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DOUG MORRIS | Tracking your Portfolio

· Podcast Episodes
Sharesight Portfolio Tracking

I had a great time chatting with Doug from Sharesight. He's a nice guy and I love using Sharesight myself. It may sound boring but record-keeping is important in share investing and it also gives you insights that can make you a more profitable investor. We cover a range of topics including:

  • The history of 
  • Sharesight
  •  and how it works
  • His previous career at 
  • Morningstar
  •  and an insight into analysis
  • Benchmarking your portfolio against a broader market index
  • The tax treatment of 
  • ETFS

 and those gnarly statements

  • Reducing costs
  • Annualised performance and how this can help your investing

We also discussed a strategy for learning about stocks by buying and studying everything you can about one particular company.

  • Find a company that you know well
  • A well established company that has been around for a long time
  • Have a look at analyst reports of the company and see if they are pointing to a higher price in the future
  • Purchase the minimum amount and never any amount that you can't afford to lose
  • Once you own it read and research everything you can as a way of learning how companies are valued
  • Be prepared for the stock to drop after you purchase it. It will prepare you for losses and handling the psychology of investing
  • Keep learning
Sharesight Portfolio Tracking

“I was exposed to all this mathematical evidence stretching back for decades as to how this stuff was really important. And then you see all the time evidence of people just making irrational decisions all the time. So, I think it was that kind of, honestly, that academic background in how irrational human beings are, that was really important when it comes to investing, honestly. And also, the ability to, or inability to cut losses. I mean, I'm sitting on a company right now, that's done nothing but lose me money for about six years. And it’s sort of slowly making its way back up to break even. And I still haven't sold it. That doesn't make any sense based on my training and my academic background but here I am sitting on a loser.”

Doug Morris is the Chief Executive Officer of Sharesight and a leading voice in the Australasian FinTech and SaaS industries. He began his career with Morningstar, Inc. in Chicago, IL, where he served in a project management role within the investment management business. Doug then joined the Business Development Group and relocated to Sydney where he focused on growing adviser and institutional business lines. Doug then served as Product Manager for Morningstar Adviser Research Center, a platform serving financial advisers and then Global Product & Marketing Manager, Equity & Credit Research, overseeing international research distribution. Doug joined Sharesight as General Manager in 2013, before being named CEO in May 2015.

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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EPISODE TRANSCRIPT

Chloe (2s):

Stocks for Beginners.

Doug (5s):

Look for a company you're familiar with, right? Think about a company that you use on a daily basis. Maybe it's your iPhone, Apple, maybe it's your new Disney plus subscription, right? Just think about the things that you sort of quote unquote trade in as a consumer, and think about your family and your friends and what's popular. And then have a look to see if those businesses trade on the stock exchange.

Phil (25s):

Hi and welcome to Stocks for Beginners. I'm very pleased to introduce today's guest Doug Morris, the CEO of Sharesight. Sharesight is a portfolio tracking tool for managing your investments and making tax reporting simpler and easier. Hi Doug.

Doug (39s):

Hi Phil.

Phil (40s):

Now Doug holds a bachelor's degree in psychology from the Southern Methodist university in Dallas. After graduating, Doug joined Morningstar Research. But before that, he started out running trade orders from phone banks into grain and financial futures, open outcry trading pits. What's that all about?

Doug (59s):

For about 30 or even 40 years, my father was a commodities trader and broker at the Chicago Board of Trade. So, he was basically speculating on the future prices of things like soybeans and corn and wheat. And so, I got a runner's job down there, as it's known. And so, my job was to take orders, the buy or sell trades from the phones where they'd be called in from investors around the world and run them into the open outcry pits, which was sort of a treacherous thing because there's a lot of very burly, typically men, in there pushing and shoving and yelling and screaming. And your job was to get the order to your trader as fast as possible.

Phil (1m 35s):

That must've been amazing. So, this is the way all markets used to be in the past, wasn't it?

Doug (1m 40s):

Essentially, yeah. Think of like kind of a Roman amphitheater sort of set up. And it was literally a physical place where buyers and sellers could haggle over the price of a good.

Phil (1m 49s):

Trading markets like this can be for all kinds of things like commodities as well. This was a commodities market, is that right?

