Avoid these rookie errors. July 25, 2025

27:35So just Google Counterpoint Global Insights, Drawdowns and Recoveries. It's by Michael Malbison and Dan Callaghan. It's brilliant. Came out in May of 2025. Anyways, there's so many nuggets in all of this. But what the really, the bottom line here is, is that most stocks, virtually all stocks will suffer a crushing and brutal drawdown at some point in time. In other words, the top tick to bottom tick. And so the headline stat here, actually, it should be on my blog by the time this goes to air. So if You go to strongman.com forward slash blog, you'll see no pain, no gain. That's the article I just highlighted and also linked to the article.

28:13Between 1985 and 2024, the median drawdown for all US stocks was 85%. The median. Wow. Not some tail risk oddity, right? Now, that includes the.com and the GFC and the rest of it, right? So even the crazy thing here is like when you really look at it, it's something like 2 % or 3 % of stocks drive all of the returns. So most stocks don't deliver over time. It's like the Amazons of this world that really sort of do the heavy lifting. But Amazon dropped 95 % in the dot-com bus. Nvidia fell 90 % in nine months around about the same time, right? And obviously, incredible investments, even if you bought them the day before they started to lose value.

29:02Is that risk? Well, no. But the point that I want to get at here is beyond the volatility. And this is the point they make in the article here. And I go on about this all the time, which is you've got to distinguish between what I would call a structural risk and a cyclical risk. So I'll give you a couple of examples here. So when it came to NVIDIA's big drawdown, at that point in time, there was just a massive oversupply of chips. Now, did that mean that the world demand for chips was going the way of the fax machine? No, it was just a glut in the market. It took a knife to margins. A lot of the sentiment changed in the market.

29:43And the business suffered. But it didn't take a mortal blow. It wasn't in trouble. It was just like, huh, it sounds like there's a bit of a glut here. We're going to struggle for the next year or two as that sort of works its way through the system. And they came back. The other great example here I really like, Pokes fun at Buffett. And I do that not for any other reason than it's just like a nice reminder that even the goat can do this. He bought, and he wrote about this extensively at the time, he bought shares in a company called Dexter Shoes. And they were really beaten down. And, well, you know, the bottom line, the TLDR, as the cool kids say, is that it never came back.

30:23And this wasn't, oh, the economy's in a bit of a slump, people are sort of delaying some of their discretionary purchases. No, there was a structural shift where all of a sudden the world decided that Asia was going to make all of our shoes. It was never coming back to the US and Dexter didn't relocate their operations. And so Buffett ate it because he didn't distinguish between a cyclical downturn and a structural problem with the market. So that's the one that I want to hammer into here is when you're thinking about risk, you find the best company with the best long-term opportunity, with the biggest tailwinds, and they're just going to hit the odd speed bump.

31:02They just are. And sometimes, oftentimes, it's going to have nothing to do with the business at all because, you know, the commander in chief is a brain fart of a tweet and markets drop, you know, or there's a war in somewhere and sentiment change or some central bank somewhere does something silly with interest rates. And it's kind of like sentiment turns, people get in a bad mood. And absolutely real fundamental things deteriorate with the business. Sales drop, margins fall. No one's going to say, hey, this is a great thing. And this is why I think people who run a business are so much better at this because you understand that this is normal.

31:45No business just has this unbroken purple patch of where everything just goes your way. There are missteps. There are curveballs. There are things that come out of left field. And your test as an investor is not to go, that's fine. I'm happy that margins are falling. I'm happy that sales have dipped 20%. But the key question here is just like, well, that's not risk. That's just reality. And the real risk here is when, as I say, you misunderstand it and you go, oh, that's just a temporary thing when it's a Dexter shoe or it's a fax machine or something like that, you know, where it's just like, they're never coming back, bro.

32:22Like, you know, the time to invest in horseshoes was come and gone, right? And it's - Probably the bounce back is not going to help you. And these are the classic value traps, right? Yes, yes. And on the other hand, though, I mean, there is nothing more - I'll say something because I'll embarrass myself when reality unfolds in a different way. And I've got to be careful with this. But I think potentially a company like Ordinate is in this example. They're doing basically digital mixes for audio gear and the rest of it. It's a really fascinating company. One of the real Aussie tech success stories.

33:02But it's had the wind knocked out of its sails because there was a glut. And I don't think the structural transformation of audio towards digital is going away, right? They are still the dominant player by far. They still have the best tech by far. They still have some really interesting irons in the fire in terms of other products that are being released. There's still a major component of OEM material. Like, it's just, I don't want to get into it too much because there's other things, but has that changed or is this just a temporary thing? And they're oftentimes really nice setups because the market misunderstands the risk.

