Have you ever been tempted to buy a stock based on advice from a friend or an article you read online? Maybe you went ahead and bought that hot stock? Unfortunately, those types of stories don’t usually end very well. That doesn’t mean you should stay out of the market. My guest this week is Joseph Hogue of, Let’s Talk Money, YouTube fame. Joseph is a chartered financial analyst with a 20-year background in venture capital and wealth management. I sat down with Joseph at FINCON in Austin, Texas, in late September. Joseph and I talked about the right and wrong ways to pick stocks. He was also kind enough to give us some insight into his investment portfolio and how he divides his stock and ETF holdings. 

 

Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. This episode of the Maple Money Show is brought to you by Willful.  Did you know that 57 percent of Canadian officials don’t have a will? Willful has made it more affordable, convenient, and easy for Canadians to create a legal will and power of attorney documents online from the comfort of home. In less than 20 minutes, and for a fraction of the price of visiting a lawyer, you can gain peace of mind knowing you put a plan in place to protect your children, pets and loved ones in the event of an emergency. Get started for free at maplemoney.com/willful and use promo code Maple Money to save 15 percent. Now, let’s chat with Joseph… 

 

Tom: This is a special episode of the Maple Money Show. We’re recording live from FINCON in Austin, Texas. I have Joseph Hogue here. Joseph, thanks for being on the show. 

 

Joseph: Hey, Tom, great being here. Great being back out in the world once again after so long. It’s great talking to you. I’ve been a longtime fan of all the blogs and now MapleMoney. 

 

Tom: Thanks for being on. If anyone’s wondering, I’ve lost my voice a little. Last night I was out doing karaoke. FINCON, for those that don’t know, is a personal finance conference. I’m with all of my tribe, all the people I know well on the blogging side of personal finance. But somehow, we’ll get through this with my voice. What I wanted to have you on for is something different to me. My investing is what I call boring. It’s mostly ETF investing. It allows me to not put much time into it. I can feel confident in the diverse portfolio. But you take a different take. And I appreciate the difference in that you’re actually looking for stocks and not in a light way where you might just randomly buy on bad news, outright. You’re looking a little deeper into this. Can you just start by explaining a little bit about your strategy and methods? 

 

Joseph: Well, first of all, I love ETF investing. I think it’s a great part and should be a part of everyone’s portfolio. It takes the stress out of investing because you’re investing in a group of stocks. I’m sure you’ve got some great podcast content on that. But from an investment background, having worked for venture capital firms and private wealth management is finding those undiscovered stocks and individual stocks that can provide a little bit more return without the stress. What I like to do is called a “top-down” investment strategy or investment approach. Now, I’m going to say something a little bit scary here, but people, you have to be doing some kind of research. Anytime you’re going to be picking individual stocks, you’re going to have to do some kind of research. And that is whether you do it from an individual stock perspective where you’re starting with $5,000 stocks traded on U.S. exchanges or thousands on the Toronto Exchange where you’re just trying to pick a stock out of a hat. Or if you do what I’m going to be talking about and you start from the top down. What I’m going to talk about with the “top-down” is going to make it so much easier and will put the odds more in your favour. Basically, we’re looking for a broad universal force, whether it’s demographics, an ageing population, economics, with retailers really coming back into the economy and people spending money after so long being locked down. Using that will really narrow your list of stocks so you’re not starting with $5,000 with a couple of thousand individual stocks. You’re starting with a smaller list of maybe a few hundred stocks and you’re picking companies from that. And the surety there is these broader, universal forces, are driving all of these stocks. So, when you eventually get to picking one or two stocks you buy, even if you don’t pick the very best of the best within that group, you’re still going to do well because that entire group is going to do well because of those universal forces. 

 

Tom: This is interesting to me. Personally, it still sounds like a lot of work. I know it’s from the “top-down” so I don’t want to go right into the weeds quite yet, but where do you start with this? To me, it just sounds like the current press. I don’t want to encourage anyone to try to time the market, but sometimes I have bought stocks just based on bad news. Here, in Canada, it’s common that we’ve got mostly financial and utilities. And they’re all going to be around for a long time so it’s somewhat easy that you can buy on bad news with very little further analysis. I’m sure that’s not what you’re talking about. 

