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

Using Marketplace Lending to Get Out of Credit Card Debt

The first commandment of personal finance is not to carry a balance on your credit card.

If you have just recently seen the light when it comes to keeping track of and improving your personal finances, then you might have a pesky credit card balance that keeps weighing you down.

One of the main reasons all money experts agree that not paying your card off every month is a terrible idea, is because of the high annual interest rates that are applied to that borrowing. But with Canadians currently holding over $80 billion in credit card debt, (according to Equifax) at a rate of 19.9% or higher, the amount of interest people are paying for the privilege of not paying back the credit card company in full at the end of every month generally dwarfs the interest rates charged on other lending.  Interest rates on things like mortgages, car loans, student loans, and lines of credit are almost always significantly lower than the ones on credit cards.

Consequently, if you’re like many Canadians who have accumulated credit card debt, it might be to your benefit to look into combining your debt into one easy-to-pay off loan or line of credit.

NOTE: Here is what NOT to do: Use a loan to wipe your credit cards clean, then proceed to ignore that loan AND dirty up your credit card balance by using them and not paying them off again at the end of the month.  If this seems like an extreme situation, you should know it’s not as uncommon as one might guess.  If you have created a set of unrealistic consumer spending habits for yourself it can be very difficult to reform those tendencies overnight.  So, no matter what solution you choose in terms of paying off your credit cards, DO NOT then go and reverse all of your good work by continuing to borrow at high interest rates.

Related: Getting Started With Student Debt, TFSAs, RRSPs, and HISAs

Using a loan or line of credit to consolidate (aka bring all of your credit card debt to one place) has two primary purposes:

1) By putting all of your debt in one place, it gives you a more accurate portrayal of how much money you have actually borrowed.  It also makes it a much simpler process to pay off if you only have one number and one account to focus on.

2) Chances are that the new loan or line of credit will likely have a lower interest rate than your credit card balances do.  This means that when you make your monthly payment, more of your money will go towards paying down the actual money you borrowed (called the principle), then it would if you were still paying the higher interest rate on your credit cards; therefore, you can pay off your debt quicker for the same amount of money out of your pocket.

If you are carrying a balance on your credit card, you may want to consider the new “Marketplace Lending” model that has caught on in the UK and USA, and is becoming more popular in Canada.  You might have seen commercials for these types of companies such as Lending Club and/or Prosper on American TV stations.

Related: 7 Ways to Know You’ve Got Too Much Debt

Marketplace Lending is not code for “magical solution”.  You will still owe just as much money as you did before, but the idea is to make it cheaper and easier to pay off that debt.  In most cases marketplace lenders provide a much better solution than payday loans. (Click here if you have not seen the John Oliver piece on payday loans and the insane world they inhabit.)
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Young’s Investment Portfolio Makeover

I suppose the impetus to start a slow process of my investment portfolio makeover was from a number of different events that made me go “huh… maybe I should do something about that”.

Initially I was really happy with the plan for the extra money I had saved up if and when I needed a down payment for a home with my future prince charming.  However, as the months and years passed, the plan didn’t cut it for me anymore.

Here are a Few Reasons why my Portfolio Needed a Change:

  • One example is that the markets are so flat so far this year and my portfolio has been pretty flat
  • Another reason, my financially savvy (swoon) boyfriend had a look at my portfolio and was surprised by the number of stocks that I had in my TFSA, my RRSP, and my non-registered.
  • Deep down (actually, not that deep down, both deep down and on the surface level but I just ignored it really) I knew that my asset allocation was off because I never really sat down to check my asset allocation.
  • My preferred shares tanking and making up such a large portion of my total portfolio
  • Not being able to buy more USD stocks because they were in my RRSP and my RRSP contribution room had already been filled
  • I had three ETF portfolios but I didn’t like to split them up between my TFSA, my RRSP, and my non-registered, and I liked to have ETF portfolios (or different ETF portfolios) in each account in their own little portfolio.  The desire to have each ETF portfolio (mind you, they were different portfolios) in each account could have been my pseudo-OCD tendencies acting up, I’m not sure.

Well, three different portfolios in their own microcosm and duplicating themselves doesn’t make a right, unfortunately.

The Painful Process of Change:

Young's Investment Portfolio MakeoverAs with most processes of change you need to take a good look at the current situation. So I did a few things.  I calculated since the beginning of 2015 my return year to date, quarterly and compared it to the benchmark.  Also, I finally checked out my asset allocation for my ENTIRE portfolio and was a little appalled by the end result.

Here below is my current asset allocation of my entire investing portfolio:

  • 13% Bonds
  • 15% cash (not including the cash savings I have outside of my investment portfolio, which some people count as part of their portfolio)
  • 52% Canadian
  • 10% US
  • 8% International (including Emerging Markets)
  • 1.4% REITs/ Real estate

There is obviously something glaringly wrong with that (other than the terrible asset allocation and it being a mess).  The high percentage of Canadian allocation is… well…very high! Continue Reading

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