage your own investments. And even if in the end, you pay someone to do it for you. And I’ve talked to quite a number of people who just don’t in the end, have the confidence to do it themselves. But even if you end up handing it over to somebody else, you’ll know how to deal intelligently with somebody else who hand it over to. And that’s almost invaluable.
The First Step to Getting Better at Investing · [03:09]
Will Barron:
That makes total sense. Okay. So perhaps we could start with the end in mind here, John. Is there a overarching structure that we should have of a percent here, a percent there? Do we need to diversify if we’re just getting into this, or do we need to just start in one place and master that? If you were sat with someone who has say, 50,000 pounds, they’ve earned that this year, they’ve done, they’ve had a great year in B2B sales. What would you, I don’t know if we should use the word advise, but what would you be suggesting they be at least looking at and starting that research project?
John Kay:
Right. So diversification is one of the most important principles of all. And the way in which you reduce the risk. There’s a kind of element of paradox. The way in which you reduce the risk in your investment is not by finding a safe thing, but by investing in a wide range of different kinds of activities and different kinds of assets. Because the truth is, none of us know what is going to happen. And therefore, the only way to deal with that uncertainty is to build something that is robust and resilient to most things that might happen.
Ways to Achieve Portfolio Diversification When Investing · [04:20]
Will Barron:
And I know a lot of the answers to these questions is, it depends. So bear with me with this, John, but is this three things we should be looking at? Again for the very beginner investor, or is it 25 things? How many subsections or how many investments, I guess, vehicles do we need to be conscious of to get started?
John Kay:
No, it’s not as many as 25 things. Now the truth is, if people have shown that if you hold 20 things and they’re not correlated with each other, you’ve got all the diversification you possibly need. But if you buy a fund of some kind, and most people should buy funds of some kind, that will provide a substantial degree of diversification. So probably investing in four or five things will provide you with quite a lot of diversification if you use funds. If you want to invest in individual things, whether they’re stocks or properties or whatever, then you’ll need to buy more in order to achieve successful diversification.
What is a Fund? · [05:16]
Will Barron:
Okay. And I’m going to go super-basic. What is a fund? And perhaps we can talk about the S&P 100, 500, because they seem to come up in these big dinner conversations regularly. And then once we explain that, is there perhaps a British and English version of that as well?
John Kay:
Yeah. A fund is someone is managing a portfolio of investments for you. Now the vast majority of the funds that are offered to the people we’re talking about are equity-based funds. That means they buy a portfolio of the shares. Now, the simplest one to buy is something called an index fund. And what an index fund does is it buys every share you could possibly have. So actually, if you buy an appropriate suitable index fund, you can buy a world index fund or you can buy a British index fund, or a European one or an American one. But say if you buy a world one, you will buy a share in Apple and Amazon and Exxon and BP and so on. And you can buy shares in all of these with a single transaction. Now, obviously you won’t own very much of Microsoft. You invest 500 pounds in an index fund, but that’s what’s happening.
Index Funds Versus Individual Stocks For Beginner Investors · [06:50]
Will Barron:
And is this the smart move versus, I would feel pretty confident in putting money into the likes of Amazon, and I don’t want the show to be too tied to a certain period in time. I want to keep things fundamental here, but Facebook shares have just dropped. And I feel pretty confident that Facebook, the amount of data that they have about is we’ll bounce back. Again, for someone brand new to this, should we be focusing on index funds? Or if we’ve got a good hunch, should we be going for individual stocks as well?
John Kay:
I would recommend for someone who’s just starting in all of this, you stick to the index funds. Once you’ve gained experience and confidence, and a bit more sense that you know what you’re doing, you can start thinking about individual stocks. But it’s an altogether more difficult game to do that. So I would recommend people who are just investing for the first time, they go to index funds. Or they suddenly go to index funds rather than buying individual stocks.
