Investing

While there is some truth to the oft-quoted “find the investing approach that fits you”, doing your own Investing is not for everyone. If you cannot control your emotions during the actual Buy/Sell process of DIY Investing, you are certainly not alone, but you really need to get someone else to do the job of Investing for you.

Not just Greed and Fear, but also unduly Optimistic or Pessimistic outlooks. The Market will quickly prove, at considerable expense to you, all four of those to be major problems for the Investor.

Lesson 1: be sure that you know yourself well enough to determine whether you should be doing your investing.

Being too set in your ways, to the point of stubbornness, can take longer to become a problem. Just think about how the interest rates for mortgages, car loans or your bank’s savings accounts have changed over the years. A Canadian mortgage in 1981 would have cost you 20.5%, almost seven times as much as 2014, when 2.99% was being advertised by major banks. That should give you a clue that your investment choices need to change over time. What worked in the past may not work now.

Lesson 2: be willing to change your investment strategies as the financial markets change over time.

Whether you look back to The Roaring Twenties and The Great Depression that followed, the huge drop in Oil Prices in late 2014, or any major Financial Crash in between, one thing remains the same: the majority of Investors had great confidence leading up to the beginning of the Crash.

After the fact, the signs of impending doom seem hard to miss. “Hindsight is 20-20”. It seems pretty clear that human beings cannot reliably predict the future.

Lesson 3: be aware that a Sure Thing might not work out so well, at least in the short term.

Even for a Sure Thing, be sure you are investing in something that you might have to hang on to for a while: a quality company that will survive no matter what. Better yet, one that also “pays you to wait” as TD’s Bob Gorman describes stocks with sizable dividends.

What I Do

I consider all of each family’s investment accounts as one big pool of money, and I divide the value of each by 10 to 12. I invest that amount of each pool into a single “thing”.

Why 10 to 12? Because that is almost as many different things as I can keep track of at one time. Currently, those 10-12 things are Canadian Equities (“Stocks”) paying high Dividends. I also keep track of a few more so I know what to buy next.

In today’s low interest environment, it does not make any sense to me to own Bonds or Money Market Funds. With the huge drop in the Canadian dollar’s value, and its daily fluctuations, I stick to Canadian investments.

No matter how good the immediate future looks for the Stock’s price, a good Dividend gives you income if the stock price takes a lot longer than you expected to rise.

An All Equity Portfolio means a lot of Volatility. I do not get stressed if the accounts that I manage had a combined loss of $5,000 over the last two weeks, i.e. – the current value of all the investments is $5,000 lower than it was two weeks ago. Because I do not sell at a stock’s low point.

So, how do I measure myself? At the end of each year, and sometimes through a calendar year, I check my spreadsheet that calculates the following for each of the 10 investment accounts that I manage for myself, my wife and my mother:

  • Dividends and similar income
  • Minus, Fees for Buying and Selling Stocks
  • Plus, Cash received for all Stocks Sold
  • Minus, Book Value = Cash originally paid for each of the Stocks Sold

Although individual accounts are very occasionally negative for a single year, each family’s combined total has always been very much a positive figure each year.

To answer the obvious question: Am I carrying any large paper losses? Yes, for the Canadian REITs that I bought near the peaks in 2012-13 that had large holdings in Alberta. They have consistently paid me 8-10% dividends since then, but admittedly that percentage is measured on their current price, not the 2012-13 peak price.