The Book “Transparent Investing” by Patrick Geddes Has Inside Advice for the Stock Market – Interviews of Notables & Influencers by Joanne Z. Tan

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Are you being played by the stock market and your financial advisor?

Investment expert Patrick Geddes, author of “Transparent Investing” (to be released on Jan 25th, 2022), talks about active vs. passive investment, fees (can be hidden) charged by wealth advisors and asset managers, why taxes can lower ROI, where is the best place for cash other than a bank during inflation…etc.

With 40 years of finance experience under belt, Patrick Geddes managed from zero to $42 billion at the end of 2020, as the founder and CEO of Aperio which was acquired by BlackRock for $1.05 billion. 

In his eye-opening new book, Patrick Geddes aired some dirty laundry of the investment industry and pointed out that the emperor has no clothes. If you invest any amount in the securities market, if you work with a financial investor, or consider ditching or hiring one, YOU CANNOT AFFORD NOT TO LISTEN TO THIS PODCAST!  This one and half hour long episode can save you thousands, or tens of thousands, even hundreds of thousands of dollars, depending on your investment. 

100% of the net proceeds of Patrick’s book is donated to financial literacy work, to start a Transparent Investing MOVEMENT.

Please don’t forget to like it, comment, or better, SHARE IT WITH OTHERS, – they will be grateful!

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(The following transcript is slightly edited for readability.)

Joanne Tan  00:00

Welcome to “Interviews of Notables and Influencers“. This is Joanne Tan. I am the CEO of 10 Plus Brand. Today, I am so honored to have Patrick Geddes, the author of “Transparent Investing“,  a fascinating book, by the way, and a very successful investment expert. 

Joanne Tan  00:23

So, the key point is, “the emperor has no clothes!” If you ever invested in the stock market, if you ever deal with any advisor, you don’t want to miss this interview. 

Joanne Tan  00:36

After reading Patrick Geddes’ book, “Transparent Investing”, cover to cover, word by word, and chatting with him, I am impressed by his factual approach based on research and numbers, and his sense of humor. And what we both have in common, that is acting like the child who pointed out the emperor has no clothes. 

Joanne Tan  01:00

So, with 40 years of finance experience, Patrick Geddes managed from zero to $42 billion at the end of 2020, as the founder and CEO of Aperio, which was acquired by Blackrock for $1.05 billion. Patrick adhered to broadest based passive investment with indexing back in 1999, long before the sea change in favor of stock indexing in 2012. Now, indexing has become common and widespread, growing from 13% of US equity mutual funds in 1998, to over 50% in 2019. By the way, this change is not motivated merely to protect consumers, but mainly from the point of protecting against the lowest revenue streams from unnecessary active investing.

Patrick Geddes talks w. Joanne Z. Tan, CEO of 10 Plus Brand on using broadest global index mutual fund or ETF to diversity time & age targeted retirement stocks
Patrick Geddes talks w. Joanne Z. Tan, CEO of 10 Plus Brand on using broadest global index mutual fund or ETF to diversity time & age targeted retirement stocks.

Joanne Tan  01:56

Customized version of direct indexing, and tax loss harvesting – these two concepts were invented by Mr. Geddes. And you can read about it in his eye opening book, very easy to read as well, “Transparent Investing”, which is releasing today. 

Joanne Tan  02:15

It has many surprises such as number one, I call it “de-pedestalizing” the mystique of advisors, wealth managers. Also, I came away with this nugget about the fiduciary relationship, which is like an attorney-client, or you as the investor, the customer with your financial advisor, you know, it is an asymmetrical power balance, it’s not a balance as a matter of fact. I will share some of my personal experience as well. 

Joanne Tan  02:52

So some of the gems here, – there are lots of gems, – but what impresses me is number one, “you are more in danger of getting hoodwinked by an investment strategy that’s too fancy than by one that’s too simple. Active trails passive by about 1% per year in lost returns”. The wealth or financial advisors get paid a lot more by pandering the unwary consumers and investors with a “chocolate cake” rather than a “broccoli”. The broccoli is a low cost, according to Patrick, low cost but highly effective broad based funds. Very simple. 

Joanne Tan  03:35

Okay, number two: simple portfolios of three to four index funds can deliver a great investment solution without much administrative burden at all. He really illustrated this concept with oil change. Changing your oil every three months is a lot messier than “time consuming” monitoring a simple portfolio of index funds, which might require a couple of hours every one to two years, – just one to two years, a couple of hours! (And without getting your clothes greasy.) Okay. 

Joanne Tan  04:09

And the other thing he, Geddes, mentioned about some alarm bells should go off when an advisor talks only about the benefits of strategy and not the trade offs when you feel pushed by the investor to buy certain products, financial products. And also tax is very important. You need to think about the tax consequences because that can undermine the ROI. Okay. Oh, there’s so many nuggets. Yeah. Here’s another example:

Joanne Tan  04:40

Quote, Patrick said this: “I’ve encountered consumers who balk at writing a check for $2,000 for a retainer, but remain perfectly content to pay $12,000 in fees as a percentage of assets because it’s hidden away, so you don’t fully understand how the process works.” 

Joanne Tan  05:01

Okay, so Patrick acting like Toto the dog pulls back the curtains in The Wizard of Oz to show what’s behind the fees and active versus passive portfolio management in a transparent investing movement. 

Joanne Tan  05:17

First question, Patrick, what motivated you to write this book to pull back the curtain and air the so-called Dirty Laundry of investment managers?

Patrick Geddes  05:27

So it was two reasons that led me to write the book, one was just a personal motivation that I’ve been very, very fortunate, my career very well treated, and I felt something of an obligation to repay a very generous universe. The other big driver is I just have a visceral, negative reaction to dishonesty. And I think there’s a lot of dishonesty in the investment world, there’s some great services offered, but there’s a lot of, as you said, pretending that the Emperor has clothes on.

Joanne Tan  06:02

Okay, do you believe the stock market is inherently risky, or inherently safe?  Do you believe that the stock market is a zero sum game, – there are always winners and losers?

Patrick Geddes  06:15

So it is very risky. And no matter what it’s been doing recently, investors should always view the stock market as very risky. But it’s a great, great place to invest for the very long term, I’m talking sort of 10, 20 years and longer, it’s incredibly good for those time horizons. In terms of being a zero sum game, the active management piece is a zero sum game in that the return you earn as an investor pursuing active strategies, on average means you do not have as much money, your portfolio is lighter, because you’ve been paying all those fees. And so, in that sense, it is a zero sum game.

Joanne Tan  07:02

Okay, so you talked about a good long term place, the “market”, for growth, for wealth accumulation. So what do you mean by the word “market”? Is it a collection of rational and irrational investors, passive and active traders, speculators, analysts, institutional, consumer investors, … collectively making up and down movements?

Patrick Geddes  07:28

Right. So you summarize it really well with it’s EVERYBODY, it’s ALL players, it’s institutional, retail, it’s active, passive. And one of the biggest challenges an investor faces is how our brains are wired to presume we can control things that we actually can’t, and stock returns, active stock returns, or stock returns in general are basically random, they are not easy to predict. The industry has a terrible track record predicting either, whether the stock market’s going to be up or down, or which stocks are going to do better. 

Patrick Geddes  08:05

So that leads to what’s called passive investing or indexing, which sounds to most investors as too passive, it sounds like “why wouldn’t I try and make more money”? The problem is that when you try to make more money, the math, the research, the statistics show, you actually end up with less, and that’s a really hard concept to internalize, because we’re not designed for what’s called probabilistic thinking. That’s just part of our evolution.

Joanne Tan  08:35

Okay, so about the illusion of control. People assume they have control over the market. Now, do you agree that what ultimately controls market swinging is the human amygdala part of the brain, the fear and greed? And people keep saying that two factors drive the market: fear and greed. Okay. That’s like, seeking highs, like a gambler, right?

Patrick Geddes talks w. Joanne Z. Tan, CEO of 10 Plus Brand, about Transparent Investing Movement, buy and hold, passive investment in indexes of higher ROI.
Patrick Geddes talks w. Joanne Z. Tan, CEO of 10 Plus Brand, about Transparent Investing Movement, buy and hold, passive investment in indexes of higher ROI.


