(Photo courtesy of Pexels) So you have emptied your piggy bank, read my book, and are now motivated to start a stock investing account. Or you already have accounts at a few different places and want to consolidate them to start managing yourself. Perhaps you […]
(Photo: Thinkstock) This is the second column written for Grainews. Get started soon, with a small portfolio, to build financial returns for your future. Have you kept our secret? You know, our secret about building wealth over time in the stock market. The secret that it’s about buying […]
My book, STOCKS for FUN and PROFIT ~ Adventures of an Amateur Investor, has been out since early November and I thought it would be great to hear from readers, your thoughts of the book and blogs so far. It has at times been the #1 stock investing book on Amazon.ca, and has also had reasonable results on Chapters.indigo.ca. Reviews to-date have been exceptional. I sincerely appreciate your feedback in order to make my blogs responsive to the desires of readers.
Would you please be kind enough to take a few minutes to e-mail me at firstname.lastname@example.org your comments and responses to the following questions?
- Have you purchased the book?
- If so, have you completed it OR what chapter are you on?
- What were your favorite chapters/parts?
- What were your least favorite parts?
- What questions do you have? (These questions could make up topics for future blogs)
- What was your overall impression and comments on the book? How would you rate it?
- Has it helped you become a more confident investor?
- What are your overall comments on my blogs to-date?
I realize the last couple months have been somewhat turbulent in the markets. It is these turbulent times that create the best opportunities. My desire is to complement and reinforce the book with the blogs, to help readers continue to build financial success.
Thank You, in advance, for your responses.
I recently became a contributing columnist for Grainews, a leading agricultural magazine. My profession is agriculture, so it is an honour to be able to write a column on off-farm investing for the agricultural community. I thought I would share the first article here. Tax-Free […]
1972, for those of us old enough to remember, was a year that will forever be etched in our brains as the most important year in hockey history. It was the year of the famous Summit Series between Canada and the former Soviet Union. Canada and the Soviets were widely recognized as the dominant hockey countries, yet our best players never competed against their best. Our best were professionals in the NHL, and at the time professionals were not allowed to compete in the Olympics. The Summit Series was organized to determine true hockey supremacy. The dramatic eight game series went down to the wire and was only determined when Paul Henderson scored with just 34 seconds remaining in the eighth game. What drama! This series paved the way for many more hockey exchanges prior to professionals being allowed to compete in the Olympics and in a small way, I believe, also helped thaw East/West relations during the Cold War.
72 is also the most important investment number that should always be etched in our brains when we think about investment returns. In my book, I dedicate a chapter to understanding how it impacts investment returns, and why small differences compounded over long time periods make big differences in end results. I am perpetually surprised by how few people know the “Rule of 72,” as I have known it since I was a youngster, probably before the 1972 Summit Series. It is a very simple but critical investment rule: 72 divided by the annual rate of return equals the number of years to double your money. I don’t know why it works, but it does, and is a great way to approximate the value of a current investment at some point in the future.
If you go to the bank and buy a $10,000 GIC (Guaranteed Investment Certificate) at 2% interest, it will take 36 years to double your money (72/2=36). 36 years from now that certificate will be worth $20,000.
If you buy stocks and achieve 12% annual returns, you will double your money every 6 years (72/12=6). In the same 36 year period you will experience 6 doubles: $10,000 x2x2x2x2x2x2 = $640,000. Which would you sooner have 36 years from now, $20,000 or $640,000? Many will argue that 12% annual returns isn’t realistic but I have achieved 11.7% over 25 years in my RRSP, and have other accounts ranging from 9% to 17% with shorter time frames.
Let’s look at another scenario: How much difference will there be between 6% and 8% annual returns, over 36 years? The seemingly small 2% difference, similar to equity mutual fund fees, compounds to represent twice the difference. The money doubles every 9 years with 8% returns (72/8=9), for 4 doubles in 36 years. With 6% returns the money doubles every 12 years (72/6=12), for 3 doubles in 36 years. Therefore with 8% returns, $10,000 would become, $10,000 x2x2x2x2 = $160,000, but with 6% returns, just $80,000 in the 36 year period.
The “Rule of 72” can also be used to calculate other compounding factors. If inflation averages 3% per year what will a $10.00 item cost in 24 years? If your city is growing at a 4% annual pace what will its population be in 18 years?
The compounding effect of the “Rule of 72” is why I am such an advocate of:
- Stocks vs. lower return investments, while accepting the volatility of stocks.
- Investing vs. speculating, as 9-12% annual returns builds significant wealth over time.
- The younger you start the better.
- Starting with small amounts is very productive, and
- Managing your own money (while not the answer for everyone) and saving fees can lead to big differences in outcomes.
Market volatility has returned with a vengeance. The markets had been unusually stable throughout 2017. It was actually record breaking stability, with the fewest number of days with one percent or more daily changes. Said another way it had the most days with small daily […]
One of the most frequent questions, aside from bitcoin and marijuana addressed in last week’s blog, is how to get started with a small portfolio. In the CBC Radio interview I referred to the success of our two sons, who started back in 2010 at […]
Are cryptocurrencies and marijuana stocks investments? I can’t seem to have a conversation on my book, without being asked about these two hot areas. Chapter #7 of the book is titled “Investment, Expense or Speculation: Which is it?” All three of these items are often called “investments” as this word evokes a more positive image than the other two words. The difference between “speculations” and “investments” is the huge difference in probabilities of success. The probability with true investments is very high, but with speculations is quite low, although sometimes a speculation can pay-off dramatically. This is the allure of speculations.
The nature of speculations is that they rise dramatically then fall dramatically. Nobody knows how far they will rise and when they will fall, despite supposed experts who profess to know. Speculations often end with buyer regret. Even if a speculator has a big windfall, they tend to re-speculate in the next hot area, in what I would refer to as gamblers syndrome. It would be extremely unlikely for a speculator to experience success twice in a row. What is unfortunate is that many, who try speculative stocks and fail, often give up on stocks altogether missing out on the markets tremendous wealth creation ability.
Cryptocurrencies and marijuana stocks, in my opinion, clearly fall into the speculation category. Blockchain (the software behind cryptos) and marijuana will likely become industries but it is very difficult for us smaller investors, and even larger ones, to determine ahead of time which companies will survive. Hundreds if not thousands of dot.com companies were born in the late 1990’s with the vast majority going broke. As an example of the speculative fervor around Blockchain, a failing beverage company called Long Island Iced Tea changed its name to Long Blockchain (LBCC) and its stock price quadrupled in a day. Better known Kodak made an announcement that it was going to invent its own cryptocurrency, KodakCoin, and its share price more than tripled. The Kodak example illustrates one big problem with cryptocurrencies. While Bitcoin supply may be limited, there is unlimited supply of new currencies just like in 1999 there was unlimited supply of new dot.com companies. As for marijuana stocks, I don’t think any are currently profitable, and their valuation has simply gone into the stratosphere.
I’m not about to tell anybody what to do, but I am an investor, not a speculator. I’m perfectly happy getting my average annual returns of 10-15%. I have found that reaching for more extreme returns usually leads to bad decision making. In my opinion you invest in investments, and you speculate in speculations. INVESTING in SPECULATIONS is an OXYMORON.