102: Dan Bortolotti - The godfather of index investing in Canada

Dan Bortolotti is the creator of the Canadian Couch Potato blog, and host of the (soon to be resurrected?) Canadian Couch Potato podcast. He is THE authority on index investing in Canada and has just written a new book, Reboot Your Portfolio (Amazon affiliate link).

Dan joined me to explain what the book promises readers, and to discuss his journey from before knowing anything about investing himself, to becoming the writer behind the incredibly popular CanadianCouchPotato.com blog, and then eventually becoming a portfolio manager and financial planner.

We cover a range of topics in this interview, including:
-Dan's thoughts on how cryptocurrencies fit into a portfolio
-Why investing doesn't have to be time-consuming or exciting
-The rationale behind the couch potato method
-How you can reboot your portfolio whether you have $1,000 or $1 million
-and more

Links:
Buy the book: Reboot your portfolio (Amazon affiliate link)
CanadianCouchPotato.com blog
Canadian Couch Potato podcast
Dan's advisor website at PWL Capital Toronto

Transcript

Dan Bortolotti: 0:00

I'm not going to pretend that it wasn't stressful for me. I mean, I was pacing the office every day felt like it was going to throw up a few days because it was just so difficult to watch. But in the back of my mind, I always knew like, this is what we're here for.

Preet Banerjee: 0:24

The Godfather of index investing in Canada, Dan Bortolotti, is here to talk about his new book, reboot your portfolio. Now Dan is a very good friend of mine, but you know him as the writer behind the Canadian couch potato blog, the Canadian couch potato podcast. And as a portfolio manager and financial planner at p WL Capital in Toronto, where he and his colleagues managed portfolios using the same strategies, as described in this new book. Not only do we talk about how you can reboot your portfolio with exchange traded funds, we learn a little bit more about the man, the myth, the legend, that is Dan Bortolotti, how he learned about investing in the first place. How he started his immensely popular blog, became an advisor, and his advice for people asking about cryptocurrencies, whether now is a good time to invest. And so much more. Dan joined me in person at my condo in Toronto, and here is our conversation. Joining me now on the mostly money podcast is Dan bored allottee longtime listener? And second time you've been on this podcast, if not third? Yeah. And you've been on mine as well, Preet. So it's nice to get together again and do this. Yeah, my pleasure. And the reason that you're here is you've written a new book called reboot your portfolio. So we're going to get into that in a little bit more detail. But first, I'd like you to talk about why you wrote this book, and why you think it's needed right now.

Dan Bortolotti: 2:16

Yeah, so the book is really a step by step guide to index investing. And it starts right from, you know, the theory behind why index investing is important, and why it's effective, and then walks you through the various stages for building and maintaining your portfolio. And the reason that I decided to write the book last year and bring it out now, was that, you know, over the years, I've written hundreds of articles on the topic. But a lot of them are on very specific aspects of index investing. And I felt what was really needed, especially for a new investor, was a step by step guide. Because, you know, you can go into my blog now, and there's lots of things to read, but it's hard to know where to start. And years ago, it's going to be seven or eight years ago, now, I did write a brief book that was published by Rogers publishing, which was publishing money Sense magazine at the time. And it was in fact that it was a DIY guide, to index investing book did really well, but it hasn't been available for a long time. And I still get requests for it. People ask me, where can I pick it up? And I said, well, first of all, you can't pick it up. And second, even if you do, it's so out of date now that it's not going to be very useful. So I thought, why don't we take a step back, use that step by step guide as the model, and then take all of the insights and that I've learned between now and when I wrote that book, and also all of the new products and all the changes in the marketplace. I mean, that back then there was no all in one ETFs there were no robo advisors, it was 30 bucks at trade on discount brokerages. I know, it seems like a million years ago. So I just really felt it was time to revisit that whole idea. So I went back and I, you know, dredged up all of the articles that I had written in the past that I thought still had relevance, updated all of them for the current marketplace and put them all together in the book.

Preet Banerjee: 4:17

Now you are known as the godfather of indexing in Canada. Whatever superlative you want to use. You are the guy when it comes to index investing in Canada, whether it's retail investors, financial advisors, institutions, you've, you've basically put together this just world class resource for people on your blog, as well as your podcast. And now your podcast is the Canadian couch potato podcast. It is, which is now defunct is no longer being

Dan Bortolotti: 4:48

Yeah, let's say it's on hiatus. So have you done any new episodes since the summer of 2019?

Preet Banerjee: 4:53

Right. Yeah. And a very, very popular podcast. I know that there are so many people are just like, oh, we Wish Dan would continue on with the podcast. But it sounds like there is hope it may come back at some point.

Dan Bortolotti: 5:06

Yeah, I'm thinking that I, you know, I might resurrect it. And now that you've put me on the spot, I feel I'm gonna be obligated to do that. It the problem with the podcast, at least for me was it was just an enormous amount of work. I did do interviews on the podcast, but I also did a fair bit of content that I wrote ahead of time. And, you know, as you can probably tell, from listening to it, even it was scripted. I wasn't just riffing, you know, with the mic running. I wrote,

Preet Banerjee: 5:34

wait a second. This is not the way to run a podcast.