 

Joseph: Actually, that is a part of the strategy. You can play contrarian. That is what they call it. When something is out of favour, then that’s what you buy. What I’m talking about is following the news a little bit more in detail. A lot of times it’s getting to know a specific industry or sector of the economy. And for a lot of people, this starts with where you work, where your professional experience is because you’re going to have that intense, inside knowledge of that sector of that industry. So you know if it’s doing well or it’s not doing so well and what some of the economic forces– the larger, broader, consumer forces in that. You can tell when it’s not doing well and maybe when it’s starting to do well. Peter Lynch has a great quote, “Invest in what you know.” A lot of people think this means, “I eat Campbell’s chicken noodle soup and like Campbell’s chicken noodle soup, so I’m going to buy Campbell’s stock.” But not necessarily. This means staying within your wheelhouse, your professional experience. If you work in retail, then you probably have a “much better than normal” idea of what makes a retail company click or where consumers’ fashions and trends are going and what they’re buying. That means you are much better placed at picking the best retail stocks or the best stocks in that. And what you can do with this is use that experience and that knowledge to pick two or three or five individual stocks in that sector where you have the experience and where you might have a better chance of picking those better stocks. And then for the rest of your portfolio, you invest in the ETFs. You get that broad market exposure with that. And the few stocks within your wheelhouse… you’re much more likely to pick the very best ones. 

 

Tom: That’s a good point. I have dabbled in some stocks, but some I won’t touch are different things like technology stocks. I don’t have the time or interest to follow these technology stocks. They literally come and go. I’d probably still be invested in Netscape and MySpace and whatever else is out there. 

 

Joseph: Yeah, BlackBerry, all of those. It’s a dangerous part of the market. Technology stocks, pharmaceuticals are another big one. And what’s dangerous about this is that you see podcasters or YouTubers like me talking about these stocks. They throw out a list of stocks for people to buy and people buy it with no research and no understanding of the company. Folks, that is not an investing strategy. Do not buy a stock just because some yahoo in a bow tie (in my case) tells you that it’s a good company. You have to do your own research and you have to understand that company. That’s why I say invest in what you know and stick within the industries you know a little bit more about. People love the potential returns on tech stocks like Facebook, Apple and Netflix that have all doubled or tripled over the last year. Pharmaceutical stocks can go up 200 percent on good FDA news about a drug. But that’s not an investment. It’s just a hope and a dream so it isn’t an investing strategy. You really have to know the process of getting a drug approved, the FDA process, what drugs a company has in its pipeline. We’re talking about pharmaceuticals specifically here. If you’re not ready to understand the industry like that, then just buy an ETF like the iShares Biotechnology ETF. That’s going to give you exposure to the broader pharmaceuticals growth story instead of putting all your hopes, dreams, and money on one stock you don’t know about. 

 

Tom: You mentioned the Campbell’s example. I think with Warren Buffett it was Coca-Cola. I get that you shouldn’t pick a business completely on that. But thinking about those brands, similar to what I said about our (Canadian) financials and utilities, it’s probably pretty safe, without too much research, to assume that’s a brand or a company that will remain. Are you going further with truly evaluating it? These companies might be strong and they might be around forever, but that doesn’t mean it’s a good time to buy them right now?

 

Joseph: Exactly. And that’s the thing. Coke is good, Pepsi’s good. Whether you prefer Coke better or not doesn’t mean that the financials are good and that it’s a good investment. Granted, Coca-Cola will be here long, long after we are and will probably provide a stable, decent cash flow for investors over market returns. I think a big part of stock picking and investing in individual stocks for a lot of investors is that motivation. It’s that excitement. And, while I wouldn’t promote gambling, I would say, if that keeps people investing and keeps them putting their money into the market and saving in that way, then I’m all for it. I love ETF investing. It’s true investing and it’s good investing. Because, as they say, “If you want to gamble, go to Vegas and put your money on black because your odds are just as good as the way some people pick stocks.” But if we can get more people to invest and save their money by exciting them into doing that research, doing that homework, and looking at individual stocks, then I think that’s a win-win for everyone. 

 

Tom: With your process when you’re looking at a company, is it for potential gain or are you more focused on the dividends? What do you consider are reasons to invest in that? 

 

Joseph: Well, that’s going to be different for a lot of investors. Whether you want more growth, the potential for growth and returns, or you’re a little bit more of what we call “risk-averse” or a little bit shakier. Maybe you want more cash flow… Myself, I’m much more a dividend investor. I love getting paid while I invest. I think a lot of people do. Those companies tend to be more stable, and, obviously, more mature. They have those cash flows coming in and not quite as much to reinvest in the business, unlike those fast-growing tech stocks. So they send more of that money back out as dividends. They do tend to be safer and a great strategy. Dividends account for about 40 percent of the total stock market return over time, obviously, when stocks are zooming higher. But over different cycles, different bull markets and bear markets, it evens out and you’ll be glad you had different stocks. 

 

Tom: I agree. For the few stocks I do currently own, they’re all based on dividends because, again, just not wanting to have to watch this all the time. I guess I would buy and hold because I will buy a stock, but I don’t want to have to watch and try to figure out, “Oh, is this something I should get out of?” So the dividend makes that simpler. It’s like you’re buying a part of a business and receiving some of the profit. It’s just a different kind of investing. Do you ever get into that buy and sell-side where you bought something because you thought it was going to double in price? And do you have an idea of when you would want to get out? That would be my follow-up on that. 

