Stocks for Fun and Profit

Stocks for Fun and Profit

Adventures of an Amateur Investor

Recent Posts

2019 SMART Investing Goals

2019 SMART Investing Goals

(Photo courtesy of Pexels) 2018 has been a challenging year for stock and bond investors around the world. Virtually every asset class, in every country is down year-to-date. Perhaps things will change in the last two weeks of the year, but at time of writing […]

Three Recent Articles

Three Recent Articles

(Photo courtesy of Pexels) With the excitement of having articles in the Globe and Mail and MoneySense, I have fallen behind communicating recent articles written for Grainews, one of Canada’s leading agricultural publications. Following are links to three recent articles, all including a key investing […]

Re-Think What You Thought: Part 2

Re-Think What You Thought: Part 2

(Photo courtesy of Pexels) Please share with others on your social media if you find it informative, and if you have read my book please write a review on the site it was purchased. Please have a look at current reviews on Amazon.  Much Appreciated. 

This article is a continuation of my September 17th blog and a summary of the themes during my 30-45 minute presentation.  Most stock investing perceptions are actually misperceptions. I outlined four common misperceptions in the previous blog.  Here are another five:

  • Market investing is just for the wealthy: I started my kids investing their savings in stocks when they were 13 and 16 years of age. Our youngest son had a princely sum of $1,923 and our oldest was much wealthier with $4,933. The annual returns of my youngest son have been 10.1%, 7.1%, 5.2%, 8.7%, 18.5%, 11.1%, 18.2%, and 11.3%. At 22 years of age he now has a TFSA worth over $30,000, based on this modest start and regular small annual contributions. You have to be 18 to start a TFSA so these accounts were started as in-trust accounts, then converted to TFSAs when they reached 18. Our oldest son has done even better, and enjoyed investing so much he decided to take finance in university. Online investing has brought the cost down immensely, making small transactions possible. It is easy to start a viable portfolio with $2,000.
  • You have to sell to make a profit: The three companies I have held the longest are Bank of Nova Scotia purchased for $5.59 per share in 1992, Royal Bank purchased for $16.01 in 1999, and TransCanada Corp purchased for $10.95 in 2000. Today they are valued at about $70.00, $95.00 and $50.00 respectively. In BNS’s case, I have collected approximately seven times my original investment back in dividends. All three companies had 4-5% dividends when I purchased and still have 4-5% dividends on their current price, such that their dividend increases have matched their price increases. Have I not profited? If you have to sell to make a profit should I sell those original shares and then purchase them right back? That wouldn’t make sense would it? This is the most difficult of these misperceptions to convince others of, but I don’t see any logic in selling the shares to crystallize a profit. Then, because I still like all three, to buy them right back. Most of the selling “old wives tales” stem from the brokerage days when brokers had to get clients to buy and sell for them to make money. High trading activity was good for brokers, but not necessarily for their clients. Selling is only necessary when another company buys out the company owned, or when you think the shares no longer represent good value.
  • A 60/40 Equity/Bond asset mix: When was this general guideline first suggested? I googled it and couldn’t come up with a date, but found an article that said it began when interest rates were around 8%. Long-term stock returns are about 10%. With an 8% interest yield, 40% allocation to bonds makes perfect sense. However, at today’s interest rates bonds make very little sense at all. I came across another article from CNBC that said since 1928 a split of 60% stocks (S&P 500) and 40% 10-year US treasuries yielded 9.0%, vs. an all stock portfolio of 11.5%. Those two rates of return sound fairly comparable until you recall the rule of 72, and use it to determine the difference. In about 28 years the all-stock portfolio would have twice the money. If you do the math (which the article didn’t do) the fixed income portion of the 60/40 split averaged just 5.25%, less than half the returns from stocks. And worse yet, if you calculate real after inflation returns the bond portion was only 2.1% real return. The stock portion had 8.4% real rate of return, four times the bond portion. And that’s during a period that interest rates were significantly higher than today! All this sacrificed return for the sake of a perception of reducing risk, whereas only volatility is really reduced (See Sept. 17th blog). Why buy a 3.0% static interest rate bond when, for example, Bell Canada shares are currently yielding 5.7%, and BCE has a habit of doubling that dividend about every 10 years?
  • Bonds are safe and don’t fluctuate in value: This misperception is related to #7, but in fact bonds values go down as interest rates go up, and vice versa. If bonds are held to maturity they can be cashed in at face value. However, if you wish to sell bonds prior to maturity, their value can fluctuate significantly to reflect current interest rates. Say you buy a 2.5% 30-year bond and interest rates rapidly escalate to 5.0%, the value of that bond could drop by 25-35%. If you hold to maturity you will get the face value, but if you want to sell prior to maturity the value will be based on comparable bonds at new interest rates.
  • A house is one’s most important investment: This misperception will require a separate article, which I will do at some point in the future. Personally, I think this misperception is the most dangerous of them all, and a key reason why so many people struggle financially. I maintain that owning a home is a lifestyle choice rather than an investment. I realize there will be wide-spread skepticism of what I just wrote and will clarify in the near future.

