WARNING: Falling Knives and Raging Bears!

It truly amazes me how predictably irrational human beings can be (myself certainly included at times).

We like to think of ourselves as logical and rationale creatures, yet our actions beg to differ.  Nowhere is this more apparent than in the stock market.  We have centuries of evidence that tells us that markets go up and markets go down – sometimes quite drastically.  Yet we also know that every single time that markets have crashed, those who ignored the noise and held on always do better than the folks that panic.  And still, this past week, the newspaper’s financial headlines were dominated with ridiculous phrases meant to press the fear button, and people responded in weird and wacky ways.

Click Here to Ignore “This Time Is Different”

Despite consistently preaching from the ignore-the-noise & investing-for-the-long-haul prayer books, I had several folks email me this week in tones ranging from very disturbed to severe panic and frustration.  They had done the math and realized they had “lost thousands of dollars off of their net worth”.  To these folks, it bears repeating how this whole stock market thing works.  If you own shares or units (in the case of ETF or mutual fund investors) and they go down in value, you do technically have a lower net worth; however, you still own the same number of units/shares as you did the day before, and as long as you don’t need the money any time soon you can be reasonably certain that a well-diversified portfolio will continue an overall gradual ascent pattern over the long haul as it vacillates up and down erratically in the short term.

Up, Down, or Sideways

WARNING - Falling Knives and Raging BearsI make it a point to try and rip off things smart people say in the hopes that I bask in their reflective glory.  One such nugget of wisdom that I routinely spout originated with Preet Banerjee (or at least that’s where I heard it first) and he states that when people ask him which way a stock, interest rates, or “the market” is going to go, he tells them that he knows exactly – they will go either go “up, down, or sideways”.  In other words, if you listen to people that claim they can predict where this stock market is going in the short term, you should be listening purely for entertainment value, because their largely full of BS. Continue Reading

Youngandthrifty’s Investment Owner’s Contract

As discussed in a previous post that explains the change or makeover to my investment portfolio, this investment owner’s contract is long overdue.  I had meant to create one (well, five years ago) when I initially read The Intelligent Investor, but never got around to it.

The investment/ diversified portfolio comes from one of my favourite go-to sites, by Dan Bortolotti (an author of Moneysense magazine among other publications), Canadian Couch Potato.  The dollar amount I am contributing will vary, but I am aiming for $500 to $1000 a month.  I will also plan to rebalance once a year to make sure that the asset allocation continues to pertain to my investment portfolio.

I will continue to have some dividend stocks, and will continue adding to them, but I will be cognizant of not adding too much Canadian exposure to my investment portfolio.

The weighted MER is 0.19%.  With Questrade, buying ETFs is commission free (any ETF that is traded on the North American market) but selling ETFs incurs a commission.  Unfortunately I will have to do this manually because Investment Owner's Contractit is an ETF but this will be okay as I will make sure I contribute regularly on a monthly basis (e.g. set up a reminder for myself for the second Friday of the month).

Here’s a little more detail about the ETFs:

  • VAB- Bond aggregate index, invests in public and investment grade Canadian bonds, top holdings are government bonds.
  • XIC- 100% are Canadian holdings, with the top holdings to be RBC, TD Bank, Valeant pharmaceuticals, BNS, Canadian National Railway. The MER is 0.05%
  • VXC- Approximately 50% of the holdings are in USA, with the top holdings to be Apple (I’m a little hesitant about this being the top holding), Microsfot, Exxon, Wells Fargo, Johnson and Johnson, GE, and Berkshire Hathaway.  The rest are 23% Europe, 15% Pacific and just under 10% to be Emerging Markets.  It has a 2.3% dividend.  The other concern is that it is just over 1 year old.

Likely the VXC All-World Ex Canada will end up needing to be outside my RRSP, maybe my TFSA… this will be more tax inefficient but there is no other choice as I will have maxed out my RRSP and I do not want to sell my TD e-series at present.

Therefore, as quoted/ slightly modified from The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham Revised Edition (2006), on page 225: Continue Reading

Re-Reading The Intelligent Investor by Benjamin Graham

On my recent holiday, I had the opportunity to re-read The Intelligent Investor by Benjamin Graham.  Some (one? two?) of you may recall that I reviewed it back in 2010 (I can’t remember) on a trip to Hawaii.  Here is the original book review of The Intelligent Investor.  It is such a big book it almost reads like a reference book (in fact, there is an index at the back of the book).  I’m frankly surprised it took me another 5 years to re-read it again because as I read it again I felt like I got much more out of it the second time around (and perhaps five more years of personal finance and investing experience).  I have been meaning to read this book again for about a year or so, but never found the time to, unfortunately.

As it managed to do the first time I read it, it was an eye-opener to the things I did know and the things that I still do not know about investing.  Reading it a second time around, I learned even more than the first time.  I learned that I am still not learning despite learning so much in the past few years on investing.  I learned that picking your own stocks takes a lot of time, effort, knowledge, know-how, all of the things that I don’t really have or have been doing with my stock picks.

If you don’t know, Benjamin Graham was considered the greatest investment advisor of the 20th century.  He was a value investor and taught Warren Buffett too.

What I Learned From Reading The Intelligent Investor…Again

The intelligent investorI learned that it is best to be a defensive investor.  I know I was being defensive, but I do not think I was being defensive.. enough.

I also again learned the things that you can control and you can’t control.  As per The Intelligent Investor, you can control your brokerage costs, ownership costs, your own behaviour, and your risk.  Most people want to buy when the going is good and sell when the going gets rough.  I had my own experience with this with my preferred shares.  When they tanked I was tempted to sell.  Re-reading The Intelligent Investor reinforced that you really need a rational approach and a logical approach to investing.  You have to be rational and logical when other people are not.

Related: Dividend Investing vs Index Investing

In addition, I was reminded me of the crash related to the tech stocks and how people and online/ Internet brokerages have increased the ability for a stock to get so hyped, that people buy without realizing the actual worth of the company.

It is All About the Principles, Baby

It is not about the Benjamins, but it is about the Benjamin Graham’s Principles…  His principles, to always buy low and sell high, to not get caught up in the hysteria that is the Mr. Market, to not act on emotion or impulse when other people are, and to realize that no one cares more about your money than you do, are key takeaway points from the book that the investor can apply to his or her own personal finance situation.

Benjamin Graham said it is the character of the investor, the discipline, the patience, the interest in learning and the ability to control your emotions is the true intelligent investor, rather than someone that has a high IQ and high level of education. Continue Reading

Pin It on Pinterest