Onboard the podcast today is Chris Brycki, founder and CEO of Stockspot investments and three times in a row winner of the ASX share trading game!
Chris has over 25 years of investment experience and spent most of his early career as a Portfolio Manager at UBS. Chris has been a member of the ASIC Digital Advisory Committee and volunteers as a member of the Investment Committee for the NSW Cancer Council. He holds a Bachelor of Commerce (Accounting/Finance Co-op Scholarship) from UNSW.Chris Brycki, Stockspot
Stockspot is Australia’s first digital investment adviser. We were founded in 2013 with a mission to help more Australians access expert investment advice and portfolio management.
We want to do away with the high fees, confusing jargon, endless paperwork and lack of transparency that gives the wealth management industry a bad reputation.
Today, we’re the largest and fastest growing digital investment advice (robo-advice) service in Australia. We’re helping thousands of Australians manage their money smarter with our low-fee transparent investment service.Chris Brycki
Introduction to Chris Brycki, founder and CEO of Stockspot
On board today is Chris Brycki, the CEO and founder of Stockspot, a Sydney based online investment company. Chris is an experienced fund manager, holding a Bachelor of commerce and some impressive credentials – Chris was the national winner of the ASX share trading game three years in a row, and went on to work successfully as a portfolio manager at UBS investments.
After years working as a fund manager and openly discussing finance with his close friends and family, Chris saw the need for an investment tool that was fairly priced and focused on the client, and not just on extracting the most fees out of investors! He also decided he wanted out of the corporate rat race, and somehow managed to convince his partner to sell their property to found the dream of their very own investment company. Fast forward 8 years, Chris has been an absolute success story building one of the most popular automatic investment tools in Australia and is now managing over $450 Million of clients funds completely hands-free for them.
I actually really like the passive approach Stockspot use and after meeting Chris and the team I decided to voted with my dollars, and now have 5 figures invested with them.
Today Chris and I are going to unpack this bit more and talk about what Stockspot is, how it works, the role asset allocation plays and the impact of CHESS sponsorship on the structure of your investments. I’ll also try to get as much valuable information out of Chris as I can about his journey to Financial Independence and his experience working as a fund manager.
“We’re trusted by thousands of clients to manage hundreds of millions of dollars. That’s because we always act in our clients’ best interest, and we’re completely independent from the funds we recommend.”
Chris Brycki, Founder and CEO Stockspot
Podcast – Chris from Stockspot
“Good advice can add around 3% per year in better performance. This extra return comes from selecting the best low-cost products, Maintaining a suitable investment mix for your situation and investing goals, Helping you avoid costly investment mistakes with behavioural coaching, and automatic rebalancing so your portfolio remains healthy.”Chris Brycki
- Check out my personal experience and review of my Stockspot investments here, and in my ongoing monthly updates of the portfolio here
- Check out Chris on Youtube Here
Chris’ Top Tips
- Realise that your time is the most important thing in your life, so focus on ways you can create more time for yourself
- Chris thought that Reminiscences of a Stock Operator by Edwin Lefevre is a great read
No products found.
- Chris enjoys listening to the Masters in Business podcasts
Transcript of Chris Brycki from Stockspot
Captain FI: [00:00:00] On board today is Chris Brycki. The CEO and founder of stockspot, a Sydney based online investment company. Chris is an experienced fund manager holding a bachelor of commerce and some other impressive credentials. Chris was actually the national winner of the ASX share trading game three years in a row and went on to successfully work as a portfolio manager for UBS.
After years working as a manager and openly discussing finance with his close friends and family, Chris really saw the need for an investment. So that was fairly priced and focused on the client’s needs, not just on extracting the most fees possible. He also decided he wanted out of the corporate rat race and somehow managed to convince his partner to sell their property, to found the dream of their very own investment company.
Fast forward, eight years. Chris has been an absolute success story building one of the most popular automatic investment tools in Australia. [00:01:00] And he’s now managing over 450 million in client funds completely hands-free and that number continues to grow. I actually really liked the passive approach stock spot take.
And after meeting Chris and the team, I decided I would vote with my dollars. And I personally now have five figures invested. Today, Chris and I are going to unpack this a bit more. Talk a bit about stock spot, how it works, the role of asset allocation and the impact of chest sponsorship and the structure of your investments.
I’ll also try and get out as much valuable information from Chris as I can about his journey to financial independence and his experience working as a fund manager. Chris, thanks so much for jumping on board today.
Chris: My pleasure. Yeah. Thanks for having me on and for the very kind introduction.
Captain FI: No worries, mate.
Is there anything else you’d like to, tell us about yourself before we kick off?
Chris: As you mentioned, I’ve been very interested in the share market from a pretty young age. I grew up in a family of five here in [00:02:00] Sydney did a lot of sport growing up and then got hooked on investing and learning about shares.
When I was, I think, 10 or 11 years old, at the time my old man. Put a newspaper in front of me and explained high level what the share market was and set up a bit of a family experiment where myself and my brother could pick a share to purchase. And I think from that moment onwards, I was hooked.
I loved learning about all these different companies that were listed on the stock market. How you could buy a piece of these businesses, how they were valued, what impacted markets, how markets worked and yeah, my, career and work experiences really just led me further in that direction.
Captain FI: That’s awesome. That’s a pretty early age to. Cracking on. We chatted just before and you mentioned you’ve actually got a brand new baby in the house, so how’s running a multimillion dollar company and having young kids go on.
