Bad advice is all around us, financial or otherwise, and it is sometimes difficult to separate the good advice from the bad. We asked our listeners about the bad financial advice they’ve heard or seen, and in the pod this week, we discuss some of the doozies we received. Some anecdotes are relatively trivial, but some are more serious with potentially ruinous consequences. We look at them from both sides and see if there is anything we can learn from them. We also have a couple of gambling stories because that’s just fun!
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Transcipt
Albert: Hi, this is Albert.
Luke: And this is Luke.
Albert: Today is Monday the 19th of July.
Luke: Welcome to the Telescope Investing podcast.
Intro
Luke: A couple of weeks ago, I put out a message on Twitter and to a few friends asking about the worst financial advice they’d ever received or overheard, and we really got some doozy comments.
Albert: So we thought we’d have a bit of fun this week and chat about a couple of the best submissions, and you never know, there might be a bit of learning in here around what not to do.
Luke: Yeah, let’s hope so. There are definitely some pretty funny stories. We’ve also got one or two of our own where we’ve received bad financial advice as well.
Albert: But before we do that, Luke, let’s do a quick follow-up on the story we had last week. Last week, we talked about Richard Branson’s space flight and mentioned that Jeff Bezos is planning his space flight on the 20th of July, which is tomorrow for us and may actually be in progress when this episode is released.
Luke: Yeah, it’s exciting stuff. And actually, this will be their first manned flight. They did a test just a month ago with a crash test dummy they nicknamed Mannequin Skywalker, but Jeff and his crew are going to be the first humans onboard one of their rockets.
Albert: Yeah, and we mentioned that there’s a mystery person who had paid $29.7 million in an auction to join him. Well, apparently this person cannot make it due to a scheduling conflict. Who double-books a space flight? Actually, I saw an amusing tweet from Nick Magguilli where he linked to the story and said, “There’s rich and then there’s this guy.”
Luke: Yeah, that’s pretty bad diary management. If you blow 30 million bucks on a ticket to space and then can’t make it because you’ve got a dental appointment.
Albert: Well, some people suspect that after a period of reflection that this person has decided that they didn’t want to go on a dangerous space flight after all. But this person has said that he or she will go on a later flight, so we’ll see if they have another scheduling conflict.
Luke: I consider myself fairly daredevil but I’m not sure I’ll be on the first manned flight into space for the new company.
Albert: Well, someone who doesn’t have your reservations is an 18-year-old student who will join the crew instead, and he will be the youngest person to go with this space. Predictably, there were a lot of snarky comments on social media about this 18-year old, but we wish Jeff and the entire crew a safe and memorable flight.
Luke: Definitely, and also as an Amazon shareholder, I’m very much hoping Jeff comes back to Earth in good shape. He’s very responsibly handed over the CEO-ship of Amazon, but Jeff is still the chairman and I can’t help but think if he doesn’t make it back to Earth in one piece, that’s going to rock the Amazon share price pretty hard.
Albert: Yeah, let’s hope they all get back safe and sound. So let’s get to our main topic, Luke, the topic of bad financial advice.
Not needing a pension
Luke: Let me kick it off with a comment I received from a good friend, Allie, about 10 years ago. We were out drinking in Soho and Allie said, if you need a pension, you’ve failed at life.
Albert: Oh, that’s pretty harsh, Luke. Everybody makes mistakes and sometimes the consequences of those mistakes are financially devastating, and you can do all the right things and still fail through bad luck or situations outside of your control. And what pension gives you is a safety net. When all else fails and everything goes to shit, at least you have something to support yourself in later life.
Luke: I think there’s a nugget of truth in Allie’s comment, but yeah, it’s pretty bad advice. I’ll tell you one aspect in which perhaps it is somewhat good advice and it’s that you shouldn’t necessarily depend on your pension on its own. So I guess I’m lucky and old enough to have a defined benefit pension. And for anyone who doesn’t know what that is, basically, it’s a type of corporate pension where the amount you get is fixed and it’s a fraction of your salary. So I kind of know my risk of ruin is pretty close to zero. If everything else goes wrong, I’ve always got that to fall back on and it won’t be a luxurious retirement but it will be enough. I’m not going to starve to death.
