Tips for the Belgian investor with Tim Nijsmans

Introduction

Curvo: It is great to talk to you today. I have given you a short introduction, but could you maybe tell a little more about yourself and how you got into the financial world?

Tim Nijsmans: Thank you, Yoran, for the invitation. How did I get into the world of finance? I remember that at the age of 13, I suddenly became fascinated by money. On Teletext, an instrument that no longer exists (I don’t think the young people among you will know that), there were the stock market prices and the exchange rates. One day they were green. The other day they were red. And it fascinated me how money could move and why that would be. And now it so happens that every night I had to wait for my mother in the library of the city where I went to school. Instead of getting bored or doing anything else, I eventually started reading investment books and investment magazines, because that fascinated me so much. And so, in fact, I became completely fascinated by the world of stock exchanges and investing. I went to study economics and entered the financial world through institutions. First at a major bank and then indeed Dierickx Leys Private Bank in Antwerp. That is how I ended up in the banking world.

Private banks

I think many of our listeners may not know what a private bank is or what it does. Could you describe what a private bank is?

A private bank, unlike an ordinary bank, is only concerned with investing and managing people’s assets, or advising them. In other words, you should not go there for an ordinary account, for bank cards, for a loan or for insurance. No, a private bank is purely focused on investments.

What kind of responsibilities did you have when you worked at Dierickx Leys?

I started there simply as an advisor and trader, as it was then called. A trader is someone who puts orders in the market on the stock exchange. I did orders for clients, but I also gave them some light advice. But after a year I was promoted, so to speak, to asset manager and analyst.

In the beginning, that was really working together with the client. Individual shares, individual bonds, sometimes even an option or a derivative product. And that was actually a very interesting way of working.

Unfortunately, as with most banks, there has been an evolution from working tailor-made, with individual shares and bonds, to more standardised investment funds (so-called “profile funds”), in which you actually sell the clients a bit of a standard solution.

I have therefore been involved in the management of those funds. But that did not suit me as well. It suited me better to be able to work on a tailor-made basis for my clients.

You worked there for a number of years. Then you started your own company, Vermogensgids. Why did you take that step?

The disadvantage of standard work with investment funds was also that the cost price was higher and that you actually had less and less your own input. Decisions were made in a group. You had to take into account all kinds of rules and regulations, and commercial concerns. And the management costs of investment funds are now higher than what I think is fair to customers (this is usually the case in Belgium, by the way). That’s actually one of the main reasons why I started on my own.

Because I actually thought that people could do a much better job if they took their investments back into their own hands, instead of leaving it to the bank. I actually wanted to be a help in that respect. I thought that did not yet exist in Belgium. You had a lot of banks, of course, and brokers who sold their products. But I didn’t think you actually had many people in Belgium who helped with ETFs (or trackers). Probably also because you earn little from a tracker or an ETF, from a bank’s point of view.

Differences between active and passive investing

In the world of investment, there is a difference between active management and passive management. Could you explain in your words what the difference is between these two approaches?

That is a very good question. Most people in the investment world (certainly in Belgium) try to beat the stock market. Or at least in name, they try to beat the stock market. And that actually means that they are going to make choices. Choices like more in one share, less in the other, invest more in one country, less in the other. Get in, get out… And that means that you have to make a lot of decisions.

And indeed, active investment is making those choices and saying: “I know better than my opponents on the stock market”. Because when you buy a share, you think it’s going to go well. But the person who sells it now has the opposite opinion. He thinks: “It’s risen enough. It’s not going to go any further or much further anyway. I will take my profit.”

This element, or that you are smarter than the other parties on the stock exchange, is already a very important point. But suppose you are smarter. Then, of course, you also have to take all the costs out of it, because of all the transactions you make. And if you leave these decisions to a bank at the top, you will, of course, have to recoup all the fees that the bank asks for. Not only entry fees, but also the annual management fee and the annual costs deducted from the fund, which are quite invisible, but which are there. Recovering these costs is a very difficult matter.

On the other hand, the other tactic is passive investment. This is a difficult tactic to convince people of because you have to accept the market and buy something that is the average of all shares. And I have noticed that most of the investors I talk to are passionate. They want to do something, they want to beat the stock market. They do not get passionate about passive investment.