Chris: I’d say, it was definitely helpful that I didn’t have a family when I started the business.
And it was actually quite intentional that I decided to leave , , the corporate rat race, as you [00:03:00] describe it, to start a business before I had all of those obligations. So yeah, sold my house. It was before I had kids,, it takes a lot to get a business up and running and there’s a lot of personal risk involved.
Once you do have a family and kids, and I’m really lucky. I’ve got two young boys now, your perception of risk and I guess you need to provide for a family and your feeling of your needs to provide for a family really changes. And so I think it would be a lot harder to start a business now than it was , when I did.
Captain FI: That’s all about that intentional life may. It’s a big principle in the fire movement. I don’t really know if they make newspapers anymore, but how are you going to get your boys into stocks? If you can’t give them the newspaper?
Funnily enough, it wasn’t just newspaper. So I have clear memories as a kid of going to my dad’s office after school, and every afternoon he would get a fax. And I’m sure you don’t know what affects is. It would get effects from his stockbroker, with the list of all the shares that he owned and their prices.
And I remember sitting next to the fax machine, waiting very excitedly for this fax in the afternoon to have a look at my [00:04:00] shares. Definitely the access to information and the speed to getting information has changed astronomically over the last. , 20 or so years from FRAX to, getting it through newspapers and magazines.
Like I remember when some of these early Sharemarket magazines launched in the early two thousands and now, surely 90 or 95% of information people get is online. Obviously supplemented with some physical newspapers.
Captain FI: That’s really funny, Chris, to get my commercial pilot’s license, I had to prove to the testing officer that I could retrieve weather and no tamps from a fax machine.
And I swear these the one and only time in my life I’ve ever used the fax machine.
Chris: Yeah. I still say it sometimes on people’s, email signatures, and I always questioned dealing with those businesses now, but yeah. I think it’s a perfectly reasonable test to test how people would react with yesterday’s technology.
Captain FI: that’s gold has that for screening process. I wonder, some of these ESG sustainable indexes, you could just admit them if they had a fax [00:05:00] number on their signature.
Chris: Yeah, it’s always a bit of a worry to me when people have fax numbers still, but I’m sure there’s some business reason that they still have
Captain FI: I don’t even have a landline anymore. I just run with the mobile phone the NBN connection at home. And that gets me out of
Chris: it. Yeah. I don’t either, but I remember that when I originally decided not to have a landline and it was probably 10 years ago, I was a bit of an outlier.
And I think a lot of people ask me, how are you going to communicate with people? And is that safe? Not to have a landline. So it shows how, people’s perceptions really change over.
Captain FI: I think that’s actually an interesting insight about yourself as well. Chris being someone who’s ready to accept change and the new tech.
So that’s always good to hear in a CEO.
Chris: Yeah, I guess with a technology business, you’d hope that, for me, it’s just what’s the best way of doing something and if there’s an antiquated old way and there’s a new way that makes it more efficient or speedier or more effective, you should always be open to those new ways of doing.
Captain FI: Absolutely. So speaking of the tech company, what is stocks?
Chris: So stock spots of business. Yeah. As [00:06:00] I mentioned, I started having worked in the financial industry, decided that there was a great opportunity to really, serve the interests of the end investors, which I always felt, , weren’t really looked after by these big financial organization.
So I worked in a big investment. I saw not only where I was employed, but lots of other similar businesses, would create all of these very complex, high fee investment products. And then, through these armies of, financial salespeople, sell them down to moms and dads, like my parents and having studied finance and understood what these products actually were about. I was always embarrassed to be, associated with businesses that were selling them when ultimately all the evidence suggests that you shouldn’t be investing in these complex things. They were illiquid. They were hard to understand and really the best things to invest in were simple things like index funds and ETFs.
And when I started the business. It’s something that really stood out to me was that ETFs were such a fabulous product that everyday people should be investing in. And this was back in 2012 or 13. And yet almost no one I spoke to knew about them. My [00:07:00] friends. My parents didn’t even a lot of people in the industry didn’t and yet I thought that was such a fabulous innovation that really made, different asset classes accessible.
It allowed for better diversification. allowed people to reduce costs, which ultimately is really important with investing. And so I went on a bit of a journey to discover why more people , didn’t know about this product. The big discovery I had was that the distribution model of financial products in Australia was broken.
Basically the people that were selling financial products were motivated in many cases by the commissions are earning or that revenue they were earning, or the revenue their employer was earning from selling those products. And so most of the financial products people were ending up with were the wrong ones.
They weren’t appropriate because they weren’t performing well. They had high costs. They had too much risk. So there being an opportunity to use technology and online as a way to educate people, first of all, about what they should be thinking about when it comes to investing, but also to, give people access to what they really need.
And in my [00:08:00] mind that was, really sensible diversification, low cost product. Automation and really some guide rails around your own behavior to stop you from making silly investing mistakes all of that sort of came together. When I launched stock spiders, the first of this new breed of, I think we’re called robo advisor or automated investing service, we went live to customers back in 2014.
Captain FI: Okay. So Chris, I’ve had to go with the stock spot myself. I initially started with, the minimum. Which at the time was $2,000. And it was quite fortunate that I was able to, actually meet yourself and some of the team, from stock spot through the captain five blog.