Albert: Well, lucky you, Luke, having a defined benefit pension. For myself, I have a couple of pensions from previous jobs and they are invested in relatively low-risk tracker funds. I barely touch them and I leave them in the background to compound, and hopefully, there’ll be there in the future when I need them.
Luke: Well, exactly right? You’ve got within a different strategy, which is a little counter to your primary investments and hopefully, they’re your insurance policy. And a bit like your investments, my defined benefit pension is a pretty solid insurance policy. And so I think the truth in Allie’s advice maybe is if you’ve got that insurance policy in place, that allows you to be more comfortable with volatility.
And I think if I reflect back on my own pretty high-volatility approach I’ve taken in my primary investment account, perhaps it’s because I know that the risk of ruin is almost zero and maybe that has allowed me to maximize returns over the last 20 years.
Albert: And to anybody listening who doesn’t have a pension, maybe you should start thinking about getting one.
Luke: Yeah, absolutely. We’re not a pension podcast, but there’s a ton of great resources out there.
Buying stocks just for the dividend
Albert: Long-time listener, Jules de la Jules, said that one bit of bad advice he received was buying a stock only for dividends.
Luke: This is controversial. I love this bad advice. I totally agree with it. You love dividend stocks though, right?
Albert: I wouldn’t say I love dividend stocks, but I do love receiving the dividend payments every month. And I assume the bad advice here is just looking at the dividend yield when buying a stock, and I agree with that, but if your objective is to have passive income from dividends, choosing a high-quality company with a track record of paying out dividends is a reasonable way of doing that.
Of course, you shouldn’t buy a stock just because it pays a high dividend. In fact, an unusually high dividend is a big red flag. You need to look at the quality of the business and whether or not that dividend payment is sustainable. You need to look at the total return, the share price increase plus the dividend yield. But I think dividend stocks can be useful, recommended even, when your time horizon is shorter. For example, when you retire.
Luke: Yeah, look, I buy that, but the primary thing for me there is it’s got to be a good-quality company as Jules is implying. If you go out specifically looking at the dividend yield, you’re basically targeting poor-quality companies that have to pay out so much money to their shareholders because there’s no growth or actually, they’re on a trajectory to doom.
Albert: That I agree with.
Luke: I saw a really relevant tweet for Brian Feroldi. That guy is prolific, right? He’s got a tweet for every occasion. This was just two days ago, he said, “In January 2010, Starbucks didn’t pay a dividend. Yet if you invested $10,000 in the stock, you’d now get nearly $2,000 in dividends every year plus your original investment’s worth $125,000.” And his pithy sum-up was, “The best dividend stock you can buy today may not pay a dividend yet.”
Albert: Well, I didn’t get in that but I first invested in Starbucks in 2015 and my yield-on-cost is around 2.5%. But with the share price appreciation, I’m pretty happy with this investment. And to be honest, I’m somewhat regretting selling my Costco stock earlier this year.
Luke: Yeah, agree and I think what Brian is hinting at is that companies like Amazon and Alphabet and those big giants may become dividend payers at some point in the future.
Albert: Does that change your mind, Luke? Are you going to buy dividend stocks soon?
Luke: No, but I’ll stay in my high-growth stocks and if they become dividend stocks around the time I’m retiring, maybe I won’t bin them and swap them out for something higher volatility again.
Albert: I know you, Luke, you’re a gambler. I’m sure you will sell out and buy even higher growth stocks.
Luke: Let’s hope so. That is my intention and my strategy.
Stocks are risky, invest in property
Luke: Well, let’s look at bad advice that actually turned out to be pretty good advice, I suppose, certainly over the last 10 or 20 years. Dominic on Twitter said stocks are risky, invest in property.
Albert: Yeah, I remember a friend saying something similar and he said you can’t lose money buying property. I didn’t bother discussing this too deeply with him because I was on holiday and I didn’t want a big argument.
Luke: You love an argument, especially a holiday argument!
Albert: I don’t know where you got up from, Luke.
Luke: Don’t argue with me. You know it’s true.
Albert: Anyway, I think several of my family members feel the same way and prefer investing in property over anything else. And I don’t know how they’ve done financially, but my guess is that they’ve done pretty well given the rises in the property market over the last 10 years.