Patrick Geddes  09:03

Yeah. So you have to be careful that gambling has for all consumers has a negative expected return. You go to Las Vegas, hundreds of people go to Las Vegas, on average, they’re going to lose a little bit. That’s the same as active management. So to say that the market is driven ENTIRELY by the amygdala, is a bit of an overstatement. But emotions matter enormously. What I try to argue in my book is that many people presume that investing is about really good analysis, learning the tricks, learning the hot tips that let you make a killing. And I would argue that it’s actually HEALTHY BEHAVIOR. And often that means doing NOTHING. That’s what makes you really rich. And that’s why it’s so counterintuitive.

Joanne Tan  09:48

Most people believe that the wealth managers, the financial advisor know more than themselves, and they have certain education and skill sets that make them better able to control the market, your book said otherwise. So why do you think those active stock picking kinds of investment are more risky and have lower return? And what is more controllable?

Patrick Geddes  10:16

So the active management isn’t really riskier, it’s not any riskier than the overall stock market. What’s risky is thinking you’re going to outperform, and then it’s worth paying all those extra fees. So the lower returns, why do I believe that? Because the research is so overwhelming. It’s not as though there are a few little articles here and there, and sort of a debate around “well, does active really do worse than indexing?” The answer is absolutely! So the data very, very powerfully support this idea. 

Patrick Geddes  10:54

And you also mentioned that investors think that investment advisors know more than the investors do. That’s actually true, investment advisors do have a lot of skills, a lot of training, a lot of knowledge. What they are good at doing is advising on setting up portfolios, on holding people’s hands through down markets, on sort of one off explanations of difficult financial decisions. What they’re bad at, and the thing I criticize is when they pretend they know how to predict the future. 

Patrick Geddes  11:29

And when back to the Wizard of Oz analogy, when Dorothy accuses the wizard after he’s been debunked, as it were, she says, You’re a very bad man. And he says, “No, I’m a good man. I’m just a bad wizard.” And that analogy explains the investment industry so well, because the investment industry’s advisors, most of them are very honorable, ethical people do have a lot of value to add. But stop pretending you know how to predict the future, put away your crystal ball. And that is a big problem. Because what’s a very uncomfortable reality is that investment advisors are frightened that if their clients realize that we can’t predict the future, that they won’t pay all those high fees. And that’s a valid concern. 

Patrick Geddes  12:22

So it’s a very tricky, nuanced situation where it’s not like this entire industry is unethical or doing bad things, it’s just a piece of pretending that you can either time or beat the market. That’s where the evidence is so overwhelmingly contradictory, and they’re awful at it. I think investment advisors add a lot of value on those other things I was mentioning.

Joanne Tan  12:47

Well, in your book, you mentioned that there are two options for average consumers. One is to do it yourself. And the other is to go with a wealth advisor. So if I were to select index funds, without the so-called load fees charged by some advisors, if I’m going to select it myself, what do I need to watch out for?

Patrick Geddes  13:11

So let me start with that choice. And you mentioned a great challenge, an issue of should I try and do this myself? Or should I hire someone? And what I have in the book,  there’s a free version of that recommendation or a guide to that on my website. The  challenge is, knowing what services you actually want to buy. If you think you just can’t handle it, it’s too much work, – that I would push back on: it can be incredibly simple. 

Patrick Geddes  13:45

If you want certain things explained, or some more complicated situations, if you want some advice, not on the future, but on like financial planning, that’s a really valid reason. So the more you want those sorts of things, the more you should lean toward hiring someone. Back to your question about should you do it yourself, the more you just need to set up a portfolio and monitor it yourself, that is the part that’s actually much easier to do than most people might think. And you can build really, really simple portfolios of 1, 2, 3, 4 very simple mutual funds, with all indexing on the stock side. And I explained how to do that. So I don’t say everyone should do it yourself. There are a lot of investors where that’s not the right choice. 

Patrick Geddes  14:33

But I think most investors don’t get a chance to hear really good advice around “should I do this myself, or should I hire someone?” Most of the stuff you read is from the industry, and of course they have a revenue vested interest in this, and they want business, we want people to pay us, and so there’s a kind of disingenuous “you don’t want to try this on your own.” The data does not support that. On the other hand, there’s a kind of cynical view of “It’s all snake oil salespeople, it’s a rip off industry, stay away from Wall Street. It’s only for the rich and powerful.” That’s not, that’s not true, either. That’s too cynical. So it’s a tricky challenge to try and figure out whether to do it yourself or hire someone. And it’s really about knowing who you are. And there’s some help in that guide. I mentioned it on my website.

Joanne Tan  15:20

Yes, I found that guide very helpful. Let’s assume that I choose to hire someone. Now here is a very sensitive issue, because I don’t want to appear like a pain. Not like someone who doesn’t trust advisors. Okay, so when I approach an advisor, I want him to feel that I trust him. And I don’t feel like I should ask too aggressively “What are your fees?” “What are your HIDDEN fees?” I mean, that’s kind of offensive in and of itself. And I don’t want to be like a micromanaging, appearing, I know everything, and I don’t. So between the line of blind trust and hesitation of not offending someone who’s managing my money, all my retirement, but also being empowered to ask the right questions. I mean, what’s your advice?

Patrick Geddes  16:18

So I would shift your framing of that situation.  It’s a really good question. Because you’re, you’re kind of getting at the core of that relationship between a wealth advisor and a client. And I would urge everyone to take the same consumer mindset into that relationship that they would take at the grocery store. So let’s say you’re shopping at the grocery store, and you’re in the produce section. And there’re avocados, which look delicious, or broccoli, but there’s no price on it. And you ask for the price. And you’re told: “Well, let us handle that.” And of course, any shopper would just say: “That’s ridiculous! What are you talking about? I’m not going to buy this unless I know what the price is!” So I would suggest that it’s very beneficial to overcome wariness around asking about the fees just the same way you would at a grocery store. I certainly support where you’re going with this. Suggest on the interaction that you do not come in hostile and aggressive, but find out what’s really going on. 

Patrick Geddes  17:31

And it’s also a good way to learn how open, how transparent a potential adviser is: the more they want to steer you away from talking about fees, and talking about their actual track record –  Those are red flags, that’s not a good thing. Any good advisor will want you to be very, very clear on all the fees. And it is a bad sign when there are fees you didn’t know about. And most investors, … it’s very common for an investor not to understand all the fees, there’s so many ways to hide ways the investment industry makes money. So don’t come in as a complete cynic. But use the word “empowered”, to be a really empowered consumer, you do need to have the confidence that it’s appropriate to ask about what services that you need, and what the advisor actually offers, and how they get paid for it. And if you hear how they get paid for it, and you make a decision as a consumer, that’s worth it, that’s a perfectly fine decision. 

Patrick Geddes  18:35

What I’m objecting to, and urging consumers to avoid, is a mindset of “Well, I don’t understand investing, and I trust my advisor, I just leave it to her or to him.” That’s not a very healthy attitude. That’s not empowering. But that doesn’t mean you come out with guns blazing, very hostile. But you do want to figure out how they make their money. And you do need to push back on certain questions like a classic is: “Joanne, I’m going to put you in these strategies, these active stock strategies, look over the last five years, they’ve beaten the market. Patrick Geddes may say you can’t do that. Here’s proof you can.” I don’t say you can’t do that. I just say on average, they don’t. And the data unequivocally support my position. There’s no way to argue against all that data. So you hear that and think, “Well, that sounds great.” The empowered question is: “okay, you’ve picked the ones that have done well, historically. Do you keep track of how well they do after you pick them, after you recommend them?” And if the advisor says “No”, that’s a bad sign, because it means “I don’t really care how you do, I just need to sell you on this.” And the fact that most of these active strategies that do beat the market, tend not to, in the following period; It’s fairly close to random. So I would consider that as empowered. But you raise a really valid point that you still need to be a respectful consumer. And there is a lot of knowledge and expertise that investment advisors bring to those relationships.

Joanne Tan  20:19

Right. So you said, the numbers and statistics do not support those who maybe have been in the market once or twice, will continue to do so. 

Patrick Geddes  20:32


Joanne Tan  20:33

It’s completely the opposite. You know, nobody can really rely on any advisors, past track record for predicting the future. That’s not possible.