Will Barron:
And how does this look? Again, I know this is super basic, but this is important for the audience to feel. Is this a website you log into, drop your credit card details in there, and the funds are just off and you see it on a spreadsheet or a graph? Is it simple as that?
John Kay:
That’s right. I’m probably not appropriate to make particular recommendations, but if you look on websites that give you comparisons, you will be able to find an index fund that will invest in this whole range of stocks for you, for what’s called 10 or 20 basis points by people in the business. That mean 10 basis points is 0.1% percent per year. And that’s a pretty good price to pay for a wide portfolio of stocks.
What Are the Realistic Expectations For Investment Returns? · [08:20]
Will Barron:
And what’s the expectations here. I know there’s a part in your book, The Long and the Short of It. I think it’s title Realistic Expectations. Are we looking for 50% returns on this cash that magically goes off into a computer and then comes back to us? What’s realistic with this, I guess, short term and then long term as well?
“If someone tells you that you’re going to earn 50% a year or even 20% a year, run a mile. Your ambition ought to be to get rich slowly – that’s realistic, and what you need to do. And basically, you are hoping to earn a bit more on your investments than you would if you put your money in the bank.” – John Kay · [09:04]
John Kay:
No, I would absolutely not. And if someone tells you’re going to earn 50% a year or even 20% a year, run a mile. I like to tell people that reading a book like mine and thinking about investment in these kind of ways is a way to get rich slowly. Your ambition ought to be to get rich slowly. That’s realistic, and what you need to do. And basically, you are hoping to earn a bit more on your investments than you would if you put your money in the bank.
Will Barron:
So what number-
John Kay:
You earn virtually nothing by putting your money in the bank at the moment.
The Amount of Return You Should Be Aiming For From Your Investments · [09:26]
Will Barron:
So what number should we be not running away from? Is this 2, 5, 7%? Is that a number that’s realistic?
John Kay:
Right. 5 to 10% is a good target rate of return, in my view. In the first edition of the book, I said, “Aim for 10%.” In the second edition, partly because markets were running quite high then, I said, “Make it 8%.” I was writing it today, I might be inclined to say, “Make it 5%.” Because stock markets have done pretty well over the last five years. If you’ve missed out on the last five years, you’ve missed out on quite a lot of money. And probably the next five years are not going to be as good. Indeed, you also have to be prepared for big setbacks. If you held shares in 2008, 2009, in 2001, they went down.
The Best Time to Invest According to John · [10:20]
Will Barron:
So this is a conversation that’s caught with me in the pub with some of my, well, how can I can put it, more affluent friends than the affluence that I have right now. And a lot of them are holding cash at the moment. So I don’t want to particularly get into the strategy of when is the best time to invest. And we can touch on that in a second, perhaps, but if you’ve got 50 grand in the bank, is it always the best time to invest now? Should we always be putting in, or should we be trying to time the market? Especially if we’re using index funds, which as of time of recording, perhaps there’s some kind of correction due in the not-too-distant future. Because we’ve had such a good time at the stock market. Should we be, just get your money, get it away from you so you don’t spend it. Get it into your index funds. Or should we be trying to strategically time when we put that cash into the market?
“There’s something called pound or dollar cost averaging, which says, if you put money in, in terms of constant amounts, the great advantage is when markets are high, you’re not going to buy so much. And when markets are low, you’re going to buy rather more. So actually, by putting your money in gradually, you get the benefit of this smoothing in terms of what you earn.” – John Kay · [11:55]
John Kay:
Don’t think you can strategically time it. That’s a mug’s game. People who are professionals in doing that business are no good at it. And you, when you are starting out, are not going to be good at it. The best thing to do is actually something in between. To put the money gradually into the market so that if you start off, when it’s high, you won’t have committed all your money then. If you start off when it’s low, you won’t make as much money as you might have made. But you’re not going to regret it when you see the stocks you bought going up. There’s something called pound or dollar cost averaging, which says, if you put money in, in terms of constant amounts, constant money amount, the great advantage is when markets are high, you’re not going to buy so much. And when markets are low, you’re going to buy rather more. So actually, by putting your money in gradually, you get the benefit of this smoothing in terms of what you earn.
