Motley Fool’s Scott Phillips shares why he loves both active stock-picking and passive ETFs—and why the two can work hand in hand. He explains the risks of thematic ETFs, the benefits of broad diversification, and why regular investing (dollar cost averaging) beats market timing every time.
This quick bite is from our previous episode 'How to spot a bubble'
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Episode Transcript
You're listening to a shares these podcast it sounds like
you and the Motley Full community. You're the classic active investors.
You are really getting in there into the weeds. You're
looking closely at what each company's performing. We've seen obviously
a trend towards automatic diversity. Is the word I'm looking
for here products like ETFs. I mean, is that is
(00:22):
that reducing the risk or would you say there's some
sort of concentration risk building up there that people need
to be careful of there when there when they're buying
those kinds of products.
Speaker 2 (00:31):
Now, I love passive ETFs. I'm an active investor just
I have a stockpicker. I don't mean active by the
way it's active.
Speaker 3 (00:35):
I there's active, right.
Speaker 2 (00:36):
I'm not an active trader. I don't buy so by
cell by cell. I'm active in the sense that I'm
trying to find companies that I think.
Speaker 3 (00:41):
Will beat the index.
Speaker 2 (00:42):
If I buy company X, I buy it so I
think at five years time it'll be worth more and
hopefully grow faster than the market.
Speaker 3 (00:48):
That's my version of active. But I love passive investing.
Speaker 2 (00:51):
You see the fund man is out there, by the way,
the ETFs are destroying the market.
Speaker 3 (00:54):
Absolute rubbish, complete and other nonsense.
Speaker 2 (00:57):
Passive ETFs are wonderful, wonderful, wonderful things. Just they are
right mean less business for me, so be it. Investors
are much better off than they were because a massive
range of passive ETFs are available. A couple things to
answer your question. Firstly, not all ETFs are the same.
Now your viewers know that I really, really really dislike
thematic ETFs, not because individually some of them can't do well,
(01:20):
but because they're sold as panaceas AI is going to
be huge. Here's my AIETF, and the invitation is to
say AI is big, therefore AA ETFs are big, therefore
I should buy the ATF.
Speaker 3 (01:32):
Couldn't be further from the truth.
Speaker 2 (01:34):
So I despise thematic ets because of the way they're sold,
and get out to anyone's selling ETFs out there.
Speaker 3 (01:40):
I love the plane Vanilla index based.
Speaker 2 (01:43):
Low cost ETFs, the Jack Bogul Vanguard style ETFs ASX
two hundred or three hundred s and P five hundred
m SCI global. Those are the great great gray ETFs
because they are low cost, because they track the index.
Speaker 3 (01:56):
They're not trying to make bets.
Speaker 2 (01:57):
They're not trying to get you to make a bet
on AI or robotics or lithium or bitcoin.
Speaker 1 (02:01):
Or goal even with the concentration you're getting from Meg Siven,
I mean the Meg seven companies. Some of those companies
are bigger than entire sectors. Now you know, I'm pretty
sure if you edit up with the healthcare sectors or
the you know, some parts of the industrials, and you
go to the EU see kind of r.
Speaker 2 (02:16):
So yes, absolutely, and you ask about diversification of concentrations.
So I'm not saying don't pick individual socks. What I'm
saying is ETFs are a great based re portfolio. And
anyone who said to.
Speaker 3 (02:25):
Me is this enough? I say, yes absolutely. Do you
think do I think you do better by picking stocks? Yes? Absolutely?
But is that enough?
Speaker 2 (02:31):
If you're young enough, if you had regularly to a
handful of diversified, indext based ETFs, you'll retire very, very
very comfortably and be very happy you did.
Speaker 3 (02:40):
I have no doubt.
Speaker 2 (02:41):
If I can't make promise, I'm not allowed to, but
I have no doubt you'll be very happy with what
you did.
Speaker 3 (02:45):
Right, So back to your.
Speaker 2 (02:47):
Point about concentration, I wouldn't just own a US ETF,
same as I wouldn't just known asx CTF because we've got.
Speaker 3 (02:54):
Index four banks and minors.
Speaker 2 (02:56):
But if I had a global ETF or a range
of etfsx three hundred, you might have a developing market.
Speaker 3 (03:02):
You might have an emerging developed markets. If you got that.
Speaker 2 (03:05):
Diversification by currency, by geography, by industry, then yeah, you
start to put together a portfoliot that it is diversified.
Speaker 3 (03:12):
Here's the other thing. When you buy an ETF, don't
just put money in a ETF once and be done
with it.
Speaker 2 (03:16):
If your dollar cost averaging adding regularly, maybe in hindsight
we say, you know what, September twenty twenty five was
a massive bubble.
Speaker 3 (03:23):
But if you've been adding monthly over.
Speaker 2 (03:25):
The last year, two years, five years, ten years, add
all that up. People say to me sometimes, oh, the
MAC hasn't recovered from the highs of twenty two thousand
and seven, or it's not as high as it was
in whatever. If you'd only bought chairs on that day,
maybe I'll talk to you about it.
Speaker 3 (03:41):
But if you did, you are the unluckiest person in
the world.
Speaker 2 (03:43):
If you'd have been buying every month for the three
years before and the three years after you are up
massively on that point.
Speaker 3 (03:50):
So is it diversified.
Speaker 2 (03:52):
Yes, If you buy one ETF for one index and
you buy it once, you're absolutely rolling the dice. I
still think you'll do very well, by the way, but
maybe not as well if the market was lower.
Speaker 3 (04:00):
If you're adding regularly to a range of ETFs, and.
Speaker 2 (04:04):
You're adding to that regularly every payday or every month
or every quarter over five, ten, fifteen years, I mean,
think about it. If you do it every month fifteen years,
what's that If you've made one hundred and eighty different
transactions over that period of time, have.
Speaker 3 (04:17):
You bought one of those is going to be at
a bubble? Probably, one of those is probably going to
be at an absolute low.
Speaker 2 (04:22):
Low, most somewhere in between. But overall, I'll go back
to the van Get index chart. I know your viewers
have seen it a million times. Google Vanguard indext chart.
Speaker 3 (04:30):
If you don't know what I'm talking about.
Speaker 2 (04:31):
Yes, you might have brought it two thousand and seven
at the peak, then you brought in two thousand and
nine at the trough. You might have brought it ninety
ninety nine at the peak, and then at two thousand
and one in the trough. You're probably bought in twenty
twenty March twenty twenty at the peak, and then again
in April twenty twenty in the trough, and where are
we at record highs. Sometimes you'll buy at high prices,
sometimes at low prices. I'd love to know which ones
will which side can not do it, but you can
only do that in hindsight.
Speaker 3 (04:52):
And in hindsight, by the way, where at record highs
every point before that was worth buying SHT.
Speaker 1 (04:56):
And visting involves the resk, you might lose the money
you start with.
Speaker 2 (05:00):
We recommend talking to a licensed financial advisor.
Speaker 1 (05:03):
We also recommend reading product disclosure documents before deciding to invest.
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