Patrick Geddes  20:43

That’s why you need to ask them: “What is your track record AFTER you’ve made the recommendations?” And the odds are, they won’t keep track of that. And you should ask yourself: “why aren’t they tracking the number that really matters to me? And are they just trying to sell me something?” So active management is not this sin that should be avoided at all costs. But there’s no way around the fact that the data and the fact that on average, the active management industry has destroyed value for its investors, there is no disputing that, that is absolutely locked down. Now, you cannot say no one ever beats the market. That’s also false. So it’s a little tricky. That’s what the book’s about is trying to teach investors the stuff they really need, rather than selling them on something very sexy.

Joanne Tan  21:34

Right. So after reading your book, I was empowered to ask not the tough questions, but the right questions when I was looking for an advisor. And I did ask about fees. And they said, I will never tell you who, okay, they said it’s about $8,000 a year, okay. And plus almost 1% of the entire ROI return, okay, the entire asset value, or whatever you call it. And then I said, “Well, what do you do? Okay, what do I.. What benefit do I get? Because I’m interested in just simple, broad based, inexpensive index funds,” you know, as your book recommended, you know, like, “I could get it from Vanguard, I can get it from Schwab, why should I pay you that much money every year? And for the same index funds?” And his answers were: “we give you tax advice,” which I appreciate very much; “we give you strategies, and portfolio and allocation strategies.” Great. I like that; and he said “And everything you get from us, you get cheaper!” I said “How come?” He said: “because we as a firm, we have a total of like, hundreds of millions of assets. So we can buy some institutional funds that you cannot access, like CalPERS or whatever. And then you can have a so-called interval funds,” which is like bridging my lack of capacity to access those kinds of big funds through their firm. Okay, and that was very enticing. I was immediately attracted, but who doesn’t want to get access to some privileged funds with my limited resources?  Even billionaires, millionaires, they hunt for bargains, just like me. What do you think of that?

Patrick Geddes  23:32

So the comment that everything they offer you is cheaper than you could get it yourself – That’s pretty clearly a false statement. Do they have some strategies that they can get cheaper for you, then you could get yourself? Yes. But here’s where the tricky part of the dangle of the lure in front of you in that sales conversation is: Why is it necessarily better? To get one of those rarified offerings, just because it’s rare, doesn’t mean it’s good. And one of the points I make in the book is one, that there’s a myth that the very wealthy know how to get great investment advice. And I’ve been in the business of advising the ultra high net worth, meaning people with sort of $50 million in assets and up, and I can assure you that some of them are very smart, and a lot of them are very easily played by their advisors. It’s not a guarantee, you know how to do things. 

Patrick Geddes  24:33

So what you are getting dangled in front of you was prestige, that may actually have no value, like so what if you’re investing alongside Jeff Bezos? That doesn’t make it a smart strategy. And so you need to be very careful when you’re being fed the sex appeal of either active management in general, or this kind of “elite”, “special”, you’re in a higher grade, and we’re going to get you in on some great deals that others might not have access to. The first thing in your mind should be: “Do I want to be in those? Why does that matter?” And if they’re claiming they are cheaper on their indexing, they’re almost certainly misleading you.

Joanne Tan  25:21

Well, thank you so much, this is really helpful. So my friend Jonathan Leidy, a 401k expert, had two questions for you through me. The first is, what is your view regarding the value of active asset allocation? Specifically, there are many advisors now who use close to 100% passive investments. However, their asset allocation, i.e., their mix of said products, is still by definition active. Is that also active management? And if so, does that kind of active management work any better?

Patrick Geddes  26:02

Short answer is no. It’s a great distinction. It’s one I make in the book: The difference between… in the active passive discussion that applies to two separate areas, one is basically which stocks are you going to pick. Indexing is you pick all of them, you weigh it the way the market is, you ARE the market.  Active is you are picking the stocks gonna outperform.  Active asset allocation is about changing your asset weights, like “the market looks really overvalued. Now, I’m going to move up my allocation to bonds and cash, because I don’t trust where the stock market is, I’m going to bring that back up once the stock market has cooled off,” – that is very active asset allocation. And again, the data are, I’ll use the same adverb, OVERWHELMINGLY against the capacity to do that, doesn’t mean there’s no one who ever does smart asset allocation. But as an industry, it’s awful. And it’s the same for institutional investment that active asset allocation is as fruitless and expensive venture as active stock picking. So I would completely agree that you need to watch out for both varieties of being sold a capability and a skill that simply doesn’t exist. Or it does not exist consistently. It’s rare.

Joanne Tan  27:34

Do you think sometimes you need to “micro adjust, tweak or rebalance” the portfolio?

Patrick Geddes  27:45

On that, I would urge everyone to avoid that. That’s the temptation of eating chocolate cake. And there’s a weird paradox about the best way to invest for most people, is, it sounds so much like you’re surrendering to fate. But the weird part is, this is a situation where surrendering to fate makes you a LOT richer, you’re talking over a 30 year time horizon, I have some numbers in the book, you throw in the extra fees, you paid a wealth managers, if you’re only hiring them to pick active strategies, you throw out all the active fee costs and the tax burden, especially if you’re high income, over a 30 year period, you can have twice as much money with this very simple indexed approach. And that’s got to be the grounding part of anyone’s investment plan. And the problem is, and I’ve heard advisors say “the reason they need to hire us is people are constantly tweaking their portfolios.” And that’s a really valid point. 

Patrick Geddes  29:01

Most people are tempted to tweak their portfolios, like in a market downturn, it just sounds as though everything’s going to hell in a hand basket. And “I cannot endure this”. That’s actually when you need to do nothing or other insights that seem very defensible. I was on a webinar a couple months ago, and someone said they had completely divested from the Chinese economy because it was clearly going to collapse and be a disaster. And I have no idea if the Chinese economy is going to be very strong or collapse. It may be a valid concern. But this is back to a comment you made earlier: When you as an investor act as though you are smarter than that $95 trillion of public equity around the globe, that’s when you get yourself in trouble. And so I would very strongly urge people to AVOID the urge, the craving to tweak, it’s doing nothing that makes people really rich. And that just sounds so crazy. But the math, it’s so proven. The problem is, we’re not wired up emotionally and experientially, for that to be the case, because in so many other parts of life doing nothing is a really bad thing. But with investing, once you set a really good asset allocation, and you’ve got it in really low cost funds, like the great thing about index funds is you never have to check how they’re doing against the market. They ARE the market. So if the markets down 10%, your index funds gonna be down 10%. But don’t tweak it. That’s, that’s the success story. And it just sounds so counter to who we are and how our brains work.

Joanne Tan  30:52

Right. There are some other rules. I want to clarify what you said, in general, as a principle, yes, it makes sense. Okay, but let’s say my asset allocation, it’s not the exact allocation, I’m just saying for the sake of the example. Let’s say I have 60% in stocks, 40% in bonds. Okay. And among the 60%, there is this Roth IRA, which is after tax money, so I put them in a more, more risky area, to let it grow over the years. Now, when the market is down, isn’t it better to buy stocks while they’re cheap? After selling some bonds to rebalance the portfolio?

Patrick Geddes  31:41

Yeah, so rebalancing is a very valid and important concept. And advisors can even tell you that they help enforce that. And I write in the book about what’s the right level of adjusting to do on the fly. And I actually argue for what are called pretty wide bands, meaning you’re 60/40, if the stock market is way down, and you say it drops to where it’s 50/50, you’ve done nothing. The math definitely supports rebalancing. Rebalancing is a very positive discipline. I think that’s a big ask to suggest that not only should people not sell out, but they should also readjust constantly. Now you can also get very simple packaged funds that do everything, they are called “target retirement” or other all asset class funds that do that rebalancing for you. And that can be a great thing. 

Patrick Geddes  32:41

So rebalancing is a good thing. The problem is when people rebalance, the temptation comes in, that you make adjustments based on where you see the market. And yes, it’s good to buy stocks when they’re cheaper. But it’s not good to think you know when they’re cheaper. And that sounds a little contradictory, because it’s the overconfidence, the illusion of control, the supposition that you know how to TIME the market, that’s what gets you into trouble. Rebalancing is a very healthy, good thing. And advisors would claim they can help with that. And I would agree that that can be one of the benefits of an advisor, it’s very easy to get that kind of automated through like a retirement type fund.