The Correct Time Frame For All Your Investment Goals · [12:25]
Will Barron:
And I’m getting from the conversation so far, that is the goal of this. This we want smoothing, right? And from that, how long do we need to leave, and again, the answer is what if and your retirement plans. But how long do we need to leave money in an index fund before it’s even worth considering pulling from it? So I’m 31. Is this a 20-year project, a 30-year project? What should I be aiming towards?
“If you’re investing for less than five years, don’t bother with these kinds of investments. If you’re not prepared to wait five years, then you should just leave your money within the bank.” – John Kay · [12:40]
John Kay:
I would tell people, if you’re investing for less than five years, don’t bother with these kind of investments. If you’re not prepared to wait five years, then you should just leave your money within the bank. And actually, if you want to spend your money next year, leaving it in the bank is probably the best thing to do. But equally, most people have longer-term savings goals. Everyone needs to plan for their retirement at some time during their lifetime. And it’s when you are doing that you should think about investing in this kind of way.
What Are Bonds and How Can We Get The Best Out of Them? · [13:13]
Will Barron:
Okay, perfect. So bonds get brought up a lot as a alternative, not necessarily direct alternative, but an alternative to an index fund. So if we’ve got four or five things that we want to invest in, index funds one, bonds perhaps number two, what are bonds? And how can we leverage them?
John Kay:
Well, first of all, what bonds are, bonds are debts, which you can buy and sell. So, right. Most bonds in the UK are issued by the British government, and they’re called gilts. Then there are bonds issued by big companies like Tesco or businesses like that. So they’re pretty safe too, because Tesco isn’t going to go bust very quickly. But my view is at the moment, don’t even think about bonds. The returns on bonds at the moment are absolutely pathetic. And they’re mostly bought by people who either think they’re getting safety by doing it. And there’s this strange paradox of something called quantitative easing, which has been going on in the last 10 years, in which the biggest single holder of British government bonds actually turns out to be the British government itself, through the Bank of England. It’s a bizarre story that we could spend an hour trying to understand, and I don’t think we would. But I regard the message as being, stay off bonds in the present circumstances. You can get better yields and more prospect of capital growth by buying things like property.
The Only Time It Makes Sense to Invest in Bonds · [14:50]
Will Barron:
Okay. So let’s cover this just for future reference as well. When is a bond a good thing to buy? What needs to happen to the market, to the universe as we know it for bonds to be a useful tool?
John Kay:
Needs to stop being distorted by government action and yield serious rates of return. But to be frank, if you’re talking about saving for retirement, I’m suspicious about whether bonds are ever a useful thing to invest in. You are actually much safer, believe it or not, in buying things that are based on real physical assets. That’s the attraction of something like property. There’s something there, which people are going to go on wanting.
Will Barron:
So, because that makes more sense.
John Kay:
It’s true of a big company like BP, because people are going to go on wanting to buy energy. And they’re going to want to go on buying goods from Amazon and computers from Apple and so on.
Will Barron:
So that makes complete sense, John. This is how I think about things, and maybe it’s me being purposely stupid about it, of if I can buy a bunch of property, if I can buy, we’re looking for office space at the moment. So I can repurpose that as a kind of, I use one floor, business below me uses a floor, helps pay the rent. All this kind stuff that makes total sense to me. And why, in which case then, are there all of these other investment methods, which are seemingly pulling cash capital out of thin air? Why do they even exist if they are literally seemingly pulling cash out thin air?