Doug (1m 55s):

It was, yeah. So, this was a commodities futures market. So mostly soft commodity, so agricultural products. It's really down to the kind of position and heritage of Chicago. It was kind of the rail center of America for hundreds of years. So, all the commodities would be shipped there for distribution to the rest of the country from, kind of, the Midwest and the Great Plains. And it was just a logical place for farmers to kind of lock in and hedge against the future price movements of their crops and to find buyers for the crops that they were harvesting or would harvest in the future.

Phil (2m 26s):

So, were they pork belly futures?

Doug (2m 27s):

Pork belly futures, yep.

Phil (2m 28s):

What's the movie that was in? That was

Doug (2m 31s):

Was it "Trading Places"?

Phil (2m 32s):

"Trading Places", that's right.

Doug (2m 33s):

Or orange juice futures in that one, which are actually fictitious, they don't trade orange juice futures, but they trade they trade just about anything these days.

Phil (2m 40s):

So, then you went to Morningstar. Now that's a research service. Tell us about Morningstar.

Doug (2m 45s):

Yeah, sure. So, after university, I got my first job at Morningstar, their headquarters is in Chicago. And Morningstar started out as an investment data provider regarding mutual funds. So, if you were a self-directed investor or if you were a financial advisor, there really wasn't any place to get objective information on the performance of mutual funds. There was so many out there, and this was back in the mid-1980s when the business was started, and so really the effort was made to collect, organize, clean and then distribute that data back out to investors. And from there Morningstar's built a really terrific business in all areas of investment services, so they still produce data feeds, they also do research on managed funds, mutual funds, ETFs stocks as well and they even do kind of institutional level asset consulting.

Doug (3m 35s):

And actually, are now starting to provide their own investment products themselves, I believe. So, it's really kind of a Jack of all trades investment information company.

Phil (3m 43s):

So, what was your entry level position?

Doug (3m 47s):

So, my job originally was doing quality assurance work on a product called Retirement Manager. So, this was actually a precursor to what we now know as robo-advice or online investing. And this product was basically designed to sit inside your 401k and kind of put it on autopilot based on, you know, your salary, your contributions and your goals and retirement. So, my job was to basically take the calculation engine and throw a whole bunch of data at it and then make sure that it spit out the outputs that the people up the chain told me it should spit out. So that sounds about as boring as it was, but it was a really good kind of grounding in fundamentals of asset allocation and some of the real basics around investing as well.

Phil (4m 30s):

So, when you were growing up, just getting back to your family, your dad was a commodities trader, was he?

Doug (4m 34s):

Yes, that's right.

Phil (4m 35s):

What sort of things did he teach you, when you were growing up, about investing?

Doug (4m 39s):

Ah, well, to be honest, my dad probably wasn't the best teacher when it comes to investing because the nature of speculating on commodity prices, commodity futures is really, really risky. In futures, you can lose up to 10 times the principle you put in. So, if you buy a stock, you might lose the money you put up to buy that stock, that's it. It can go to zero and then you're out, you know, the money you used to buy the shares. But with a futures contract, you're obligated to pay whatever that price is at the set future date.

Phil (5m 6s):

Can you give us an example of that?

Doug (5m 9s):

Sure, so he might've been buying or selling bushels of wheat that would be harvested in two months’ time and then come to market a few months after that. And there's all kinds of things that can factor into the price of wheat, right? So, there's global factors like famine or drought or pests or things like that, there's geopolitical risks, there's all kinds of things that might impact the price of the commodity, right? Just like oil. And so, if you're an individual person, you know, he's not a bank, he's not an institutional size investor.

Phil (5m 37s):

Just putting his own money into it.

Doug (5m 38s):

Putting his own money up for this. You're really liable for those price swings down the track. That's why he did what was known as trading his own book, which is like his own portfolio of futures, but he was also a broker at the same time so he could facilitate buying and selling for other people. And quite honestly, it takes a math brain that I don't have to be able to kind of do those things simultaneously in your own head, because back in the day, you can actually buy and sell from yourself as well. So, imagine the complexity of running kind of two ledgers in your brain at all times.

Phil (6m 6s):

So, what did you learn not to do from your dad?