Joanne Tan  33:30

Right. So in the common retirement index funds, they have it building automatically, 

Patrick Geddes  33:35


Joanne Tan  33:36

When the stock market falls by a certain percentage. 

Patrick Geddes  33:39


Joanne Tan  33:39

They automatically… when your portfolio is no longer 60%, they automatically 

Patrick Geddes  33:45

Bring it back. Yep, 

Joanne Tan  33:46

Bring it back by itself. I don’t need to, or the financial advisor doesn’t need to micromanage.

Patrick Geddes  33:51

Correct. And that’s a debate around… even Vanguard has this issue. And they’ve taken some criticism for, and they’re a very ethical firm, but they’ve got this advisory business. And even they have the ethical conundrum of: Is their advisor business able to provide more than some of their own target retirement funds. And that’s a tricky question. So it’s, it’s a very slippery slope, where, as a great quote I use in my book, it’s quite famous from a muckraker, a investigative journalist in the early 20th century named Upton Sinclair and he said, “it is very difficult to get a man to understand something when his salary depends on his not understanding it.” And that’s so applicable to the investment industry where people look at the advice they’re getting from the investment industry, and some of its really good. There are a lot of real experts. There’s a lot of good advice. There’s a lot of research, there’s some great nuggets there. 

Patrick Geddes  34:55

The problem is you need to look at the investment industry as in danger of preferring you buy the things that give it the most revenue. That’s why for my book I started getting asked, “well, aren’t you just selling something you want people to buy your book?” And the way I got rid of that problem for this book is I’m donating all the proceeds to a nonprofit that does financial literacy work. Why? Because I wanted to separate out the danger of my motivation, from the quality of the advice, and I want consumers of anything, you should be careful in what you hear from me or anyone, careful in that don’t be so cynical that you ignore good advice. But be very, very cautious and careful around the economic incentive of anyone giving you advice on investing.

Joanne Tan  35:51

Right, because big firms like Morgan Stanley, and they have the incentive, they have inherent, I would say, some kind of conflict of interest of selling their financial products, rather than 

Patrick Geddes  36:04


Joanne Tan  36:05

Yeah, (rather than) similar products offered by others. So we just have to be informed and ask questions. Don’t be bashful about, you know, knowing the facts.  It’s your right, this is the only power we have. So you said about this automatically triggered, that targeted retirement funds. And that is called the “passive asset allocation”, this automatic triggering rebalance? 

Patrick Geddes  36:32

Yes, I defined “passive asset allocation” as you keep it fairly constant. And it’s a little more complicated than that because those funds are also designed as you age and go through life, eventually, they start lowering the stock exposure, lowering the overall risk, but that discipline of the rebalancing is very easy to get, at basically no extra costs, through one of those funds. And those funds aren’t for everyone, they’re very much designed for retirement accounts. So they don’t take the tax issues into account. So people with high incomes, for example, might not want to own them in a taxable account, because they’d be better off with municipal bonds than the taxable bonds that are always in those accounts. So it can get a little, a little nuanced. But as a concept, those funds are a great place to start and lots of firms offer them, the when people are looking at them, they want to bring the same criteria you bring to looking at any investment, look very carefully at the fees, and you want to make sure there’s no extra fee for the overall packaging. There’s no point in paying that. And that all the underlying funds are very, very low cost. That’s the way to shop for one of those.

Joanne Tan  37:51

Thank you so much. Now, someone else brought up another concept, is that when the market is down, and for those who have high net worth, the capital gain tax is quite significant, but because in your book, you said it many times when the market is down, sit tight, don’t do anything, sit tight, don’t do anything. But they said, Well, you can realize the capital gain reduction, the tax, reducing the tax, by selling when the market is down. And then by an equivalent similar fund. Like, you know, Vanguard and Schwab, they offer similar funds, and then you buy a similar fund at Schwab, after you dumped Vanguard. So you realize that the decrease in capital gain tax, and you are not really losing

Patrick Geddes  38:41

What you’re describing is called “tax loss harvesting”. And I’ve been in that business for over 20 years. And it’s a very effective strategy. And you do need to be careful like, if you buy the same index fund, I would argue that’s not something IRS is going to or should allow, like selling a, let’s say it’s an s&p 500 index fund at one company and buying an s&p 500 index fund in another, – that’s not something you should do if you’re booking off, but you can buy similar things. So in those cases, you’re not changing your asset allocation. You’re not buying or selling stocks when they’re cheap. You are simply reallocating from one instrument to another and realizing losses you may have, that’s not making an active asset allocation call, that’s not making a stock picking active call. That’s simply booking a loss and staying at the same level of market exposure. That’s a very, very different thing from active asset allocation.

Joanne Tan  39:47

Okay, so another question by my friend Jonathan Leidy, the 401k expert is: Why is it so difficult to identify in advance active managers that will beat their respective indexes? or passive peers?

Patrick Geddes  40:04

That’s a great question. I mean, there are a number of different ways you can answer that. One is, it’s difficult because on average, they don’t.  You just go back to the empirical data, I heard one professor once quipped that, in the debate between indexing and active, the indexers have an unfair advantage, they have what are the equivalent of nuclear weapons in that war. In the data, that data are just so powerfully against active. So the question, How come it’s so hard? It’s because the odds are so stacked against it, it’s almost like ask being asked, Why is it if I bet at a roulette wheel, and I put a chip down on one number, that it hardly ever comes up? Well, the odds are one out of 38 that it’ll ever come up. It’s a very clear statistical number. And so to be asked, Why is it so hard? It’s because you could say it’s because of the fees, you could say it’s because statistically, it’s a low probability bet. And that’s why it’s so hard to get it right.

Joanne Tan  41:16

You know, I remember, right after college, some friends, you know, Got, that’s back in 80s, okay, late 80’s, got very glamorous jobs in Merrill Lynch and Morgan Stanley, and they were financial analysts, and they work LONG hours doing research, analyzing and staying on top of the market news, new developments and all that. But do you think that’s a waste of time? In your book, you said, you know, you just check your portfolio every five years, or maybe every three years or two years. And just sit tight and be stoic! I feel like wow! So all that youth, and time, and efforts are basically… what they were doing was not producing any value.

Patrick Geddes  42:06

Well, right in what they were doing was supporting an industry that has destroyed value. What I like about what you just said, is that I’m arguing to be stoic. And you’ve said this in other conversation, I thought it was a great insight into what the book is really about is a different mindset, sounds a little pretentious, you could almost say a different philosophy. And it’s very much a different mindset of look at what you can actually control. In the book, I talk about the very famous serenity prayer, where you’re asking to be granted the serenity to accept the things you cannot change, that would include things like when the stock market goes up and down, which stocks are going to do better than the stock market; the courage to change the things I can: What CAN you control? –  you can control fees, you can control your taxes; and the wisdom to tell the difference. 

Patrick Geddes  43:00

That’s what the book is about is trying to share that wisdom about what you can control and what you can’t control. And there is a sort of stoicism, where a Buddhist stay grounded, don’t just do something, sit there. And the hard part about that is one, you have an entire industry, you have an entire financial media, that’s where… that’s anathema. Like, we need a lot of excitement and activity and clickbait, to sell things. The industry says that, the financial media say that, the reality for an investor is: the best choice is to do nothing, and to set up a good asset allocation. And as I said, just look at it every two or three years. And that’s, that’s hard in the sense of a lot of these spiritual or philosophical disciplines like stoicism or Buddhism, do take a lot of discipline because you’re countering the natural inclination of our brains to chatter and activity. And investing is just like other parts of life where the chatter and the feeling on top of things feels good emotionally. The problem is, it’s bad for our portfolio.