“Apart from straightforward swindlers, there’s no money being pulled out of thin air. But if your investments are based on solid assets, whether they’re real businesses or real things you can touch and feel like a building, then you’ve got more security from that than you have from some snake oil merchant making promises to you.” – John Kay · [16:15]
John Kay:
Apart from straightforward swindlers, there’s no money being pulled out of thin air. But actually, your instinct is right to say that if your investments are based on solid assets, whether they’re real businesses or real things you can touch and feel like a building, then you’ve got more security from that than you have from some snake oil merchant making promises to you.
How to Protect Your Assets in Case of a Market Catastrophe · [17:20]
Will Barron:
That makes total sense. So we touch on property, I don’t want to do a whole show on real estate investing. Perhaps that’s an episode I can do in the future, but is there any way, and seemingly, we’re starting to build up a little bit of a portfolio here of perhaps there’s somehow we’ve got real estate in there. We’ve got some index funds, that seems like the no-brainer. We’re not bothering with bonds. So we’re back down to two out the four here. Is there any way, or are there any investments which balance themselves out in a catastrophic event? Because it seems that if the stock market crashes and again, tell me if I’m totally wrong here. This my gut feeling on things. If the stock market crashes, people lose jobs, people can’t pay rents, mortgages. And so your rental empire then becomes a problem in its own right. Is there any way we could start to balance out some of these investments in case one does fail hugely in the next decade?
John Kay:
Yeah. Yes, there is. First of all, you can diversify abroad, and you don’t have to buy British stocks. So the British stock market could collapse, but if you have your money in America or Japan or Germany or Southeast Asia, then that’s not going to be affected in the same way. But we’ve talked briefly about property. Now you are right that direct real estate investing is another ball game altogether, whether it’s buying a house or buying an office block. But, and you need a lot of money to buy an office, but you can buy shares that are offices. You can’t buy a shopping mall in the United States. Indeed, you’d have to be very successful indeed ever to buy a shopping mall in the US, but you can buy a share in a company that does own shopping malls in the US.
John Kay:
You can buy a company like Simon Property, which is the largest owner of retail malls in the world. And a whole series of companies like that. You want to buy an apartment in Berlin. You can’t afford to buy an apartment in Berlin, but you can buy share in a fund, which owns a lot of apartments in Berlin, and so on. And you can see how, if you just ask these simple questions, you can actually obtain a very diversified portfolio with really quite small amounts of money. And that’s what you should do. That’s the next stage beyond indexing.
Will Barron:
So we are not just going after, this company gives us this return. We can perhaps be slightly more strategic about it, of if the oil industry massively collapses, which clearly isn’t happening anytime soon, we’ve got investments in that. Perhaps we should invest in solar or along the lines of that as well, to balance things out.
John Kay:
Yeah, well, you’ll get that balance right away with your index portfolio. So you’ll get some solar, and you’ll get some oil. And so if oil goes down the pan, then you’ve got the benefit from solar or whatever. Indeed, even a big company like BP is doing that kind of diversification for you. But I’m suggesting you get more diversification by having different kinds of assets from different places in the world. And it’s one of the marvellous things about the combination of the internet and some of the developments that have happened in the financial world, that you can actually buy that kind of diversified portfolio with really quite small amounts of money.
Will Barron:
So we’ve got index funds.
John Kay:
And for relatively low, cheap fees as well, if you’re careful about it.
Will Barron:
So I want to touch on fees, because this seems to be a hot topic and something that can pull a tonne of wealth from underneath you, without you even realising. So we’ll touch on that a second, but just to finish off this four to five things we need to at least consider. If we’ve got index funds and perhaps we’ve got index funds in different locations, we’ve got property either indirectly or directly again, we’re forgetting bonds for the time being. Is there anything else that stands out? Is there anything else that we should for sure include within our portfolio this first 50 grand that we’re going to invest?
John Kay:
I don’t think so. If you go for stocks and direct and indirect property, you’ve got a reasonable amount of diversification with your first shot of investing 50,000. And that’s what I would encourage someone who had that kind of money to invest to do.