However, I think you need to appreciate that property is just another asset class with its own risk-reward profile, and you need a significant amount of money to invest in property. And they’re not exactly liquid, and you can definitely lose on property. Just ask those people who bought homes just before the 2008 global financial crisis.
Luke: Yeah, I agree. But, you know, “get on to the property ladder” has proven to be reasonable advice over the last 10 or 20 years. As you say, if you think about it as an asset class and stand back from property and just look at it in the round, I think you’re going to find the compound growth of equities is higher than real estate.
So stocks offer better returns. They’re more scalable. Running a rental investment portfolio is quite hard work. Stocks are more diversified. You can get into so many different sectors to protect your wealth; you’re not tied to one sector. And stocks are just easier. I think properties certainly got a place in an investment portfolio, but if you let property become your only investment, you’ve got a bit of a macro risk you’ve tied yourself to.
Albert: It’s interesting because property is still the king of investments in Hong Kong. And I believe around 15% of the government revenue in Hong Kong comes from the stamp duty from property sales. And people here queue for hours just to put down a deposit on flats that haven’t even been built yet. And I don’t know if you noticed, Luke, but Hong Kong is the most expensive housing market in the entire world, and the average property price here is 1.2 million US dollars.
Yeah, that’s pretty wild and, I guess, 1.2 million doesn’t buy you a big place, right?
Yeah, absolutely. I think it buys you a, what we call, a shoebox and, tell you what, we’re hoping to win that new flat in that vaccine lottery we entered a few weeks ago.
Luke: Good luck. Maybe you need to get your third booster jab now to maximize your chances in the lottery.
Albert: I don’t think it works that way, Luke. But I do think buying your primary residence is a good idea in some cases if you plan to live there for many years. But I think renting gives you options and it gives you the freedom to move around, especially if you want to try out different cities or even countries.
Luke: Yeah, it makes total sense. And look, there are benefits in being a homeowner as opposed to a renter anyway, if you want to remodel or just make the place your own. But I think too many people confuse owning their own home with having an investment. You really shouldn’t think about your house as an investment. It’s where you live. Like how many people are really going to sell their house and move back into rental because the property market’s high, right? It’s your home and you’ve put down ties there. I think you can lead yourself into bad lines of thinking by relying too hard on your own primary residence as part of your investment wealth.
Albert: You’re right, Luke. If you sell your home, you have to find somewhere else to live. It doesn’t quite work the same way for stocks.
Talk to a financial advisor
Albert: We got a comment from James on Twitter and he said that one piece of bad advice that he got was “talk to a financial advisor.”
Luke: Yeah, I had a bit of a back and forth chat with James about this topic. He had a pretty horrible experience where a close family member had been sold an annuity with really high charges and totally unsuitable insurance attached. And when he really dug into it, his family member thought they were getting a great deal, but actually, all they were doing was lining the pockets of their supposedly independent financial advisor. James is pretty versed in investments so he was able to help sort things out, fire the IFA, and rotate the funds into much lower-fee positions. But his experience was pretty horrible and I think that’s not atypical of IFAs in general.
Albert: It was pretty lucky that this family member had someone like James who knew about investments to spot the problem and fix it for them. But many people just don’t have that kind of support and get taken for a ride by these financial advisors, who work on a commission basis where they get paid on some of the financial products they sell.
Luke: Yeah, it’s like anything, right? You got to think about the incentives. If you’ve got someone working for you, you want to ensure that your incentives are aligned with theirs. They’re only human, they’re going to take decisions that benefit them, not you.
Albert: The way I used to think about financial advisors was that if you have too much money and not enough time or interest to manage it, a financial advisor will gladly take some of that money from you and give you the reassurance that your finances are being quote-unquote managed. I know that sounds rather dismissive of financial advisors. I’m sure some of them are legit and are useful, but it does seem to me that financial advisors are mostly useful to the lucky few who have more money than they know what to do with.
Luke: I don’t know that I’m one of those and I’m pretty well-versed in money, but I did engage in IFA about six or seven months ago, and I’ll give him a shout-out, actually, it was a good experience. A guy called Neil Jenkins from Fintegrity.