But if we look at the statistics and the studies that happen, we see that by investing passively (in other words simply copying the market), you are automatically among the 70% or 80% best investors. This means that only 20% of investors can do better than you.

And this is because of the facts that you make fewer costs, make fewer choices and, above all, do not make the classic investment mistakes.

The latter is a very important element. I have been in both the professional and private investment worlds and I have seen that everyone makes mistakes. So have I. And I know that and I realise that. But there are many people who do not want to realise that they are actually making classic investment mistakes. For example, they do not want to take a loss. There are a lot of classic psychological mistakes that people make when investing. And with trackers, i.e. passive investing, you are going to be able to rule them out to a large extent.

How banks invest your money

Banks also offer investment funds. How do they fit into the active/passive spectrum?

What banks do is sell you an investment product. That is their job because they have to make a profit. And then, as a client, you have to realise that they don’t do that in your best interest. That means that they traditionally ask a lot of money for it.

I’m not talking about all banks, but in general, they are more concerned with getting or keeping people in their investment funds than with good management. If, as an investment fund, you deviate too much, that is to say, if you achieve less than the stock market, then you often lose investors. Certainly if the deviation is largely downwards. That is why a lot of banks in Belgium, and especially the large banks, do what are known as “closet tracking”. These are funds that are passively invested, with 300-400 different shares in an investment fund, but for which high active costs are charged. Then you actually buy a tracker, for which in Europe firms usually charge 0.10% or 0.20%, but the bank is going to charge 1.5% to 2% for the same product.

I have also sat on investment committees at the banks. And in those committees, you see that there are often other things that play a role than returns. They are engaged in commerce, in other words, in selling that fund. So they are also going to launch investment funds around themes that are popular in the market. Today, these will be themes such as electric vehicles: the Tesla’s and the Nio’s of this world. They will be launched not so much because, in the view of the analysts and strategists, that is a good move, but often from the point of view that there is now much demand for them. There are many investors who they can persuade to get into their funds. So commerce is an important element.

In addition, if you sit around the table with a group of people, you do not get daring investment decisions. You get a consensus. That’s not necessarily bad, decisions don’t always have to be bold. But it does ensure that you don’t outperform because you’re actually almost going to follow the consensus. Because you sit around the table with ten people, you just get the classic consensus thinking.

And the most important thing is that the costs of these banking products are so high that it is actually very difficult to earn that money back. I know I come back to this a lot, but I cannot emphasise it enough.

The advisers who work at the bank are not to blame, because they have to do so on behalf of their management. They have to sell the fund and try to recoup that 1.5% to 2%. Even today, there are defensive investment funds that dare ask for such costs, while 70% of them are in bonds that yield virtually zero return. In other words, these funds have to derive their return from 30% in shares. Let us say optimistically that shares yield around 6% a year. In that case, you will have a 2% return from your shares. And so there are banks that charge 2% for such a fund. Of course, in a good year, you will get a positive return and in a negative year you will lose out. But in the long run, you are almost guaranteed to make a loss on such banking products.

How is it possible that the banks get away with selling a product that is actually far too expensive?

To a large extent, customers are complacent. And we have to be honest about that. We are trying, Yoran, to inform people about how this can be improved. But there are a lot of people in society who are not interested in that. People who are not going to read or listen to this interview, who do not end up on our sites and who are not interested in it. And they go to their bank and they take an investment product there, following the advice of their banker because they trust him. That is an important reason why the banks get away with it.

So it is due to ignorance, as you say. And perhaps also because of a lack of transparency? Finance remains a difficult subject.

It remains a difficult subject and attempts have been made in Europe to improve it with rules and laws, so to speak. However, many of those laws and regulations have actually created a boomerang effect.

For instance, in principle, a bank should list its annual management costs. Now, a number of banks are doing that well. However, a number of banks are hiding it somewhere in the back of an inventory, as the last page, so as not to have to show it to the customer. It is often so complex that people see numbers, lots of numbers, as a table full of numbers. But the people who take a look at them, I hear them. They fall off their chairs.

Emotions as an investor

Now I want to talk about emotions. Emotions are very important in investing. You have already indicated that this is one of the reasons why active investing does not work for many people. Emotions then take over from rational thinking. How do you deal with emotions when advising your clients at Vermogensgids?

