Scott Phillips: The stock picker who doesn’t think you should pick stocks

Equity Mates Investing Podcast

In this episode, Scott Phillips, CIO of The Motley Fool, discusses his new book 'The One Page Investing Plan,' which advocates for simplicit

Key takeaways

• Most investors should use diversified ETFs as a base layer rather than attempting individual stock picking.
• The core of investing is the ability to subdue evolutionary impulses to spend or react emotionally to market swings.

Main topics

• The One Page Investing Plan
• ETFs vs. Individual Stocks

Notable quotes

The best definition of investing is the ability to subdue our evolutionary impulses.

Conclusion

The episode provides a grounding perspective on wealth creation throug

Transcript preview

Speaker 4 (0:00) Everything you're about to hear is for education and entertainment purposes only. Whilst we are licensed, we're not aware of your personal financial circumstances. Any advice is general advice. Equitymates operates under Australian Financial Services License 540697. Speaker 2 (0:15) There's a crash coming. Of course there is. When? I don't know. How bad's it going to be? I don't know. Most people shouldn't be buying shares individually. I don't think properties and investments are particularly attractive. I'm not selling my house. Speaker 4 (0:23) What's your counsel for people looking at the market today and feeling a bit nervous and maybe delaying? getting started or continuing to invest. Speaker 2 (0:31) Invest anywhere, Speaker 3 (0:32) because I don't know what happens next. Welcome to another episode of Equity Mates, a show where we explore what's possible in the world of investing. If you've just joined us for the very first time, a huge welcome to our community. My name is Bryce. And Speaker 4 (0:46) I'm Wren. And today we are talking to Scott Phillips. He's the chief investment officer of The Motley Fool. He's just written a book, The One Page Investing Plan. He runs a stock picking service, but his plan... tells a lot of people not to pick stocks. We're going to unpack that tension and how he thinks everyone should be investing in today's episode. Speaker 3 (1:05) That's right. Scott is one of our favorite guests and has been here at Equity Mates. He's been on the show a couple of times, is an incredible speaker. He's an incredible writer. He keeps things very simple and digestible and, you know, always love hearing his view on investing. Speaker 4 (1:21) Yeah, he's one of the original Australian finance podcasters. He's been speaking about investing or for... over Speaker 3 (1:27) a Speaker 4 (1:27) decade. We've listened to him for a long time. He's got strong opinions, doesn't pull his punches. So we're Speaker 2 (1:33) going Speaker 4 (1:33) to ask him more than just about investing, ETFs, how everyone can be a lifelong investor. We're going to ask him about property, the budget, and whether property is an investable asset class in Australia going forward. Speaker 3 (1:45) Can't wait. So if you'd like to pick up a copy of the one-page investing plan, we'll put a link in the show notes. But with that said, let's get to our conversation Speaker 2 (1:52) with Scott Phillips. Speaker 2 (1:55) Well, Scott, Speaker 4 (1:56) welcome to Speaker 3 (1:56) Equity Mates. Speaker 2 (1:57) Thank you, Bryce. Thank you, Alec. Great to be back with you guys in different circumstances. Different circumstances, yes. Mate, you guys have done exceptionally well, so congratulations on your success and thanks for having me. Well, thank you. Well, thank you, Speaker 4 (2:07) Scott. Now, we want to say congratulations to you because you've written a book. It's called The One-Page Investing Plan. If people are watching on video, I'll hold it up. I do have a criticism to kick things off, though. Go Speaker 2 (2:16) on. Speaker 4 (2:17) This book's a lot more than one page. Boom, exactly. Speaker 2 (2:20) Hopefully the sound effects that come with that in the podcast, in post. Give us the one page plan. All right. So here's the thing. None of it's revolutionary, right? It's really simple. But the idea of the plan was to give people something they could use to start and then stay investing when things get tough. And that's why it's one page. Why is the book not one page? You know, Morgan Housel's a great writer, right? You guys know him. I'm sure your listeners and viewers know him. He wrote a tweet. It's generally about Warren Buffett. I say, if I disagree with Warren Buffett, I'm normally the one who's wrong. And it's pretty much true with Morgan Housel, except for this one where he wrote years ago. He said, every book should be an article. So most books should be an article. Most articles should be pamphlets. Most pamphlets should be tweets. And most tweets should never be sent, which Speaker 4 (3:00) is a great line, right? Speaker 2 (3:02) Then he's gone and written two books, by the way. But the point of it, and I always disagree with him at the time, and more so having written the book, which is humans are story creatures. We learn and we remember and