Dan Bortolotti: 5:38

Well, there's a reason why you cranked out 100 episodes, and I got to vote 26, before I burned out. So I just found it was taking up so much time. And that that was actually, you know, one of the reasons that I came up with the idea for the book was, I was doing the podcast, and I thought, you know, these are fine, and people, people seem to enjoy it. But what I wanted to do for some more lasting value was put together this kind of step by step guide, I actually thought about it originally as a podcast series. And I thought maybe I would do like a nine or 10 part series for audio. And as I started to write it, you know, I just realized that's my background is I'm a writer, I'm not a broadcaster. And it just seemed to me a natural book. And as I started to work on it, that's how it evolved.

Preet Banerjee: 6:30

It's interesting, because, you know, you're a fantastic writer, I think you've been won awards for your writing. And it's clear anyone who's read your blog and have your articles, like you are a fantastic writer. But when you say that you're not a broadcaster, I would I push back on that, I would say, you have a great voice for for your podcast, I think your your, you come across very natural, authentic. And so I would encourage you to rethink, you know, maybe creating a podcast series on that on creating a portfolio because I think a lot of people would would gobble it up. But in any case, in any case, I know I'm putting you on the spot here. Let's there's so many things that I want to talk to you about one of them is the push towards index investing over the last 1015 years, it's been pretty big, right? It's gotten more headlines, there's a lot more, you know, people who are espousing the benefits of indexing. And then when I look at what's going on today, it feels like there are a lot of new investors who are starting out with some very risky investment strategies. They're being lured into cryptocurrency, single stock trading, I mean, stock trading and what have you. And I, it feels like they think that index investing is somehow too boring, too simple, or won't give them results. So can you maybe talk about, because I'm sure you've gotten a lot of questions about that over the last couple years. What do you say to people who are starting out? And and look at index investing as somehow boring, old and maybe not good enough?

Dan Bortolotti: 8:11

Well, I would say that it definitely can be boring. But that's okay. Right, investing is not supposed to be exciting. So I think you have to get past this idea that investing should be something that is deeply engaging, that you should spend a lot of time on, right, that you should be following the markets really closely consuming a lot of financial media, repositioning your portfolio every time you get some new piece of economic news, etc. So that's part of the mindset. But to go to the other part of the idea that it's sort of old school, it used to work in the past, but doesn't anymore, it won't give me the results I need. That's where I have to hit hit the brakes and say, Wait a second, wait a second, let's remember what index investing is. It's a strategy that allows you to capture all of the returns of the market, minus only a very small fee. Right? So if, for example, you know, over the next 20 years, the stock markets on average, deliver six or 7%, you know, an index investor who's invested in those markets will get six to 7% minus a tiny amount in fees. If that's not, quote unquote, good enough for you? Well, what's the alternative? It means that you're going to have to try to spend your investing career beating the market. And I lay out the evidence for this in the book, right? The likelihood of any individual doing that over their investing lifetime is dismally small, right? Perhaps not zero. Well, definitely not zero people do it. But to start from the premise that as a beginner investor, you know, even even or even with someone with experience, that you're going to somehow beat the market over yourself. career is just a dangerous and likely disappointing place to begin. So, I do think it's important for people to understand, you know, the limits of index investing, but also the promise, which is, if you can capture what the markets deliver over your investing career, then you are likely to be in the top, you know, five to 10% of all investors.

Preet Banerjee: 10:22

You know, I remember a number of times. You know, I remember a number of times when I would go on the national with Peter Mansbridge. And we have a, our bottom line panel. And at the At its heyday, we were on once a month, and this was during the financial crisis of the great financial crisis. And there was one panel, where we were talking about investment portfolios, and how to invest and whatnot. And I mentioned, you know, a simple balanced portfolio globally diversified that you don't touch. If you do that, and you had done that for the last 30 years, you would have had, you know, 70% return or something like that. And the next day, I remember getting an email from someone who said to me, Preet, I don't know what the hell you're talking about, I've been investing for 30 years. And when I add in all the money I've ever put in, and I compare that to my balance today, it's the same. So effectively a 0% rate of return, wow, over 30 years, right, in one of the best markets, like, you know, continually falling interest rates, which pushed up bond returns, equities did well over those 30 years. I mean, it would be hard not to make money as long as you just stuck to your plan. And it's just so incredibly hard for people. And so I think one of the issues that I think people maybe need a little bit more clarity on is the idea of benchmarking. Because when you have, for example, you know, the the strong markets we've had, since the financial crisis, everyone feels like a genius. And if you if you're up 20%, you're thinking, wow, this is amazing. People talk about these long term returns of seven or 8%. I've got 20%. Sometimes they don't realize that the market was up 30. Right. So can you talk about the importance of benchmarking?