Joanne Tan  44:19

You’re touching about this psychological, cultural, the human emotional flaws, and because… we feel better when we are too active, we’re busy, busy,…

Patrick Geddes  44:34

Yep!  we’re in control. We’re on top of things! Think of a coach or a self help book saying you need to be really passive Joanne in your life, you should just sit back and let life come to you. Can you imagine writing a self help book like that? It would, it would be silly. It would almost be a satire, right? And I’m not arguing that for much of life where you, you sit back; the problem is back to the serenity prayer, be active and take control of your life where it actually pays off. And this is an area where it doesn’t. And as you say it’s cultural. It’s the economy is built around that, and our brains are wired from evolution. You talked about stoicism. That’s why one of the chapters has the sort of humorous subtitle, why Epictetus, one of the more famous stoics would choose a broccoli portfolio. And the point of that was so that any reader would look at it and just say, “What are you talking about? Greek philosopher, broccoli portfolio?” 

Patrick Geddes  45:40

The point is, the hard part of investing is not all the analysis, and the research, and staying up on things. The hard part of investing for most people, is the discipline, let’s call it the stoicism to stick with a plan. And that is a great comment from an author. I quote in the book who said, Good investing is actually about good HABITS, not skillful, savvy, clever research. And that’s a hard thing to learn. 

Patrick Geddes  46:14

And it’s very similar to I keep drawing the illusion to food, allusion to food, where we’re wired to crave chocolate cake, and it’s hard to eat broccoli, broccoli is boring. It’s not exciting, it doesn’t make our mouths exploded. I’m a baker I love baking chocolate cake as part of why I use that, I love the Sugar Rush. But I also understand scientifically, I better eat an awful lot of broccoli, and just dabble a little bit in chocolate cake. And the problem with what the investment industry sells is so much of it is being sold as chocolate cake. Why? Because selling chocolate cake makes investment industry a lot more money than selling broccoli.

Joanne Tan  47:01

Okay, so selling chocolate cake is in their best interest, is revenue producing. 

Patrick Geddes  47:07

And it’s not in yours. 

Joanne Tan  47:09

Right. Right. It takes a whole lot more discipline to do less than to do more.

Patrick Geddes  47:17

Yeah, exactly, exactly. You’re pulling on concepts from some great spiritual practices, especially say, Zen Buddhism, or the Stoics, that discipline is hard. It’s why I like to say, and this is commonly heard, indexing is simple. But it’s not easy. And the book says what’s hard is not the intellectual challenge. It’s the discipline. And that’s the main, one of the main arguments of the book is inviting people to get past the assumption that the hard part of investing is all that time commitment and research and skills. The part that really pays off for most investors is constancy. 

Patrick Geddes  48:04

It’s the stories you hear about the, you know, the woman who died, who’d been, uh, I think she’d been a cleaning woman all her life, I forget where she lived, I think in East Coast city. And she had relatively low income, and she died with like $6 million in her estate, and everyone just said, Wow, this woman must have been an investing genius. And she probably was good. But the biggest thing was, she was buying stocks and like 1965, and she never sold them ever. She just hung on to them. That kind of discipline is what makes you rich. But that doesn’t sound sexy and fun. It doesn’t sound like this is some brilliant insight. If people can hear about my book and say, indexing, we already know about that. And that’s a really valid point. I’m not claiming indexing is anything new, lots of people do understand it. 

Patrick Geddes  48:55

What I’m arguing for is looked through to the combination of all that research on on indexing versus active, and all the research into our brains, the neuroscience, especially behavioral finance, which shows how we’re hardwired just as I am, we’re all hardwired to lean towards certain poor investment decisions. And so the trick is, how to avoid getting sucked in by the seductive sirens of active managers just like dieting, I’ve read that I don’t know if there’s good research on this that some of the diet programs that get sold, part of their success, if they’ve had any is building a kind of social support network, to cheer people on and to help get them through their discipline.

Patrick Geddes  49:52

It’s incredibly hard to be disciplined around a diet. We are coded for survival, to want to eat and we want to eat a lot and when things, when times are bad, if 300,000 years ago, you needed to eat a lot, because you might be starving to death because of drought the next year or two months later. And similarly to investing, it’s really hard to be disciplined. And that’s why I like, love that idea of anything that can help that discipline like a social support group almost to help people get through temptations, basically. I mean, it sounds very, sort of almost like a 17th century, you know, Puritan Christian mindset of the devil is going to tempt you. But that’s kind of what’s going on. The problem is, that devil is inside us. It’s the temptation of how much fun and active management, all those sexy strategies. I’ve actually talked to people who’ve argued on this, and they say, Come on, active is so much more fun, and that I’m completely certain, they’re absolutely right. Indexing is not more fun, is dull, but you end up with a lot more money.

Joanne Tan  51:04

And it takes more discipline. Okay. So I absolutely agree with you on that, that making things simple is much harder than making things complicated. And people sometimes don’t realize that the wisdom and the humility of staying on a simple but steadfast course, is the winner, is a long term winning game. And the humility is not actually tied to poverty, but tied to more wealth,

Patrick Geddes  51:38

Exactly. And you use that word, it’s a great word choice, I’m actually writing a piece a very short piece, getting published soon, where I talk about humility, and that you just mentioned that people associated with poverty, you think of, you know, the Sisters of Mercy, or Buddhist monks, whatever, that’s what humility is about. And the weird irony is that with investing, humility makes you a lot richer. And that sounds almost as though it’s like you’re spiritually polluting humility, but you’re not. Humility is all about knowing what you can control and what you can’t control and which skills you’re good at and which you’re bad at. 

Patrick Geddes  52:21

And the problem is investors, – this is very well documented, -investors have a higher level of confidence in their abilities than are warranted. And there’s an interesting gender angle there, that men are worse at the overconfidence problem, women are slightly better investors. That was just some recent data, I believe Fidelity has published, but there have been other articles that, what I particularly like called “boys will be boys”. Men are slightly worse investors, not because women are smarter. Because men, we think, we can control things that we can’t. And so women are doing better, because they’re doing less. And the men are doing worse, because there’s that tweaking you were talking about earlier. That’s what causes the trouble. So it’s this fascinating shift of mindset and philosophy. That’s the challenge of this message I’m trying to preach. 

Joanne Tan  53:14

Historically, we evolved as humans from caves and men were hunters and women were farmers. They were with babies, and they’re collecting seeds and growing, you know, harvesting. So we were programmed differently. That’s why men, they are both blessed and cursed with the testosterone. 

Patrick Geddes  53:34

Yeah, it’s all blessing and curse. And you mentioned testosterone. There’s some great research that testosterone leads to worst investment decisions. There’s some great research that shows when women are given testosterone, they start to become overconfident and make poor decisions. But again, this is all tricky. There are times when that confidence and the positive benefits from something like testosterone can be very helpful in certain situations, investing is not one of them. So I’m not maligning males or … some of my best friends are men, I’m not maligning males or testosterone, but overconfidence is very dangerous in investing and so I love that you use that word humility around good investing because it’s not a word most people associate with greater wealth.

Joanne Tan  54:28

Right. Now going back to your example of this very low income woman, she was using this “buy and hold”, “buy and hold”. Now here’s my question: What if what she bought 30 years ago was actually a bad stock, it was a company went belly up …

Patrick Geddes  54:49

That’s part of investing. You’re gonna buy companies that go belly up. That’s why you want to be diversified. So she didn’t just buy one stock. She bought a number of companies And the key part there was that buy and hold. So when you do indexing, you are automatically owning the worst stocks in the stock market. And people think, “Well, that sounds stupid, I don’t want to own the ones that are going to do the worst,” and you are guaranteed to own the ones that are going to do the worst. Why would I do that? Because you’re picking the ones you think are going to do better, has been proven to leave you with less money. Hiring and paying extra to a manager to do that for you, is going to harm you even more. And it’s not as though active managers who get paid for it are the only ones who are bad at, individual investors, it’s well documented, are not good at the act of picking. 

Patrick Geddes  55:49

So part of that stoicism, humility part is: I acknowledge that I’m going to pick a bunch of stocks that do really badly. But overall, I am better off by just buying the entire market rather than trying to distinguish in advance, which ones are going to be bad. Why do I say that? Because the data are so powerful supporting that trying to pick the ones that are going to do badly or do better – That’s what gets you lower returns. And that is such a paradox. It just sounds so counterintuitive. That’s the challenge.

