Slow and Steady Wins The Race

Some investors never learn that Financial Freedom can be attained by being a disciplined investor. Others, like Vishal, learn this lesson reasonably early in life.

When I created this blog roughly 1.5 years ago, one of my key objectives was to interact with readers from various regions of the world so we could share investment ideas.

After having  corresponded with a great number of readers over this timeframe, I can honestly say that some really great people follow this blog! Vishal, who resides in Australia, happens to be one of these individuals and so I was extremely grateful when he offered to share his story.

Without further ado...

  1. Tell us a bit about yourself and your career path.

I am a 33 year old guy who lives in Sydney, Australia and who vacations in Canada each year.

I work as the Customer Insights Manager at nabtrade, National Australia Bank’s (NAB) online investing platform. NAB is one of Australia’s major banks. My job is basically akin to a financial journalist/presenter and I’m responsible for creating content that helps increase financial literacy in the community.

I was born in Mumbai, India. My mother - who’s worked as a teacher and banker - and father - an engineer by background but now in border security - decided in the 90s they wanted to escape the ‘out-laws’ (Charles coined this term and I think it’s brilliant!) and hence applied for skilled migration abroad.

My parents let me choose where to move: the US, Canada, New Zealand or Australia.

My first choice was Canada because of its natural beauty and an obsession (that I still have) with the RCMP and bears, but at age 10 and not knowing better I saw a lot of horrible news on TV about war, guns and violence in the US. So I thought the risk of moving to the True North was that it could be invaded by America.

My second choice was Australia because of its generally good weather, so we moved here in 1995. It was a great choice as career opportunities are plentiful and you can have a nice life if you work hard.

  1. Did your parents encourage you to pursue a career path in the investment industry?

They did not. My parents (mum and dad you know I love you to the moon and back) were quite culturally traditional with respect to my career and wanted me to pursue medicine, law or engineering.

I refused to pursue any of those 3 because I felt I did not possess the necessary level of intellect nor the requisite technical aptitude.

  1. Have you had other mentors who encouraged you to pursue a career in this industry?

Nope. Long story short, there was a period after high school where I was doing nothing with my life (I did have a short stint as a chef though). So in 2006 my dad encouraged me to trade stocks as he was making good money from this during the bull market at the time.

I followed in his footsteps, started trading and really enjoyed it, but I knew that it wasn’t a “sustainable” career being a self-employed day trader as you are “playing” with your own life savings to make ends meet (not to mention how socially isolating it can be).

As part of my trading, I actually enjoyed watching the news. My “lightbulb moment” came when I saw a Bloomberg Television reporter discuss the pre-market open for Australia, and I jumped up and proclaimed “THERE! The guy who talks about stocks and markets on TV, that’s what I’m going to do for a living!”

I promptly applied to study a Diploma in Journalism the following year at Macleay College in Sydney, a one year practical course in all things journalism.

  1. Did the material covered in university help prepare you for when you decided to start investing or was much of what was covered more theoretical than practical?

My studies had nothing to do with finance - but it got me my first job as a writer/interviewer for an investment publication, so most of the knowledge I have today about investing was acquired through my career, my parents and people I’ve been lucky to cross paths with like Charles.

  1. In your line of work you interview a number of investment professionals and they likely have different investment styles and philosophies. After having interviewed several investment professionals is there a particular investment style you follow? If so, why did you select that style?

Great question Charles. So what I would say is that my approach to investing today is the result of a culmination of various styles/learnings that I have “cherry picked” from a handful of individuals who I consider to be my mentors/idols. I have summarized these below.

Saskatchewan Pension Plan (Canada)

In 2009, the chief investment officer from the Saskatchewan Pension Plan (I sadly cannot remember his name) spoke at a conference in Sydney I was reporting on.

The key takeout from his presentation was that the moral from the old tortoise & hare fable - “slow and steady wins the race” - also applied to investing. Basically the SPP had a relatively simple, defensive asset mix compared to its peers during the global financial crisis, so it outperformed a lot of funds which tried to do fancy things.

The impact when he showed me this slide (the turtle crossing the finish line first) was profound. I basically realized the value of having cash and picking less risky stocks.