That is actually one of the most difficult things. Investing itself, i.e. the ETFs, is not a complex matter in itself, given their simplicity and low costs. But the difficult part of my job, when people want to invest, is to get them to do so in a structured way. By this, I mean investing regularly, without trying to time it, without selling when there is stress on the markets, but also without buying too much when the optimism is at its peak. So part of my job is to reassure my clients.

A few weeks ago there was a downturn in the stock market because we had a fall in technology stocks. I then sent an email to my clients and reassured them with: “Look, the stock market is totally fluctuating now. We have had a very good recovery since March. We are indeed going to go down a few per cent now but we are not going to sell anything for that”.

Many people say that they want to sell or keep cash at hand and that they will buy when everything is fine again. Now, if there is one law in the investment world, it is that if you wait until everything is positive, then you pay much more. You actually have to buy when there is doubt and you have to sell when there is a lot of euphoria and optimism.

Because most people are not made for that, I would be very happy if people would just invest on a regular basis. That they make a consistent plan in which they invest every month or every three months. That they opt for broad ETFs that are very cheap, that carry a lot of shares and that are geographically diversified. Because diversified instruments are safer.

And above all, they should stay the course. So do not turn around if there are problems. Not in a positive sense, nor in the opposite sense by selling everything when you things look negative to you.

Coronavirus and investing

Because of the coronavirus, the markets were very tumultuous this year. Have you also noticed from your customers’ questions that you had to advise them more on precisely the emotional aspect?

Yes, certainly at the time of the first corona wave, when we had the “corona correction” in the markets.  Then I really had to counteract people, to put it this way. I sent e-mails in March when I saw that everyone was panicking. I said: “Look, if you still have cash, buy a first slice”. That was the first week of March, it was still too soon. But I repeated the mail in the second week and in the third week of March I sent the third mail.

That was actually not so much with the intention of convincing my customers to invest more, because that usually doesn’t work in such a decline. Usually, people still want to wait, wait until we have moved on. But then we have usually already risen again. But if I’ve already stopped them from selling, I’ve already done part of my job. That is my vision.

And there was a huge boom in attention around stock trading and investing in March. For example, the Facebook group Beleggen (of which Tim is the founder) has risen from 6,000 members to 14,000 in six months. That’s huge because the group has existed since 2009. It has more than doubled in just six months. And of course, that is also because of the low-interest rates.

We have a very low, manipulated interest rate that is set so low by the central banks. As a result, people are now starting to invest speculatively, precisely because they no longer see any alternatives. Certainly now that we are beginning to get banks that even charge negative interest rates on your money, you see that people are almost forced to start investing. And that is why interest in investing has risen en masse. And indeed, you are also getting people who have no experience with it yet. And these people are perhaps not made to be able to digest strong fluctuations in prices. But they have now come onto the market, which has led to a great deal of movement on the stock market, due to people constantly getting in and out.

Education and investing

Now we move on to education. You recently started as a teacher in “Private Banking” at the Artevelde University of Applied Sciences in Ghent. What do you think of the way finance is taught in secondary schools and universities?

Apart from a number of teachers who do their best, there is a structural problem with the lessons on economics and finance. A lot of economics is taught, but little finance is given. Even I, as a motivated eighteen-year-old, was looking for a course of study related to investment, but I did not find one at university level. You found general economics courses, where after three years you might get one course on investment. Whereas you would have to go so much wider, even in secondary education.

In the last grade of secondary school, I think it is more important, rather than learning about the law of marginal economics for instance, that you know what investing is and what types of investments you can make in life. You can also talk about insurance, which, incidentally, is not mentioned in any curriculum. They should teach a much more of a practical side of these things so that people are prepared for real life.

Knowing what a share is, or what a bond is. Pupils should not become experts but should be given a notion of what these things are. I think they should know what a share is, what a bond is, when they graduate from school at 18. And that is not the case at the moment. You do not get a very good education from that in any direction. You get a lot of theory, but unfortunately very little practice.

We talked earlier about banks getting away with selling investment funds that are far too expensive. Do you think that education could solve this problem, for example, if an entire generation were given better financial education?

Yes, if you then also state very clearly and honestly that certain investment products also have certain costs, and that you have to take that into account. Then you would indeed no longer get those things that frighten people into having to pay a management fee. And indeed, if people were to be given clearer education in this area, at least they would know that. And then people can still choose whether they accept the fee or not.