Joanne Tan  56:34

Okay, So Patrick, in Chinese, there’s a saying called “with no change at all, you deal with 10,000 changes.” So in Mandarin it is: “Yi Bu Bian, Ying Wan Bian,” which is the essence of your advocacy for passive versus active, okay. Now, here, you have to have the stomach to hold the good, and bad, and ugly, – all in that index portfolio. And not to pick out the rotten apples in your opinion, and not to deal… not to clean out the bad and ugly, and you sit and do nothing. Is that…

Patrick Geddes  57:13


Joanne Tan  57:14

Good Lord! 

Patrick Geddes  57:16

And that’s the discipline, is we think we know how to pick the one. It’s like going to an advisor and saying, “why don’t you just buy me the stocks that are going to go up?” And the correct answer is: “we don’t have that ability. It’s been well documented that on average, we don’t have that ability from time to time some of us can.” That’s the really disturbing part, the industry doesn’t want people understanding, it’s not that you can never beat the market, it’s that it’s a bad bet, when you look at long time periods and across all active managers.

Joanne Tan  57:52

Okay. And you did say in your book that the fees charged based on active managing, is  statistically proving, dragging down the performance, comparing with the non active the passive, without, you know, a higher fee,

Patrick Geddes  58:13

Right. There are two components to that. One is you have to pay the active manager, what’s called an asset manager. But the question arises, we were talking earlier about, should I do this myself or hire a wealth manager, if you’re hiring a wealth manager to help you on financial planning, and keeping you grounded and not panicking, or maybe you procrastinate, you won’t take care of your portfolio, those are all valid reasons. 

Patrick Geddes  58:42

If you’re hiring a wealth manager exclusively, for the purpose of picking the active strategies that are going to outperform, that is a whole extra maybe 1% of fees that you can skip. So not only are you saving money paying the active Asset Manager, you can save money by not paying a wealth manager to pick active managers and you can save more in the realm of like 2% when you throw all of that in, that’s why it’s very important to understand why are you hiring a wealth manager? What do you expect them to do for you? And as I argue in the book, there are really valid good reasons were to hire a wealth managers and they can add value, and then there’s some really unjustifiable ones and that’s why I keep focusing on the active as we talked about earlier, either the stock picking or the act of asset allocation. In other words, anyone trying to beat the market or time the market, that’s where the track record is so awful.

Joanne Tan  59:49

Okay, here’s a very macro, broad question: So if everybody is investing in passive index, okay, how can the market ascertain the individual stock’s value? 

Patrick Geddes  1:00:04

Yep, that’s a very valid concern. However, in my experience, it’s one raised only by those in the industry trying to defend their revenue from selling active management, what you’re talking about is something that the jargon term for that is “price discovery”. And that means you put it more in plain English: How do I know what a given stock is worth, if I don’t have active people buying and selling? And that is completely valid. Active managers do serve that purpose. But you don’t have to pay them for it, because there are so many doing it. Now the debate is around how big can indexing get before that becomes a problem. And I would argue it can get really high, I could conceivably could be 90% of the market, you don’t need all that much active for good price discovery. The  reason I object to that, the pushback on that particular issue, it’s a valid point, but it’s a little weird to be saying you shouldn’t invest in active, sorry, you shouldn’t invest in indexing, because if too many people did that eventually would be bad for indexing and active could start making money again. And that’s just very weird: wait a minute, if too many of us do this, it’ll eventually not work anymore? And therefore, we should be overpaying for active now in anticipation of maybe that happens? That’s a very weird, I would say wrongheaded, foolish logical path, especially since active managers should be happy if that happens, because it means the opportunities are now available for them that aren’t historically where it hasn’t paid to pay that extra, those extra fees, it hasn’t paid off. And so I consider that a very strange, speculative, although valid, intellectually valid points.

Joanne Tan  1:02:21

Okay, it’s like yin and yang of each other, you know, the active and passive, it’s not a realistic concern that the market will be completely static and…

Patrick Geddes  1:02:33


Joanne Tan  1:02:33

…and void, because there will be ALWAYS…

Patrick Geddes  1:02:36

Yes, yes.

Joanne Tan  1:02:37

…actively managing, it’s like… the stock market is a reflection of our humanity’s worst and the best.

Patrick Geddes  1:02:43

Exactly. And I agree completely how you phrased it that there will always be people trying to outsmart the market. That’s the nature of the beast. And ironically, I’m saying, that’s fine to have all those people doing it. But you as an investor, if you’re not sure, you want to pay a lot of money for the effort to try and beat the market, right now. The history is so overwhelmingly against active that you are much more likely to be wealthy, wealthier by taking this simpler approach.

Joanne Tan  1:03:21

And that’s for the common folks who don’t have a lot of money as well as for multimillionaires and billionaires.

Patrick Geddes  1:03:27

Absolutely. That’s one of the myths I write about is yes. It’s not as though indexing is just for small investors or just for those without a lot of money. It’s for people who focus on data rather than the emotional excitement of all those sexy strategies.

Joanne Tan  1:03:46

Right. Okay. Now for retirement funds, such as defined contribution, like 401k. Do employees have any say in selecting the low fee index funds? I know I heard of this corruption, sort of the small plans, very expensive funds are offered by employers. And the employees don’t pay the administrative fees, but employees out of their contribution, their hard earned money. 

Patrick Geddes  1:04:16


Joanne Tan  1:04:16

And they are not… they don’t even know. So, what do you think the employees can do?

Patrick Geddes  1:04:24

What are their choices? 

Joanne Tan  1:04:26


Patrick Geddes  1:04:26

I’m not going to have a great happy, happy answer for that. The 401k world is good at most big companies, you can usually find some index choices. The challenge is that as you mentioned, the smaller plans. Part of how they pay for it is to hire a financial advisor. They put in very, very expensive funds. And then the participants, the employees, they don’t have any choice. They just have to pick from a lot of badges. My wife had a job about 15 years ago, she asked me to look at their 401k offerings. And I was like, these are all terrible. Here’s a bond fund that’s okay. Put everything in that. And so you can talk to your HR people and ask why don’t we have low cost funds? If there aren’t any, a lot do include that. 

Patrick Geddes  1:05:26

And one thing to remember in 401k world, again, it can be overwhelming. I think there’s research proving that you have a 401k selection of say 80 different funds or 100. That’s overwhelming and most people just look at, “I have no idea” and they pick a couple things just willy nilly. What the book recommends is to own all of capitalism,  get the balance between your safer bucket and your risky bucket, get that right index for the stock side, and then you’re pretty much set and don’t tweak it. So 401k world is like a subset, but it’s a really representative one of the entire investment world where there’s some really greasy, unsavory stuff going on. The hidden fees in the 401k world: you think I sound preachy on investing in general, a 401k world is even more replete with these unsavory hidden fees. It is such a gross manipulation of workers trying to save for their retirement. I think it’s unconscionable. But there’s some great plans out there and there’s some good opportunities, maybe to push with your HR folks: can you please put in some low cost choices.

Joanne Tan  1:06:46

So you said Russell 3000 is a reliable index for almost the entire US stock market, including large, medium, and small US companies, and saves tax and recalibration. Okay, to further diversify globally into Asian markets and other countries for both established and emerging markets, what indexes do you recommend like the MSCI ACWI? Or what is the advantage and disadvantage of having everything in one part versus treating foreign stocks, the non US stocks in a separate pool?

Patrick Geddes  1:07:25

Yeah, a very very interesting question and some interesting debate around how to do it. So the advantage of ACWI, that All Country World Index from MSCI is that it is everything. I like to say, you’re buying capitalism, it’s basically all publicly traded companies, including emerging markets, including foreign developed, including the US. The downside for some US investors is right now, not positive if the exact number, I think the US portion of that is around between 55 and 60% of the total. That’s a pretty heavy allocation toward foreign. And some US investors could actually argue, Well, wait a minute, my expenditures, my liabilities are all going to be dollar denominated. So why should I own foreign? – There is a real benefit to diversification. And I would argue strongly against anyone who looks at foreign stocks versus US, say for the last, I don’t know, what the time period would be 10, at least 10 years, US has done a lot better than foreign. That’s not a good reason not to own foreign. 