I understand investment and I think I understand pensions pretty well, but still, I wanted to double-check my thinking. So yeah, I paid Neil a pretty substantial one-off fee to validate my own thinking and help me find the right product when I was moving my defined contribution pension into a SIPP because I wanted to self manage it. And I wanted to buy a load of Asia stocks and I couldn’t do that in an ISA.
And yeah, it was a good experience. Neil gave me good advice. He understood my needs. He was actually able to find a SIPP provider and broker combination that I hadn’t run into on my own research. And I’ve only had the account open a few months, but it does appear to be the best choice for me. So, yeah. Shout out to Neil. That was good.
Albert: Well, it’s good to hear that this guy was all above board, but Fintegrity is a bit of a spammy name. I think my spam filter would catch that. I’m only joking, Neil.
But instead of a financial advisor, maybe what you need is a tax accountant, because depending on your situation and the country that you’re paying tax for, they can save you a lot of time and maybe some money.
Luke: Yeah, I agree. Although I did engage a tax accountant about two years ago when I had a venture capital exit. I ended up paying a couple of thousand pounds just to be told exactly what I knew already. They’re pretty prudent with their advice and that’s not always going to save you money.
Albert: I think one way to round out this one is to say that personal finance doesn’t need to be complicated and you may not need a financial advisor. And most of the information you need is available for free on the internet, and just need to do a bit of research to find out what’s best for you.
Mid-ep promo
Luke: Well, that’s a great segue to a mid-episode promo, I think, Albert because I’m hoping that Telescope Investing is part of that good advice available on the internet. And, you know, listeners, if you’re enjoying the podcast and maybe you’ve taken a look at a couple of the articles on the website, then maybe give a piece of good advice to a friend or relative and forward them a link to the show.
Albert: Yes, you can just send them a link from your podcast platform of choice, or just tell them the website address, telescopeinvesting.com. And by the way, if you haven’t subscribed to the website yourself, you’re missing out on some articles. We don’t have a lot of articles, but we do publish these one-page summaries of the stocks that we personally invest in.
Luke: Yeah, we use those one-pagers to summarize our thoughts on a company when we deep dive it, and we highlight the key green and red flags related to the investment thesis. And you know what, I’m really looking forward to coming back and reviewing these at some point in the future to see how our predictions played out.
Albert: Yeah, me too, Luke. But let’s get back to the main topic of bad advice, and our listeners may remember our friend, Ram, who was a guest on episode 12 of the podcast to talk about how he was investing for his kids. Well, he had this to say.
Ramesh: Hi, Luke, Albert. Love the podcast. The worst financial advice I’d been given. Well, recently someone suggested that I might be interested in an investment scheme called CashFX. They said, I buy a certain package of money and I get a return, an amazing return of 5% per week. Now obviously, it sounded too good to be true and when I looked it up, it was a scam. So it sort of proves the old adage, if it sounds too good to be true, it probably is.
I did learn a new phrase called multi-level marketing, where it sort of keeps the Ponzi scheme going by ensuring that the people who are currently in the scheme are incentivized to get as many other people signed up as possible. Keep up the good. Cheers.
Luke: You would think that that sounds so ridiculous, no one would fall for it, but unfortunately many people do. I think Bernie Madoff used the same trick to swindle even smart investors.
Albert: And 5% per week may not sound too own realistic, but I did some calculations, Luke, and let me summarize what I found. If you receive 5% per week and then reinvest it back into the same product and you did this each week, week in, week out, you would end up with around £3,612 by the end of the year, which is a return of 1,104%. That sounds ridiculous, right?
Luke: That’s a fantastic return.
Albert: But if you carry on at that rate of return, after four years you would have almost £7.3 million. That sounds totally reasonable, right? For an initial investment of £300.
Luke: Yeah, I think as Ram says, if it sounds too good to be true, it almost certainly is.
Reckless gambling
Luke: Picking up another collection of bad advice. I think as you said at the top of the episode, I’m a bit of a gambler and I don’t consider my investments gambling in any way, but I do gamble on the side. I play a bit of poker and I hang out with guys who do a bit of sports betting. So when I put this same question on bad financial advice to a couple of my poker buddies, their comments were primarily oriented around bad bets and bad tips they’d had. Things like shorting England cricket runs when the team suddenly turned it around.
