(Photo: Pexels) This is an excerpt from my latest newsletter, expanding on how fear based media and marketing have become so prevalent. As I was leaving my book signing session on Saturday, the radio news featured a clip that went something like, “Experts predict that […]
(Photo courtesy of Microsoft Clip Art) This blog is the 5th in my series in Grainews. It beings together all previous columns written. Please share with others on your social media if you find it informative, and if you have read my book please write a […]
(photo courtesy of Pexels) This blog contains excerpts from my latest newsletter and an important message. 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. Much Appreciated.
A phobia is defined as an extreme or irrational fear of something. I googled phobias and there is a fear of money officially called chrematophobia, but no official fear of stocks so I will just refer to it as stock phobia.
Why are so many individuals afraid to invest in stocks when they represent one of the best wealth creation avenues available? The fear of stocks was highlighted by a recent Globe and Mail article written by Rob Carrick titled, “There’s no such thing as a low risk way to invest in stocks.” I had previously been in email contact with Rob and had sent him my book. After reading the article I sent him another email which is copied below:
Hope all is well. It’s been a while since I checked to see if you had a chance to look at my book, but I was prompted by your article in last Saturday’s Globe.
While I generally appreciate and agree with what you write, I would like to debate “There’s no such thing as a low risk way to invest in stocks.” In the article “risk” and “volatility” are used interchangeably. In Chapter #28 of my book, “Is it Risky, Volatile or Both,” I argue that risk and volatility are completely separate entities, and in my concluding chapter I write, “The real risk resides in oneself and one’s reaction to volatility.”
I know you are very busy, but would you be kind enough to read Chapter #28, and my concluding chapter, to see whether it might influence your thinking on this matter. The reason I think this is important is that the perception of risk keeps so many people out of stocks, and accepting the very mediocre results of interest bearing investments.
By the way, I have pretty good company in my thinking. According to Warren Buffett, “Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time … That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk.” (From article written by Dhirendra Kumar, April 28, 2016)
Thanks and I look forward to your response.
A disconcerting trend is that direct stock ownership by individuals has declined dramatically over the past few decades. What I find perplexing is that the advent of internet investing has made direct ownership of stocks much cheaper and more accessible than 30 years ago. So while the ease and cost of direct investment in stocks has improved dramatically, the number of people doing so is in dramatic decline.
There are a number of plausible reasons for this phenomenon including the constant bombardment of information that makes investing sound more difficult than it is, and focusing on the fear, or negative side of the story. Whatever the reason, scaring people out of the stock market is keeping the middle class from achieving financial security. The only way to build financial security is through the ownership of income producing assets. Stocks represent one of the key classes of income producing assets.
One interesting statistic and article I read was, “The Richest 10% of Americans Now Own 84% of All Stocks,” from Money magazine. So here is the chicken and egg question, did they become wealthy and then invest in the market, or did they become wealthy by investing in the market? I would surmise that many, if not most, became wealthy by investing in the market. That begs another question, which side of the equation would you prefer to be on? Do you need to overcome chrematophobia, or stock phobia?
(Photo courtesy of Pexels) This was the fourth column in my series for Grainews. There are many reasons to diversify outside of the country. My first three columns have covered a lot of ground, but there is more to cover. The stock market presents endless […]
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 […]
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 […]
I am about to once again question one of the sacred beliefs of many market participants and pundits. It is my belief that market level is not important to our success investing in it. What? That doesn’t make any sense, does it?
Here is my simple thought process, which I have followed through the years. If:
- Nobody can predict when a change in market direction will occur, with any level of consistency (please review blog titled “Making Money is More Important than Making Predictions”), and
- The market returns on average 10% per year, then…
WHY would one not always stay fully invested? I have always been fully invested, letting dividends accumulate and buying extra stock with them, often after a dip such as recently occurred. I don’t try to predict when those dips might occur, but take advantage of them when they do. Being fully invested has earned me almost 12% annual growth rate for 25 years. It also saves me the sport of constantly second guessing previous decisions and leads to higher and more stress free returns.
It is my premise that there is always value, somewhere in the market. When overall market levels are high there are more over-valued stocks than under-valued ones, and when markets are low there are more under-valued than over-valued, but there is always some of each.
Let me illustrate. From 1995 to 1999 the market was in the grips of the dot.com speculative era. The US market in particular became extremely distorted with speculative stocks appreciating astronomically, while real companies making real profits languished. The US S&P 500 index was up 37.5% in 1995, 22.9% in 1996, 33.3% in 1997, 28.6% in 1998 and 21.0% in 1999. This ushered in the 2000-2002 bear market, and dot.com crash. In 2000 the US market was down 9.1% and the Canadian market (TSX) was up 9.3%. My RRSP, which is a combination of CAD and USD, was up 18.1%. In 2001, the US market was down 11.8% and the TSX was down 15.1%, yet my RRSP was up 4.2%, and in the last year of that long difficult bear market, the US market was down 22.1% while the TSX was down 13.7%. My RRSP portfolio finally succumbed to the bear, but was down a very modest 3.4%.
How did I do so much better than the market during this difficult period? As mentioned, the market was taken over by speculators, and speculative companies went parabolic. I am an investor, not a speculator, and found lots of real companies making real money that were undervalued. This era was prior to watching 24/7 updates on websites. We relied on the evening news and the morning newspaper stock charts. When the evening news had headlines that NORTEL (the most infamous Canadian speculative company) was down another five percent, and the US Nasdaq technology index was down, I grew excited as normally that meant I had a good day. The next morning stock charts usually confirmed my suspicions. When speculators got tired of losing money on their speculations, they would switch to true investments (real companies making real money) and these companies would go up.
Today’s market doesn’t come close to the distortions of that era, but I still find decent value amongst the solid money making companies like our banks and the other companies mentioned in “Start Small, Gain Confidence and Prosper.”
What I am writing would be quite controversial but in reality, overall market level will have very little to do with our success as an investor in it. The newswires are constantly talking about the endless bull market, and how high stocks are. While the US market has done well the Canadian market has not, which will be discussed in a future blog. While market levels may be a bit high there are still areas of value. When you have a good course it’s best to STAY THE COURSE!