we... that adapts by stories. And so saying to someone, do these things is fine. Give them a shopping list, send them away. It could have been a one-page pamphlet. But then when times get tough, I know you guys have had Andrew Page on before, and he talks about you can borrow an idea, but you can't borrow someone's conviction. And the rest of the book is basically the conviction bit. It's why do you say that? Why does it matter? How do you support that? And when times get tough, have I actually internalized it? And have I got something to return to when I go, that's right. I knew I would feel like this. I knew this might happen. And that's kind of the difference. So the basic one page is all the stuff that you guys have been banging on about for years and I've been banging on about for years, hopefully just in a format that people can digest, which is start, keep going, be sensible, be diversified, stay the course. It's not rocket science, right? And why we have jobs to do, why we have businesses is because humans aren't built to invest. Biologically, our evolutionary biology is... We are still in the savannah, right? Our brains have not adapted. Why? Here are a line you run. You don't stand around going, it might pass. It might not be a line. Those who did that, they don't have any, you know, those ancestors never had any kids, right? So that's a thing. But even then, food on the tree, you eat it or it drops on the ground and spoils. Grain, maybe you put in a silo for a year. I'm just saying to someone. 200 years ago, let alone 2 million years ago. You know what you should do? You should plan for an 80-year life. We should put aside a lot of money now, invest in businesses, whatever the hell they would be, and then somehow you'll make some money. So we are so poorly prepared for investing that I say regularly, I reckon it's a clumsy line, but the best definition of investing is the ability to subdue our evolutionary impulses. Because that's kind of what it is, right? I want to spend, don't. I want it now. No. I want to put money aside. Why? That seems risky. Kind of. It's like, in what general universe is that useful? And the answer is in 21st century Australia when you're trying to get ahead. But to do that, you've got to really set a whole lot of stuff back in your head and say, back off. The feelings are there. The evolution is there. Taking control of that and doing other stuff instead, that's kind of the core of the book. Well, Speaker 3 (5:22) we're really excited as well. We should say that you're going to be... talking through this in more detail at FinFest. Absolutely. So you've got the keynote at the top of the day. It's going to be awesome. Scott, you've been writing about investing for years. Did the process of writing the book surprise you at all? Was there anything that you sort of reflect on? And did you learn anything new about investing? I love that. So fun Speaker 2 (5:45) story. I was contacted by the publisher on the 6th of January. And about a week later, I'd agreed to write the book. And then, and then, and then. Twist my arm. So the question was, have you ever thought about writing a book? It's like, funnily enough, yes, I have. What do Speaker 3 (5:59) you Speaker 2 (5:59) want to write? I said, well, Speaker 3 (6:00) at Speaker 2 (6:00) first I said, I don't know. Lots of things, right? Because I've been writing for 15 years, as you say. So there's lots of stuff I could have written. And so we took a couple of days to really hone in on what that was. But then the publisher came back and said, do you reckon you could finish it by March 6th for us? Because we'd like to release it in September. So that was literally a two-month lead time. It's like, I guess I'm going to do that then. Yeah. So the process of writing the book was, horrible but wonderful at the same time. It was night nights and weekends and I'm doing a full-time job at the same time. It was brutal. Not that I'm complaining. It was a labor of love, so it was great. So I love writing it. I loved the process of taking everything I've written and thought and told people for years and condensing it down to effectively kind of a permanent and simple but also In some sense, an absolute answer. This is the book, right? No, there won't be other editions. I was going to say other editions. No one wants that many books. I can write other stuff. But this is like the one chance to go, this is it. This is the thing. And so that was a challenge in a lot of ways. And in terms of learning stuff, I don't know that I learned much new about investing. This is a very simple investing book. It's not complex. There's no trading strategies. It's just the fundamentals of good investing. What I loved... was having to codify it, having to really think about what do I think and how would I express that and what would I say? And that was really fun. So maybe the funnest part was actually setting out the chapters because you kind of think I've got 300 pages. What do I want to say? How am I going to say it? How do I make the point? How do I not be too long, too windy? Too