33:43The market goes, oh, this is terrible. And it's exacerbated because it makes that flip from nothing can go wrong. This is the best company ever. We're going to price it for perfection to, oh. And so a slump in business performance exacerbated by and magnified by a change in market sentiment and mood means that even if the real fundamental impact to the business might have sort of been a temporary and modest, say, 10 % drop in profit, you might see the share price drop 60%. They're really nice scenarios when they happen. A great company that suffers a cyclical hiccup and the market just throws its toys out of the cot is just wonderful.

34:29And of course, when that happens, just to get ahead of this one, when that happens, you'll hopefully go, oh, this is an opportunity, you'll buy it and it'll go down another 30%. You can't time, which is probably another one we should, but you can't pick the bottom, right? You just can't. But if it's cheap, it's cheap. And by definition, you'll get a good return out of that kind of stuff. So, yeah, I think I've laboured the point. Don't misunderstand risk. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

35:02I wanted to talk about two related things. They're probably separate, but I think in our context, we've got, you know, not all the time in the world, but we can get as much as we want, but, you know, we'll pull them together. The two phrases that got written down are mistaking action for progress and falling in love with the new thing. And they're kind of different. They're kind of the same, but they go to that idea of a little bit of too much excitement, A little bit of too much wanting to believe, getting caught up, all that kind of thing. So let's go with the first one first. But saying action for progress, I've said before, one of my favorite, I still remember it, poster on the wall of the woodwork room at high school when I was in year seven, was don't be like a rocking horse.

35:43Plenty of action, but no progress. And it's just a lovely, lovely line. And the idea, of course, was, you know, when you're soaring, you know, don't just go back, like, you know, be deliberate and make it happen. In investing, it's a bit like that. and the other thing I suppose is the same in the negative context which is don't mistake inaction for no progress because that's often the other one you've talked about share prices versus businesses and it's part of that from a business, from a share price perspective you're not going to have even if profits grow on average 10 % a year for a particular company the share price is not going to reflect that every single year you're going to have you talk about risk you talk about sentiment you're going to have years when things are great years when things are terrible I've given the example before of Tesla went nowhere for four and a half years.

36:23And the last six months, that five-year period, the shares went almost vertical. And so, you know, whether it was worth it or not, whole different conversation. My point is there was, you know, four years where you were like, nothing's happening, nothing's happening, haven't made any money, haven't made any money, either Tesla was supposed to be great, you know, the shale don't like it, what am I wrong about, I've made a mistake, Tesla's a dud, all those things go through your head. And you sell. And then all of a sudden you see things come back, you know, you see the jump, it's like, oh, I missed it, you know, or vice versa.

36:48I've used the example before of people who've, i showed the vanguard chart to people and the response is yeah but no one's gonna hold for 30 years like yeah but that's the point you should yeah but no one's going to like ah um you know and and it's their it's their honestly it's their emotions saying that by the way they're not saying no one can do that they're saying i couldn't imagine myself doing that so i can't imagine anyone else doing that which is kind of the point i made before about um you know rationalization uh well yes i could have made 30 times my money but no one's gonna do that so i've got to find some other way of making money it's like what what is wrong with you people um but but it was a very genuine, very honest bit of feedback.

37:22And it was presented to me as if that's terrible advice, Scott. It couldn't possibly work because no one's going to do it. So give me some other way of making money. I'm like, that's, I don't know any other, that's the answer. That's how I do it. But yeah, action for progress, it comes to the companies themselves. Don't expect share price to go up immediately and the action there to be progress in your investment case. You made the point about focusing on the company, not the share price. Same for your own portfolio. Buy the stocks and leave it alone. You don't have to do stuff. You know, the boredom slash, it's not moving fast enough.

37:49I've found this going up yet. It's actually gone down. Maybe I should change. That's a mailbag question about exactly this in the past few weeks. You know, I bought these shares. I'm down over the last 12 or 18 months. You know, what do I do? What am I wrong? Am I really cut out for this? And I get the emotions, right? So here's the other thing. I'm not blaming anyone for feeling that way. The difference here is, and we've talked about temptation before. I hope not if anyone of a religious bent with this, but the difference between temptation and the sin is the action. You can be tempted all you like.

38:15The power comes in being able to resist the temptation, not trying to avoid the temptation of the first one. I mean, avoid it if you can, but if it comes knocking, you're going to have to face the decision of what do you do? Do you give into it or do you resist it? And that's, so for me, mistaking action for progress is a huge one just because we get impatient. There's the Pascal quote, all of man's problems stem from man's inability to sit in a room quietly on his own. And that's a gendered comment, but take it in both ways. That idea of just, just, just stop. Just stop. The new thing is a variation of that, mate, which is just, and we've seen it with lithium, we've seen it with the hot stock, whatever it is, the stuff that's going up, as you said at the very beginning.