Doug (6m 10s):

Well, I learned that most people, well his colleagues and his buddies down there, didn't last very long doing what they do. There's a lot of romanticism wrapped up in futures trading. These guys are kind of seen, and I use guys cause again, most of these people were men, there were some successful women traders down there as well, but I'm going back now to the seventies and eighties. A lot of these guys were considered sort of local celebrities in Chicago because some of them did very, very well speculating on the futures markets, but most of them didn't and most of them busted out. And unfortunately, a lot of these guys ran into issues with substance abuse and things like that. It's a pretty hard lifestyle. And I saw a lot of that and I saw a lot of his friends, you know, kind of fall by the wayside. I don't know. I saw that and my dad to his credit was like, you know, "Son, don't get into this business.

Doug (6m 53s):

Guys like me who lasts, you know, 30, 40 years are really, really rare." And so that was a really valuable lesson, which I think is probably why I was drawn to a more traditional investment company like Morningstar, which was like buy and hold investing value, investing mutual funds, you know, stock picking. Kind of more traditional ways of investing really.

Phil (7m 12s):

And you can have that kind of malaise as well with stocks as well, I guess. You get people burning out like that as well.

Doug (7m 17s):

Oh, of course. Yeah. That's not to say that the financial services landscape, isn't littered with stories like "Wolf of Wall Street" and things like that. But if done properly and, kind of, the value, kind of, the Warren Buffet sort of mindset, you know, it is boring and boring is often good when it comes to investing.

Phil (7m 33s):

I hear so many podcasts and read so many blogs and it's about trading and about getting rich quick and that kind of attitude to the stock market. Whereas I think it's really important that we've actually got to focus in what you can do in the longer term.

Doug (7m 47s):

Absolutely. Yeah. I think a lot of this stuff around trading and speculation on IPO's, I mean, it really comes from the marketing efforts of some of the people who are trying to get you to trade, right? So, a lot of this comes from investment banks who are promoting a company that's coming to market, like a tech IPO. A lot of this comes from

Phil (8m 5s):

What's an IPO?

Doug (8m 6s):

Initial public offering. That's when a company transitions from being a private company to being listed on an exchange where the public can buy and sell shares in that company. So yeah, unfortunately a lot of this is just kind of picked up from the quite effective marketing arms from stockbroking companies and investment banks, which is a lot of people are sort of conditioned to make poor decisions, or they just are scared off of the markets entirely. But the best investors tend to be, kind of, the buy and hold investors who, you know, may take significant risks, but human beings are quite bad at understanding the effects of compounding over time. And typically, you'll find that people, again, like Warren Buffet, they buy really good stocks for good prices and they hang on to them and they keep doubling down over time on those positions.

Phil (8m 51s):

Yeah. I've heard it said that sometimes it's like having a garden and you just let the garden grow and occasionally do a bit of weeding.

Doug (8m 57s):

Absolutely. That's exactly right.

Phil (8m 58s):

Yeah. That seems to be the way to go. We're looking at people now in this podcast who have not had anything to do with investment before, they might have some money that they want to start investing in, they realize that the market's the only place that you can try and get some considerable returns. They're making their first purchase. What would you suggest?

Doug (9m 17s):

Let's just assume that somebody who's new to investing is not going to be a trained analyst, right? They're not going to be able to look at a balance sheet or a financial statement and make an investment decision based on the numbers they see. So, okay. So, if we're not going to do that, I would say, look for a company you're familiar with, right? Think about a company that you use on a daily basis. Maybe it's your iPhone, Apple, maybe it's your new Disney plus subscription, right? Just think about the things that you sort of quote unquote trade in as a consumer and think about your family and your friends and what's popular. And then have a look to see if those businesses trade on the stock exchange and then do a little bit more research. There's a lot of information available again from places like Morningstar for either free or very low cost, or there's a lot of information right within the online brokerage websites as well.

Doug (10m 2s):

So, if you set up to a brokerage account with say Schwab or Fidelity or Morgan Stanley, chances are, depending on sort of what plan you sign up to, you'll get a lot of content and a lot of research content for free. And the basic thing you're trying to look for there is, you know, is there a statement from a trained analyst or something saying, "Hey, the value of this company is X or the shares, you know, ought to be trading at Y" what's it trading at now? And if you could find a company that you're familiar with and it happens to be trading at a discount that might be a company should consider investing in. But the thing that I would caution there is start with a small amount. I mean, most brokerage sites, depending on how well-funded your account is, will force you to purchase a minimum amount of shares or a dollar amount minimum, maybe three or $500.