short so people don't understand. So it was a fun, fun process. Super stressful, but fun. And I learned more about how to codify what I thought, and that was super valuable. Speaker 4 (7:40) Now, we want to unpack a lot of the things that you unpack in the book, the why, money habits, getting to investing. But before all of that, we want to address the tension. Okay. You're an author of a book that's focused on not over-trading, on buying low-cost diversified index ETFs. Yes. And yet you're also the chief investment officer of a stock picking service. Yes. How do you reconcile those two? 100%. I love ETFs. Speaker 2 (8:07) I love ETFs to death. I know EquityMates is involved with beta shares, and that's your thing, and that's great. I have said for years, I love ETFs. And most... You want me to go further? Most people shouldn't be buying shares individually, and most people shouldn't have SMSFs. Now, that's going to annoy some people, shock some people. My boss is probably not going to be very happy with that. But Speaker 4 (8:26) the Speaker 2 (8:27) people who want to do it should. So the idea of the book is this is the base layer, right? How you go about it. For most people, buy some diversified ETFs every time you get paid and go fishing, right? Go shopping. Just live your life, right? That's speaking of the FinFest, that'll be what we talk about on the day. That's the idea, right? And so if you want to... level that up or just you're passionate about it, you like it. I'm an economics nerd. I'm a business nerd, right? I was also going to pick stocks because I love businesses. My wife, my sister, my mother have no interest whatsoever. They should buy ETFs. If they want to subscribe to a Motley Fool service and pick some stocks, great. But the idea that in the past, that was the only way in the past you could do it because you couldn't buy ETFs. Index funds didn't exist. So what else do you do? So you had to do that. These days, stock picking is an option on top of the base strategy. So the one-page investing plan is basically the base layer. How you choose to implement that, the default should be ETFs for most people because why the hell take the risk of individual shares? But it's wholesale all the time. Buffett talks about, you know, he reckons his air should basically put money in S &P 500 ETF and do the same thing, right? The average investor, we all should index because the market is the average. And if you're paying fees to a fund manager, you're getting less than the average. So everyone should index, except people like Buffett should pick stock because they can. And that's the paradox, right? They both are true at the same time. The challenge is how do you find where that fits? So yeah, I'm very happy for it. If people listen to this go, you know what? The Motley Fool thing's not for me. I'm going to pick ETFs. Great. Rather than that, because here's the thing. If you pick stocks badly, you'll be worse off. Speaker 1 (9:55) If Speaker 2 (9:55) you pick stocks well, but don't have the emotional tolerance to see it through, you'll be worse off. If you pick a couple of stocks to get your portfolio weightings wrong, you'll be worse off. So if you can do it, you should. But if you can't do it, you don't want to do it. You're not very good at it. then buy an ETF and go fishing 100 % every day. So yes, it's a great question. And the answer is both, depending on what suits the individual. Or by the way, ETF Plus is the other one. Grab your ETF as your base. And then if you want to, because it's fun, it's interesting, it's enjoyable. I had some shares on top of that. Yeah, yeah, yeah. If everyone who reads the book just buys ETFs, the boss won't be happy. I'll be stuck. So Speaker 4 (10:28) the publisher came to you early Jan, and then I assume you had to go and tell your bosses, hey, guys, I'm going to write a book that maybe undercuts the Speaker 2 (10:38) service a little bit. What was the reaction from there? So, by the way, I also run a service at The Motley Fool called ETF Investor. So we actually do that as well. Speaker 2 (10:47) Oh, the feel's pretty good. So honestly, it was, and you know what I love about, this is not about to plug the Motley Fool, right? But I've never ever, ever been told what to say, what to write, what to think, what to communicate. I've never been pulled off anything. I've never been pushed into anything. No one's ever given me writing instructions, right? Which is just such a luxury in our industry because you know what it's like. If you work for other companies, maybe not yours and definitely not ours, you're given writing instructions and you've got to do what you're told. We think this and we think that. There's no way in the Motley Fool. I just say, this is what I think. We have a house style and a house kind of approach, but no house view on a single stock, no house view on a single issue. It's just kind of, you know, use your brain and be honest with people. So it's just a really nice thing to be able to say, yes, I said, here's the book I'm going to write. They went, okay, go