The Pros and Cons of Owning Precious Metals · [21:24]
Will Barron:
Okay. So, and I’ll give you this, a bit of context. I’ve worked for organisations, well, essentially one of the biggest miners of platinum, palladium, precious metals and gold and silver as well. So I know a little bit about those markets, not to invest, but the commercial side of things. Should we be, because people talk about investing in gold, buying gold, storing it in your house. If there’s a zombie apocalypse and cash isn’t worth anything anymore, you’ve got gold that you can barter with. Obviously that’s a ridiculous example, but is there any truth to the average B2B salesperson? Should they be holding anything physical and precious like that in their own homes? Or is that as ridiculous as it sounds?
John Kay:
I don’t think in the world we’re currently living, stuffing gold bars under your mattress is really a very wise thing to do. No, but you can, and again, simply the index fund will do it for you. You will be buying shares in companies that own reserves of these kind of commodities, and a wide range of commodities. And they’re actually a better investment over, or certainly they’ve proved in better investment in the past than the commodities themselves. The truth is, we’ve simply got better at extracting commodities, which means that in the long run, the overall price of commodities has not done very well. Gold is something on its own because people have this funny idea about gold. And it seems always to be true that if the apocalypse comes, you might find people still willing to accept gold. Might, I suppose. But I think that this is not something to be thinking about when you’re starting your investment career.
How to Handle Investment Fees To Ensure You’re Not Getting Ripped Off · [23:10]
Will Barron:
Well, I love this, John, because you’ve made this incredibly simple. We’ve got two, three avenues and this is perfect. This is exactly what I wanted from the show. So a couple more things. Fees, you alluded to it then, and I don’t want to gloss over it. How do we know if we’re getting ripped off? How do we know if our fee structure is perfect? And I guess for context, what happens when we’ve got 50 grand that we grow over the next 20, 30 years with seemingly 0.5% difference in fees, which doesn’t seem like anything. What does that mean for our end pot?
“The surest way of increasing the return on your investment is to pay less to people in the financial services industry.” – John Kay · [24:18]
John Kay:
But it adds up to a spectacular amount, over 20 or 30 years. The most extraordinary sum I’ve ever done was the one that looked at Warren Buffett. You’ll have heard of him. He’s the most successful investor in history. And we said, “Suppose he’d charged himself typical fees for managing his own money. Then the manager would’ve ended up as the richest man in the world, not Warren Buffett.” So absolutely the surest way of increasing the return on your investment is to pay less to people in the financial services industry. That’s an absolute rule. So look careful. We’ve talked about index funds, which you can buy for very low charges. Although there are some index funds, you have to be careful because there are some that charge you quite a lot. We’ve talked about property funds, which are going to cost you more, because managing property does cost more. But again, you have to keep your eye on the level of fees they’re charging. Pay less and you’ll improve your returns.
Will Barron:
And for context, again, to go a step deeper on this, and don’t mention brands, products, anything like that if you don’t want to, John, but how do we know whether we are getting a good deal or not? Is there comparison websites out there where we can see how funds have done, and the fee structure over a long term? How do we decipher some of this?
John Kay:
Right. Don’t worry too much about how funds have done. Because as people keep saying, past performance of funds is not a good guide to future performance rule. Well, actually, that’s not quite true. There are some people who persistently bad performance, but they’re not many persistently good ones. But they have to tell you what their fees are. And they’re under more and more pressure to have disclosures of fees. You can always, it’s never very difficult to find out what the fees and the fund are. And that’s something you should keep your eye on very carefully. As I say, you can buy index funds for 0.1 or 0.2 of a percent of the value of the assets per year. And that’s the sort of thing you should be aiming at.