Doug (10m 47s):

So, if you can stomach that, I would say, go with the minimum amount and just stick with that for the time being and be prepared to potentially lose money the second day, you're an investor.

Phil (10m 59s):

As we all do.

Phil (11m 0s):

Sharesight is an online portfolio tracking tool that automatically records trades, dividends, ETF distributions and gives you the reporting tools you need to help you manage your portfolio. Sharesight is pleased to extend a special offer to listeners of this podcast. Save four months on an annual premium plan. Go to sharesight.com/stocksforbeginners and sign up now for a free trial before taking advantage of four free months. It'll help you save money at tax time and improve your investing decisions. That's sharesight.com/stocksforbeginners

Phil (11m 39s):

Someone that I've spoken to has used the expression, match your risk to your experience. Start off with as minimum amount of risk as possible. And that's about the amount of capital, I guess, that you're going to risk as well. You can start with quite a small amount of money, can't you?

Doug (11m 54s):

Yeah. And think about this as a long-term kind of step-by-step process. You don't need to purchase a portfolio of stocks right away. I would pick one or maybe even two companies and start from there.

Phil (12m 3s):

And I've heard you mentioned before that if you just do one or two, then you can study them intensively. And when you know them and when you own them, you've got a reason to be looking out for them as much as possible.

Doug (12m 15s):

That's exactly right. And if you're coming at this from the lens of, "Hey, let me think about, you know, consumer brands I'm familiar with." You know, maybe it's Nike, again, maybe it's Apple. I mentioned Disney before, something like that. I mentioned those companies because they've been around for a heck of a long time, right? These are companies that have decades, if not even more, experience on the exchange, therefore they've got a lot of information available. And quite frankly, the story about these companies has been told. The business model is proven. So, then it's a matter of, "Okay, well, what's this company going to do in the future?" So, you really de-risk your first investment if you pick something that's been around for quite some time.

Phil (12m 51s):

Okay. In the case of Disney, they're currently talking about the streaming service that it's providing. And that there's a lot of upsides there because Disney own a lot of material. There's a lot of content that they've got there: unbelievable amount.

Doug (13m 5s):

It's an awesome company. And I mentioned Disney too. So, I participated in my junior year of high school. I was in an econ course, macroeconomics. I really liked the course. My teacher had a knack for taking complex things and just making them really simple. We need so many more people like that in the world of finance, because I think it would turn on a lot more people to investing. But our team picked Disney and they actually ended up being the winning stock. And we went on to kind of compete in the finals for the Illinois state stock-picking competition. I think all I got out of that

Phil (13m 30s):

A proud moment.

Doug (13m 31s):

Yeah. I think we did quite well. I think I got a free t-shirt out of that and I've got it around somewhere.

Phil (13m 37s):

Yeah. I made a killing on Disney and all I got was this lousy t-shirt.

Doug (13m 39s):

Exactly right. Oh my gosh. Yeah, Disney's taken a lot of my money and now that I've got a four-year-old and a two-year-old they're taking even more. But it's a great example of a consumer brand that we're so familiar with, right? So, if you could kind of park, you know, what you think about Disney and their movies and their theme parks and all the rest and just think about the reach that company has and think about the history that company has. And as you mentioned now, moving into streaming, all of us are conditioned to, you know, paying for our cable subscription monthly, like forever, you know, being Comcast or Verizon or whomever, we're getting our cable services from. But as, as you're probably aware, all that stuff is being fragmented and, you know, parceled off. So actually, just this morning I was looking at... I'm a big Chicago Cubs fan.

Doug (14m 19s):

And normally I just watched the Cubs by turning on cable and just go into the sports channel and the Cubs would always be on. Well now the Cubs have launched their own streaming network. And so, I was looking into, okay, well, how much is this going to cost? Can I get, you know, the app? Can I get on my phone? Can I get into my apple TV? How can I consume this? Should I buy the major league baseball package? There's a lot of services out there. And the reason is, is because these companies are doing very, very well on them. So, as you mentioned, Phil, so Disney, I mean, they own the entire catalog of Disney movies, of course. They own the entire catalog of "Star Wars" movies. They own National Geographic. They own the rights to so much content. And the beauty of their content, you know, think about "Beauty and the Beast" and "Little Mermaid", "Lion King", they just keep selling it.