Dan Bortolotti: 12:07

Absolutely. So you know, you make a great point, right, in, in a in a bull market, like we've experienced over the last, you know, since 2009, it was relatively difficult not to make good returns, as long as you had, you know, a reasonable, reasonably diversified portfolio with a fair amount of equities, right? You could have picked 10 or 20, stocks, more or less at random, and probably still done, you know, again, quote, well, but what does well mean, right, you, if you had earned a seven or 8% annualized return, for example, you might think that that's excellent. But as you point out, just investing in the broad market and not picking any individual securities, you likely would have done them a lot better. So you always have to compare your results to the results of a benchmark. And when we say a benchmark, we're talking about a broad market index. So you know, just a simple example, you know, if you look at a Canadian equity index, that index would hold, you know, roughly 250 stocks, the largest 250 stocks in the country, it's extremely easy to buy all of those stocks, just by buying a low cost ETF that tracks that index. And it's virtually no effort. So if you're going to be an individual stock picker, you should compare the performance of your individual stocks to that benchmark over some meaningful period as well, right? I mean, the media loves to talk about short term performance. So they'll look at some individual stock or some investor and say, you know, they beat the market over the last 12 months. I mean, the last 12 months is a hiccup. It's it's not important, over the long term, how many people can you know, continue to outperform those benchmarks over a full market cycles. So that would be a you know, bull market followed by a crash followed by a recovery? It's just very difficult to do. And the people who will do it are often people who just took outside risk. And I think that that's an important distinction as well. So if you buy, you know, an index fund that holds hundreds of stocks, and I buy three individual tech companies, I could very well crush your performance over the next 10 years, right. But the only reason I did so is because I bought three companies that could have gone to zero, right? Whereas a broadly diversified index portfolio. I mean, barring Armageddon can't go to zero. So yes, if you want to take a lot more risk, you may very well earn much higher returns, but the it cuts both ways.

Preet Banerjee: 14:45

And have you met very many individual investors who can calculate risk adjusted returns.

Dan Bortolotti: 14:52

None, right. Yeah, I mean, it's not an easy thing to do, right. It's hard enough, frankly, to calculate your own age. equalized return, it seems like a simple thing, right? I mean, you start the year with this dollar value, you end the year with another dollar value. It's a fairly simple calculation. But if you add money during the year, or if you make withdrawals during the year, it suddenly becomes quite complicated. So I can remember doing an investing, talk one time to a group. And I said, right off the top, hands up, how many people's portfolio beat the market over the last five years? That was like three quarters of the people put up their hand, I'm like, first of all, that's unlikely to be true. I mean, maybe it is. But I'm thinking how there's no way three quarters of the audience knows that, right? Because they have not calculated their rate of return properly, and compared it to an appropriate benchmark. So there's a lot of delusion, I think, going on about people's true investment performance.

Preet Banerjee: 15:54

So one of the I think benefits in my mind of, you know, a couch potato portfolio is you don't really need to benchmark anymore. Can you explain why that is true?

Dan Bortolotti: 16:03

Yeah, I mean, that that's a good point. Because we, for example, with our clients, we have the same sort of thing. We build index portfolios only. And so you know, if you buy, for example, I mean, let's use a simple example, I buy a US equity index fund, it tracks the s&p 500 index. So one of the most well known indexes. So what's my benchmark? Well, my benchmark is probably the s&p 500 index. And so if the index fund specifically is designed to buy all of the stocks in that index, then if it's a well run index fund, it's going to deliver the same return as the s&p 500 minus a tiny amount in fees or taxes. So you're benchmarking your own fund against a benchmark? I mean, it's almost self referential, right? So in other words, a, but it is still useful, I think, for index investors to do it, because very often, they will assume that they achieve the exact same return as the index. But in fact, there could have been behavioral mistakes in there, right? So for example, one of the things that that you know, I do every year on my blog is publish, you know, the returns of my model portfolios. So, every year, we just calculate what the returns would have been. And it assumes, though, that you started the year with a perfectly in balance portfolio, you added no money, you withdrew no money, and at the end of the year, you measured your return. So a lot of people will, you know, I get all of these emails around January, saying, When are you going to publish your returns? And I understand the appeal, but I also say, you know, the returns that I published for the model portfolios aren't your returns, even if you follow the same strategy? Because, you know, maybe you maybe you failed to rebalance at some point in the year, or maybe you made a big market timing decision mid year, that cost, you know, maybe you had too many transaction costs that he wrote in some of your return. So you need to you need to measure your own personal return, even if you're an index investor and compare it to an objective benchmark from time to time, just to make sure there's no leakage in there. Right,

Preet Banerjee: 18:19

right. Right. Okay, so we're kind of getting into the weeds a little bit, I think, for the people who want to learn more about this, they can buy a copy of, of your book. And I would say that there's probably a big overlap of people who listen to this podcast, and those who know who you are, read your blog, and listen to your podcast. And for those who may already know a lot of this stuff, I think a great way to support Dan is to buy the book, if not for yourself to give to someone else. So that you don't have to spend hours and hours trying to translate what Dan has already written, or published elsewhere, and is a great way to support you in the book. And the book is coming out November 1. And so in the publishing world, it's very important, you know that that first week to to get those sales, because it, it affects where you land on those bestseller lists, which has these knock on effects. So if you've been a fan of Dan's, if you're just learning about him for the first time, I encourage you to buy the book right now today, and support them and and learn or give someone else the gift of this knowledge. Now, that being said, let's talk about some other stuff. So let's talk about your personal journey. So you and I have known each other for I think, over a decade, and we met because of basically index funds. And when we met you were not in the industry. You were a writer. And so you're coming from the outside in. And I think you got tweaked to the idea of index investing because of an assignment that you received where I think it was something to do with like due diligence on investment managers or whatnot, something like that. So do you want to tell that story and how you got started how you got interested in investing? Because before that you had no background in investing?