 

Joseph: Well, the thing that a lot of investors don’t realize is that selling a stock rarely has to do with the price. Now, whenever I do buy a stock, I have an idea of what I think the stock is actually worth. But generally, as the stock price goes up, it’s because that value is going up as well. The market is seeing new news and information on the stock of the company and it’s driving that value up. It’s generally pretty close to what that company’s stock is actually worth. When I sell a stock– and this is the thing a lot of investors don’t understand because they say, “Hey, the stock’s gone up 20 percent, I’m going to take my money because it’s an expensive stock now.” Really, the biggest reasons to sell a stock are if there’s some kind of abrupt change in management or scam. Or if management does something that ruins the reputation and brand of the company. And there’s no accountability. Companies make mistakes. Management makes mistakes, That kind of thing happens. But if there’s no accountability or no plan to change that, then it’s telling you it’s going to happen again. That’s probably the biggest reason to sell a stock. Another reason is a long time, inability to adapt and change that company for the better. Obviously, technology is touching every sector and every industry. BlackBerry is a great example. BlackBerry dominated mobile connectivity for the longest time, but they were just unable to adjust to the new technology and that, ultimately, almost destroyed the company. They still have stock but it’s 95 percent down from what it once was so you really have to believe in the company, the brand and that management can grow and nurture that brand, and that they have a plan for adapting to new technology. If they can’t do those things, then I would say it’s. It’s not a company that you want to be in. 

 

Tom: If you are already in one of these companies, how many stocks do you own where you kind of feel you may have to stay on top of? Let’s say you see news on that company and have to react to it. Is this you following 50 companies on a daily basis? What does that look like? 

 

Joseph: No, that’s a great question. That is one of the most important questions in investing; how many stocks to own and how to set up your portfolio like that. I use what’s called, the core-satellite approach. For the core part of my portfolio, I’m holding those ETFs. I’m holding maybe three to five exchange-traded funds that give me broad exposure to a theme, whether it’s international stocks or stocks within a certain sector or industry. I’m getting a very broad, stress-free, exposure to stocks, and even the whole market. That’s generally 55, 65 percent of my portfolio. The vast majority is just a market portfolio so I don’t worry about it. I don’t have to worry about it because no single company is going to destroy any of those ETFs. I just earn those returns. The satellite portion is those that kind of revolve around that core. They are individual stocks. I’m looking at maybe 10 to 15, no more than 20 individual stocks in that satellite portion. And maybe within each of those, I’ll have three percent. So, if we’ve got 35 percent left and we’ve got 10 companies, then you’re going to have about three and a half percent of your total portfolio in each company. And this does a lot of things. It still gives you the stress-free approach of ETF investing, but it also gives you the opportunity (and excitement) of picking individual stocks. Maybe you’ll pick the next Facebook or the next Google. It really does well and your portfolio does well. You also get the safety that three and a half percent of your portfolio in any one individual company (if it bombs) won’t hurt. Even losing three percent of your portfolio, you’re still doing well if the rest of your portfolio is getting even market returns. It gives you that safety. It also frees up a lot of time and enables you to do a lot of research to keep up with these companies. If you’ve only got to invest in 10 companies, then you’re limited to only investing in the companies you really care about where you really think the brand is doing well. They’ve proven that they can adjust that brand with technology so you’re spending much less time on them. You’re able to go into financials. You’re able to do some of the other work that you really need to do to understand and know a company. 

 

Tom: You mentioned the next Facebook, the next Google. How would you know how to pick that, but also how long to hold that? Because it’s easy to look backwards. I’ve looked at things like Apple and what their price was in the mid-90s when they had those coloured iMacs or whatever they were. 

 

Joseph: And you thought, “If only I had only invested $10,000. How much would I have made?” It’s grown by this much… I would have been a millionaire. 

 

Tom: It’s so easy to look back that way. But then I think, even if I thought to invest in it, I probably would have sold it 10 years ago because it was doing so well in the news. I probably would’ve got out sooner. We won’t go too deep on this, but it’s the same thing with any kind of Bitcoin. I’ve said on the podcast before that I used to stop into these little computer shops and hear about people mining it saying they were mining to get these Bitcoin things for $200. To me, that sounds like a lot of work and doesn’t make any sense. 

 

Joseph: And they’re all millionaires right now. 

 

Tom: Yeah, well, exactly. Whether it’s Apple or something totally different like Bitcoin, it just feels like you can look backwards on this and say, “I should have done that.” But how do you look forward? If you were just looking at some company right now, how do you see that potential but also have an idea of how long you actually want to stick with them? 