That was really excited after meeting you and decided, yep. I’m going to make this a part of my portfolio. So I personally found the experience, quite straightforward, but for your average player at home, does the product actually work and how would people use.
Chris: So basically the product is a completely online product.
So most of our customers, we don’t meet first of all. And [00:09:00] people come to our website. They answer a bunch of questions about their, personal circumstances. Why they’re planning to invest what they’re investing for, how long they’re planning to invest for what their investing experience is and whether they need cashflow along the way.
And then based on those answers, what we do is recommend for them, the optimal allocation to different assets and then the right investment products for them, that we think are most suitable based on their situation. So we actually provide. People via our website with personal investment advice, like you would get from a financial advisor only that we’re not providing personal advice around everything in your life.
We’re not looking at your insurance and your super and lots of these other things. We really just focus on this one very specific area, which is how should I be investing my savings and. Very clear advice around what we think we should be doing. And then if you decide to move forward, like you did, we set up the portfolio for you.
We make sure you’ve got the best products in there. We keep the portfolio balanced over time and really the aim [00:10:00] is just. Provide a service that allows people not to have to focus on the investing because, for some people it’s a real passion or a hobby or something they want to be quite involved in, but for probably a lot larger portion of the population, they just want to get on with their life.
They want to be able to spend time with their family and friends and travel, and they want to know that their money is being managed in a sensible way. that’s really the service that.
Captain FI: It’s a really good point, Chris, about the automation and allowing you to focus on your actual life.
I started this journey with basically no experience about finance or investing at all, and I’ve slowly bumbled my way through and, Certain investments in certain stocks and various other things. And, as I get more and more experienced, I realize the value for me and my personal, situation is that hands-off passive index style investing.
I’ve been quite happy with my returns. It’s pretty much matched what I’ve had in my, ETF portfolio, which is. Performing exactly as it says on the label. I guess the big thing for me is understanding more so [00:11:00] the asset allocation side of the house, and that’s something that I’m always trying to learn a little bit more about and what asset allocations might be appropriate for me or for other people.
I wanted to ask what do you do in terms of asset allocation? How does that refer to people’s risk tolerance and investing situation? And what are the different assets that you use in the stocks?
Chris: First of all, as you’ve correctly pointed out, asset allocation is really important.
And I think in the past, a lot of people in Australia underestimated it. But the education is improving. In the past, I think a lot of Aussies just owned, maybe some shares and some cash. I think what people realized in going through a few financial crisis is that if you just own shares and particularly shares in Australia only, you really exposing yourself to a lot of risk because if our economy doesn’t go well, or the particular sectors of our share market, don’t go, you can lose a lot of money very quickly, and you’re not really protected.
Asset allocation is about spreading your money across different assets, not just Australian shares, but global shares. It could be property, it could be more [00:12:00] defensive assets like government bonds and gold with the aim of really giving you a smoother journey with your investing. So you can always invest in these kind of riskier assets.
You can just pick a couple of cryptocurrencies if you want, and maybe you’ll earn higher returns, but also there’s a lot of risks. And so asset allocation is really about mitigating risk and really, keeping risk as low as possible for the returns that you’re targeting. So the way that we look at it is in understanding.
Particular aspects of your financial situation, like your investment horizon, we try and match that then to an asset allocation that’s appropriate. So for instance, if you tell us that you’re only investing for three years, we know that historically sure. Most years the share market goes up over three years, but there’s actually a lot of years that it doesn’t.
So in order to improve your chances of getting a good return over that amount of time, you need to have some more defensive stuff in there to give you more of a cushion. On the other hand, If your investment horizon is really long, 10 or 20 years then historically, be able to withstand some bigger ups and downs along the way there and less [00:13:00] defensive assets and more growth assets like shares may be appropriate.
But then there are other aspects that we consider like your experience. And I think that one’s a really important one as well, because if you’re someone that’s only started investing, even though. May think that you’re able to withstand ups and downs in the market. I know from my personal experience and from seeing lots of others that living through a big market crisis is very different to how you imagine you would react to it.
People with more experience with investing, tend to be able to understand how they’d feel in ups and downs better and tend to be they’re able to take on more risk and be able to continue to hold more risk. On the other hand, people with less experience, I think really just needed a bit more education and a bit more nudging around, what they should be doing when markets fall.
And, we saw this a lot back in March, 2020. Markets fell by, I think in Australia, 35% plus, our strategies fell by a lot less because they had more defensive assets, but even so we had a lot of nervous clients that we had to coach and explain to them that market falls are a [00:14:00] perfectly normal part of market cycles.
And because their investment horizon wasn’t one week or one month, it was ultimately something that they should just, except, and. You’re not worried about it. It’s out of their control. How markets react in the short run and ultimately they had the right strategy. for me one of the big values of an automated service like ours is actually making sure that people don’t make the wrong decisions when markets get bumpy.
And that’s something we saw a lot of last year.
Captain FI: Yeah. It’s an interesting topic. And I know in the fire community, , a lot of people that are interested in. They have such a long investing timeframe. There’s this big debate over, a hundred percent equities. Some, of the leaders in the community say, JL Collins, he talks about, splitting between, Stocks and bonds, as you mentioned to lower your risk.
So how does including, cash, bonds and gold affect the stock spot portfolio and why have you chosen those defensive assets?