Dan Bortolotti: 20:04

Yeah, that's right. In fact, Preet I think when we met, you were in the industry and I was a journalist. And now the roles have kind of clicked and that I'm in the industry, and you've taken a different direction with your career. So, yeah, so to get back to that story, so what happened, I was I was a journalist for many years. And not a financial journalist, I wrote about all kinds of different topics. But one of the magazines I did write for regularly was money sense, which is now only a website, but was a magazine back in those days. Mm hmm. And even then, even though I wrote for money, since I wasn't really writing about investing, frankly, because I didn't know very much about investing. But one of the assignments I had was we did a feature in the magazine called The Seven Day financial makeover. And it was a very cool project, what we did was we got three couples and one single person from all over Canada, who had written into the magazine to talk about some of their financial problems. And we brought them to Toronto, we put them up in the Royal York Hotel for a week. And I was part of all of the sessions as well, just as a reporter. So we brought in, you know, insurance person, a person about budgeting a person who helped couples, for example, with money problems and things like that. And one of the experts or a couple of the experts, we had, were talking about investing. And they introduced what they called the couch potato portfolio. I mean, my, my name has been associated with that brand for a long time now, but I certainly didn't come up with the name. And even moneysense was using it long before I ever wrote about it. But anyway, they, they, they talked about this investing strategy, and I'm here as a reporter, you know, trying to write about these people that we brought into, to talk about their situation. But I took a real personal interest in it as well. I thought this is really fascinating. And, like a lot of people when I first heard about the strategy, it sounds too good to be true, right? It's like, it's not very much work. Anybody can do it. It's really cheap. And it beats 80 or 90% of professional money managers, I'm thinking, how can that possibly be true, right? Like it I always said, it's like, it's like saying, you're an amateur golfer, you can beat the PGA you know, champs because, you know, they're not as good as people think they are. And it's, it's just a terrible analogy, right? Because the fact is most professional money managers lag index funds year after year. So you had to get kind of past that state of disbelief, right. And once you once you embrace that, then I started to learn more about the strategy. And the more I learned about it, the more it seemed appealing to me. And I took it from there, I started to write more in money sense about the strategy. And then I launched the blog in late 2009. And yeah, and sort of ballooned from there became something I was really passionate about. And there seemed to be a real appetite for it. Like even in the first six months of the blog being launched. There were a lot of people that really latched on to it, because I think they needed somebody to explain all of these issues to them. And I think that was the background that I had, because I didn't come from a financial background, I came from a journalistic background, that I did my best to explain all of these concepts in plain English. And I think that's that's what a lot of the appetite was.

Preet Banerjee: 23:23

Oh, absolutely. I mean, your ability to distill these incredibly complex concepts in a way that is entirely digestible by anyone, I think, is one of the reasons why your brand sort of exploded from there. So so that was 2009, when you started the blog, and then tell me about those first couple years of the blogging when you made the transition from, you know, a blogger about index funds to an advisor. How did that happen?

Dan Bortolotti: 23:54

Yeah, so that was an interesting story, too. So I was working at moneysense Magazine, as a pretty regular Freelancer in addition to doing the blog, I think it was 2012. They hired me as interim editor in chief because they were transitioning from one editor to another. I didn't want to do the job full time, but I offered to step in for a few issues to edit the magazine. While I was there, I assigned myself a feature called renovate your portfolio. And because I had met a couple of young advisors, Justin Bender, and Shannon, who's now Shannon Bender, was Shannon DL at the time at PW l Capital in Toronto. And they had just created this really interesting, do it yourself service. So what they did was they took investors who didn't want to work with an advisor full time, but wanted to build a do it yourself portfolio of index funds, and so they did a financial plan for them, and they help them build an implement A portfolio of index ETFs, which nobody else was doing at the time. And Justin and I talked about it. And he's, you know, I said, this is like a really interesting idea. Would you guys be okay, if I talked to three or four of your past clients, and maybe wrote an article, I mean, you've seen these articles in the media all the time that financial facelift in the globe or things like that, where, you know, you have a person who wants to take a sort of bad portfolio to a good one, and we talk about the process. He said, Sure, he got the consent of the clients, I called them up, they were all very happy with the service. And I interviewed them all, they all had really interesting stories about how they got to where they were. And we I wrote a profile about the transition that these clients did. And the article was really popular, their phone was ringing off the hook of with other people who want the same thing. So long story short, over a couple of beers, you know, we all decided maybe it would make sense if, you know, I came on board with them. And you know, we could work together on this kind of thing. Now, of course, I wasn't a licensed advisor at the time. But I eventually became one

Preet Banerjee: 26:11

ready to take like two weeks.

Dan Bortolotti: 26:14

Yeah, it does not take very long as we can talk about to become a licensed advisor, but to become a licensed Portfolio Manager. And I did the CFP program, that's higher bar. Yeah. So it took several years to actually do it. But I am now a full time advisor with PW L capital, I should I should say to that we we have not offered that DIY service for many years, because people still ask us about it. But you feel that it's

Preet Banerjee: 26:40

been a bit displaced by robo advisors like for people who are looking for that you could say, well, here's a solution.