But there’s one story that really sticks in my mind and it ties back to our episode on leverage a couple of weeks ago. One of our friends had a sporting bet tip on Formula One. And actually, have I told you this story before, Alb?
Albert: You may have, but you tell me a lot of gambling stories, so.
Luke: He got tipped off that the Toyota race team, this is way, way back, had a blisteringly powerful engine and it was just going to thrash everything else on the track, and they hadn’t really demonstrated its full potential during testing. So my buddy maxed out all of his spread-betting accounts. Spread-betting is basically a kind of leverage. He opened accounts with four or five providers, took all the money off his credit cards and he maxed out backing the Toyota team.
Well, on the race day, it turned out Toyota’s engine was amazing, but unfortunately, the chassis and the tires couldn’t keep up with the power of the engine, and the drivers both shredded their tires in the first couple of laps. And they were doomed. They finished literally in last place and second from last place.
So my buddy was distraught, his spreads maxed out in the wrong direction. And actually, he ended up with a six-figure debt that took him a long time to pay off.
Albert: Wow. I guess the engine was just too good.
Luke: Just shows, right? That form of insider betting can often lead you down the wrong alleyway.
Albert: Well, I don’t think he made a bad bet. I think the mistake he made was going too far and going all-in when he didn’t have to. When it comes to gambling, just learning a little bit about probability is very useful. Once you understand concepts such as expected value and gambler’s ruin, the appeal of things like casino games really goes down. And we play at the casino now and again, but I treat it as play money with the full expectation that I’m almost certain to lose it all. I remember that the two of us had quite an epic run on Casino War, remember that?
Luke: Such a stupid game with zero skill. It’s basically who’s got the highest card vs the dealer.
Albert: And was it on three-card poker when we had a flush and then a dealer dealt himself three aces? A one-in-a-billion chance.
Luke: That was ridiculous. That was in Macau. You know, Macau is such a crazy place, but in a bit of a bad way; it’s really soulless gambling. Do you remember that same Macau trip? I was pretty drunk and I got reprimanded by the dealer for doing chip tricks at the blackjack table. And I think she said to you in Cantonese, tell your friend this isn’t a circus.
Albert: Well, she wasn’t wrong. It’s not a circus, Luke. Behave yourself.
Well, since we’re on the topic of gambling, I think people sometimes view games like poker and backgammon as gambling, and that you have the same chance of winning at anybody else, and that’s not really true. These games may have elements of luck but they’re primarily games of skill. And the outcome of any particular hand or game is highly random, but over the long term, good players will almost definitely win over bad players.
Luke: Yeah, those two are great examples of luck and skill. As you say, in the short term, any player can win, but in the long run, when all the variance has evened out, the better player is always going to prevail.
Like three of us descended on Vegas a couple of years ago and entered a backgammon tournament. And I seem to remember you came second. Well, those guys were backgammon sharks. If we played there enough, they would destroy you.
Albert: Well, maybe you but not me.
Luke: That guy in the wheelchair with the oxygen attached to his face, that man had never left that backgammon room in decades!
Albert: Actually, I know you hate my movie recommendations, but if listeners are interested in finding out more about poker, you can do worse than watching a movie called Rounders with Matt Damon. It’s one of my favourite movies.
Luke: Yeah look, this is a movie recommendation that I totally endorse. Actually, Rounders is such a good film and I’ve seen it so often, I permanently keep it on my phone so I can watch it just in random snippets here and there.
Albert: Remember, if you’re sitting at a poker table and you can’t see the fish, you’re the fish.
Luke: I can see what your gills flapping now, Albert.
Buying hyped-up stocks
Albert: One of our friends, Dave, told us that he had bought shares in LastMinute.com based on the IPO hype and got stung pretty badly when their prices plummeted and never recovered. It was the height of the dot-com boom, and he knew very little about investing compared to now. And since then, he’s been very wary of jumping in on IPOs with their higher risks. Well, we’ve all been there, Dave. I made a lot of mistakes when I started investing as well.