However, there may then also be some pressure to lower prices. In America, people ask 0.8% for active funds. And I think that is much fairer. You can ask for more: you need managers, you need analysts. But 0.8% or 0.9% seems to me to be a much fairer fee than 1.8% or 1.9%. In my opinion, that is a full percentage more than you can actually ask for as an active fund.

Differences between North America and Europe

How do you think the difference between America and Europe in the prices of investment products is possible? The market also seems to be much more open there.

They do have the advantage of being a larger country. They have scale.

But they are also freer in the promotion of funds. And that is where a Vanguard could start, the well-known provider of ETFs. The company started out as a maker of index funds that were then actually sold like a bank sells funds. If you want to start that here in Belgium, it is a very difficult administrative matter. But in America it is much quicker. John Bogle started Vanguard and started offering index funds. And that created competition and comparisons with other investment funds. This created a culture in which active funds wanted to achieve a good performance against those index funds. And if they did not, they had to lower their prices a little.

In Belgium, we are still attached to our system where most investment products are sold by banks. Trackers and index funds are actually still in their infancy here and are not being picked up much. We are probably one of the last countries where index funds are breaking through. But it is starting. As a result, I have the feeling that people are thinking more and more and hopefully also seeing that there are alternatives to banking products. You can see that a number of banks are already trying to capture that and are already trying to launch index funds. They are still too expensive, I think. Anyway, it is already a step in the right direction. Let us hope that, after that, they will also bring the fees of their other funds down.

Tips for the Belgian millennial

What advice do you give to millennials and young people who want to start investing?

The most difficult thing is that those who start out on their own and are very passionate are usually very much attracted to the more speculative stocks. There is nothing wrong with that. If I look at the young people in my social media, I see that they are very much focused and fascinated by the Nio’s, the Tesla’s, biotech, cryptocurrency… Everything that fluctuates a lot. And yes, that is logical, because there is profit to be made there. Speculative profit. And that, of course, attracts. It is very difficult to say to a millennial that they have to invest boringly and cautiously, with a healthy return. That does not appeal to them.

But what I then propose is to cut their portfolios into two pieces. In financial jargon, “core” and “satellite”. Make a core portfolio where you take less individual risk. For example, with trackers, where you buy broad ETFs that you can just keep buying and keeping for years without having to look at them. Then create another account where you can execute on your own ideas. If you want to buy a stock of an electric vehicles company, do so in the smaller part of your portfolio. Satellites we call that. This way you always keep a large sum that can continue to capitalise and grow.

Young people are sometimes very interested in investing, and then they come into real life. They start to get busy with a job, with a family, with children. Building a house also costs money, by the way. If you then have trackers, you can just leave them there and let them run. But if you have shares such as Nio, or Novacyt, or cryptocurrencies, you have to keep a very close eye on them. And so I advise you to include some ETFs in your portfolio after all. Keep those for the long term as well. Suppose you need money for your house or your child. Sell the other shares and keep the ETFs. Because when you are 30, 35, or 40 and you look back at the ETFs, you will see that they have grown very strongly. And then perhaps the light will come on that you need to invest more in them after all.

So I really hope that every millennial will buy and keep at least one ETF. And if we can get to the point where we can convince a number of millennials to do this, then I think we will succeed in our long-term project to get more people to invest passively. So that is a bit of the advice I would have for a millennial.

Thank you very much for the interview and for the clarity and the long answers, in the positive sense. Where do our readers and listeners go to find out more about you and your work?

If you google “Vermogensgids”, you can already visit my site www.vermogensgids.be. At the bottom of the homepage there is a free newsletter to which you can subscribe and stay informed about what I am doing. There is also a blog. But nowadays social media is of course the way to follow people. So you can follow Vermogensgids on Facebook, on LinkedIn and on Twitter.

Of course you are welcome in the Facebook groups Beleggen or even Beursfreaks, which I both manage.

And a final tip I can give you is that you should at least register for free with the VFB, the Flemish Federation of Investors (www.vfb.be). That costs nothing. You can even become a member as a student for 20 euros. That’s a very good deal because you get a lot of things in return. But at least your free registration also gives you the information of the Flemish Federation of Investors. And then you can continue to follow the articles and the webinars (which I occasionally give one as well). And that is a good way to keep up to date with the investment world.

So social media, at the VFB at least register (or even become a member) and via Vermogensgids.