Tortoise and the Hare

Roger Montgomery (Australia)

Roger Montgomery, Chief Investment Officer of Montgomery Investment Management, is a famous value investor and market commentator here.

I have interviewed him many times and simply put what he taught me was to look for companies that possessed the following characteristics:

  1. High return on equity
  2. Low debt or no debt
  3. Were re-investing large sums of its capital for growth

He also taught me that the best time to buy quality cyclical stocks was when “the market was pricing them as if they were going to go out of business”.

Hamish Douglass (Australia)

Hamish Douglass, Chief Investment Officer of Magellan Asset Management, is regarded as a pioneer in global equities investing in Australia.

Charles has published posts about my interviews with Hamish on FFJ and if you are seeking foundational knowledge about investing then I highly recommend watching “The art of investing in global equities” and reading Charles’s take on Hamish’s “fly in a bottle” analogy. Hamish opened my eyes as to why global equities were essential for any diversified investment portfolio - you cannot access brand names like Apple (AAPL), Alphabet (GOOG and GOOGL), Visa (V), Mastercard (MA), etc. on the ASX (or TSX for that matter).

The other thing Hamish taught me was to think about the products and services we use on a daily basis as consumers and consider investing in those. This is now basically my main approach to generating investing ideas.

Kate Howitt (Australia)

Kate Howitt, Portfolio Manager for the Fidelity Australian Opportunities Fund, is someone who I’m lucky to have discovered recently.

For an interview I did, Kate shared with me six investing lessons which I think are applicable to anyone looking to build wealth.

The main 'take-aways' for me where:

  1. Avoiding style bias - Not being construed to being a value, growth or dividend investor, but rather investing in the right opportunities at the right time.
  2. She expressed Warren Buffett’s famous phrase “it is better to be fearful when others are greedy and greedy when others are fearful” in a way that I felt was more powerful.

Kate said: “No-one is born feeling great jumping out of a plane – you’ve got to train yourself to do that. And the same way to be a great investor - you’ve got to train yourself to be a contrarian and do the opposite of what most of the market is doing.”

This gave me the courage to buy quality stocks when they swooned, with recent examples being Johnson & Johnson (JNJ), Canadian National Railway (NYSE: CNI and TSX: CNR) and The Royal Bank of Canada (NYSE: RY and TSX: RY).

Ben Reynolds (USA)

Ben Reynolds is the founder of www.suredividend.com - a source of stock ideas and education centered on dividend investing which changed the way I invest. I think investors these days have so many ideas, but no real framework around filtering those ideas down into a manageable list. Ben’s masterpiece “The 8 Rules of Dividend Investing” provides that framework and is my guiding light for selecting core stocks in my portfolio.

Luckily through Ben’s publication I found Charles!

Charles Fournier (Canada)

Charles Fournier is of course the founder of Financial Freedom is a Journey and someone who I consider my investing mentor.

Most of the other names I referenced in this article gave me brilliant insights into selecting stocks and certain behavioural aspects, but what I was struggling with for a long time was “how do I bring all this together into a strategy?”

Charles’s articles “The basics of investing” and “Constructing a dividend portfolio” gave me that framework. Thanks to him I now have I have a very clear plan around:

  • The income I want from my portfolio;
  • The age I want it by;
  • The amount and frequency I need to invest to get there;
  • How I minimize risk;
  • Keeping my portfolio lean.

My father

Of course, there is more to financial freedom than just investing in stocks. Property also forms an important component of my portfolio and my dad taught me the art of property investing.

But above all, no matter how much disposable income you have, you cannot achieve financial freedom without discipline and frugality.

My dad taught me those virtues which boil down into a few practical tips I apply in my daily life:

  • Don’t spend more than you earn;
  • Keep a generous buffer of cash on hand for emergencies/unemployment (I keep about 1 year of income aside);
  • Always haggle/ask for discounts;
  • Don’t over-leverage.
  1. Would you say your investment style has evolved over the years and, if so, how is your approach to investing different from when you started and even just a couple of years ago?

It absolutely has! When I first started in stocks back in 2006, I was trading derivative instruments known as CFDs (contracts for difference). Basically these act as stocks but can be bought on large margin (e.g. from memory you could buy $5,000 of stock for $500 or something like that).