Why You Need to Drop the Get-Rich-Quick Attitude to Investing · [26:00]
Will Barron:
Great. What do we do when, because it’s happened now and we’ve recorded this show, well, after it’s happened once. It may happen again in the future, after Bitcoin comes along? This next big, huge investment vehicle that clearly was not necessarily a scam, but there’s very little value attached to what a Bitcoin is. And so it’s very easy manipulated, and there’s people rising the prices, pulling prices. And we don’t need to dive into the economics of it. But a lot of people recently lost a lot of money by quote, unquote, investing into Bitcoin. What do we do when we see the next one of these, because undoubtedly, there’ll be something else come along in the not-too-distant future. What do we do when this comes along? Do we investigate it, or do we stick to our guns on our 20 to 30-year planning and keep just plodding away rather than trying to get rich quick?
“Some people have made lots of money out of Bitcoin. Some people made a lot of money in the dot com boom at the end of the 1990s. Some people even made money in Holland, in the 17th century when the tulip mania took place. But these people who made money were more than offset by the people who lost money. And if you think, “I will get out of this before it collapses,” history shows that there are very few people who actually manage to do that successfully. If you are not sure where the underlying value is in this asset, don’t go there.” – John Kay · [27:30]
John Kay:
Stick to your guns. I mean, as you say, some people have made lots of money out of Bitcoin. Some people made a lot of money in the dot com boom at the end of the 1990s. Some people even made money in tulips, in Holland, in the 17th century when the tulip mania took place. But these people who made money were more than offset by the people who lost money. And if you think, “I will get out of this before it collapses,” history shows that there are very few people who actually manage to do that successfully. If you are not sure where the underlying value is in this asset, that goes back to what we were saying earlier. If you’re not sure where the underlying value is in this, don’t go there.
Why Warren Buffet is The Only Investor You Should Try to Emulate · [27:41]
Will Barron:
And John, just to wrap up this, and then I’ve got a couple final questions for you. Give us some context of the difference between a dude, me, sat in front of a computer going, “Oh, Apple looks great today. It’s gone down 2%. I’m going to throw a tonne of cash at it.” Give us some comparison between me as an individual doing that and then an organisation doing this professionally and the software that they’re using, the algorithms and effort that’s going on the back of there. Because I just want to give the audience the comparison of what I’m competing against if I’m trying to pick stocks and day trade and things of that nature.
John Kay:
Right. There are three kinds of people you’re competing, or the three kinds of people you’re competing against who are good at it. And I’ll give you three examples. There’s a guy called Jim Simons. All of these are people who have made billions in investment. There’s a guy called Jim Simons who’s a maths professor, who’s very good at deriving these sophisticated algorithms that work out what’s going on in markets, and trade often for very short periods. If you think you are going to beat him at that game, you are pretty naive. Secondly, there’s someone like George Soros, whose skill was really in picking big macro trends. Probably his most famous coup was when back in the early 1990s, he sometimes describes the man who broke the Bank of England. Because he said correctly that the bank wasn’t going to be able to maintain the value of sterling against European currencies.
John Kay:
And he made a lot of money from betting on that. Again, I don’t think you’re going to be better at managing trends than George Soros is. And then there’s the third person we mentioned earlier, who’s Warren Buffett. Who’s good at taking a very simple-minded view of stocks. He said, “Are these people, is this kind of business something that has a sustainable competitive advantage, and is well-run by the people who are currently in charge of it?” And he’s taken stakes in the end, very big stakes in these businesses. Now he’s the better guide, I think, to what you and I should be doing. And there’s so much being written, both by him and by other people, about what he’s doing. And there’s plenty information on that around. These are the models. But I think the only one you or I can easily hope to imitate is the Warren Buffett one. And actually, he’s made more money than either of the other two.
How to Analyze If Your Investments Are Making Money · [30:27]
Will Barron:
Okay. John, two final things here. So on The Salesman Podcast, a lot of the time, we’re talking about things like building confidence, charisma. We’ve interviewed astronauts, Olympic athletes. And the conversation typically comes back to, “Can this be measured? Can this be tracked? Can this be traced?” So clearly with the index funds, we can track and trace that. Is there a point within this next 5, 10, 20 years where things need to be rearranged, jiggled round? Is there a percentage that we should have in index funds versus over places? And clearly this comes down to tolerance, risk and things like that. But how do we measure what we’re doing so that we then can see the progress, so that we can hopefully start to refine things and improve it? Is there a set of measurement points that we should be looking at?