Doug (15m 1s):

They keep cultivating it for the next generation and the next generation. You know, so just this morning, my son was feeling a bit sick and he was sitting on the couch and I flicked on "Lion King" for him, you know. And I mean, I went to go see "Lion King" as a kid in the movie theater. And so now they'll introduce themselves to a family like ours. And I just, just in December over Christmas, I bought the annual subscription to the Disney service for like 80 or 90 bucks, whatever it costs. And it's almost like something we just have to have.

Phil (15m 27s):

So, you've got a psychology degree. Did you find anything that you learnt in that useful in investing?

Doug (15m 32s):

I suppose so, yeah. So, I learned a lot of, about, sort of, biases that we have as human beings and how we're just conditioned to just constantly make mistakes and ignore very obvious things. And so, you can see that at play in investing all the time, right? That's why in my first job at Morningstar, there was so much mathematical evidence that, you know, having a proper asset allocation for example, was important as an investor. And an asset allocation, for those of you who aren't familiar, is basically like if you think about, you know, your stock portfolio or your portfolio of your 401k or the mutual funds you own, whatever. Think about how those investments are allocated very broadly. So, are those stocks, are those bonds, is that cash, is that unlisted stuff like property or whatever?

Doug (16m 15s):

That broadly is what we mean when we say asset allocation. And so, you know, I was exposed to all this mathematical evidence stretching back for decades as to how this stuff was really important. And then you see all the time evidence of people just, you know, making irrational decisions all the time. So, I think it was that kind of, honestly, that academic background in how irrational human beings are, that was really important when it comes to investing, honestly. And also, the ability to, or inability to cut losses. I mean, I'm sitting on a company right now, that's done nothing but lose me money for about six years. And it’s sort of slowly making its way back up to break even. And I still haven't sold it. That doesn't make any sense based on my training and my academic background but here I am sitting on a loser.

Phil (16m 58s):

I've seen on the Sharesight blog that you've said, "Individuals must take ownership of their own investments. The old system is no longer working." What do you mean by that?

Doug (17m 7s):

What I mean by that is that there's always going to be investment banks or stock brokers or product providers. And what we mean by product providers are people who produce and sell mutual funds or produce and sell ETFs or any kind of investment product. The way that the financial services landscape has gone is that execution and the cost to trade is really going right down to zero. We've seen Fidelity launched no fee brokerage. I think Schwab is about to, or they've already launched no fee brokerage. Companies like Robin Hood, they're a startup kind of FinTech broker. They've already done this. And so those barriers to entry are really falling, right? But of course, these companies are still gonna find a way to get their pound of flesh.

Doug (17m 48s):

And so, what they're doing now is they're getting better and better at marketing to investors, especially digitally, right? No doubt on Instagram or Facebook, you're getting ads to invest in certain, you know, robo-advice products or IPOs or things like that. And really what that means is these companies are getting better and better at, sort of, convincing you to get something for low cost or free. And then what they're going to do is they're going to start doing something that's actually quite insidious, which is to start charging you what's known as an asset-based fee. So once you have your money in a fund or an ETF, you're charged based on a percentage of the money you have with that investment. There's all kinds of different rules and caps and things like that. But what that kinda means in principle is that the more money you have with them, the more money they're going to take regardless of their performance.

Doug (18m 33s):

That's not always true, but typically it is true and that's true for cash as well. So, if you're looking at a brokerage service regarding any kind of enticing international stock trading, you know, trade the Chinese market, trade the European market, whatever, be careful and read the fine print when it comes to the fees they charge for kind of exchange and the fees they might charge you for just holding cash within their products. Because if they're going to offer, you know, free trading and free access to some of these exotic opportunities, they're going to charge you in the back end as well. And so that's what I mean by its very, very important for people to understand exactly what's happening in their portfolio from a performance and a fee standpoint so that they can make objective decisions.

Phil (19m 13s):

Would be better off with a more traditional brokerage firms in some cases? Because at least the only cost is going to be the price of bargain selling the stock.