It’s easy to see the risks associated with this kind of leverage.I was also over-exposed to commodities, a sector which I did not and still do not understand, and was also very much attempting to time the market.

In early 2008 the ferocity of the bear market lacerated me pretty badly. I had invested in CFDs of an Australian zinc miner known as Zinifex and its shares were getting crushed. Each day I was not only losing thousands - but I was losing sleep and my health was deteriorating because of the anxiety caused by repeatedly needing to ‘top up’ the buffer in my CFD account to avoid margin calls.

Note I don’t blame the CFD provider - it was my lack of education!

I panicked and pulled the plug, losing about $10,000. Lucky I did that because the company lost much more value and I could have been in deep debt because I was effectively playing with the provider’s money.

However, I am thankful for that loss. It etched some lessons in my mind. After that and through progressively meeting the above mentioned individuals my strategy now essentially involves:

  • Investing in things I understand;
  • Having a well diversified portfolio;
  • Generally using my own money, although I do have what Canadians refer to as a Home Equity Line of Credit (HELOC), but I have kept this aside for a severe market downturn.
  1. What are your most significant holdings and why did you select those companies?

I will outline a few of my biggest stock investments in the table below, but first a short disclaimer: I am not providing advice or recommendations. These securities are what I hold personally and do not reflect the views or opinions of my employer.

Russell Australian High Dividend Shares ETF (ASX: RDV)

This is an exchange-traded fund that holds 50 or so well-known Australian dividend paying companies filtered by criteria such as history of paying dividends, dividend growth and consistent earnings.

It pays me a fairly decent dividend and also saves me the work of picking what would essentially be many of the same companies in the ETF individually.

Johnson & Johnson

I chose JNJ because it is a safe play on the booming demand for healthcare and certain consumer products. It is one of only two companies rated ‘AAA’ in the United States (the other being Microsoft (MSFT)). JNJ has a solid balance sheet in a defensive industry and has raised its dividend for 56 consecutive years.

Nike (NKE)

Have you been to the gym lately or walked down the street lately? You would have probably noticed the recent phenomenon that is athleisure fashion then!

My investment case for NKE boils down to a fundamental human desire: looking good, which is what NKE and its range of apparel is incredible at doing. And of course, their shoes are of just phenomenal quality and used widely by elite athletes and sporting teams the world over.

Financially, NKE commands extraordinary margins and has increased its dividends 17 years in a row. What I also like is how much of a focus their management has on innovation. 

  1. What is your longest-held stock right now? How long have you owned this security? On this note, what is your typical investment holding period?

My longest-held investments are the ETF and two stocks I mentioned above as well as an investment property I own in Western Sydney. I basically don’t sell unless:

  • My thesis on the company changes;
  • The industry experiences structural headwinds;
  • The valuation becomes very extreme.
  1. Where do you get your investment ideas?

As mentioned to my response in question 5, it was Magellan’s Hamish Douglass who taught me to think about the things I use in my daily life. I use JNJ’s Acuvue contact lenses and Neutrogena sunscreen; and NKE’s athleisure wear and shoes. Because the products were so good I decided to research the companies, study their financials and understand their management/culture. When all that checked out, I bought their stock.

But I also keep my eyes peeled wherever I am for investment opportunities.

For example one day I was in Golden, B.C. and was stopped at a grade crossing signal. I then saw a CNI train go past and the amount of freight it was moving in its carriages stretched over the horizon. I was very impressed and when I went back to Australia, I did a lot of research on CNI and decided to invest in it as well.

  1. What are some of the key criteria you look for in a company?
  • Does it sell quality products and/or provide services important to the functioning of a society?
  • Does it operate in an industry with high barriers to entry?
  • Does it have low or no debt, or is the level of debt appropriate for that type of business (e.g. CNI will always have a large debt because of its capital requirements)?
  • Does it have a history of dividend growth? (I prefer at least 10+ years)
  • What is the payout ratio?
  • Does management reinvest large amounts of capital to innovate and grow the business?
  • Is the company trading at a reasonable price?
  1. How much time a day do you think you spend thinking about your investments or doing anything that is related to your investment portfolio?

Several hours because it is my passion and by virtue of my job!

  1. What have been some of your most successful investments and why do you think those companies performed well? Do you still own shares in those companies and if not, why?

