The sure thing

DOUG  By Guest Blogger Doug Rowat

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When I was 27 I bored easily. So, when I was advised to invest my money for the long term and to focus on risk-management, it came across as a painfully dull strategy. Where were my get-rich-quick ideas? It was the dot-com boom—I wanted flavour-of-the-minute Internet stocks. My ‘NSync frosted tips and Nokia 3310 cellphone didn’t come cheap.

So, armed with my six whole months of investment industry experience, I went out there and did just that—loaded up on unprofitable and outrageously expensive Internet companies with, of course, virtually zero trading history. There was no consideration given as to whether or not my enormously risky investments might fail spectacularly. How could that possibly happen?

But, of course, most did.

Internet-software company 7/24 Solutions, for instance, which I bought because one of my old firm’s technology analysts could barely contain his joy every time he mentioned the company’s name, tanked almost instantly. As the cratering continued, the head institutional trader caustically joked at morning meetings that the analyst’s target price, which remained idiotically high, should simply be lowered to $7.24. As it happened, our trader was pretty close to the mark. I think the company eventually got bought out for a few bucks a share, but its exact fate is lost to the scrap heap of tech-wreck history. Here’s the ride I took (and yes, the stock once traded as high as $2,700):

Downhill skiing: My wild rise with 7/24 Solutions

Source: Bloomberg

Aside from sounding boring, one of the problems with invest-for-the-long-term guidance is that advisors rarely present in detail the historical returns that the major world equity and bond markets have been able to achieve. In other words, investors fail to get a clear picture of what their potential long-term returns might look like if they were to simply adopt a diversified, broad-market approach. If the advice had had some cold, hard performance data behind it, I might have listened more.

Interestingly, the concept of examining overall-market returns is a relatively new one and when this data was first presented it was revolutionary. Michael J. Mauboussin highlights as much in his book More Than You Know: Finding Financial Wisdom In Unconventional Places:

…the first comprehensive study of the performance of all stocks wasn’t published until 1964. In that paper, University of Chicago professors Lawrence Fisher and James Lorie documented that [US] stocks delivered about a 9 percent return from 1926 to 1960. Peter Bernstein notes that the article was a “bombshell” that “astonished” academics and practitioners alike. The description itself caused a stir in the finance and investing worlds.

Today, of course, we have a much clearer picture of long-term returns, but even still, for most investors, the exact numbers are vague. Have Canadian equities, for example, returned 9% long term? Or is it 8%? Perhaps 6%? (Answer: closer to 7%.)

So, below I provide the actual 30-year annualized total returns for each of the major world benchmarks. It’s basic information, but still a helpful starting place for long-term investors.

These returns, of course, can’t be guaranteed in the future, but they provide reasonable assumptions for future financial planning. Different markets outperform and underperform at different times, obviously, so it would also be helpful to have an advisor who actively tilts your portfolio towards the more favourable markets; but still, you could do worse than to simply equal-weight each and hold long-term. I’d bet that achieving similar returns in the future would get most investors to where they ultimately wanted to be financially.

Or you could try and hit the jackpot by finding the next Amazon.com. But, be honest with yourself, you’re more likely to end up with the next 7/24 Solutions.

Quotable scoundrel Wilson Mizner, who certainly knew a thing or two about failed investments, said it best: “Gambling: the sure way of getting nothing for something.”

I learned the hard way. Same with my frosted tips.

Long-term returns for key global benchmarks

Source: Bloomberg: returns to end-June 2019, *only 18-year history available
Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

 

58 comments ↓

#1 Debtslavecreator on 07.13.19 at 2:55 pm

High quality dividend payers and small caps in emerging markets are a great opportunity in sharp corrections
10 year trade but so cheap
Any sharp usd rally over the next 2 yrs will provide great long term entry points

#2 crowdedelevatorfartz on 07.13.19 at 3:00 pm

Another excellent, easy to understand, summation of a long term investment strategy.
Well done.

#3 Yanniel on 07.13.19 at 3:21 pm

Historical performance. Right. Many do not see that repeating over the next decade. Unfortunately many are counting on such returns to accomplish their financial goals.

Research Affiliates have a nice simulator of asset classes returns. You can run simulations based on historical performance; but you can also run simulations based on expected returns.

A global market cap portfolio is expected to deliver 1.6%. The typical 60/40 portfolio (I know Garth’s portfolio is different) is expected to deliver 0.3%. Wow, just wow.

Emerging Markets is the winner and it is expected to deliver 7%; but with lost of volatility.