Dan Bortolotti: 26:45

Yeah, I think so. I mean, I think if all you're looking for is decent portfolio construction, then yeah, robo advisors are definitely an option for that. I mean, the challenge back when we were doing it was people didn't know which ETFs to choose. They didn't know what proportion to hold them in. They struggled just literally with the transactions, how do I place a proper trade on them on the market? If you've never done it before, that can be a bit intimidating or intimidating the first time. So robo advisors? Yeah, so they've definitely replaced that. You know, in terms of how to build a diversified ETF portfolio, you no longer have to have that expertise in order to do

Preet Banerjee: 27:25

that. And now Yeah, so we've got the Robo Advisor Now the all in one ETFs as well. Okay, so I kind of steered us down a tangent there. So the service you wrote about it, you asked if you could come on. And so you came on. And what was that like for you having written about? Here's how, how simply you can create your own portfolio? Did you sort of question Well, why would someone hire me to do this for them when it's so easy? Like that's part of the the offering? Can you talk about that transition for you? And how quickly you realize that no, people do still need a lot of help with with even some of these simple things?

Dan Bortolotti: 28:07

Yeah, for sure. So it took me a couple of years after the blog launched, to get on to this idea that there is a big difference between, it doesn't make sense to pay somebody to pick stocks and time the market, right, which is kind of the traditional model of a lot of advisors. Versus it doesn't make sense to pay someone to deliver value added services that don't involve either of those two activities. That and I still see a lot of people blur those two things together, right? From time to time, I still hear people say this, like, you know, you wrote this blog about DIY Investing, and now you're an advisor. Now, they don't quite call me a hypocrite, but I get that that's the subtext. cheriya. Right. And it's like, why would anybody pay you when they can just read your blog or your book and do it themselves? To which my answer is, they should and 1000s of them do. But there are a lot of people who for many reasons that we can talk about, just aren't suited to be do it yourself. Investors, right. Yeah.

Preet Banerjee: 29:09

And I think I say there's probably two broad strokes I can make with that. One is planning as opposed to investments. And the other is behavior and coaching. Yep. So do you want to talk about those two aspects of because I think you're absolutely right. I think there's so many people who sort of see it as well. Here's this prescription, why would I pay for anything over and above that because part of that ethos is keeping costs low. And by hiring an advisor, I'm, you know, 10x in my cost, right? So they feel that there's some kind of a disconnect. So let's talk about what you should be getting if you are using a financial advisor. If you're a regular listen to my podcast, chances are you already know Dan and his work. I'm completely biased as he's a good friend of mine. But I'm going to suggest that a great way to show appreciation for his work, if you're already familiar with it, is to buy a copy of his book to give to someone else, perhaps a great Christmas or holiday or birthday present. And if you are not familiar with his work, but want to know more about low cost index investing, this book spells out how you can get started whether you have $1,000 or $1 million. Once again, the book is titled reboot your portfolio. And now back to the conversation with Dan Bortles.

Dan Bortolotti: 30:48

Yeah, so if you're using a financial advisor, I think you have to ask yourself exactly that question. What am I paying? And what am I getting? Right. And if you're paying, you know, a very high fee to someone whose only value proposition is they can pick stocks and make forecasts that will help you beat the market. That's a bad place to begin from, right. But like for an advisor, what where can an advisor add value? I mean, you touched on the first one, which is planning. So here we're talking about, you know, what I like to talk about how to deploy your surplus savings. So let's assume that you're starting from the premise that you are spending less than you earn, because if you're not, there's not a lot we can do for you. But if you are and you're saving, what's the best way to use that surplus income? Should you pay down your mortgage a little faster? Should you invest? If you invest as a TFSA make more sense than an RSP? If it's an RSP, maybe a spousal plan is better than a regular RSP. So all of those sort of personal finance decisions that most people don't even have the interest or the inclination to kind of research and do. Then there's the ongoing planning, if you're thinking about retiring, for example, one of the things we deal with all the time with clients, you know, I want to retire in five years, do I have enough money? If I do, how much can I spend in retirement? When do I take my Canada Pension Plan and Old Age Security benefits, right, all those sorts of things have nothing to do with investing. And those are not straightforward. back of the envelope calculations, you need proper planning software and the skill to use it. Right. So those are not usually DIY tasks. And then maybe the most important one is the behavioral piece that you mentioned. You know, it is very easy in theory to build a diversified portfolio and hold it for the long run. In practice, it is much more difficult. Every time people add money to their portfolio, if they're saving regularly, it is an opportunity for them to try to time the market, right? It's very easy to say, well, you know, add a few $100 a month to your RSP and invested in a diversified portfolio for 20 years. Most people don't do that. They invest lump sums from time to time, they agonize over whether now's a good time, they build a diversified portfolio that has four or five different funds, there will always be some that are up and some that are down, they're going to second guess every time one goes down, maybe I should have bought less of that maybe I should have bought this other one that went up. So there are all kinds of ways to go wrong. And I think for a lot of our clients, for example, we earned our keep in March 2020. When you know the market just, you know, hit the floor in about what two weeks, it was the most difficult two weeks of my career, that's for sure. We spent a lot of time on the phone talking people in from the ledge, and encouraging people that even though it didn't feel like the right thing to do, we should be selling bonds and buying stocks now after they fall in 30%. And that was tough to do. And I'm not going to pretend that it wasn't stressful for me. I mean, I was pacing the office every day felt like it was going to throw up a few days because it was just so difficult to watch. But in the back of my mind, I always knew like this is what we're here for her. And now we have a plan in place. And now it's time to execute it. And we did it and you know, we caught in the rebound was much faster than anybody expected. But the point was that, you know, we stuck to the plan. I don't know how many individual investors did that. I'm sure many did. But but I'm sure I know for a fact many many bailed. Yeah. And