38:54We're seeing AI right now. Right, it grabs people's attention. Either because the tech is cool or the share price is going up or everyone's talking about it or it's in the news or whatever, all of those things. Now, by the way, some new things do. The internet was a thing and it was a new thing and it revolutionized the world. So I'm not saying new things can't happen. I'm not a curmudgeon or a luddite saying, you know, ignore all the progress, nothing's going to change. Stuff will absolutely change. And it'll absolutely change regularly. But don't jump on it just because it's new. Because as you say, AI was the last one.

39:23This is what I need to remember. Remember graphene? Remember when the graphene was the new big commodity? I remember the graphene. Yeah. And it was the new big thing. And by the way, it's probably a fantastic chemical. It's probably going to be fantastic in terms of what it does. But everyone got excited about the thing because all of a sudden there was this breakthrough. Oh, let's jump on that. 3D printing. Remember that? I was going to revolutionize. Again, is it being used? Yes. Is it being used successfully? Yes. Is it being used in really niche applications with small amounts of value and volume?

39:46Yes. that's the problem internet of things right and they're not sass they're not they're not nothing they some of them will come be be things others will enable other things but don't just buy the cool thing don't just buy it because we're talking about don't just buy it because it's arrived um again i'm not saying amazon shares have done really really well i'm not saying i would say that in the internet i was my point of view it would have been the internet is cool don't buy just because it's an internet thing doesn't mean no internet things will do well it just means don't buy the thing lithium's a great example i i very rarely take victory laps i find them tasteless and annoying and people are arrogant and whatever on lithium i will take a very short and with my with my um uh you know very very the ship was a rocket lithium price a rocket after i say this um but we said for years lithium is probably a thing evs are probably going to be a thing batteries are probably going to be a thing that's the demand side the supply side if it's more supply board on stream than the growth in demand priceable crater guess what's happened exactly that now did i predict it no was i gonna put money on it no maybe it didn't happen but what the warning was to people who looked at one side of it and said lithium is going to be huge i'm going to buy lithium and it was that's the demand side ignoring the supply side so be careful of the new thing don't just jump on it because it's new everyone else is doing it no matter how cool fun, interesting, just fundamentals matter.

41:08Yeah. And yeah, a hundred percent. It's what I've said to you before, I'm very happy to invest in early stage companies. I don't have to make, they can be bleeding cash. I don't care if there's no profit that's there, but I do draw the line at sales. You've got to have, you've got to be selling something. For me, that doesn't guarantee anything. There's no guarantee. A friend of mine used to say, if you want a guarantee by a toaster, right? Like you don't, you do not get one in this, in this game, but sales are an incredible, um, uh, demonstration that the company has somehow convinced someone to buy their stuff, right?

41:48Like that, maybe they won't keep buying it. Maybe something better will come along as I say, things can go wrong, but that's a world away from, Hey, here is this thing that I think will change the world. And I think people will like it and buy it. and in particular, they will buy it off this particular company that is providing it. Maybe. And if you wait for sales to come through, you've probably missed out on some really big gains, but you're also investing with a lot of upside still and you've de-risked your entry. And if you want to wait until profits, you've de-risked it even further, right?

42:21Again, Buffett bought Apple in 2012, and it'd already gone up a gazillion percent by then. He's done extremely well from that. So it's always a question of risk versus return. But just to that point there, it's like, I really will pass instantly when someone starts pitching me on a stock because the tech is cool, the opportunity is cool. That's cool. I will chuck it on a watch list if I'm compelled by it. But unless I need to see$1 worth of sales, because up until that point, you've not done anything. It's the same with biotech companies as well. I think there are some very interesting ones that go from, wow, we've got this really cool thing.

42:57If these studies pass and it turns out that one in five people suffer these conditions, a massive global market will make a fortune. It's like, yeah, but almost all of them fail at the phase three trial mark. And then even if they do, they've got to then commercialize it over the next three, four, five years and raise a gazillion dollars. It's super hard. But at least after that point, it's kind of like, well, they definitely have something here because the market is not the market, the market that they operate and play in is telling you something. So anyway, that point has been well made. My next one is just a really, it's a quick one, which is forget about taxes.

43:33Don't worry about taxes. Oh, nice one. Yeah. Just forget about them. And again, every financial planner and accountant just fell off their chair. Obviously, minimize them if you can, but it's such a secondary, tertiary, so far down the list of considerations. The amount of investors I see doing stuff to minimize their tax is just really dumb. And more often than not, you're opting for lower post-tax returns just so you can feel clever that you stuck it to the tax man. And as you've often said, it's like you absolutely want to maximize your after-tax returns. You don't want to minimize your tax.

44:17And it sounds like I'm saying the same thing too, but I'm not, right? I would much rather a situation where my tax bill is 10 times higher than it otherwise would be next year. But after everything is said and done and settled, I'm much, much better off, right? And so it's just, and unfortunately, I think in some of the professions just mentioned, that is a lot of the value add. And it should be. It is something to absolutely think about. Don't misinterpret what I'm saying here. You just don't want to put the cart before the horse because when you do that, I mean, it's just like the classic example here is negatively geared properties.