Doug (19m 21s):

It depends. I mean, my preference, as somebody who likes to do their own research, is to find a low-cost broker but who's a big enough brand who I have kind of trust in if something were to happen. I think about credit crunch back in 2007, 2008. I had and still have an E-Trade account. And there was some shakiness around E-Trade's fundamental business during that whole crisis. I remember ringing them up and saying, "Hey, what's the story? What are my options? Can I get my money out?" And they were like, "We'll call you back." So, you know, you're probably not going to go wrong if you pick a reputable institution. I mean, even in that case, you trade with reputable institution. But you know, it kind of depends. I mean, if you want a relationship with somebody who you can pick up the phone and call, a stock broker, an advisor, then that might be right for you and those people are still out there.

Doug (20m 6s):

But if you want to do it yourself, I would pick kind of a name brand, but who offers low-cost services as well like a Schwab or Fidelity, somebody like that. The other thing I like about companies like Schwab or Fidelity is they're not kind of traditional investment banks. I mean Fidelity is mostly known as a mutual fund company, but they offer a really good online broking service as well. And Schwab is really known as an independent financial services company, a very much a retail main street financial services company, which means they've got products for kind of the everyday investor at competitive rates.

Phil (20m 36s):

Yeah. And a lot of good information for them on the ceiling as well. Yep. So, part of the low-cost landscape that we see has come about because of ETFs. Tell us about ETFs, what are they, how do they work and should investors have them as part of their portfolio?

Doug (20m 52s):

Yeah. So just basically ETF stands for exchange traded fund. They have become the most popular investment vehicle in the world. They have basically replaced mutual funds in many markets around the world. Not that mutual funds have died and gone away, but new money inflows into products are going predominantly to ETFs these days. Essentially an ETF is a listed portfolio. So, if you can imagine a mutual fund that might invest in say European stocks or tech stocks or maybe even the S and P 500 broadly. Typically, as investors we would just buy that mutual fund either through our financial advisor or through a website. And it was very much an offline kind of slow-moving process, right?

Doug (21m 35s):

ETFs replicate those investment strategies, but they're listed on exchanges, meaning you get instant access to those portfolios and you can buy and sell those, well, really on an intraday basis if you chose to do so. And they're huge. They're very, very liquid. And so, they offer investors of all sizes, be, you know, a smaller self-directed investor like me, or even like a large pension fund, you can use these products to build your portfolios. And there's really now, there's an ETF for everything. I mean, I mentioned, you know, various global stock markets, the S and P 500. There's also ETFs that give you exposure to specific asset classes, maybe like tech stocks, there's even a Bitcoin. ETFs that are or are not legal depending on where you're listening to this podcast, so please do research on those.

Doug (22m 18s):

A colleague of mine at Sharesight, she owns an ETF that invests in cybersecurity companies. So, there's an ETF, honestly, for everything these days.

Phil (22m 26s):

There's robotics, isn't there? And there's artificial intelligence, there's healthcare.

Doug (22m 28s):

Yeah. Also, I mean, if you wanted to sort of invest like my father did back in the day, there's an ETF that will invest in future contracts for soft commodities as well. There are also ones doing shorting and other inverse kind of things. I would say, be very careful with those I've been burned by those myself. So yeah, really, ETFs bring all kinds of thematic ideas to the hands of retail investors.

Phil (22m 53s):

But in the most common usage of an ETF is tracking an index and a broad index of stocks.

Doug (22m 58s):

Yeah, that's right. Often ETF investing will get kind of conflated with passive investing or index investing. And that's because if you look at sort of a chart of where most of the assets are in the ETF landscape, certainly most of the money is invested in the say S and P 500 ETFs or Dow Jones ETFs or NASDAQ ETFs or maybe the Footsie or the Euronext or big global exchanges like that. I mean, Vanguard, for example, they have an all-world stock market ETF. Where basically like a dollar into that ETF gives you exposure to every major stock market in the world, right? At just the click of a mouse, which is a pretty cool concept.

Phil (23m 36s):

Okay. Talk to us, Doug, about benchmarking and I believe Sharesight can help with the benchmarking. What is benchmarking?

Doug (23m 44s):

It can. Yeah, so benchmarking is, I guess, sort of generically speaking, is tracking your portfolio against a benchmark. And the benchmark can serve as... It can actually serve as many things. Often when people think about the benchmark, they think about the Dow Jones, they think about the S and P 500, right? So, it's historically been thought of as, "Okay, what's the market doing? What's the overall kind of composition of the market doing in terms of performance and am I beating that or not as an investor?" What's tricky about benchmarking though, is that that definition is quite broad. Everybody is on their own investment journey. And so, if you're investing, you know, as a first timer and you've just got a couple of stocks, let's say you've purchased a couple of tech stocks, companies you're familiar with or you like or want to keep an eye on.