John Kay:
The measurement I suggest is people should say to themselves, “I am trying to earn, let’s call it, 5% per year over each five-year period.” So the question you’re asking yourself is, how am I doing? Have I over the last five years earned that 5% a year return for myself? And if I have, I can be reasonably happy. If I haven’t, then I have something more to learn about how I should be doing this. Now important to that is saying one of the, I think it’s a disadvantage of the internet, is you can press a button every day on your computer and see how much your portfolio is worth. But resisting the temptation to do that is a pretty good idea. Because even people like Buffett and Simons and Soros, they have almost as many down days as up days. Slightly more up days than down days will do you pretty well in the long run.
The Three Basic Principles of Investing · [32:20]
Will Barron:
Is there anything we haven’t covered, John? Is there anything that we should tack on to the end this episode, or do you think that’s a decent, fundamental podcast, the next step, obviously being for the audience to buy your book? Would you think, is there anything else you’d like to add to that?
“The three basic principles of investment: One, pay less to people in financial services. Second, diversify more, and the third is to be contrarian. Don’t accept that something is true because a lot of the sophisticated-sounding people in financial markets say it is. We don’t know what is going to happen in the investment world. So understand that and get used to it.” – John Kay · [32:33]
John Kay:
I think for me, the three basic principles of investment. Two we’ve talked about quite a lot, where one is pay less to people in financial services. Second is diversify more, and the third is be contrarian. Don’t accept that something is true because a lot of even sophisticated-sounding people in financial markets say it is. One of the big lessons of all of this, which may be difficult for some of the people in your audience, because actually being a good salesman is about displaying confidence. Perhaps even confidence you may not feel, is we don’t know what is going to happen in the investment world. So understand that and get used to it.
John’s Advice to His Younger Self on How to Become Better at Investing · [33:36]
Will Barron:
I feel like I could have that on my mug for this episode, understand it and get used to it. John, got one final question, mate. Something I’ve asked everyone that’s come on the show so far. So I know you are not a quote, unquote sales professional, but with your background, you’ll definitely have an insight to this. If you could go back in time and speak to your younger self, what would be the one piece of advice you’d give him to help him become better at selling?
John Kay:
I think the one piece of advice I would give to my younger self is don’t get angry so often, especially with people you think are stupid.
Will Barron:
Is this a lesson learned over the years, John? Or is this a-
John Kay:
Yes, it is, I’m afraid. I’m still not sure I’ve learned it well enough. I’m still rather impatient. And you might have got a sense of this in the course of this podcast.
Parting Thoughts · [34:10]
Will Barron:
Well, with that, John, tell us about the book. Where we can find it. And then there’s another book, which is perhaps relevant to this as well.
John Kay:
Right. We’ve been talking about The Long and the Short of It, which is published in the UK by Profile Books, easily available and Amazon and in many good bookshops. Equally available in the US from Amazon. And my other book, the other book we’ve talked about briefly was Other People’s Money. The book that tells you what’s really going on in the financial services industry. Other People’s Money, also published in Britain by Profile, published in the US by Public Affairs. And both of these available on Amazon, all other websites.
Will Barron:
Good stuff. Well, I will link to both of those books, to a little bit more about yourself and the show note to this episode over at salesman.org. And with that, John, I want to thank you for your time today. I want to thank you for coming on a sales business show and talking about the investing. There’s a tonne of value for both the young, and perhaps the slightly older audience listening to this as well. So we thank you for your time. Thank you for insights, and thank you for coming on the show.
John Kay:
Thanks, Will.