Chris: Yeah, so I think, in theory, you’re right, that if you have an [00:15:00] indefinite time horizon, you can afford to take a very high level of risk.
And so as long as you’re diversified, you can own a lot of growth assets. And I think Warren, Buffet’s a good example. He said with his money after he. Leaves us one day, it will go into 90% of S and P 500 index fund and 10% into a government bond index fund. So 90 10 would be his asset allocation, but that’s money that he wants to continue to grow forever.
Essentially. It doesn’t have any time horizon. So there’s a few reasons why I would caution against a hundred percent equity allocation. One is behavior, which I’ve touched on a little bit before. Even though your time horizon is very long or you might intend it to be very long, things can change.
And also, if you do have a big drawdown, people, are more likely to do, reactionary things that aren’t the right things to do. And I saw it originally back in the, tech wreck and then later on the financial crisis where the market fell 50%, but people that had all of their money in the Sharon.
And particularly people that had leveraged up that amount, really suffered and were [00:16:00] unlikely to be in a positive mind frame where they were able to top up and continue investing. So for me, the psychological aspect is one of them, however, I guess someone could easily say , that’s not going to be me.
I’m very certain that even if the market crashed, I’m not going to be stressed, which is fantastic. The other one is that. Even though we have a long history of how assets have performed. There are long stretches of time where even growth assets don’t perform well and the defensive assets perform well.
And a great example of that is Japan after their boom in the 1980s, which I think. The very late eighties, early nineties they had a period of time where their share market did horribly for a long period of time, 10 or 20 years. And actually government bonds in Japan performed a lot better. And by a lot better, I think over a long stretch of time Japanese government bonds were the best performing asset class in the world.
Not only in Japan, but everywhere. So one of the risks you face, if you’re just not diversified across different assets, is that. The assets that you’ve chosen may just not perform well because of the environment that’s coming [00:17:00] up. so for me, it’s a combination of this psychology, as well as the reality of not knowing the future.
That means that having some defensive assets in your portfolio probably makes sense, regardless of your investment horizon. And then it’s just a question of how much that should be. So should that be 10% like, Buffett’s suggested, should it be 20% or should it be 30%? then a question of what those defensive assets are.
And the percentage think, it can be debated what those defensive assets are, I think is now coming to light over the last couple of years of what actually is a defensive asset. think a lot of people made the mistake ahead of this most recent crisis say that assets like property or infrastructure are defensive.
But then when the COVID crisis hit, a lot of these assets fell by 30 or 40 or 50% showing they weren’t really very defensive at all. On the other hand assets like government bonds and gold performed very well during that period. So I think it’s important when people consider defensive assets is really to drill down to how defensive are those assets you’re looking at and will they be able [00:18:00] to withstand different environments?
Captain FI: It’s a really interesting night, Chris, you’ve given me a new perspective. I think. A lot of us. . It could be quite insular to our recent experience. And I guess there’s that old saying you always hear in the financial industry is that past performance is no predictor future performance.
So I guess diversification is really the key there.
So given that you have got a investment product that is diversified between aggressive and defensive assets. What are the numbers? Like how has say the stocks bought portfolios stacked up against, like an SMP accumulation fund.
Chris: Yeah, we’ve been around just over seven years now or had seven years of life performance, which is a good amount of time.
So have a look at how the portfolios have done. And didn’t explain it earlier, but. Essentially five strategies from a conservative strategy to a aggressive growth strategy. And then we have sustainable versions of those five strategies as well, but we only launched them more recently. So with the five original strategies they have performed[00:19:00] I can’t tell you the exact numbers off by hand, but something between six and 10% per year over the last five years.
And how does that compare to like just owning shares? The high-risk portfolio will perform similarly. Probably a little less you would expect because there are some defensive assets in there. And the S and P 500 is obviously of all equity markets. One of the ones that has performed the best over the last five.
so I would expect that we would have underperformed the S and P 500 and probably even the Ozzie market. It, we may have outperformed other markets like Europe or Asia that haven’t performed as well. But I think whenever looking at returns, what people need to look at is two things.
You need to look at the return, but also the amount of risk. that one is really key for us. So even our most aggressive growth portfolio, when the market fell by 35% last year, it fell by less than half. So you were able to protect against half of the market falls. what do you give up in terms of returns?
When you do give up a little bit, you might give up one or 2% per year over the long run. And then it’s a question of, is it [00:20:00] worthwhile, to be able to sleep better and to have the higher level of certainty to, protect against, And that’s a decision for people to make if they don’t want to.
That’s understandable as well. In my old profession of trading and hedge funds, what we describe that as is the quality of returns, which is basically the amount of return you can expect essentially divided by the amount of risk you’re taking. so where the share market earns a certain return when you divide it by the amount of risk, not that attractive.
Whereas if you’re actually diversifying with a few other assets, it makes that ratio a lot more attractive. And that’s what we’re really trying to achieve for our clients is optimizing that ratio of risk versus.
Captain FI: Okay. So having the diversification between the growth and the defensive assets you sacrifice a very small amount of performance, but in return you actually get much higher quality. And lower volatility.
Chris: Yeah, depending on how much you have in conservative assets. So if you’ve got portfolio with 90% defensive assets, obviously your return is going to be very [00:21:00] different to the share market, but obviously your risk will also be very different. You’ll have very stable, flat returns.
