Some Investing Advice

When I was a kid, I had a Nintendo plugged into an old black and white TV in my bedroom. The best game I had was RBI Baseball. In it, you can run “watch” mode. So, instead of playing against the computer, you could simulate games where the computer would play itself. I started investing my time running simulated tournaments. I’d keep track of which teams won, and the runs scored. I’d use graph paper to create tables and graphs of the results.

One day, my mom asked me to get her a newspaper. So, I walked into town and brought back the Globe & Mail, and placed it face down on the kitchen table. I could see all these tables of numbers on the back pages of the paper. I asked my mom what this was, and she told me they are stock quotes. She said in Toronto there is a stock market where you can buy and sell shares in companies.

Well, I thought this was the greatest thing ever. No longer did I need to run simulations of video games in my bedroom. Here was a treasure trove of data with real life consequences. I rarely played video games after this.

Soon, I was reading classic investing books like One Up on Wall Street and The Warren Buffet Way. But by this time in the early 1990s, growing up in a small town north of Toronto, we still didn’t have a home computer or access to the internet. And since I wasn’t old enough to open an account of my own, I’d save up cash from part time jobs and give it to my mom, who would call a discount broker in Toronto to enter orders on my behalf.

By the time I was a teenager, I got a job flipping burgers and saved up enough to buy my own computer. The internet came to our town and so I could log into a website to enter my own stock trades. Since then, I’ve continued saving and investing and today I am able to survive from the income of my investments.

Investing Fundamentals

Becoming an investment advisor and now managing a family office has been a great way to learn about how other investors approach their finances. I’ve learned a lot from my clients over the years, both good and bad.

The most successful investors I’ve met are those who have clear investment goals and a consistent ways to achieve those goals. Successful investors have easy to understand investment philosophies and use investment strategies they can repeat, stand the test of time, and can explain to others (including their heirs).

Here is some wisdom that I’ve learned from successful investors I know:

Stop trading, start investing

Many novice investors seem more than eager to brag about their investing success and their innate ability to predict the future. The truth is that nobody can divine the future with any degree of profitable accuracy.

When I hear someone bragging about their ability to pick the best stocks including which ones are going up and which ones are going down, I see this as an obvious sign of overconfidence bias. Because, trading exposes investors to psychological biases, which are the main reason why most investors fail to beat the average.

Being lucky in trading is possible, but compounding dividends are far more powerful in the long-run. Better to invest in the highest quality investments and hold them for your entire life instead of constantly trading one investment for another.

Invest for the long-run

Only invest in things you plan to hold forever. There are so many great investments available on public markets and good quality real estate available to buy, you don’t need to settle for second best (or worse). Invest in dividend paying stocks listed on major exchanges and income producing real estate in desirable locations . Hold your investments for the long-run and compound your returns. Why would you ever want to sell a good investment?

Angel investing is charity without the tax benefit

Stick to the blue chips and don’t bother trying to find the next Facebook or Google (unless you build it yourself). Trying to hit the jackpot as an outside investor probably means you’ll never see your hard-earned cash again. Since profitable businesses generate their own capital, successful entrepreneurs don’t need outside investors.

Getting an average return is ok

Most active investors underperform the average. This means they are spending their precious time for a worse rate of return than can be obtained by simply using passive index funds. Attempting to outperform the average is risky and the results are usually poor. Better to spend your time on things where you can make a better impact. Whether this is your business, your health, the relationships with your family, your art, your philanthropy, etc. There are so many better ways to spend your time compared to picking stock A over stock B.

Big Picture

If you’re already wealthy, then actively managing your investment portfolio will expose you to investing bias and cost you time with the likely outcome of a worse rate of return. History shows us that a passive portfolio will achieve all common financial goals. If you’re not already wealthy and your goal is to become rich, then you should become an entrepreneur and build your own business. Taking the easy route by trying to hit the jackpot in the stock market or as an angel investor will likely result in wasted time & money.