Preet Banerjee: 34:31

you know, it's kind of ironic in that the the market action was so fast. There's probably a bunch of people who don't even notice. Just not having looked at their portfolios, like what what happened last month? Wow. Let me tell you a story about back when I was I was I was a full service broker. And this was during 2008 2009. And I remember talking because you know, the world was going to hell back then. Right. And I was talking To another stock broker who's been in the business at that point, 3040 years, something like that. And we were chatting, and I asked him, you know, what was it like being on the desk in 87? Right, during that, that day when the markets tumbled 20 plus percent or whatever it was. He said, Preet, let me tell you, that was a walk in the park compared to what we're going through right now. So 2008 2009, and he said, with that, it happened and it was over. Right. And it was quick, it was it was incredibly stressful. But it was over with the great financial crisis, it was, you know, 18 months or whatever. And it was month after month of, you know, talking to clients walking them off the off the edge, constantly second guessing yourself as to what was actually going to happen in the world. And, and he told me said, you know, I'm I went to go see a psychiatrist, I'm on, you know, happy pills, as he called them. Like, it was just incredibly stressful. And at the time, like, this guy was managing a huge book of families. And so he really wore that. And, you know, I asked, What are you doing in your portfolio? Like, I am just, you know, buying more when when things are down, and you know, rebalancing all that stuff? Easy for him. But it's so much harder when you're dealing with other people's money. In any case, yeah, for people who think that it's easy, it is not easy.

Dan Bortolotti: 36:25

Well, I would say that that's an interesting time to bring up was the 87 crash, which I don't remember it. I mean, that was in high school or something. I sure I heard about it, but I didn't have it any meaningful connection to me, but 2008 2009 I definitely remember. And you're right, compared to say, because I was not an advisor at that time. So the only real massive crash I've experienced, you know, as an advisor was the 2021. And as you say, it happened so quickly, that and the recovery was so swift, that if you just were a deer in the headlights, you were actually probably just fine, right? And that's why a lot of people nowadays, I feel like especially younger investors have overestimated their risk tolerance, because they say things like, I'm fine with a portfolio of 100% stocks. I'm okay with the volatility. I even got through, you know, the 2020 crash, which again, was a big crash, but it lasted six weeks. I would like to say, talk to somebody who not only endured, Oh, 809. But you know, what I think was even worse was 2000 to 2002, which was after the.com bubble burst, because we had three consecutive years of negative equity returns something that has not happened before, and or since. And so it's one thing to say, Yeah, bear markets happen. And we'll get through them. It's another thing when you have three consecutive years, I cannot imagine being an advisor during that period and trying to sit across from a client saying, Yeah, you know, equity markets were down last year, but this year, we expect things to get better, whoops, nope, another negative year, next review, meeting, same conversation, third year, bang, they went down again, at some point, those clients are gonna say, you know, what, things are different now, right, we can no longer rely on stocks to deliver, you know, growth in our portfolio. And how many people who didn't bail after the first year, finally had had enough and packed it in after the third year? Well, then what happened? I mean, we had this huge bear market from 2004 to 2007. And all those people missed out on it. So it really is a matter of do you know, when you assess your own risk tolerance, you have to appreciate the fact that you probably have not endured, what the market can really hand to you unless you've been investing for 20 plus years. You know, younger people just are not in that situation. I'm not in that situation. And just

Preet Banerjee: 38:57

because I think some people might pointed out 2000 or 2000, he said, bear market, but you meant