It’s one of the lessons you learn when you study finance. That really the only free ride when it comes to investing is diversification, because it can actually be quantified that by adding more assets and defensive assets into your portfolio, you’re going to get a better risk reward ratio. Everything else in finance is a bit of a gamble.
You can pick some stocks or you can pay money to an active fund manager. Sure. They might outperform. They might not. It’s not repeatable or it’s not provable. Whereas the benefits of diversification, is an approvable benefit of.
Captain FI: So this might sound a bit cheeky curious, but I’ve got to ask if people went and signed up to bar and they did all of the investment risk quizzes, and they figured out the portfolio that suited them.
Couldn’t they just replicate that on a broken.
Chris: Yeah, you can. Absolutely. Anyone can invest in all sorts of different ways and self directed is one way that some people. Probably the big difference [00:22:00] between doing it self-directed versus would be, first of all managing and maintaining that portfolio and not only paying the brokerage of every time you trade, but making sure you always in the rise ETFs that you’re rebalancing at the right time.
And you’re obviously keeping those guard rails in place. So you are doing that all the time and not just when it suits you. In addition to that, I we’ve tried to simplify the process and really make it easy for people. By for instance, combining all the tax statements of all the different ETFs because we know what a pain it is to get 10 different tax statements and then have to calculate everything.
I’ll give it to your accountant spend money then for them doing that. So for us we’re an alternative to doing it yourself for people that really are time poor and really don’t want. Going to the effort of managing it all themselves. But absolutely for people that are more passionate and more engaged and want to be more actively involved you can go do it yourself as well.
Captain FI: Those things sound good, mate. I thought. Increasingly of running out of time, despite no longer flying full-time. So obviously there’s a bit of work [00:23:00] you guys are doing behind the scenes. Are we expecting to pay a big premium for that? Or what’s the cost involved in that.
Chris: So our fees are fee for basically doing everything that I described before, which we charge monthly. It varies based on your account size, but, roughly it’s between 0.4% to 0.6% per year. And that includes costs like brokerage that you would otherwise pay yourself.
The automation of all of those processes, the tax statements, the online access and all that sort of stuff. Yeah, I think it’s something for people to, in their own minds work out, whether that’s, a cost they’re prepared to pay for all of that being done for them. A lot of clients come to us where they have been self-managing in the past.
And at some point in their life, it’s made sense. Especially a lot of self-managed super funds where, there’s a time in people’s life, where they want to be really actively involved in picking stocks and managing their portfolio. But then they get to a point in their life where they’ve got grandkids and they want to travel and they want to do other things with their time.
And then the value of their time becomes much higher therefore it becomes a valuable, so I think it really depends [00:24:00] on where people are in their life and the value they put on their time and the enjoyment they get out of doing it themselves. But certainly compared to the old way of doing things, which was what used to exist, I think before businesses like ours existed it’s a lot more cost-effective because to see a financial advisor, get your statement of advice, get ongoing advice, pay the platform, fees, the fund fees, the brokerage fee.
The cost in the past were a lot higher and really made it pretty cost prohibitive to see a financial advisor really a lot of the benefit of seeing a financial advisor for investment advice, unfortunately in the past was eroded by the cost of that advice.
Captain FI: Yeah. I actually recently went in with mom and we sort of financial advisor for a quote and I was shocked, it was a couple of thousand.
For the letter. And then they wanted to charge it was like one and a half percent of funds under management, including her super. So we were just like,
Chris: yeah, it’s embarrassing. had the same experience. I went with my folks probably five years ago. Cause they’d been self-managing up until now.
And I wanted to explore the [00:25:00] idea of seeing a financial buyer. The advice I got was embarrassing, in terms of the costs and then the confidence and arrogance of this advisor, in thinking that their own skill was in picking IPO’s and picking stocks when really they had no track record or no credibility in that area.
And unfortunately, sadly, it’s still the case that a lot of the investment advice industry is smoke and mirrors. People masquerading having ability that they don’t necessarily have. And for most people out there. Don’t have the educational literacy to be able to see that.
unfortunately, too many people still getting bad advice. And I’d point to some of the recent scams that have been exposed by ACIC where, a lot of even sophisticated investors or people considered sophisticated or wholesale have been duped by various investment scams.
Sadly it’s an industry, like medicine. The industry already where there’s an asymmetry of information between the people who are doing it and the customers. And, I feel in any industry where there’s an asymmetry of information, there’s a real obligation of the people in the know to do the right thing by the people who aren’t in the moment.[00:26:00]
Captain FI: Absolutely. And certainly I think the regulators are paying a little bit more attention to that at the moment, which will be interesting to see.
Chris: Yeah, that’s right. In the past, I think as we discussed earlier in the interview, a lot of conflicts came about because of this. And I think the regulator realized and the government realized and led to their world commission into banking, misconduct that so many products that people were getting put into where, because of misaligned incentive, people were ultimately put into products because advisors were getting paid to promote those products.
It’s a sad reality of the financial industry that the best products out there are, the ones that pay the tiniest commissions and that a lot of people don’t know about before. The ones that are the worst products, have the big marketing budgets spend on promoting themselves.
Captain FI: It’s just like food as though, like I always had this little saying that, food shouldn’t have to advertise itself to you.
You go into the supermarket, you walk into the fruit and veg, like the apples don’t try and sell themselves to you.