If you are involved with a group and would like to hear my full presentation, please email me at you1st.stocks@gmail.com.

MoneySense Article

MoneySense Article

I continued the journey of helping build better financial literacy by contributing my first guest column to MoneySense. Please click on the link to read the article and if you like it please share on your social media. The “Rule of 72” is critical in […]

THE GLOBE AND MAIL

THE GLOBE AND MAIL

The following article appeared in THE GLOBE AND MAIL on Saturday September 29th. Please help with my mission of improving financial literacy and security, by sharing on social media. Thank You. ME AND MY MONEY How this investment author earned more than 11 per cent […]

Re-Think What You Thought

Re-Think What You Thought

(Photo courtesy of Pexels) Please share with others on your social media if you find it informative, and if you have read my book please write a review on the site it was purchased. Please have a look at current reviews on Amazon.  Much Appreciated. 

The theme of my 30-45 minute presentation is that most stock investing perceptions are actually misperceptions. Here are four common misperceptions:

  • You have to watch it like a hawk: No you don’t, if you buy the right kind of companies. I bought shares of Bank of Nova Scotia in 1992 for $5.59 per share. I have collected about seven times my original investment back in dividends, and the shares now trade for about $76.00. How much watching like a hawk did that take?
  • The Market is Risky: There are risky, speculative stocks, but overall the market is NOT risky. Every bear market has given way to a new bull. After the 2008/09 financial crises I was back to my previous high values within 3-4 years and today I am about 2-3 times my 2007 levels. The market is however volatile. Risk and volatility are commonly perceived to be synonymous but they are completely separate entities. Understanding this will significantly enhance investing returns. If you don’t believe me, please Google what Warren Buffett has to say on the topic.
  • You have to be an expert: I might be considered an expert in my field of agriculture, although many acquaintances would even disagree with that! I have never worked in the field of finance. Yet my success and returns would rival and exceed most experts. There are advantages to being a smaller investor, like you aren’t going to get fired for making a mistake. Fund managers often follow the crowd because sticking their neck out and getting it wrong can cost them their jobs. However, with investing, avoiding the crowd will lead to greater success.
  • You need to be able to predict where the market is going: Statistics show that less than half of predictions turn out correctly. Nobody has been able to regularly call changes in short term market direction. Best to simply understand that the market is volatile (not risky), and that average annual returns for the past century have been about 10%.

I will share another four common misperceptions at some point in the future. If you are involved with a group and would like to hear my full presentation, please email me at you1st.stocks@gmail.com

FUN Podcast Episode

FUN Podcast Episode

    Preparing for radio! Fun 20 minute podcast discussing my book with Tellwell Publishing, the company that brought it to life. Key topics: Inspiration for the book. Examples of valuable investing lessons integrated into the book. Experience’s getting my kids started at ages 13 […]

Sorting Through the Mumbo Jumbo

Sorting Through the Mumbo Jumbo

*10-year growth compares 2017 to 2008. Example, Royal Bank’s 2017 dividend was 1.8 times larger than in 2008. This blog is the 7th in my series with Grainews. It beings together all previous columns written. Please share with others on your social media if you […]

Calgary Presentation and Learning Opportunity

Calgary Presentation and Learning Opportunity

For those in the Calgary area, please sign up for this unique presentation and learning opportunity, Aug 29 at Westman Village. Start the fall with new resolve:  Hope to see you!

Interview with My Own Advisor

Interview with My Own Advisor

Stocks for FUN and PROFIT: Questions and Answers about adventures of an amateur investor Fans of this site will know for many years now, I’ve reviewed a host of personal finance and investing books. Over years, these books have improved my financial IQ, matured my […]