Patrick Geddes  1:08:33

So I suggest in the book, no less than 20% of your stock allocation being foreign, up to whatever the ACWI weight is, let’s say that’s around 40, I actually split the difference for my own portfolio, I have a 70/30: 70 US, 30. That’s not a terribly scientific thing. Definitely should own some foreign. If you don’t want to deal with picking how much foreign how much US, then ACWI is a great default. You’re just owning capitalism, you’re deploying your assets, the way that $95 trillion is invested around the globe. And it’s a very smart thing to do, to piggyback on all that wisdom.

Joanne Tan  1:09:16

Right. And the global market doesn’t spread out evenly, like after this ongoing decoupling, so-called the decoupling the US-China trade relationship, people think India and Vietnam are the emerging, you know, stars, so to speak, compared with the rest of the world. I mean, any foreign government bonds and stocks that you recommend, and do you think it’s a good move to pick certain countries versus a complete hodgepodge of global index funds?

Patrick Geddes  1:09:57

JOANNE I think you know how I’d answer that question. Basically, let me rephrase. And then we’ll see where the answer. Let me rephrase your question to saying, Patrick, do you think individual investors are smarter than that global pool of $95 trillion in picking which countries are…which country stock markets are going to do better or worse? And my answer is, I don’t think you can pick individual stocks. I don’t think you can pick regions. I don’t think you can pick industries. And I don’t think you can pick individual countries. So what’s so fun about ACWI is, if someone asks you, Are you invested in Vietnam in India? Your answer is yes. “Are you invested in any industry? Do you own small? Do you own large? Do you own US?  Do you own foreign develop foreign emerging?” The answer is: “I own all of it. Because I bought a little tiny piece of all of them. And I let the world’s giant pool of wealth determine how I allocate across countries.”

Patrick Geddes  1:11:01

And India and Vietnam may have great stories. But the problem is countries or industries that have great stories can also be overbought and overvalued. So I think I’ve shared this with you, previously, the idea of during the the internet boom of the late 90s bubble, and it got overvalued as an industry and people would push back and say, indexing, that’s, that’s silly. Don’t you realize the internet is going to change the economy? And my answer was, of course, the internet’s going to change the economy. That’s absolutely true. Just like right now, you could say what AI is going to change the economy, or climate change is going to change the economy. That’s absolutely true. But that doesn’t mean that the stock market is more foolish than you are at valuing which companies are going to benefit from that, or which country. So India and Vietnam, may have great stories, I don’t really know anything about where they are visa v other emerging markets. But when you start thinking you’re smarter than that collective pool of money. Statistically, you are now heading for worse performance. That is what the data tells us.

Joanne Tan  1:12:21

Got it! Because there are others who are speculating the same way and then overpricing, and all the downfall… Okay. So today, as of today, today’s January 11, 2022, there’s inflation going on, there’s interest rate that’s going to go up. What do you think, the US Treasury bond? Is it still a good store of value? What impact will the inflation and rising interest rate have for the stock market when you build a diversified portfolio?

Patrick Geddes  1:12:56

So I’ll answer that question by going back to the 08-09 financial meltdown. And in the middle of say, 2009 interest, overnight interest rates, money market funds, were basically at zero the way they are today. And longer bonds were very, very low. There was not a general consensus, there was virtually absolute certainty at that time, bonds are a terrible investment. Everyone knows rates are going up. You can’t own bonds, you need to get your lower risk elsewhere. And guess what? That was absolutely wrong. We are now, what 13 years later, and you’re hearing the same story. It’s certainly true that inflation is putting enormous pressure on bonds, real interest rates are quite negative. So bonds have a lot of risk embedded in them. And I certainly think it’s very plausible that bonds will be in for a rough period. Back to the same mantra, you keep hearing me preaching though, you’re better off not trying to outsmart all of those moves. 

Patrick Geddes  1:14:13

I don’t recommend bonds for diversification versus stocks. Although that does add some benefit. I recommend it because in terms of behavioral finance, psychologically, it’s very, very difficult to be able to endure 100% stock allocation and ride that thing down 50% as happened in the 1990, sorry, 2000, 2002 intercom, or sorry, internet meltdown and the financial in 2008 – 2009. So bonds are, are for me a psychological crutch to help shore up your panic and allow you to endure and stick with your asset allocation, that mathematically for 20,30, 40 year horizon, maybe should be 100% stocks. But that’s for a robot. Human beings often don’t operate that way. I don’t operate that way. I actually have what most people would consider a very wimpy portfolio, they would look at my safe, safer component and just say you’re being silly. That’s my call, I understand that risk. I understand what I’m leaving on the table. It’s all about what you can endure psychologically. So to your answer your question, inflation’s a very real issue. And it does suggest that bonds are generally a very bad asset to hold during high inflation. stocks aren’t ideal, but they’re a lot better because they’re tied to the real economy. 

Patrick Geddes  1:15:51

And so does that mean you should tweak your asset allocation over inflation expectations? No, because that’s another form of market timing. And that’s why I urge everyone pick your asset allocation that fits who you are, and stick with it. Don’t get caught up in the short term news that’s so seductive. But we have data gets us into trouble. So long winded answer your question on bonds, but it’s just like everything else, as soon as you think you can outsmart the market, you’re in trouble. That’s a red flag.

Joanne Tan  1:16:28

Right? Okay. So what, where’s the better-than-bank place for storing cash? Emergency funds? Okay. Is there another place that yields a better interest rate? And hopefully, not so much lower than inflation? What’s the reasonable range of interest for storing cash? for money market funds or Muni? Money market funds? 

Patrick Geddes  1:16:53

And that’s a great question. And that moves around over time. So let’s look at the last 30 years… going back to 1992. So for the period 1992, I believe through meltdown, all the way up to the financial crisis, money market funds were a lot better place to hold your cash than banks. And banks were just not very competitive. And everybody sort of understood that. Then, when the Federal Reserve had to take interest rates to zero as a way to basically help save the economy in the 08-09 Collapse, suddenly, there were a few banks, that because they wanted to attract deposits, would offer what sounds like a really bad interest rate, but compared to zero is great. And today, it’s the same situation, there are a few banks that might be paying as high as half a percent compared to a money market fund paying zero. What’s really interesting is right now, there are some opportunities in what I would call a kind of gray area between money markets and ultra short bonds, things with a maturity of, say, nine months, a year, 15 months. And in the last couple months, those have actually started paying higher interest rates, they’re paying as much as 0.6%, or even for like a year and a half, 0.8%. And that’s relatively low what’s called duration risk, interest rate change risk, but is paying an attractive return. So a lot of it depends on why are you holding cash, most people need to hold cash for an emergency fund, that should be at a bank or a money market fund. Probably not in one of these short term things. If you’re holding some bonds, which are very concerned about this interest rate risk, the inflation risk, you can go very, very short what I’m talking about this kind of between money markets and short bond, short maturity bonds. And there are some actually interesting opportunities there right now, but that’s the kind of thing you do need to check from time to time because I think a year ago, those were paying a lot less and not as interesting. So you’re taking a tiny bit of the inflation interest rate risk, but it’s so small that it’s pretty close to a money market in terms of risk.

Joanne Tan  1:19:37

Now about ESG investing, you know, we all have our emotional bias, information bias and cognitive dissonance, cognitive dissonance. There are people who exclusively invest in ESG, they fall in love with certain type of investment. What do you think? What’s your opinion? Personal opinion? What’s your professional opinion? 

Patrick Geddes  1:20:05

So I’ve got some bias because I’ve worked in the ESG space. ESG, of course stands for environmental social governance. It used to be called SRI, socially responsible investing sometimes called Impact investing. So to the basic question, should an investor follow an ESG approach? My answer is grounded in if you’re doing it in expectation of outperformance, -that’s a bad idea. Why? Because it’s ESG. No, because it’s active. However, there are people who want their portfolio to reflect their value set. And they want to feel good about the companies they own. And I think some skeptics would say that’s silly, it makes no difference. It may make a difference to the investor. And so ESG can be a very solid, reputable way to invest. But you need to bring the same skepticism you do to non ESG Investing. Focus a lot on the fees, do not get seduced by ESG outperforming. 