44:53There are some reasons as to why you might want to do that under certain circumstances, but the amount of people in Australia just froth at the mouth, trip over themselves and deliberately engineer their property investment to lose money on an annual basis is just like the height of stupidity as far as I'm concerned. And I know I'm out on an island on that. I'm by myself. But it's kind of like you have really shot yourself in the foot here. And maybe it'll work out for you. Maybe you'll get this really big fat capital gain that'll make it all worthwhile. You want to hope so though, because otherwise you've just really deliberately engineered pretty crappy returns just so you can feel clever.

45:33So forget about taxes. Yeah, I love that. Yes. The easy way to pay less taxes is make less money. Oh, yeah, give it to charity. If you want to pay less tax. That's a tax deduction. Yeah, give it to charity. Boom. Yeah, yeah. No tax bill. Or even just don't invest because you might make up Yeah, don't invest. Yeah, just don't. No, you did right. I joined the lover Gemma Dale for NAB Trade podcast and videos and stuff. I literally just performed in real time as opposed to podcast time. I literally chatted to it just before we did this podcast. Okay. And I made exactly that point. end of financial year special she's doing it's like end of financial year you know is it a big deal I was like no no oh okay well there goes the video no but yes and the yes point was you know use it to use it as a catalyst it was her word to consider your portfolio if you have got you know if you've been nursing this dog of a stock for five years you're down a fortune and you're waiting for it to come back and again you've rationalized all things we've talked about sometimes tax time can be a case of alright yeah okay I'm being stupid at least I can get a tax loss out of this.

46:33I'll just sell it. I mean, that can be a motivating factor to at least look at your portfolio again and see, but doing anything to save tax is just absolute, it's a massive cut for the horse. Crazy business don't do it. Yep. I'm going to throw one, I'm going to throw some shade at experts and academics and people like you and me. I had that on my list too. Good. And it's, I'm going to talk out of both sides of my mouth. I give stock advice for a living. It's what I do. And I'm going to say just don't listen to people like me, which, you know, I'm not going to say don't listen to people like me.

47:06What I am going to say is don't mistake perceived expertise or success or anything else for your own research and your own investing conviction. And also think about who you're listening to and why. Think about the motivations of people who speak. Now, if you've listened to us for any length of time, you've ended up speaking against our own interests a lot of times. The strongest one I can do is buy an ETF. Now, I give stock advice. My job is to help people try and beat the market, right? If I say, yeah, just buy an ETF, the boss goes, well, there goes some more sales, Scott. Thanks very much.

47:38I say it anyway. And I'm very fortunate that Motley Fool lets me say it anyway because in a perfect world, you know, if I was just all about craving, would I say, no, don't buy an ETF? No, they're terrible. They're broad. You're going to get the banks, the miners. Buy and hold is dead. Buy and hold is dead. Correct. Yeah, you've got to be active. You've got to trade. It turns out I've got a system to help you with that. So, you know, join by really expensive. Yeah, exactly. Exactly. so yeah so just just be careful who you listen to be careful whose advice you take we've talked a lot about forecasting before predictions and they are as stupid as they sound and again if people are prepared to make those forecasts it tells you everything you need to know about you know what they're thinking why they're doing and it might just be doing it because they feel like they have to and that's okay but then what else do they feel like they have to do you know so i'm really really lucky i've honestly never been censored i've never been told what to say or not to say by the bosses of the fool um i just you know i think that is so stupidly rare and i'm not saying therefore we're great or i'm great i'm just saying that's why i'm talking about both sides of my mouth right be careful when you listen to people like us um work out the wheat from the chaff work out the ones who genuinely have your best interests at heart versus ones who just want to make a buck by selling you their solution to the problem they've just identified there's nothing better by the way than creating a solution and offering a problem offering a solution polies do it all the time it's the whole law and order thing right you big up the crime stuff you say but i'll fix it so was there ever an issue there or were you just create the issue and then promise to solve the issue you created so you could vote.

48:56And it's the same thing. So be careful with that. The kind of half cousin to that comment is, you were talking about Michael Mobison, and I just Googled the article. I haven't read it while you're doing it. What I thought was funny, Michael Mobison is one of the best financial brains and best financial communicators in the world. He has not got a CFA accreditation. His co-author does. And that's neither good nor bad. CFA is a chartered financial analyst, by the way. My point is, Mobison is a rock star among... Buffett has not got a CFA, right? And not CFA is bad at all. I'm just saying don't mistake the three letters at the end of a name for necessarily, they can be fantastic people or Muppets.

