Our wealth management principles
Stockspot has a set of principles that guide how we advise clients and invest their savings. This is our DNA and what sets us apart from other products and investment managers.
Time in the market beats timing the market
Market timing or picking the right stocks is almost impossible to do consistently, even for experts. What is far more important is simply being invested for a sensible amount of time across a broad range of different investments.
We focus on helping clients achieve long term compounding returns without needing to time the market or pick individual stocks.
The less you pay, the more you get
Investing is one of the few times in life where paying less is proven to give you better results. The lower the fee you pay to the seller of investment services (your broker, agent, adviser or fund manager), the more money there is left for you.
Stockspot has used automation and software to remove many of the unnecessary costs associated with wealth management so more money stays with clients.
Stick to the plan and be disciplined
A crucial part of our job as an investment adviser is to keep our clients on the right course. Investing in the right low-cost products is only part of our work because people tend to make poor decisions because of their emotions.
At Stockspot we first ensure clients are in an investment strategy that matches their risk capacity and goals. We then continuously educate clients on how to separate their investing from their emotions. This helps clients avoid acting on impulse or falling into the common traps of over-trading, chasing returns or panicking when the market falls.
Rebalancing reduces risk
All sectors, assets and markets go through periods of strong relative performance followed by weak relative performance. These cycles are notoriously difficult to pick.
Rather than guessing when markets are cheap or expensive, we periodically rebalance portfolios to reduce risk after periods of particularly strong performance.
Avoid marketing hype
When it comes to investing, there is return, risk and cost. Everything else is just marketing. The investment industry goes to great lengths to add extra complexity and choice in order to justify higher fees.
We help clients distinguish between sensible investments and marketing hype. Unfortunately there are many more products in the latter category because investment ‘junk food’ is much easier for the investment industry to market and get paid to sell.
Alignment of adviser and client
Stockspot is an investment adviser. To give truly independent advice we believe it’s crucial to be separate from the products we recommend. Many banks and investment businesses recommend their own internal funds or only offer funds that pay for ‘shelf space’. This is not advice. It is product sales.
Stockspot does not earn fees from or have a commercial relationship with the funds we recommend. We don’t pay trailing commissions to professionals who recommend our service to their clients. You can be confident that all of the benefits go to the end client - our incentive is only to grow your wealth over the long run.
Our investment philosophy
- Asset allocation drives the majority of portfolio returns and risk so it’s vital to get that right first.
- Low cost index funds provide superior after-fee returns to actively managed funds engaged in stock picking or market timing.
- Markets move in cycles so after a period of strong returns in one asset it is prudent to rebalance into others to lock in profits and reduce risk.
- When it comes to investing, there is return, cost and risk. Everything else is just marketing.
How does Stockspot invest?
Stockspot recognises that the most important investment decision is choosing how much to put in each asset class, rather than trying to pick winners within an asset. As a general rule, more assets in your portfolio will reduce the amount of risk you need to take to achieve higher returns.
Asset classes have different risk profiles. Share prices are volatile but if the economy grows shares may outperform other asset classes in the long run. On the other hand government and corporate bonds provide safe and steady income but little capital growth. Investing overseas means that not all your investments are exposed to the Australian economy. Investing in emerging market countries provides the opportunity to share in their faster growth.
|Australian shares||The top 300 listed companies on the ASX including Telstra and BHP.|
|Global shares||Some of the worlds largest companies like GE, Toyota, IBM & Apple.|
|Emerging markets||Companies from fast growing economies like China, India and Brazil.|
|Bonds||Government and corporate bonds provide reliable fixed interest returns.|
|Gold||To protect your portfolio against inflation and volatility.|
We provide you with a blend of these 5 asset classes which best corresponds to your goals and personal financial situation. We allocate the percentage of each asset class in your portfolio using Mean-Variance Optimisation, the foundation of Modern Portfolio Theory. The economists who developed this, Harry Markowitz and William Sharpe, received the Nobel Prize in Economics in 1990. Today it is the most widely accepted framework for managing diversified investment portfolios.
Stockspot also offers investment themes to clients who want to personalise their portfolio with a range of other investment options including socially responsible shares or dividend shares.
Can active fund managers beat the market?
Stock picking is difficult for one simple reason: it is now too competitive because there are too many smart fund managers trying to beat each other.
Today about 90% of the trading in markets is done by professionals. The price movement of individual shares is mainly caused by fund managers trading against each other. This is a ‘zero sum game’ which means that for every winner there is also a loser. On average, fund managers just earn the market return minus their fees.
This wasn’t the case in the 1970s when there was only 5,000 fund managers in the world, today people have better and faster access to information and over 1,000,000 professionals actively managing money. New information gets reflected very quickly into stock prices. News that everyone knows is already baked into share prices and new news is factored in almost instantaneously. This has been the case since the 1990s and why almost all professionals have had worse performance than the market index since then.
This wasn’t mean that some professionals don’t have a good run. Fund managers can often have a great streak of success, but performance tends to ‘revert to the mean’ over the long run. A period of good relative performance by a fund manager is often followed by a period of poor relative performance.
Fund managers struggle to stay on top for an extended period, as most favour a certain investment style (like value or growth) and these styles come in and out of favour. Because of investor return-chasing behaviour, top performing funds tend to attract the most money after good performance and just before they start to lag. The same happens with ‘hot’ asset classes or sectors of the market – inflows tend to be largest at the top which is exactly when they should be avoided.
This is why Warren Buffett, the most successful active stock picker of all time, says people should not pick stocks anymore or pay fund managers to pick stocks. Buffett recommends index investing and so do we.
How is Stockspot different from a traditional fund manager or financial adviser?
We are less risky than the average active fund manager because we don’t try to beat the market. Instead our investment strategies track a broad range of global assets to generate long term returns and reduce risk via diversification.
Our clients get access to balancing funds to help smooth returns and avoid the temptation to chase markets when they are at the top of their cycle and most risky.
We methodically rebalance portfolios to keep risk consistent and continuously educate clients on ways to remove emotion from their investing. By understanding their own innate biases, clients are less likely to act on impulses and fall into the common traps of over-trading, paying high fees, chasing returns, or panicking when the market falls.
Fund managers as a group have average performance, so paying them large fees destroys your long term earnings potential. Paying 2.5% in costs each year means 75% of your potential returns are paid to the funds industry over your lifetime.
The investment industry loves when you buy and sell out of stocks or pay active fund managers to do the same. They want you to pay active pickers or advisers because that’s how the thousands of financial planners, brokers and consultants get paid.
But every cent you pay comes out of the returns you could have earned for yourself.
Like Warren Buffett, we don’t suggest stock picking and instead recommend low cost index funds. We believe keeping our clients’ costs low is key to long term investment success. The funds we recommend charge approximately 0.25% per year which leaves more money in our client's pockets.
No conflicts of interest
Stockspot does not earn fees from, or have a commercial relationship with the funds we recommend. We don’t pay commissions or provide benefit to professionals who recommend Stockspot’s service to their clients. All benefits go to you, the end client. Our only job is to grow your wealth over the long run.
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