Chris: Yeah. Best metaphors, I think is you don’t see the currents or the apples [00:27:00] advertising on
Captain FI: Yeah, exactly. That’s actually probably a perfect segue because I know you have spoken a lot about the topic of chess, sponsorship versus custodial or custodian investment structuring.
And there was a really cool interview you did on ABC, which okay. Into the YouTube video in the show notes, but I wanted to ask, so is stock spot chess sponsored? And what does that mean for your average investor?
Chris: So the first question I can answer very quickly, which is yes, we are.
What does it mean can probably, I can answer it in a couple of ways, but maybe I can tell you a bit of a story to start off with because a lot of your listeners may have seen movie, the big, short famous Sharemarket movie. There’s a scene in that movie for people that haven’t seen it where Steve Carell and his team who were traders at Morgan Stanley during the financial crisis and they’ve shorted mortgage backed securities realize.
Not only are they facing the risk of this position they’re holding, but they’re facing a second risk that they hadn’t thought about, which is called counterparty risk because not only were they [00:28:00] worried about this trade going wrong, but they were then realizing that the people that they were trading against might go bankrupt and might not be able to pay them out, even if they made a lot of profit.
And I think that was one of the big insights I got out of actually working through the financial crisis is when you’re investing, there are actually two kind of key risks that you’re taking on. The risk of the actual investments that you’re making. But the second risk is actually the risk of the counterparty who is overseeing or managing that investment or that you’re taking a trade on the other side of, and you actually have to be conscious of both of those risks.
Not just the first one, which a lot of people think about. So for me, what it meant was when I started stocks, but I wanted to make sure that. Our client’s money was always protected regardless of what happened to us as a business and in Australia, the safest way to do that is to ensure that all security is all shares and ETFs are held under the chest sponsored hin model.
So basically all your assets are registered under your name. And you are the legal and beneficial owner.[00:29:00] Now that’s quite common place in Australia and a lot of the stockbrokers that have been around for a long time used this model. The alternative model, which tends to have phases of popularity and not being popular.
So I think it was popular in the lead up to the financial crisis, but then unfortunately, quite a few companies went bankrupt and there were a lot of stories of people losing money due to this co-mingled or custody model. So it became unpopular for a while. I guess because we’re back into a boom times and an environment where everyone’s making money.
There is a lot more interest in businesses that now offer this indirect ownership. And the risks are actually unknown. So problem with it is it’s very hard for a consumer to gauge what additional risk you’re taking by making this choice, because there are definitely plays out there that are doing the right thing and have great processes and systems in place or using a well-regarded custodian to manage that piece of their business.
But sadly, there are also businesses out there. And there are even recent example. Businesses that have [00:30:00] blown up and not been able to pay back everyone’s money because assets were all mixed up together. So in my mind, for me, it was a clear decision when I started stock spot that I wanted clients to have full transparency and full ownership of whatever they were buying.
Because ultimately it was better for them. They were better protected. The flip side of. It does cost a little bit more because every time that we send a message to the ASX to move, someone’s holding or to buy and sell, there’s a cost. that cost is higher than if everything is combing altogether.
So a way of for investors. Cost versus security. But in my mind, it’s a clear decision that, I personally would make that it’s worth paying a little bit of extra costs to have that extra certainty.
Captain FI: Okay. That’s a really interesting perspective. Chris, we were talking about diversification and the split between growth and defensive assets that’s forms one part of the risk, but we actually need to really consider this counterparty.
As to is the whole thing going to stick together.
Chris: The risk is a very hard one to quantify because it’s one there may [00:31:00] be one in 20 or one in 50 businesses out there that blow up that have indirect ownership. The problem is it’s very hard to know in advance, one of those businesses he’s going to blow up and whether you’re the one that’s going to be unlucky.
So for me, it’s what you would say in markets is a tail risk. It’s a risk that is unlikely to happen, but in the event that it does, it’s catastrophic. And so it’s one that you want to avoid.
Captain FI: So what would the benefit be of using the custodian arrangement?
Chris: So to be clear, there are good bad ways of thinking about the custody model.
There are a lot of businesses out there that, use our custodian, like a, a big global bank where as a consumer, you can have a lot of certainty around, how that custody piece works and the security of your money. And ultimately that the counterparty is a very big and stable and secure counterparty with a financial backing, but also the systems backing.
Now that doesn’t always work out, as we saw in the financial crisis, businesses like Lehman’s can still go. But it does improve your probability a little bit., so the benefit is [00:32:00] obviously if you have a safe counterparty like that then there could be a cost advantage to going down that model.
The problem is a lot of the businesses using This model for their brokerage, don’t want to pay the JP Morgan’s of the world or other big custodians to manage that piece because they lose that cost benefit. They’re getting from trading in bulk rather than on individual HINNs. And so they decided to go down different route of managing the custody themselves or outsourcing it to a less financially robust business.
Captain FI: Interesting. What happens if. custodial arrangement breaks down and then what happens if a chess sponsored investment firm breaks down? Is there any major differences or have we seen that happen yet?
Chris: If a chair sponsored from breaks down, then what happens is that the firm has no rights over your assets and that you’re able to transfer it to another broker, essentially.
So the assets stay in your name and you have the flexibility to move it to another broker. And you can actually action that from the other broker. So you don’t [00:33:00] even need the other party to necessarily be involved. I guess the process. If it’s the co-mingled or custody. It’s a bit more complex and it really depends on the situation for your listeners.
