942 investing in volatile markets, single stocks, gearing & what makes a successful investor

Glen James (0:06)

Alright, friends, today on the show, I am joined by Scott Phillips, but we will get straight into the good stuff. Christopher in the Facebook group asks, what to do in the current choppy slash volatile markets? So what are we doing, Scott?

Scott Phillips (0:19)

Glen, everything we always do, as long as you're already doing it the right way, be sensible, be long-term, focus on quality. Here's the thing. When you focus on quality in the good times, you don't seem to notice it. When do those things come to the fore? In those choppy and bad times. It's not gonna save you from volatility. Markets will do what markets do.

But the long-term view, in my view, is the right one. And when you do that, it's amazing how much volatility it smooths out. You end up riding the waves rather than trying to avoid them.

Glen James (0:51)

And it's interesting because, you know, if you're looking at your portfolio every day, there's over a 50% chance that you're going to see red every second day. So if it's only volatile because someone's looking at it daily.

Scott Phillips (1:06)

Correct. And think about the businesses themselves. We're buying, hopefully investing in real assets, in my case, largely shares. If you're doing that, do you reckon Woolies cares what its share price is? Are they selling fuel baked beans when the share price is down? Is BHP mining less iron ore? Is Newcorp selling less newspapers just because of the price? And of course, it's not. The business is doing what the business does. The share price is telling you what other investors are thinking, not anything about the business at all, particularly day to day, particularly in the short term.

It's not a response to the business. It's simply the investors waking up and going, how do I feel today? And if you let the market try and tell you, you'll drive yourself mad because it is really, you know, they're miserable, they're excited, they're miserable, they're excited. Over the long term, if you took a share price chart and you just did the start price and the finish price, it'd be a nice line, hopefully upward sloping and nice and flat. You go, well, that's pretty cool.

What it hides is all the ups and downs in the meantime. But to your point, if you stop looking, focus on the business and the long term quality, as I say, that is really where the money is.

Glen James (2:02)

Because I've seen days where the ASX 200 has had a bit of a bath, even 2%, right? And I've dropped into Woolworths on the way home and the shops are still full of people buying food.

Scott Phillips (2:13)

How about that? Exactly, exactly. Think about the COVID crash, right? Think about how like, share price like Woolworths fell. Like, why is Woolworths worth less in that world? Yeah, for everything else that could have happened, unless we stop eating food, you know, the response to markets is absolutely one of sentiment and emotion. And you've got to, once you put that in place, say, do I really want to make my investment decisions based on someone else's emotions? Think about your neighbor, think about your mate, think about maybe some of your family if you have particularly emotional family members. And like, I want to ask them every day how they're feeling, and then use that to decide which shares to buy. And of course, you'd say, well, no, of course I wouldn't. But somehow, once we put these things on a computer screen, on an exchange, against a three-letter code, we produce a chart, we try and divine meaning from it. That's very human, right? It's entirely human. And that's why I wouldn't criticize anyone for thinking it. The job is to stop yourself and go, hang on, what am I doing? Why am I doing it? And what should I do instead? And if you can get that bit sorted, then you start to come out the other side.

Glen James (3:09)

In your new book, and we'll talk about it, The One Page Investing Plan, and I hadn't heard someone bring it up for a while and nor uttered it myself, you talk about if we could price our properties every single day, you'd have a heart attack yourself.

Scott Phillips (3:26)

Oh, it drives me mad. Particularly think about the value of them, right? So, I mean, leverage the whole thing in property in general, but think about the value of your portfolio. If you're very, very, very lucky or you're quite old, eventually maybe your portfolio will be larger than your house price, right? Nice problem to have. For most of us, the house price is far larger than the portfolio. And you're right. If that was up, down, up, down, up, down. And we don't, when we think about it, we kind of go, oh, there's monthly data from Kotality or one of those mobs, and it's up or down a couple of percent.