Dan Bortolotti: 39:01

sorry, bold. Yes, yes, sir. There are big recovery in the following the

Preet Banerjee: 39:05

you know, it's interesting as you bring up, the tech crash is so in front of you, I've got a couple of books. So our friend Andrew Helms, new book, balance, I got a preview copy of that. There's your book, reboot your portfolio, and then beside it, there's a book that I picked up, and it's called Electronic day trading to win. And I don't want to, I don't want to crop on these guys too much. But this book was published in 1999. And the reason I bought it just recently was to take a look at some of the things people were saying before the tech bubble collapsed. And I'm not saying I, I do not know what is going to happen to markets tomorrow in the next five years in the next 10 years. But I do hear a lot of the same things that we were hearing back in the late 90s In terms of, hey, you know, maybe growth stocks are just the new normal and everything has in fact changed. And so you're hearing A lot of the same things now where anyone and everyone is giving you stock tips, anyone, and everyone is recommending cryptocurrencies. And when you drill them a little bit, you realize they don't actually know what they're talking about. And yet they're so incredibly adamant about it. And so it feels like we're in this, this new era of investing in a sense, because as you mentioned, you know, you've got a lot of people who don't really understand what a market crash, a downturn feels like, they don't really understand what volatility can do. And part of it is this, I don't know, this new wave of investors who are galvanized and almost insulated from professional advice, because they've grown up under this. I know two or three instances where Wall Street has been bailed out on the backs of the the little guy, there is this us versus them mentality, which is fueled things like Wall Street bets, that forum, trying to stick it to the hedge funds, buy the dip. And so there's this militant sort of perspective about investing. And with anything, though, the one thing that I always go back to is it works until it doesn't. And people don't really understand the gravity of that statement. So again, I'm not saying I have no idea what happens next, the market can stay irrational longer than people can stay solvent. But what do you say to the people who are starting, you know, investing with, you know, cryptocurrencies where, and we've talked about this, where putting them into 100% stock portfolio was de risking what they have now, what do you say to people who are looking at investing not as, you know, this discipline, long term, boring, which can be beautiful process, but more as, partly entertainment?

Dan Bortolotti: 41:55

Yeah, I think that, you know, the, the specifics have changed, right. And the distractions are different now. But the overall idea that humans are not hardwired to invest in a, you know, boring, diversified long term portfolio, that hasn't changed, right? So I'm trying to look at it, as you know, we, if you should study past bubbles, and past, you know, irrational exuberance, and things like these, and try to take some lessons, even though the specific things that distracted people were different. So we talked about the.com. Bubble, for example. You know, I The example I like to remind people about that one is, in that case, it wasn't crypto, it wasn't meme stocks, it was just tech stocks, right. And the basis of the idea in the 1990s, that caused the market to become a bubble was that the internet was going to change the world. Right? Now I say that I was like, of course it did. Like they were right. Right. It's just that they weren't right about the specific stocks to pick. So even if you have the right idea about where the market is headed, trying to capitalize on that is incredibly difficult. And I think that there's a parallel here with crypto, right, I'm not going to pretend I understand that much about it. But I will say, the technology is amazing. Its potential for changing the way we spend and the way commerce is conducted is real, right. But that's not the same thing as saying, If I buy Aetherium, today, I'm gonna make a lot of money on it, right? We don't know how that is going to shake down over the next 1020 years. So I think we should stop trying to convince ourselves that we know the opportunities, we can identify them now. And we will profit from those in the long run. Because whatever you think, you know, the market already knows it. And there's way smarter people out there that know more than you do. So we have to try to get distracted from thinking about investing as a series of transactions that are based on, you know, some forecasts that we've made, and just try to take a step backwards and remember what investing is, it's an attempt to put, you know, our hard earned money into the global economy. And as it grows, our money grows with it. It's not foolproof, it's not exciting. But it's investing in businesses that have an expectation to make money over the long term, are in the case of bonds. It's lending money to borrowers who will pay you interest, you know, in order to to have your money. So that's all it is. It's not very exciting. And there will always be things that are more exciting and worse. I mean, FOMO is a huge problem with people now. Right? I mean, it's very, I have discussions with people who all they want to talk about is their success stories about how you know this and that This stock or this and that crypto, you know, went way up? I can't compare with that in terms of exciting stories, but I'm not interested in it. But I understand why other people are

Preet Banerjee: 45:10

right. So it's Yeah, I think one of the things that I've sort of started to change my perspective on in the last little while is just how important the entertainment factor is for so many people. And there are some people where they are in a position where you could sort of say, Hey, listen, here is a way to invest that is, you know, evidence based, it's disciplined, it's prudent, and what have you, and there's some people who are just never gonna get there. And I'm not talking like a small percentage, it's a big percentage of people where the entertainment factor is a dominating factor in terms of their what they do with their investments in their portfolios. Now, that being said, the cryptocurrency craze has been so pervasive that I imagine you probably have some clients who say, Hey, I know that, you know, we're in this couch potato thing, but what about 5%? In cryptocurrency? You get questions like that?

Dan Bortolotti: 46:08

That's the most common question I get from clients.

Preet Banerjee: 46:11

And what do you tell them? Well, I,

Dan Bortolotti: 46:13

I tell them, you know, the first thing is to be respectful of the fact that, you know, people are interested in this, and they see it as an opportunity. So I, you know, I don't I don't jump all over it, but I say to them, let's look at this a couple of ways. Before crypto, people used to ask us the same question about gold. Say, right, why don't we hold gold in the portfolio? And I'd say, Well, you know, you probably could add a small allocation to gold. And it would be a decent diversifier. But you know, at the end of the day, gold, you know, doesn't grow in and out, you know, Warren Buffett was always explained this way, like, you know, get have a cubic yard of gold, and 20 years from now, it's still the same, it doesn't pay any yield. It's not like a business. So what is its value based on? We don't really know. And so because we don't really understand how to value it. We don't include it in the portfolio, it's unnecessary. And I would say with crypto, it's a whole level different, not only do we not know how to value it, I mean, at least gold we can say has had value as long as humans have been around. Right? It has been a store of value. It has practical use in jewelry and industrial applications and things. I don't think we really know what crypto is right now. I mean, it's difficult to spend, right? When people buy it, their hope is just to sell it to somebody else. Right? And this is the greater fool theory, they call it right. So until this has any utility, and until it has some way that we can value it. I don't think it makes sense as an asset class in a diversified portfolio.