49:35And similarly, someone without a CFA, I've got a CFA. It doesn't mean I'm better or worse than someone with one. It just means don't take letters after a name and assume, therefore, they've earned some sort of ability to be smarter than you or better than you or have a better insight into the future than you. mobison buffett pick your manga you know pick your example uh could they have done a cfa that was useful yeah now they didn't have to cfa came around late they're already successful investors so maybe it's partly that um but increasingly these sort of accreditations the kind of ticket to the dance stuff to get a job you have to have these letters after your name does it make you better at your job or does it just make you more employable because everyone else has got one as well um so yeah just be careful right that's exactly just be careful what you assume based on someone's position or qualifications or talking heads on radio or god forbid podcasts really genuinely interrogate their comments try desperately to work out their incentives and just you know again you gotta listen to someone i will stand behind our recommendations at the motley fool the ones i make because i believe they're right now you have to decide whether i'm credible whether i'm trustworthy whether i'm right um you can simply follow everything i do and assume i'm trying to do the best for you and that i think is true it's what I hope is true.

50:45You can say, well, Scott's in two, I'll do my own research, thanks very much, or some combination of both. But just don't mistake one for the other. Yeah, I mean, I'll double down on that. It's not even, well, definitely a question of trust. But even if people implicitly trust you, I mean, I'm very fond of saying you can borrow an idea, but you can't borrow the conviction. Yeah. I heard this person speak, and they sounded really convincing, and they're really passionate about stock x y and z so i bought it and it's like well that's easy to do in the moment and it's easy to do when the share price is going up but the moment it drops 20 you kind of like the only rationale for buying it was that dude sounded convincing that's right and now the market seems to disagree and now i don't know what to think i'm really scared i'm gonna panic and sell um and the other thing is as well people change their minds so stanley drunkenmill is an investor i'm really fond of.

51:41He's an incredible eye-watering track record. It's insane. But he often makes the point is that because like you'll be interviewed and people go, but you said that you liked this and right, what about that? And he goes, yeah, I changed my mind. I'm sorry I didn't tell the world. And this will be the same for you and me and anyone out there. So it's like, particularly in podcast land where this may have been recorded six weeks ago. I really like something and then it happens all the time you said but you said it's like yeah i did say yeah and then i i was just outright wrong um or i just changed my mind on it i didn't have your personal phone number to call you up and say hey random person by the way if you happen to listen to some poke i've changed my mind and even then it's just like well am i right now like i don't know so so i listen to almost everyone really i'm i'm very interested in anyone's got to say but then it is on me.

52:35I must own that idea myself. So Scott's interested in something. I don't know. I'll hear what he's got to say. But now it's on me, right? You've piqued my interest. Now it's on me. And it always feels like a bit of bum covering when you say that. It's like, well, you're really going out of your way here to sort of put some padding in here in case you're wrong. It's like, well, there's no in case about it. I'm going to be wrong. Exactly. A lot. But it's more about, it is more about, I just don't want the blame. and i don't want the credit either the credit goes to you if it goes well and the blame goes to you if it goes badly i'm just some random dude out there and they're all just random dudes that are out there and frankly a lot of these and i say dude deliberately because 99 of that's that's sadly the case um you know that most people in the industry aren't great investors i i a lot of people most people don't put their public their their their track record out there which is always for me it's just like how do you not do that like how is how is that not the most important i don't really care about the letters after your name hey you've been doing this for 20 years how have you gone like i will take someone with a 10-year outperformance record over anyone with whatever phds or whatever they might have right like it's just it's crazy to you know it's like hey i'm gonna give do brain surgery on it's like are you qualified well i've studied at all and I've read all the books, but I've never done it before versus someone is like, well, I've done a thousand operations and every patient lived.

54:06I'm going to go with you, even if you don't have any formal qualifications. So yes, I will 100 % go with you there. The next one that I would have is don't overthink the macro. Yes, love it. I struggle this one myself. You know, I've really gotten, had an increased fascination in the big macroeconomic picture of late. I just, it is so compelling. It's so interesting. But, you know, even in really tough macroeconomic, macro for those that don't, it's just like the very biggest picture of economics, you know. Things like GDP growth and inflation and interest rate, global trade, all the big, big, big, big, big stuff.

54:49And the thing is with macro is that it always looks terrible a lot of the time. And also, good businesses will thrive in bad environments. And you can very easily... I mean, look at the US deficit, which is my favorite thing at the moment, right? It's like, oh, look at that and the debasement and all this. It's very scary. And it's very hard to have an optimistic view. And yet, as I've mentioned before, I'm fully invested, right? I feel as though there are companies out there that despite these difficult conditions will still thrive and relative to other opportunities, you know, it's like, what else are you going to kind of do with it?

55:31But I have seen some very people who are 10 times smarter than me sit on the sidelines for 10 years in cash or bonds, just getting terrible returns for a macroeconomic collapse that never happened or hasn't happened yet. So it's sort of like pay attention to the macro. But I think that you're far better off with what they call a bottom-up approach. Focus on the business itself. And then the big picture stuff will land where it lands. But in all cases, I just want a really robust, resilient business. And hopefully, the macro picture is nice and calm with some tailwinds for you. But if it's not, you're still relatively going to do well.