They could investigate online. A recent example is a business called Halifax where I think it’s going through that sort of creditor and administration process at the moment. And they’re trying to work out what amount of money people are going to be able to retrieve from it. But it’s a long and arduous process to get your money out and you basically become
a secured or unsecured creditor to a business asking for your money
Captain FI: back. That sounds terrible. Okay. So Halifax, was that a chest sponsored? No, that wasn’t a chest sponsored one.
Chris: No. No. This situation wouldn’t arise if they were a chest.
Captain FI: Okay. you know of any chest sponsored brokers that have gone down?
Chris: I’m sure in the history of Australia, there are plenty of brokers that have gone down that have had chest sponsors. Yeah, some brokers also it’s worth pointing out. We’d have both a chess sponsorship model and a non chest sponsorship model. What’s one that would [00:34:00] have had chest. I don’t remember specifically, but think BBY may have had both.
that was one that went belly up probably 10 years ago now. But yeah, there’s brokers that have had different models over the past that have blown up. But it’s pretty simple. If your assets are owned legally and beneficially by you, no one can take them away.
Captain FI: Yeah.
Yeah. Okay. No, that makes sense. it’s definitely not something that’s readily apparent is it’s probably something that is worth investors knowing.
Chris: Yeah. It’s just one of those things that just good to be aware of. So you know what risks you’re taking and like most things in life there’s no such thing as a free ride. So if something seems cheap or seems like it’s too good to be true, there is usually some sort of risk and that’s something I’ve learned in financial markets and anything that seems too good to be true usually is too good to be true.
And I’m always on the lookout for, ads of that nature where, financial products are being recommended as secure or safe and offering higher returns because in my mind, that’s always flashing, you’re taking on some sort of risks that you’re not aware of.
Captain FI: Yeah. I love that if it sounds too good to be true, it probably is. Yeah, [00:35:00] I totally agree there. Chris, it’s been awesome to unpack the business and talk a bit about some of the technical aspects of investing. what I’d like to do is shift gears a little bit and talk a bit more about yourself if that’s okay.
Captain FI: We talked a little bit about how you started working as a fund manager and you shifted gears as an entrepreneur and started your own business. So first of all is there anything you wish you had known before you started that job at UBS or even before you started stock spot?
And why did you change careers?
Chris: I don’t think necessarily change career paths. I think I had a bit of an aha moment where I realized that the future, wasn’t going to be in the world that I was in and that the future was really changing. And I think that probably answers your first question, which is probably the thing I wish I knew earlier was I wish I had an appreciation for the fact that
when it comes to the returns that people get versus the index zero sum. So for every person that wins, there’s always going to be a person that loses. And so you should always be thinking about that when you’re investing, in any time you’re trading a stock [00:36:00] or something else or an ETF, there’s always someone on the other side of that trade and you should be asking yourself, what do they know that I don’t know?
And do I know more than them or do they know more than me? And think that’s a really important concept for people to think about. What I realized in markets is that. These days markets are so competitive. There’s so many thousands of people trolling over information and analyzing it. The moment it comes out, the moment any new news comes out, then it’s no longer about how skillful you are or how experienced you are.
It’s about your relative skill versus everyone else. And you’re fighting against a very smart group of people out there. described, I think in, textbooks and that sort of studies is what’s known as the paradox of skill that in a game that’s very competitive and no longer is about your absolute level of skill, but the relative level of skill versus all the other players and in games where there’s big prizes to be won in the share markets.
One of them, if you’re really good at it, there’s obviously a lot of money to be made. They ended up becoming, very competitor. And it becomes very hard to eke out that [00:37:00] return regardless of how skillful you are. And now there are people out there that find their little niches and are able to make great returns.
Yes. But what I would say is those people aren’t sharing their skills with everyone else because they’re either making money for themselves or they’ve already made money for themselves, or they realized that they can charge a fee that compensates them for the skills that they have. And so I think if people recognize that, and I guess a lot of people in the fire movement that are already investing ETFs already have an appreciation for that.
You realize that. Index investing and investing in ETFs. Isn’t about being the dumb money. It’s actually the smart money that’s doing that because you’re letting all these other suckers trade against each other and fight against each other to work out the market price. And you’re basically piggybacking off all that hard work they’re doing and earning the market return.
And I think if I really knew that on day one, I probably, would have been more inspired to start my business.
Captain FI: I think that’s some pretty powerful words, especially from someone who definitely understands how the, trading game works. Three time winner of the ASX competition.[00:38:00]
Chris: Yeah, I think, in my mind the world of markets is going to move in two directions. A lot of money is going to go into just indexing, tracking the market, and then there’s going to be money that goes into a very small group of extremely skilled people that are able to beat the market. But at the moment, the problem is that too much money is in this in-between world.
Fund managers that are very good at marketing themselves and telling their stories about how they can pick value stocks or growth stocks or they’re very good storytellers and they all have fantastic narratives, but when it comes to measuring their results and the research we do every year, our fat cap funds report exposes this, the actual skills when you measure them for most fund managers, negligible and skills as measured by their risk adjusted returns versus the market.
the world of investing I think, is going to continue to become the extremes of a lot of low-cost indexing and a few very skillful players. And there’s going to be a hollowing out of this in-between area. That’s I think, become too big over the last 20 or 30.