Luke: Yeah, you know, IPOs and SPACs are risky investments, particularly in so far as you’ve got just limited information to build an investment thesis on. You know, Alb, you and I, we’ve got a couple of early-stage companies in our portfolios, Integral Ad Sciences from just last week, but we limit our exposure to these to generally under 1%, sometimes as little as half a percent, because we’re well-aware that those early-stage companies could literally go to zero.
Albert: Yeah, and some investors may think that an IPO means that you’re getting into a stock at a bargain price and one that is sure go up, but interest in IPOs goes up and down with the market and valuations follow that, and the IPO market was especially hot last year. And I read a great article by Beth Kindig from the IO Fund about how more times than not IPOs lead to losses for retail investors and how evaluations of recent IPOs have gone through the roof.
And she used the example of Snowflake, a data warehousing company that IPOd in September last year. It had its last private funding round in February that year at the valuation of $12.4 billion, but when it IPOd in September, it started trading at a valuation of $68 billion. Basically, its valuation has increased five times in seven months.
Luke: Yeah, and as you say, I guess that was an artefact of the IPO market being really hot. They got their timing just right. I think they’re still doing pretty well, but they’re still an early-stage company.
Albert: Yeah, I believe Snowflake now has a valuation of $74 billion. So it is up from its IPO and it may well be worth that, but there’s no denying that at a price-to-sales ratio of 90, it’s an extremely high valuation and there’s very little margin of safety.
Luke: I’m a little bit cynical of IPOs generally. I tend to observe that the best IPOs generally aren’t available to retail investors. They get snapped up by institutions or the big retail giants before the little guy. And if the little guy does get a little sneaky peek and a snip of the IPO, it’s probably because the big guys didn’t want it, they’ve already passed.
Albert: I’ve tried to buy an IPO several times in Hong Kong and I failed every single time. One of them, it got cancelled, but the other two, [it was] because there were just too many investors clamouring for this IPO that I couldn’t get any shares.
Luke: Like any investment, you got to be wary. Hey, talking about the potential of companies to go to zero, I don’t know if you saw, I had a pretty funny Twitter exchange with someone, I assume, was just trolling for attention a couple of days ago.
Albert: Yeah, I saw that, Luke.
Luke: In the mid-ep promo, we mentioned the one-pagers we put together and you and I put together one around Nanox because it became part of our hyper-growth portfolio, and we both did buy stock positions in Nanox.
I re-posted the one-pager in a Nanox thread where someone was chatting about the company and Al labelled it as a phoney Muddy Waters equivalent because we had three red flags related to the lack of FDA funding at that time and the extremely risky nature of the company. Alb, apparently, we need to quit hurting people with our bullshit.
Albert: Yes, Luke, I agree.
Luke: I feel a little sorry for Al, if I’m honest, right? I took a look at his Twitter history and it’s literally like 90% Nanox. If he’s all-in on this one company, he’s probably going to do great, right? They have now got FDA approval for their single source emitter. They’re probably going to scale out successfully, but you don’t want to be all-in on one company. It is not Nanox, it might be something else, right? If you get so emotionally committed to a single company, you could be setting yourself up for a massive disappointment.
Albert: But as you said, we’re shareholders and we really do hope it succeeds as affordable medical imaging is a much-needed service, but with any investment, you need to be aware of the risks and size your position accordingly. Otherwise, as you said, you are setting yourself up for a big disappointment.
Yeah, exactly. And if you want a bit of a framework around managing your emotions when investing, you could probably do worse than to take a look back at our episode 7 where we went pretty deep on that topic. Al, I don’t know if you’ll listen to episode 7 or maybe even pick up this episode. Look, honestly, best of luck to you, mate. Maybe you want to think about diversifying a little bit harder out of Nanox but I hope it comes good for you.
Going all-in on your company’s stock
Albert: One of our friends, Brian, he said one piece of really bad advice that he received was when a colleague at a previous company advised him to go all-in on his company’s shares. And this was about six months before the Global Financial Crisis, and then the price of the shares collapsed. There are so many red flags here. Should we go through them one by one?
Luke: Go on then.
Albert: Well, I think the first one is getting stock tips from the office. This can be a disaster. Aside from the potential risk that you’re receiving insider information and you’re trading illegally, I don’t think the office or the water cooler is the best place to get financial advice.