56:11So yeah, don't overthink the macro. Love it. I'm going to go with one that's kind of a bit of that, a bit of my last one, which is ignore the labels. And when I say the labels, I'm thinking about things like defensive stocks or blue chip stocks or whatever other labels people apply to stuff. And humans use labels because it's a thing called heuristics, right? If we had to think from first principles about everything we do and everything we consider and all the time, you don't have the brain capacity, literally the processing capacity of the time to go through it all, right? You know a thing called toothpaste is toothpaste.

56:43You don't pick up the thing and you look at the ingredients of everything and say, well, is it really toothpaste? It was not toothpaste, right? And so you go, okay, well, I'll grab the toothpaste. That's a stupid example, right? But think about that and multiply that about everything that we do with our time. um the the labels are applied in part because people did want reasonable understandable communicatable which is not communicable whatever the word is um terms that shortcut the jargon is often jargon can be seen as exclusionary and it is in effect but it's not always not often is the intent why i think you mentioned the doctor before the brain surgeon mate um if they if medical professors had to communicate in non-jargon language, it would take them 85 times as long.

57:25Yeah. Because you can't talk about an ECG machine. You've got to talk about electrocardiogram machine. Even that is like, well, a machine that does this. And if you had to break every accepted understandable term to its very, very basic and explain the full term all the time, you couldn't finish a conversation, let alone do the actual job, right? So the jargon and industry slang gets built up to make communication easier. And that's fine. But what you then have to be careful of is what you do with that if you're talking about an objective thing an ecg machine is ecg machine right i don't know i don't know ecg machines but i'm gonna i'm gonna assume there's not a lot of there's a lot of variability or you know vagueness in what an ecg machine there is or isn't one right that's okay when you start to talk about a descriptive term that's also subjective like what's a blue chip stock what is a defensive stock and you're by the way listeners you are now thinking right you are now thinking you've got your own answer that and you're like, oh no, I know it, it's this.

58:19So my quick expression is, well, what does the other guy or the other girl think it means? Do they think the same as you? And when you start to think, you think, oh, hang on. Well, I thought defensive meant X, right? The share price doesn't move much. Oh, I thought defensive was a business that wouldn't be upset by the economy shrinking. Oh, I thought the definition was one that paid dividends. Oh, I thought the definition was one with a really strong balance sheet. Well, maybe it's all of those, or maybe three of the four, or two of the four, or one of the four and none of the four. What's blue chip?

58:50Well, it's big and quality. And how's quality determined? Well, I don't know. It's just been around a long time. Okay, well, is that enough to be quality? Yeah, well, there must be something else. But anyway, I know what a blue chip stock is. And part of the problem here is twofold. One is there's some very, very deliberate messing with you, frankly, the people do, by using some of those terms. Let's be really honest. I'm not a cynic by nature, but there are people out there who will happily say, this is an offensive blue chip when they want you to buy something and they want to appeal to your conservative nature.

59:17There are others who will say, it's a growth stock when they know you're someone who's looking for a great company that's going to do really, really well. And you'll do it yourself. What's a growth stock? One they're growing. Okay, so well, is it growing? Is that a growth stock? No. So what's actually a growth stock? One's growing a lot. Well, okay, how much is a lot? Is it sales or profit? Is it future or past? Is it this year, last year, next year, five years' time? So again, and I'm not picking on anyone here. What I am saying is when we start to default to those terms that we think we know what it means, there's a very good chance that we haven't, frankly, thought it through enough to know that.

59:50I can't define growth for you. I've been doing this for a long time. What is a growth stock? I have no idea. I can give you some motherhood statements to sort of give you my kind of interpretation, but you're really asking me, you're not saying, what do you think a growth stock is? What is a growth stock? No one says, what do you think a defensive stock is? What's a defensive stock? Oh, it's this. Oh, good. Okay, thanks. I was reading about value the other day on the same thing, right? What's a value stock? Exactly. So just be really careful of labels. be careful of other people trying to sell you using those labels and be careful of you letting yourself fall for that because you think it's a it's a shortcut right i okay i've listened to andrew scott i shouldn't be too i would should be overly aggressive in my investing um i'll make sure i've got a diversified portfolio so i'll get some defensive stocks and a defensive stock is one that uh share prices go down very often and everyone else calls it defensive so i'll buy shares and wallies.

1:00:38Okay, but is that really defensive? Is that what we meant by that? So just interrogate the definitions for your own sake, not for your else's sake, just to make sure you know what's going on. You know what you're being told, you know what you're thinking, and you then know really properly whether the words you're using are going to deliver the outcomes and aims you're looking for. Yeah, I mean, you could have bought the world's most defensive, safe, big blue chip stock in July of 2021, which was wallies at$42. There we go. and lose close to 30 % over the next four years. That's not fair. There's dividends in that, but it's not.