Preet Banerjee: 47:54

Have you heard of the EMH theory? I have heard of the EMH theory. And you know which EMH theory I'm talking about? Well, I

Dan Bortolotti: 48:00

think you mean efficient market hypothesis,

Preet Banerjee: 48:02

the Alon Markets Hypothesis theory, which is, I think it was a Bloomberg journalist, journalist, Matt Levine, who wrote about it. And he talked about how now things are being dominated by if Elon Musk is tweeting about it, that's what drives value. And is completely detached from from fundamentals, I'll give him when he, when he starts talking about I'm gonna buy whatever, shibui new dog or whatever, which is the dog that Dogecoin is modeled after, and it causes a massive, like, multi billion dollar flow of assets into these cryptocurrencies. Something isn't right.

Dan Bortolotti: 48:36

Yeah, and once you go down that road, it's, it's a slippery slope. And I worry too, about, you know, looking back in a few years and going wow, I just wish we had, you know, pushed back a little bit more. And, you know, said look, our job as advisors here is to be the adult in the room and not to give way to every, you know, trend and every, you know, flavor of the month investment. Now, saying that we could turn out to be dead wrong, right? We could be we could sound like the advisors who looked at ETFs and index funds 15 years ago and call it a fad, right? And proven wrong, and we could look very stupid. But I think at the end of the day, our job is to say, No, it's not ready or we're not ready yet to add this asset class to a portfolio. Yeah,

Preet Banerjee: 49:31

in you know, it's um, sometimes when I'm talking to people and they ask, Have I missed the boat on cryptocurrency? I don't know. Maybe you've avoided an iceberg. I have no idea. But what I can tell you is if you're worried about the world leaving behind because everyone starts adopting blockchain technology, which is I think, is the more interesting part of the whole cryptocurrency world. I would say listen, the companies that are in a broadly diversified index fund will take advantage of this technology and if it does, too, Ride drive value for these companies because of what it pretends to offer, you'll participate in that too, right. And so, and that's almost necessary if the blockchain technology takes off and is adopted by all these big companies, which is part of the promise, then these companies that are publicly traded by adopting this technology will benefit from it. So don't feel like you've missed the boat, you can just sort of stick to the the ethos, which is buy everything, and the winners will win, the losers will lose, you'll have them both. But in the end, you're going to outperform the average investors actively trading.

Dan Bortolotti: 50:35

That's right. And you know, you don't know which, which stocks are going to grow because of this change in the economy, right? You might think you do. But just like in the tech bubble, people got the thesis, right, which was the technology was gonna change the world, they just usually got the companies wrong. The way to get around that is by buying a total market index fund that holds virtually every publicly traded company, and then you're guaranteed to have all the winners in the portfolio right? From the very beginning. Yeah.

Preet Banerjee: 51:08

Alright, so we've covered a lot of ground here. This has been really interesting. We will probably continue chatting after I hit the stop record button. Because that's what Ben and I do. And any case, let's, as you know, everyone on the podcast gets, you know, the last couple minutes for a commercial, obviously, we're here to promote your book, but why don't you sort of give your own personal plea to people about the new book, reboot your portfolio?

Dan Bortolotti: 51:35

Yeah, so the book should be available online, right now for pre order at all the usual suspects, Amazon and indigo. And if you are so inclined, that you know, really appreciate it too, for people who are interested in supporting local bookstores. Many of them I think, will be carrying it, we're doing our best to get distribution to the bookstores as well. If your bookstore doesn't have it, ask them for it. So again, it's called reboot your portfolio. And if you're interested, I will say the book does go through step by step on the investment process. But I consciously avoided mentioning specific ETFs in very much detail. I didn't include any model portfolios or anything. So because I knew people just skip to the back and look at the portfolios, and I wanted them to understand the process. But after you read the book, if you want to visit Canadian couch potato calm, you will find model ETF portfolios there,

Preet Banerjee: 52:29

and what's the due date on restarting the podcast?

Dan Bortolotti: 52:33

Thanks. Great. I'm gonna make that one. TBD.

Preet Banerjee: 52:36

There we go. Very good. All right. Dan, thank you so much for coming on the show.

Dan Bortolotti: 52:39

My pleasure. Thanks for having me.

Preet Banerjee: 53:01

Coming up in January, I'm going to have another friend of the show on you might know him as the millionaire teacher, whereby his real name Andrew Hallam. Andrew has a new book launching in the new year. And so what all this really means is that there are a few more sporadic episodes of the podcast coming up in the future. Now I won't be getting back to a regular publishing schedule anytime soon. Not that I ever had one. But stay subscribed for when any future surprise episodes are released. If you want more personal finance content, you can always follow me on Twitter or Instagram. It's the same handle in both cases at Preet Banerjee, also have two YouTube channels, you can subscribe to my main channel which covers personal finance and investing topics that are more universal in scope, and a Canadian specific channel as well. That is it for this episode. Thank you so much as always for listening