Captain FI: Chris, it definitely sounds like you’re[00:39:00] on the spectrum of very skilled stock pickers. So I want to know, based on the reflection you had earlier, what is your personal investing preference these days? Do you personally go with the index or just sorta, to old habits die hard and you still have a few picks every.
Chris: Yeah. What I’ve learnt from my trading is in order to beat the market, you need to be that person putting in the 10,000 hours. you need to find a niche that other people aren’t looking at, you need to accept that sometimes that niche gets crowded and move into a different area.
At particular style of trading, investing doesn’t work for all types of markets. so you actually need to be quite adaptive and it’s really hard and it’s possible. And there’s a few people that can do it, but for most people it’s not really worth it. Your second question was, my investment was stolen now.
It’s pretty simple now. I’m running and growing a business. I don’t have time to put in the effort for stock picking to be able to be confident enough that I have edge over everyone else. And so for me, it makes sense to be buying index funds. Anyone that doesn’t have edge over other people in markets, they should be doing the same thing, because [00:40:00] if you’re not the person with edge, you’re trading against the person with edge and you’re ultimately the loser in the market.
So for me, being a winner at the moment is about investing in index funds, which is what I do in my super and my money personally. And yeah, it works perfectly for me now.
Captain FI: Oh, that’s good. It validates me because it’s what I’ve been doing so great. Chris, obviously you’ve done fantastic for yourself and your family.
If you could pass on a couple of tips for someone who’s on the path to financial independence at the moment, what would you say?
Chris: That’s a good question. I think as you get older, you really value, and I think, you say this often, like the moments you have with your family and that sort of thing.
And time is always the thing that you have a limited amount of in your life and, make the most of the time that you have Yeah, I think that’s something that a lot of people that follow the fire movement have realized is that creating time is one of the most valuable things you can do.
And you have to make sacrifices probably at some points in your life to be able to create that time. And be quite conscious about, where you’re making those [00:41:00] sacrifices and that you’re prepared to make sacrifices in certain places. And when you want to have.
Captain FI: It’s a really important reflection.
And I know for me personally, at the moment, I’m definitely trying to prioritize family social life. I’ve been working to relax the purse strings a little bit and just enjoy some nice things and, maybe outsource a little more than I have in the past. So yeah, I think it’s a really good point, Chris.
What I would love to hear though, is like who or what’s been the biggest influences on you on your financial journey?
Chris: Another good question. I would say first of all, my family I grew up, as I mentioned before in a family of five, I would say my parents were quite frugal.
If fire existed, the eighties, I think they would probably have been some of the leaders of the fire movement back then. But yeah, they were frugal in areas that I think they were selective about being frugal in and then they did splurge in scenario. So I have great memories of good family holidays and things like that.
But, they didn’t splurge on things like clothes or other things. They realized that they needed to make some sacrifices so they could enjoy things that they wanted. So they’re [00:42:00] always an influence on me, but also I think something that I really was very lucky to have as my parents were very open about their finances and, even anything from researching mortgages when they were looking at switching mortgage to how their self-managed super work to.
, house insurance, whenever they were making a financial decision. I think because I showed some sort of interest, they were very open and teaching me and really furthered my interest in that. And I know there’s a lot of families where there isn’t that level of openness and then, people need to become educated later on in their life.
But I really felt I was very lucky to have that. Family, I would say is one Yeah. I I enjoy reading and I think when I was a trader, read a lot of books that inspired me in that sort of time in my career. The one probably read the most, which I think is the best book to really give people a feeling of what trading is like is one.
I think that it was written in the 1920s, a reminiscence of a stock operator. I read that More than a handful of times over the years. And that was a very inspirational book for me in making me realize early on in my life that I was very interested in trading and learning about [00:43:00] markets.
And then recently, I love reading and listening to people that have learnt a lot about markets in their life. And so I find, various podcasts are a good way of doing that, especially when I’m, coming to and from work. One I’ve listened to probably every episode of, or most episodes of is the masters of business podcasts, because I think they get some great guests on there and they’ve got very different experiences in markets and lots of great stories.
And yeah, I love hearing stories from people that have a lot more experience than me and. That have seen a lot more in
Captain FI: markets.
Oh, that’s epic. I actually, no, I haven’t read that book and I haven’t listened to that potty before, so that’s great. You’ve given me some more things to Chuck. My to-do lists. Beautiful.
Hey, Chris. Thanks so much for coming on the pod mate. It’s been really good to chat to you unpack. All about online investing and, especially the whole chess versus custodian arrangement, can be a bit of a confusing topic. So I appreciate you, setting the record straight on that behalf.
All Chuck in the show notes links to all the stuff we’ve spoken about today. But I just want to say, where can listeners get in [00:44:00] touch if they want to learn more about stocks, board, or get in touch with you or any of the.
Chris: Probably, the best place is either the stock spot website, which is just stock spot.com today.
You, or, if people are interested in seeing some more content that doing, I’ve got a YouTube channel that I’m doing videos every week about different topics around investing. So that might be helpful for some people as well. Yeah.
Captain FI: Awesome. My I’m definitely well and truly addicted to YouTube.
So I’ll get down the stock spot, YouTube rabbit hole.
Captain FI: Awesome, mate. We’re going to wrap it up here. Again, thanks so much for making time.
Chris: My pleasure. Yeah. Great to chat