1:01:11That's crazy. It's not what you're after, right? Yeah, 100%. I can't believe we haven't mentioned this one, and I guess we maybe have indirectly, but just don't overtrade. Just really, really be hesitant with that buy and the sell button because it's so easy to do. You've mentioned before that if you were king of the world, you might just make the market open one day a year, and I wouldn't do the same, but I can totally sympathize with that viewpoint. It's just so easy to do, right? You pull out the smartphone, boom, boom, boom, boom. You're now a shareholder in this company. Now you're not. It's really, really easy to do.

1:01:50And I think, and particularly in a world where brokerage is super cheap and about to be free, free in inverted commas, because your data is being extracted. it um just don't do it and that's not to sort of say when you want to there are times to act quickly uh decisively absolutely there are absolutely so i'm not i'm not just saying never ever trade you know be very super but but just don't overdo it really just don't overdo it if you if you look at your brokerage statement at the end of the year and you've done more than 100 trades, you've traded too much. I would say. If you've done 50. Yeah, I was going to say, one a week is still way too many.

1:02:33I know people who do 1 ,000. Way too many. Why make the broker rich? They love you, by the way. But yeah, things don't change that quickly, right? There is zero justification for that many trades. It's the classic rookie error. Oh, it's going up. I'm buying it. Oh, it's going down. I'll sell it. Boom, boom, boom. And it relates to everything we've said. It just, it allows you to act on all of these bad emotions, on these bad incentives. So just don't do it. I would love it if it's like every time you press that button, you had to like endure a, you know, 50 volt shock or something like that. It's like, I have to be really sure.

1:03:15I don't know if 50 volts is a lot. Probably not. But you know what I mean? Yeah, I do. I do. I think that's right. I think the...

1:03:26Trading is the word here. I mean, there'll be some people who say, well, hang on, I get paid weekly and I buy fee-free ETFs every week and I do 52 of those a year. That's fine. We're not talking about that stuff, right? We're talking about the buy-sell, buy-sell. So if you're buying 50 times a year, it's probably still too often because you don't need the brokerage and you probably just do it less often. But no big deal, right? It's the selling to buy again. That's the bit that's the real issue here. I mean I I don't think I've sold this year I don't I think I sold once last year maybe twice that's a good question and again by the way it's possible also to hold on and be hold on for too long so I'm not saying don't ever sell either but we talk about buying to hold that is the returns to investors come time is the investor's friend right it's very very very very very rare you're going to have an informational advantage over the market and it's not over the big end of town so where does the individual investor's return come from?

1:04:17It comes from, most of the time, I reckon, being patient, letting time do the work, doing the research upfront, finding a great business with a great long-term future, and letting that play out. If you're buying at 39 and selling at 41 and then buying at 43 and selling at 22, that's madness. It is frankly gambling. Let's call a spade a bloody shovel for a second. And I say that deliberately, right? Not to offend anybody, but what edge do you think you have in the trading game? And I don't have an answer to that for myself and I don't have an answer for most people because there are very, very, very few successful day traders, very few successful frequent traders.

1:04:58The high-frequency trading computers win because they basically take advantage of an informational arbitrage opportunity, effectively with this information asymmetry. And if you've got the world's fastest supercomputers, you can probably make a couple of cents in the dollar on that. but it's not me it's not Andrew it's not you listening right now I promise you so what is left and choose I'll finish actually I'll turn this into my last answer mate which is choose your strategy based on your ability to prosecute it successfully yes which sounds stupidly obvious the most basic thing in the world but if someone says and I again I'm not blaming people starting this way because everyone does right I learned economics at school my high school economics teaching research to invest in I knew investing was you know delivered great returns over the long term so I started buying stuff and that's it right so I bought Sausage Software and Telstra and Computer Sausage right and why because it was there and it was cool and people talking about it I didn't know what I was doing share prices going up probably and it was the internet yeah exactly boom there you go so you know by the way this is a point but I will say don't be too hard on yourself early on just learn the lessons and try and improve but actually off what you're why you so how are you going to make money investing which sounds like an obvious question but ask yourself what am i going to do that is going to earn me some returns for putting my capital at risk and what's the answer to that well i'm going to invest in shares okay cool well why and which shares and how are you going to choose them and that's the sort of investment thesis you need to work up for yourself because if you don't have that all you're doing is firing in the dark, right?

1:06:39You're just spinning around three times and firing and wondering why you can't get it right. Should I buy BHP? Maybe, maybe not. But why would you buy BHP? It's big. Well, it's big enough. Okay, well, it's been around for a while. Is that enough? No, okay. Because it's a minor. Is that enough? Well, I know a price has gone up last year. Well, is it going to go up next year? I'm not saying it by BHP, by the way. What I'm saying is have a strategy and prosecute that strategy consistently over time. I personally like quality and you can find that a whole different way. We can do a different conversation this another time.