NKE is my most successful stock investment thus far because:

  • I took the time to understand the company’s products by buying/wearing them myself
  • Visiting their stores and asking shop assistants lots of questions
  • Noticing just how many people owned Nike branded products
  • Studying the company’s financials and management
  • Buying Nike shares when the market was selling them

I do not intend to sell NKE shares unless consumers en masse decide to revolt against health and fitness by staying at home, throwing away their athleisure attire and NKE shoes because looking good and playing sports became uncool. Um, like that’s going to happen?

  1. On the other hand you might some investments that didn’t pan out too well. Perhaps you can explain what went wrong and what you learned from those experiences.

My worst investment was the $10,000 loss from the Australian zinc miner Zinifex which I mentioned above. But it was not only Zinifex, it was the way I invested in the company using CFDs.

The lessons I learned from it were:

  • Due to their cyclical nature, commodity stocks generally should be avoided by long-term investors
  • If you are game enough to invest in the sector, make sure to pick companies with strong balance sheets, low production costs and long asset life
  • Think carefully about using CFDs or margin loans for share investing. If you do go down this road make sure you're well educated about how these products work and the risks associated with leveraged investing.
  1. You are based in Australia. Much like Canada which is where I reside, there are probably a very limited number of publicly traded companies that appeal to you. Given this, what other areas of the world do you look for investment opportunities and why those markets?

Yes - the only other two jurisdictions are:

  • The United States - The obvious reasons being that it is home to many of the world’s most well-known brands; the size and liquidity of its capital markets; strong rule of securities law; and I’m also a big believer in ‘American ingenuity’. When I speak to Americans generally, they are wildly innovative, full of wonderful ideas and not afraid of failing and trying again. These qualities run deep in corporate America and have helped breed success stories like AAPL, GOOG and so on.
  • Canada - I like Canada because it is just such a shareholder-friendly jurisdiction with unique opportunities that compliment my Australian holdings, such as the major Canadian banks and quality railroads like CNI which all have great dividend track records.

The other thing I like about both jurisdictions is that companies generally adopt a ‘progressive’ dividend policy where management aims to grow shareholder payouts in line with trend earnings. In Australia dividends can be fairly lumpy as they are usually based on the given year’s underlying earnings.

  1. Do you have any favorite investing books?

Not books, but rather, publications. All you need to be well informed in your financial life are:

  1. Equity markets recently experienced a pullback. What did you do during this timeframe?

I added to my core holdings during the pullback including RDV and JNJ, and I finally had the opportunity to initiate a position in RY.

  1. If you have any advice for an investor beginning today, what would it be?

Refer to question 6, 13 and 15.

  1. On a final note, have you derived any benefit from following Financial Freedom is a Journey? If so, what have you found worthwhile?

Absolutely! I have derived unquantifiable value from FFJ. As I mentioned to my response in question 5: reading Charles’s articles on  “The basics of investing” and “Constructing a dividend portfolio” gave me the lightbulb moment on how I could tie my learnings together into a proper and robust strategy.

I’ll explain it another way. For many years as a journalist I collected all these individual ingredients (learnings from the professionals) and they were sitting around in my kitchen. I didn't know what to do with them. Charles basically gave me the recipe idea!

I really respect the way Charles thinks about investing. As his blog title captures so well, financial freedom really is a journey - he’s someone real; a middle class person like me who built his portfolio bit by bit and achieved financial success through investing over decades. Not some get-rich-quick scheme.

I also enjoy reading Charles’s stock ideas and regular company analysis. These are written in a way retail investors like me without a finance degree/analyst background can actually understand them. You can see just how much research goes into each piece and I really respect that.

Vishal, thank you so much for offering to share your thoughts. Many readers on their respective journey to financial freedom will relate to what you have shared.

I wish you much success on your journey to financial freedom.

Thanks for reading!

Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to charles@financialfreedomisajourney.com.

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

Disclosure: I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.

Vishal Teckchandani is Customer Insights Manager at nabtrade. The information provided in this publication does not take into account your objectives, financial situation or needs. The investment strategies and securities mentioned in this article do not constitute financial and/or investment advice and should not be taken as such. The views expressed in this article do not necessarily reflect the views or opinions of the National Australia Bank Group or any of its subsidiaries.