Star student, best-selling author, top businessman… Dan Goldie’s life reads like one long success story. Oh, and he was also a Men’s Singles Quarter finalist at Wimbledon. But what drives Dan now is his mission to change the way that people invest for the future. We interviewed him at his offices in Palo Alto, California, and started by asking how he made the unusual transition from the professional tennis circuit to a career in financial advice.
Dan Goldie: I had an interest in finance from my college days, so when I left professional tennis in 1991, I had interviews in San Francisco with some of the top investment firms at the time. After seeing the incredibly bright and impressive people at those firms, I was surprised that their investment results were generally very mediocre. And I couldn't put that together because during my lifetime, up to that point, the idea was that if you worked harder and you were more talented, you would have the better results. But it didn't seem that in the investment world that was the case. I discovered after talking with some folks who were investing passively, that this is very normal, because markets are really efficient, and no-one should be able to consistently outperform regardless of how impressive or intelligent they are. There are a lot of smart people with a lot of information. So that caused a light bulb to go on for me. I said well, this is really how the investment world works. And I learnt about a different approach where you invest passively, rather than trying to take advantage of the market, and have better results in the end because of it.
SITV: For you, what are the biggest advantages of passive investing?
Dan Goldie: Number one is the lower cost - the reduced trading cost, reduced tax, expenses and lower management fees. And because of that, on average, passive investors must outperform active investors as a group. It’s a mathematical certainty. And that, of course, translates into higher returns. So there’s a return advantage to passive investing, and I also think there’s a risk advantage. When you’re investing passively, you are basically trying to capture market returns, so you are not going to be surprised by your investment manager’s underperformance. Nor are you going to be heavily concentrated in a few number of securities where the risks would be, if those securities do poorly, that your results would be very bad.
SITV: Another benefit of passive investing is its simplicity. There are a few websites springing up now that allow you to invest passively without seeking advice. In general, do people need a financial adviser?
Dan Goldie: I think that most people really should have an adviser. It takes quite a bit of discipline and a fair amount of knowledge and education, and of course you need a vehicle to implement whatever strategy you’re going to follow. So I think it’s hard for most people to put that all together, although there are some people who can handle that successfully.
SITV: As well as tennis of course, you’re well-known as the joint author with the late Gordon Murray of the best-selling book The Investment Answer. What was the idea behind it?
Dan Goldie: The idea of the book was to expose a large number of everyday investors to a new idea, a new way of investing - a way that they probably wouldn't have heard of before. It’s what I call sensible investing - the idea of investing passively and rebalancing, a disciplined approach to investing. We wanted to get this idea out to the public, to everyday investors, to people who won’t normally pick up an investment book, or read anything about financial markets, or watch a financial news show. We wanted people to be able to read it in an hour or two and get enough information to then go to a professional and know enough to hire the right person - and invest the right way.
SITV: How did the book come about?
Dan Goldie: The idea of the book was Gordon’s, and he had already started writing it years earlier. He and I talked a few times while he was doing that - working together and writing together. But we just never got around to doing it properly. What really changed for us was when Gordon was diagnosed with terminal brain cancer, and he was told he had six months to live. That was when I said to him, we’ve got to write that book. He really wanted to get the story out to everyday investors. That was very important to him. We didn't have much time so we put it together very quickly. But fortunately we were both working in the investment field so it was all in our heads already, and it was just a matter of getting it on paper and in the right format.
SITV: Was Gordon able to see the fruits of his labours before he died?
Dan Goldie: Fortunately he saw most of it. He didn't actually see the publication of the number one ranking in the papers. But he knew when he passed away that it was going to be a very successful book. He’d seen a lot of media coverage that we had. He actually held the hard cover copy in his hand before he died. He knew that he had accomplished what he’d set out to accomplish. It’s really remarkable that what started out as a soft cover paperback which we were initially giving away for free has now been published in multiple languages all around the world.
SITV: Passive investing is well-established in the US, less so in Europe and elsewhere. How do you see the balance of active and passive changing in the future?
Dan Goldie: I would say that since human nature is not likely to change anytime soon, the traditional active way of investing will continue to dominate. But I do think that the passive approach will continue to grow slowly as it has over the last 30 years. I just don’t see passive investing ever being the dominant type of investing because people are more interested in excitement and the idea of, or at least the potential for, higher returns. Financial services is basically a sales-driven industry, and they will always continue to come up with investment products that tempt people. People want something that holds the promise of higher returns. Passive investors really have to ignore that noise and the sales tactics and focus on evidence-based investing. The evidence shows that passive strategies - on balance, over time - are going to deliver higher returns with less risk.
SITV: Finally, for the benefit of our younger readers - those in their twenties, say - what’s the single most important piece of advice you can offer them? (Other than investing passively of course!)
Dan Goldie: Perhaps the most important thing is to start saving early. There is a huge advantage if you start young and give yourself more time for that investment to grow. The power of compounding is tremendous and so if you start to save when you’re young and invest in a smart way, you really put yourself ahead of the game. Many people don't do that. They wait until when they’re older and it’s then much harder to build the savings that you’re going to need to retire. In fact in the United States now we’re seeing a lot of people having to work far beyond the age that they thought they would, simply because they haven't accumulated enough money to retire comfortably.
Dan Goldie Financial Services is a fee-only, independent financial advisory and wealth management service operating in the San Francisco Bay Area of Northern California. It currently manages approximately $700 million for individual investors and their families. The Investment Answer by Daniel C. Goldie and Gordon S. Murray, was a New York Times No. 1 best-seller and is still widely available. For tennis fans too young to remember, Dan lost 7-6, 7-6, 6-0 to Ivan Lendl in the Quarter-Finals of the Men’s Singles at Wimbledon in 1989. That year’s champion was Boris Becker. Lendl, of course, went on to coach Britain’s Andy Murray.