1:07:09I try and find quality businesses that have proven attributes that I think are more likely to make them successful on an ongoing basis. I like to make sure they have enough growth left. You know, a fantastic past is not enough. You've got to have a bright future. I like to buy them at a price that's pretty reasonable given the future. I'm not a value investor, capital V value investor as much as we can't define as we said. But I'm not, you know, I'm not buying it P of X or under a price of sales of Y or I don't have a fixed rule for this. I'm just trying to say, well, I want to find quality with some growth left in it that is something for a reasonable price.

1:07:45That's my very, very simply approach. By the way, as Andrew said, the more you learn, the more simple you make your strategy. You start off simple, you get really, really complex and then strip that back away and go, what actually does matter in the end? That's mine. I'm not saying you should do it that way. What I'm saying is to have a strategy that you have a reason to believe will be successful, will help you generate returns. and for me a core part of that for all these i just said is over the long term and so you're being around why because almost no one else is playing that game right all the fundies want three months six months 12 months returns the day traders want daily returns the high frequency traders want minute returns i'm going to play an area where if i get quality and it's got growth it's a reasonable price and that continues to be true for an extended period of time i should get very good compound returns.

1:08:30Yeah. Mate, I've only got one left. Shoot. And it's don't give up. Oh, nice one. Just keep going. Because, you know, we talk about rookie errors. I mean, you're going to make them. You're going to make all of them and probably several times over. But it's sort of like the person that succeeds has been through it all and they're successful not because they didn't make the mistakes, but because they learned from the mistakes. And having learned from the mistakes, they avoided them in the future, which means they just got better at it. And the better they got at it, the more money they made, the more money they made.

1:09:08It just compounds on itself, on itself. Just keep going. I mean, if you're going to, it must be a bit of my kids, you know, I'm not instantly good at this, therefore I'm never going to do it again, right? And it's just like the apple doesn't fall far from the tree, right? I know exactly where that comes from. but having had a bit more water under the bridge and a bit of age and wisdom, you kind of go, no, it's just, that's perfectly normal. You know, you just get, get back on the horse that that's, that's really the success to the really great investors that I know. It's not that they've got ridiculous IQs.

1:09:42They've got a good, they're nice and even on the emotional temperament kind of stuff. And they just got oodles of, of, of humility. Right. And they're just, they're just learning machines. Um, I'm God, know is not the world's smartest person, but I've gone okay because I've just doggedly stuck at it for a couple of decades now. And as I've said to you before, I look back on things I used to do and say and cringe. And I know in 10 years time, I'll look back at some of these things I'm saying and cringes as well. That's just growth. That's just normal, right? You are guaranteed not to get good returns if you try once, fail and give up.

1:10:17Like that's it, right? You're just going to go from the next one hot thing to the next. And you're just going to like, just slowly just eviscerate everything. Keep going. Stick at it. It's a journey. And it's not a straight path. It's not a straight line. It's very scary. Even when you're right, even when you're winning, it's not going to feel like you're winning. Keep at it. Nice. Love it. I reckon we'll finish there, mate. There's a lot of good stuff there. Again, we call it rookie errors and they are, but really it's just about the simple things that can trip us up. And I think, you know, go through that list again.

1:10:51Have a think about it. you are probably your own worst enemy really honestly for all of these reasons and I'm my worst enemy Ramsey's own worst enemy this is not there's no you versus us thing this is all of us we are you one of the great things I loved about the Motley Fool is I learned my investing from people who wrote about investing that I could learn from and hopefully we're trying to pay it pay it forward so we are not we don't have all the answers what we know is we've made some mistakes we've learned to Ramsey's last point from those mistakes and kept going and that's that is key investing is wonderful because it's one of the very few genuinely cumulative experiences.

1:11:23Every time you learn something new, it goes in the mental toolkit. And next time, you've got that tool available and you learn something else. And then you keep building and building and building and building. Doesn't make you perfect. Doesn't mean you're not going to make mistakes. We'll be making mistakes the last year of our investing lives because that's just the nature of the beast. But trying to refine down, making fewer mistakes, getting better, understanding the things that can go wrong and will go wrong and trying to get yourself ahead of them. That's the key, I think, to a lot of what we're talking about here.

1:11:48Yep. absolutely Matt will you come back on Sunday? yes excellent thank you for listening enjoy the first half of your weekend until we speak again Fool on cheers The Motley Fool and people appearing in this program may have positions in the companies mentioned general advice only please speak to your financial professional to understand how it may pertain to your situation subscribe to the free newsletter at fool.com.au forward slash listener The Motley Fool operates under financial services licence 400691.