Doug (24m 29s):

Benchmarking those positions against, say the Dow Jones which is comprised of companies like Boeing and GE, is not really a suitable benchmark. But essentially, it's the tracking of your portfolio against a broad market index or some people even think, which is kind of incorrect, the economy as a whole.

Phil (24m 43s):

Okay. And so how does Sharesight help you to do this?

Doug (24m 46s):

Yeah. So, in Sharesight you can do something pretty cool. You can track your portfolio and Sharesight and then you can assign a benchmark to it. And Sharesight's unique in that you can pick either one of the broad market indices that we mentioned before, if that's appropriate for you, or you can pick individual ETFs, mutual funds or stocks as well. So, if you do have a specific style investing, we'll allow you to track your portfolio against those benchmarks. And what we do is we've got a nifty feature that assumes a common investment start date and a common investment amount. And we'll show you hypothetically over time, how you've tracked against the benchmark.

Phil (25m 22s):

Okay. What are some of the other features of Sharesight that we should be aware of?

Doug (25m 27s):

Yeah. So, people come to Sharesight to track performance of their portfolios, predominantly. That eludes most investors, which sounds crazy that you actually can't really get a view as to how your portfolio is performing. Unfortunately, when you set up to an online brokerage account, what'll happen is you'll place funds with them, it'll kind of transfer, you know, a thousand bucks or whatever it is to fund your account. And then you'll start buying and selling those stocks. Now the broker is incentivized to get you to trade more. That's all they really care about. And they'll provide you with really nice interfaces and tools to do that and research and things like that, but they don't really care about telling you how you performed as an investor. They often lack the information pertinent to you, be it dividends or certainly if you hold investments with other brokers or other investments, you know, in a 401k or something like that.

Doug (26m 11s):

So, what Sharesight allows you to do is it'll aggregate all of your positions from any account that you may hold. And then we do something pretty cool, which is called annualized performance. And we've made a decision to do that. It basically breaks down a portfolio that say five years old into annualized performance chunks. And the reason we do that is we believe it's important as an investor to track your performance, just like you track anything else in your financial life, right? You get paid an annual salary. You know, you think about kind of your household budget and annualized terms, right? Insurance comes around every once per year, perhaps depending on the policy. So, we're just kind of conditioned as human beings, walking around in a capitalized world to think about annual chunks.

Doug (26m 54s):

And we don't think a portfolio should be any different. In fact, I mentioned some of the marketing that you see out there before. You'll often see mutual fund companies touting, you know, total returns of a thousand percent. That means nothing. That mutual fund might've been around since 1973. So, if you just let any investment run for that long, chances are you're going to have an eye-popping percentage return. But if you annualize something like that, it may be a much more modest performance story. So, we do annualized performance. And what we also do is we factor in the impact of dividends on your portfolio, dividend reinvestments, which is a very popular thing for investors, and the impact of foreign currency as well. So, if you hold shares on overseas exchanges, which is more and more common, we'll kind of split out the impact of foreign currency movements and explain to you the impact that has on your performance as well.

Phil (27m 42s):

So apart from tracking the performance, it's also a tracking what you need to report for taxation purposes as well, which is really important.

Doug (27m 50s):

Exactly right. So, tax is super important for investors because I mean, it's kind of inevitable. I mean, depending on where you live, most tax jurisdictions, countries around the world will tax you on income. So that's dividends from, you know, a dividend bearing stock or an ETF that pays any kind of dividend. So that'll be treated like, you know, income just like salaried income. So, you need to keep track of that. A lot of that gets quite complex as well. Dividends are paid in some cases multiple times a year. If you're investing in something like a mutual fund or ETF, sometimes those dividends could have sub components, which basically are little tax nuances, kind of, baked into those payments that you get as an investor.

Phil (28m 28s):

Is that because different companies have different taxation situations: the ones that are comprised, the ETF are comprised of?