Luke: And the specific advice here was to invest in the employer share scheme, and that can be a great idea to do like a share match, particularly if there’s tax advantages or you’re getting like a discounted option price or there’s, you know, it’s an option, there’s no downside, I suppose. But for me, it’s a bit of an eggs-in-one-basket situation. You don’t really want your employment, your job, correlated so hard with your investments. Just kind of an unnecessary risk that they both take a smashing. If the company does a Lehman, you get fired and your stock’s worth zero at the same time.
Albert: Actually, there was quite a bit of discussion on this in the WhatsApp group that we have. And our friend, Andy, said that you need to keep an eye on the vesting schedule so that you can reduce being overweight in the stock at the earliest possible opportunity. And if the shares are not being dished out at a good discount or you have a three or five-year minimum holding period, maybe you just say, forget it.
Buying packaged investment products
Luke: Hey, speaking of Andy, he shared his own bad advice and he highlighted a product I hadn’t heard of. Apparently, in the past, some of the worst investments sold in Hong Kong were something called long-term investment plans. They sound a bit like annuities. Somewhere up to 25 years long, they had a commission of 4%, which went straight to the salesperson upfront.
And so that meant the first year of all the money that went in, went straight to a salesperson. Andy, he says he knew someone who decided after two years, she needed the money and tried to cancel the deal. And she only got back half the money she paid in
Albert: Yeah, another friend, Tak said the same thing, things like 25-year endowment plans are usually terrible. And most insurance-linked savings schemes that I’ve seen are atrocious. They usually have restrictive terms and conditions on when you can take your money out and how much of it you can get back. And the return projections they usually show are usually in the most optimistic conditions. And I guess the advice here is always read the fine print, no matter how small or long it is.
Luke: Yeah, for sure. And maybe linking back to that IFA anecdote earlier, good advice really just to be wary of any financial product if the person selling it to you is earning a commission or perhaps has incentives that are not aligned with your own.
Getting financial advice from social media
Albert: And finally, another friend, Renee said that some of the bad advice that she’s seen is any financial advice on TikTok or FinTok as it has come to be known.
Luke: I haven’t been on TikTok for well over a year but I didn’t realize they were doing financial advice as well as dance moves.
Albert: Well, I’m sure there is some good advice buried in there, but the few that went viral that I’ve watched were atrocious and are best viewed as comedy. And a lot of the content was sponsored and extremely dubious, and in fact, TikTok has recently banned sponsored posts relating to cryptocurrency, investment services, and trading platforms.
And we’ve talked about FinTwit before and how it has helped us, but you can say the same thing about that as well, and Facebook and Instagram and any others you care to mention. And I suppose you should also include podcasts here, including ours. We always recommend doing your own research and due diligence, and we would never claim to be infallible and what’s right for us may not be right for you.
Luke: Yeah, that’s great advice, Albert. There’s bad advice everywhere and, actually, what’s good advice for one person, that same advice might be bad for somebody else. You’ve got to understand your own situation and be able to filter out the noise and interpret what you’re hearing in a way that makes sense for your own personal situation.
Albert: And sometimes it’s difficult to separate the good advice from the bad, so we need to be appropriately critical of any advice and decide whether or not it’s right for us.
Luke: Yeah. I think that’s a solid sum-up. So we trawled through a bunch of quite funny anecdotes. I had a lot of fun recording today’s episode. I think as we hoped at the start, there were some good learning points in there. Have you learned anything yourself doing the research for today?
Albert: Yeah, don’t watch TikTok.
Wrap
Luke: Well, I think that is all for this week. Thanks for listening.
Albert: If there’s a future topic you’d like us to cover, you can message us on Twitter. I’m @AlbertTelescope.
Luke: And I’m @LukeTelescope, or you can email us at feedback@telescopeinvesting.com.
Albert: If you enjoyed this episode, you can find more content at our website, telescopeinvesting.com, where you can leave us a comment or a review.
Luke: And if this is your first time tuning in, perhaps consider subscribing to the website so you’re the first to hear about new articles and episodes as they drop.
Albert: Thanks, Luke.
Luke: Thanks, Albert.