Patrick Geddes  1:21:21

I’ve seen a lot of ESG investors who presume that because companies are acting more ethically, they’re going to perform better financially. There’s some data that might be true, but it’s not very reliable. And so I’m very comfortable and supportive of ESG investing, I’m not comfortable of ESG as a means to outperform. And one of the things we’ve seen in the industry is ESG has gotten so popular in the last, say five years, it was becoming popular in 2017, it’s exploded. And what’s happened is the investment industry has seen that and is sort of licking its chops thinking, gotta love all that money because a lot of ESG is active, and it’s one of the few areas where fund flows have been positive for active management is in the ESG space. So ESG on its merits, very supportive, open eyes, make sure you know what you’re getting into, be very careful about fees, be very careful about active.

Joanne Tan  1:22:31

Right. Same principles apply before you are emotionally get seduced into it. You know, like the Elizabeth Holmes trial, lots of famous people, George Shultz and Henry Kissinger, they failed to, just like all of us, doing due diligence,

Patrick Geddes  1:22:53

And good choice of verb that they were maybe seduced, there was a, just a mystique around that company that you know, and they were good at selling, Elizabeth Holmes was very good at selling that story. And a lot of people are good at selling the story to their friend, a court just decided: no, that is not just trying to do well in a private equity investment, that’s actually breaking the law.

Joanne Tan  1:23:23

Right. So always check the ROI, check the diversification of risk, you know, the fees and all the other substances before…

Patrick Geddes  1:23:36

And the way actually the way you just articulated it is, you talk about the seduction, check your own emotions, check whether or not you’re getting seduced something because you want to believe in it. And that’s true for active management in general. It’s certainly true for stories like you were just talking about, should I invest in Vietnam and India, it’s very seductive, to feel as though you’re in a sort of elite investing mode that knows how to capitalize on these things. And that’s part of the danger of have active investing in general. And certainly, since you were just talking about what the courts found was, in fact, a more dishonest offering a company a startup that was claiming to do things, it couldn’t. 

Patrick Geddes  1:24:28

So it’s a very tricky balancing act. I think one of the things people do with a company like Theranos is presume that it would have been very easy to spot that it was not on the up and up, and it’s not always that easy. It’s tricky to figure out when you’re getting seduced and when you’re being hard edged and just following the numbers. And back to the other word you used earlier, humility, HUGE benefit in investing where like, for example, Could I have been hearing a pitch for a company like that and been swayed by it? I’m actually easily… I sound very sort of cynical, and skeptical, and hard edge, but it’s actually because I’m kind of gullible in a lot of ways. I want to believe people, I want to believe stories. It’s very exciting. And so I, one of the dangers, actually one of the research findings out of behavioral finance on what are called biases, one of them is called hindsight bias. And what that means is, when you hear about something, like the example you raised, the Theranos, people presume, “Well, I would have spotted that, I knew that was coming. And I predicted,” and if you actually keep track of your predictions, no, we’re bad at predicting, we just think we’re good at it. And hindsight bias fills in the gaps in the past because it makes us feel better. And I’ve heard people talk about situations like that and say, how they would have sussed it out. And I’m, I’m not so sure. I think humility is a great companion for investing.

Joanne Tan  1:26:03

Right. Another danger to sound mindedness is the group psychology, the fear, the fear of missing out. 

Joanne Tan  1:26:11

Yeah, just because so and so who I, … the world assumes to have a better brain, smarter mind is doing this, therefore, it must be a good investment…

Patrick Geddes  1:26:11


Patrick Geddes  1:26:22

Exactly. And history is replete with what they’re called bubbles, they go back,… I’m sure they go back many centuries, the first really famous ones from the 17th century in the Netherlands, there was a very famous, was called the South Sea bubble.  In England in the 18th century, the Dutch one was it was called tulip mania. And people think, yeah, we’re a lot more sophisticated. We’ve gotten past that. We’re the same biological organism, we have the same mindset. And so when you talk about that fear of missing out, you’re capturing that allure of being cool and smart. You’re in on developments, you’re on top of things. And you’re going to get richer than other people. And you’re watching someone, evidence of someone who just got wealthy and you’re thinking, why can’t I get a piece of that. And it’s very smart to apply that to the stock market and capitalism in general. It’s not for individual companies, individual countries, or crazy new asset classes that are evolving, bring a lot of danger that they’re not well vetted, and they may sound really sexy, but in fact, are examples of bubbles like the ones I’ve been talking about historically.

Joanne Tan  1:27:42

Right. Now, we all are humans, we all have the rational, logical side, and we have our impulsive side, the risk taking side, so maybe… what do you think of this strategy that 95% of your investment, you have it disciplined, indexed, broad based, 

Patrick Geddes  1:28:07


Joanne Tan  1:28:07

And maybe… if you want to have some thrill…

Patrick Geddes  1:28:12

Your play money.

Joanne Tan  1:28:13

Your play money, and play with Bitcoin. You know, non fungible tokens. And pick a stock that you like, but if you lose, you don’t lose all of it

Patrick Geddes  1:28:26

So in the book, I actually say, I obviously sound like such an indexing purist. And even for someone like me, that is so minor an impact on your wealth and your portfolio. That’s fine. I’ve actually had someone argue with me, a wealth manager, I really respect, and he shared the view that investors may do better sticking to the 95% if you allow them the fun and the play of the 5%. In effect, he was saying back to the broccoli and chocolate cake, he was saying, you’ll have a healthier diet in terms of behavior, if you allow people a little chocolate cake, if it’s all broccoli, they’ll feel as though they live in a prison or a monastery or a nunnery and just rebel. And I was fascinated. I never heard that interpretation. And I was fascinated but a little bit persuaded that, come on, we all need to have a little bit of fun. And you sound like this dour, Calvinist Puritan by scolding us and saying we should only index. He didn’t phrase it that way. But that’s a very interesting angle. So especially the number you named 5%. Absolutely. Go and have your fun and in a way you’re being very self aware when you carve out 5% of your portfolio. You’re saying look, I want to have a good time. I want to research some stocks, I want to buy some crypto. Fine, you’re acknowledging that the odds are not in your favor. But you’re not such a disciplined purist and a monk that you’re going to not have any fun at all. So I’m not only open to that I’ve been nudged that I should actually be supportive about that, because I find that a very fun, too much too much… No chocolate cake at all actually is gonna make you blow three…

Joanne Tan  1:30:23

Crave, make you crave with more. Yeah. Okay. So I’m really impressed that 100% of the proceeds from this book, you’re going to donate to financial literacy. A great cause, because I hope, someday the public schools and private schools will have curriculum about financial literacy. I mean, it’s… we have generations of Americans who don’t know how to manage their money. 

Joanne Tan  1:30:53

Okay, so I would like to give you a parting gift that I do to all my honored guests. Because I am a branding expert, so I try to summarize their brand with fewer than five words. Okay.  And usually it’s what does your brand stand for? Summarizing what I read about you what we chatted about, is it a good description, if I say, Patrick Geddes’ brand stands for “A passion for truth,” based on your obsession with telling the truth,

Patrick Geddes  1:31:03

I love it. And it, of course, ties directly to the company I co founded in 1999, Aperio, that’s a Latin verb that means to make clear, to reveal the truth. So not only would I agree, I, I love that brand label, Joanne, and I will try and even use that. What’s your brand about?  It’s “passion for the truth”.

Joanne Tan  1:31:57

Yes. Honesty, integrity, and the genuine care for people and get clear, get to the bottom of it, you know, and take pleasure in pointing out falsity, falsity, BS, basically. 

Patrick Geddes  1:32:18


Joanne Tan  1:32:19

Wonderful. Thank you so much. 

Patrick Geddes  1:32:22

Oh, it’s been my pleasure. 

Joanne Tan  1:32:24

Yes, this is an eye-opening book for me personally, and for a lot of people. And you definitely have contributed, in my opinion, more than your remarkable success to humanity, you have contributed this gem of wisdom that will benefit countless consumers and investors.

Patrick Geddes  1:32:45

Well, I hope that’s an accurate description. I hope it plays out that way, I aspire for … to have it work out that way, because that was part of the motivation is I’ve been blessed, how do you repay a debt like that? And so I hope, I hope you’re right, you articulated beautifully. So thank you very much.

Joanne Tan  1:33:07

Thank you. See you another time. 

Patrick Geddes  1:33:10

All right. Thanks. Bye bye.


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