Doug (28m 32s):

Correct. It's really like a sandwich of dividends that ETF collects from companies around the world and then packages up for you, the investor, but they're just passing that through to you. So, you've got to keep track on that. So, they impact your performance, but they also impact your tax liability. So, having a view to that on a real-time basis is really important, right? And the other theme of taxation as an investor is capital gains tax. So, depending on what country you invest in, so the US is one, Canada is another Australia is another, there's something called long-term and short-term capital gains tax. Some countries still have no cap gains tax, actually like New Zealand, which perhaps is why it's such a popular destination for billionaire tech entrepreneurs.

Phil (29m 10s):

And they think it's so safe as well.

Doug (29m 13s):

And it's so safe and beautiful and clean as well. But the premise is really, if you buy a stock and you hold it, hopefully for you, the stock will appreciate value. And that value appreciation is called a capital gain or loss, if you lose money. It's just like a house or anything else. In many cases, again, country dependent, if you own that investment for longer than a year, you pass from a short-term capital gain or loss window into a long-term capital gain or loss window. And typically, the taxes on a long-term capital gain are less than those on a short-term capital gain, right? But again, as an investor, this is a reality that will come to pass for you every year. So, it really is a smart thing to do, to keep an eye on what your hypothetical capital gain or loss positions are both for short term positions and long-term positions and Sharesight will give you a real-time look at kind of the losses or gains you're sitting on.

Doug (30m 2s):

And the other cool thing about capital gains, if I could call a tax cool, which I suppose I can in this case, is that if you make a capital loss, so if you buy a company and the share price declines and you're sitting on a loss, you can often use those losses as credits to offset capital gains in the future. So, it's kind of an inverse picture. So, you want to keep an eye on, you know, the iceberg below the surface as well if you think about it like that.

Phil (30m 27s):

It's interesting, you were telling me before we started this discussion that you've been talking to the father and son team who first started Sharesight. They're from New Zealand, aren't they?

Doug (30m 35s):

That's right.

Phil (30m 36s):

And your concerns are more about marketing and how it's going to be going out into the market and their concern's about making sure this software works. It's an interesting dynamic, isn't it? That they're really actually passionate about the software itself and making sure it's doing what they say it's going to do.

Doug (30m 51s):

Absolutely. Yeah. So, this, the Sharesight story began in Wellington, New Zealand and the father is an accountant by trade, tracked everything on a spreadsheet like I'm sure many investors while we know many investors do around the world. And he was talking to his son and said, "Well, surely there was some way we can build software, something that can automate this, or at least help investors." And this was the same time that a company called Xero, X E R O, was starting right in their own backyard and of all places, Wellington New Zealand, which is a very small place, kind of at the bottom of the world.

Phil (31m 21s):

Great restaurants though.

Doug (31m 22s):

Great restaurants, great coffee, great brewery scene as well if you ever visit that's my plug for tourism, New Zealand. Basically, the son, Scott, our CTO today. His idea was, "Well, I think we could actually do this stuff in a cloud-based way," which 10, 12 years ago, it was a really new concept. If you think about an investment portfolio or accounting software, think about all the calculations that have to be happening at all times, right? If you've got a stock portfolio of like a hundred positions, you make it all kinds of trades, you know, thousands of trades, lots of dividends coming in, performance that updates every 20 minutes that's a heck of a lot of calculations. And it's a lot of work for a browser or a computer to deliver on a real-time basis. What you'll find even to this day, if you walk into say the back office of a mutual fund company or something like that, the analysts are often using offline software that sits on a local computer machine, because a lot faster, basically.

Doug (32m 14s):

It can become out of date, but it's fast. And so, our idea at site was to basically put a self-directed portfolio solution on the cloud and then ask people to pay a fair price for it. And so, they remained very passionate about kind of helping, you know, serious self-directed investors track their stock portfolios. And yeah, it's been a really good success story from a common, unlikely place in the world. And now we serve investors in about 70 countries.

Phil (32m 43s):

And how many exchanges does it cover?

Doug (32m 44s):

We track about 28 different stock exchanges today, plus mutual funds and things like that that are useful for retail investors.

Phil (32m 51s):

That's great. Doug, thank you very much for coming on the podcast.

Doug (32m 54s):

Thanks so much Phil.

Stocks for Beginners is for information and educational purposes only. It isn’t financial advice, and you shouldn’t buy or sell any investments based on what you’ve heard here. Any opinion or commentary is the view of the speaker only not Stocks for Beginners. This podcast doesn’t replace professional advice regarding your personal financial needs, circumstances or current situation.

 

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