 

Joseph: Sure, and the media doesn’t help. Some of the most popular articles, blog posts or news… You’ve seen them. How much would you have if you had invested $1,000 in Netflix 10 years ago? Hugely popular. Everybody loves to fantasize like that. It’s worthless time spent. It’s a waste of time because you can’t live your life in the past like that. I will say, for understanding which are going to be the stocks of the future, goes back to investing in what you know and really focusing on one or two industries or maybe one sector where you have that professional experience and in-depth knowledge. And knowing what the smaller companies– the startup companies that just have stock now, which ones have that competitive advantage and are adapting to changes the best. You start with that professional experience, that professional knowledge which is basically a step-up or a heads-up ahead of other investors to really pick the “best of the breed” in an industry or sector. As for holding them, I would say, again, don’t focus on price because it is so easy to say, “Hey, I’ve got 20 percent gain on this one. I’m going to take the money and run.” And what ends up happening more often than not is you sell your winners too quickly. You book that 20 percent because you just hate to sell the losers, right? You just want to get back to even. It becomes a gambler’s fallacy on these. You just want to get back to even and you end up holding the losers, losing 50 percent. So it’s a losing game on that end. I would take it back to the idea that you’re not selling on price. You’re selling on if the company changes its brand, destroys that thesis or theme, which was the reason why you bought it in the first place. So you’re still going back maybe every quarter, every three months and even as infrequently as every year saying, “Okay, are these companies still the leaders in this industry? Are they still doing what it takes to not only keep up with demand and the business but also keep ahead of these other companies?” And just invest in the leaders like that. 

 

Tom: The other question I had for you was, you mentioned having core stocks in each industry. How do you feel about your diversity in that with ETFs? Where do you consider it to be diverse enough? I know you have some ETFs… Maybe that’s part of the answer? I don’t know. 

 

Joseph: And that’s the benefits of that core-satellite strategy, where you’ve got a core part that’s 65 percent of your portfolio in those ETFs. You are diversified across– you should have ETFs in stocks, ETFs and bonds, ETFs that hold real estate, those REITs. That is going to diversify your portfolio across thousands of stocks so you’ve really got that diversity there. In that remaining 30, 35 percent of your portfolio in those individual stocks, again, you can concentrate that in the industry you know about. I wouldn’t put all 35 percent of that portfolio in one industry. But even if you’ve got about 15 percent in one industry, you’ve still got that huge diversification. Eighty-five percent of your portfolio is diversified into other stocks, other ETFs that hold thousands of stocks. So you are “de facto” diversified because you have such a large portion of that ETF in your portfolio. 

 

Tom: I’ve heard this before where, once you’ve got that safe ETF spot, you can play around with what you’re comfortable with a bit. And this isn’t that wild. You’re just buying stocks. It’s a good way to stay safe but still try to increase your gains. Is there anything else that we haven’t covered that you think is important in this method? 

 

Joseph: Just understand that investing isn’t about going to YouTube or to a podcast and downloading a list of five stocks to buy. That’s the go-to for a lot of people. I do videos that are 10, 15 minutes long, about five stocks to buy, but I work through why to buy each one. And that touches on universal forces that are driving these top five. And invariably, I will get comments that say, “Can you just give us the five stocks in a comment?” And I say, no. I’m sorry. I usually actually delete those comments because I don’t want people asking or seeing just the five stocks because that is not an investing strategy. That is basically just going online and having someone tell you five stocks to buy.  You’re putting your total faith and credit in whatever that person knows or doesn’t know. So definitely, if you’re not ready to do a little bit of work into understanding companies, understanding individual stocks, then just go with the ETF approach because it is a great way to invest diversified. And you’ll have that safety and thousands of stocks. 

 

Tom: Thanks for being on the show. Can you let people know where they can find you online? 

 

Joseph: Sure. Go to YouTube. It’s Let’s Talk Money with Joseph Hogue. I come from a long background of venture capital and private wealth management, so I’ve got the chartered financial analyst designation. I’ve worked in the industry for about 20 years and really, really enjoy being able to bring that professional level of investing and wealth management to everyone. To the people that couldn’t pay the five and 20 percent fees that we used to charge in venture capital and in wealth management. So it’s YouTube– Let’s Talk Money. I’d love to see you all as part of the community. 

 

Tom: Great, thanks for being on the show. 

 

Joseph: Thanks, Tom. 

 

Thank you, Joseph, for explaining why it’s so important to invest in the stock market, both ETFs and individual stocks. You can find the show notes for this episode at maplemoney.com/170. Thanks, as always, for listening. I really appreciate the community we’re building both on the Facebook group and the personal messages and reviews I’ve received. I look forward to seeing you back here next week. We’ll have Kari Norman on the show to share her experience with how to avoid credit card scams and other fraud. See you next week!