I think portfolio managers and advisors should also take this risk into account. They should make their clients aware of these studies and simulations. And more importantly, they should diversify across strategies; not just across asset classes. No one can really know what the future will deliver. It is better to diversify along many axis; not just asset classes. That is my opinion in any case.

#4 Smoking Man on 07.13.19 at 3:24 pm

Very simple system.

USDCAD BUY 100 Contract, SELL 100 contracts.

Which ever side wins load up another 100 contracts with every 1/4 cent move. Using the house money 400 to 1 margin. Soon as you lose momentum unload your profit and repete the Bet.

Used AI for this model.

If I was a Portfolio manager I would pay Close attention to AI. Harvest its power.

Learn to code kids.

#5 Oh yeah ... on 07.13.19 at 3:33 pm

I remember well a bunch of guys at work who were doing very well on a certain stock. Was always the talk-du-jour in the lunchroom.Then one guy that had no idea about stocks bought in with his retirement money. I figured that must be the time to get out and … down she went … Out of probably a dozen guy’s who were paper millionaires only one cashed out and realized the gain. The rest all took the ride to the bottom …

#6 Doug Rowat on 07.13.19 at 4:21 pm

#3 Yanniel on 07.13.19 at 3:21 pm

Historical performance. Right. Many do not see that repeating over the next decade. Unfortunately many are counting on such returns to accomplish their financial goals.

Research Affiliates have a nice simulator of asset classes returns… The typical 60/40 portfolio (I know Garth’s portfolio is different) is expected to deliver 0.3%. Wow, just wow.

The only ‘wow’ is that you omitted a date range. Helpful.

There’s US$72 trillion invested in capital markets globally with these assets being moved around by literally millions of ‘simulators’. How many scenarios should I make clients aware of? The insanely bullish scenarios as well? Or only the bearish ones because they fit with your world view?

All forecasts have to begin somewhere. Historical returns are a useful starting point.

–Doug

#7 JacqueShellacque on 07.13.19 at 4:31 pm

“A global market cap portfolio is expected to deliver 1.6%. The typical 60/40 portfolio (I know Garth’s portfolio is different) is expected to deliver 0.3%. Wow, just wow.”

The best, perhaps only, predictor of future performance is past performance. No matter how sophisticated the prediction model is, predictions are still not far from useless.

Was watching one of those antique roadshow episodes not long ago, a woman had purchased a portrait of Andy Warhol, actually commissioned by him, in 1977. The assessor asked her how much she’d paid for it ($5,000) and told her it was now worth $75,000. She seemed pleased for some reason. I chuckled and did a little googling – since 1977, the annual rate of return for the S&P 500 is almost 11%. So $5000 invested in 1977 invested in the S&P 500 in 1977 would be around $390,000. Proof that the brains of homo sapiens just isn’t wired to understand money.

#8 Post on 07.13.19 at 4:42 pm

https://www.bloomberg.com/news/articles/2019-07-12/canada-new-zealand-show-signs-of-housing-bubble-says-study

#9 Post on 07.13.19 at 4:43 pm

https://globalnews.ca/news/5482006/vancouver-property-tax-increase-council-expenses/

#10 SmarterSquirrel on 07.13.19 at 4:44 pm

I remember those days of the tech bubble. I remember not knowing much about investing and losing a lot. But then I also remember learning more about investing and I’d research a company like MED which I bought for $8 and sold for $9 thinking that was enough of a gain. I had researched it and knew obesity was increasing and this diet and consultation service should do well but I had heard to take profits. Today the stock is $113. Now I’ve finally learned that when I find solid companies with great growth ahead to simply keep holding them until I see a problem with the growth ahead. Now I hold stocks for the long term and it’s working well for me, whether it’s dividend growth stocks like Brookfield Infrastructure (BIP.UN) or growth stocks like Shake Shack (SHAK) which I plan to hold until Shake Shacks are ubiquitous around the world. I also hold ETFs to help with access to markets where it’s a little more difficult to buy individual stocks.

But for me doing a lot of research and analysis then results in finding a few long term hold stocks that I plan to keep for a long while.

#11 Post on 07.13.19 at 4:53 pm

In July 2018 there were 32 detached home sales in West Vancouver – a record low. For comparison, there was 80 detached home sales in July 2015.

This July (pretty much half way through the month), there has been 10 detached home sales. Not looking good.

http://www.johnjennings.com/Blog.php

#12 Yanniel on 07.13.19 at 5:10 pm

#6 Doug Rowat on 07.13.19 at 4:21 pm

“The only ‘wow’ is that you omitted a date range. Helpful.”

I did not omit the date range. I said “over the next decade”. That means from today to 10 years into the future. Wow.

Also, I spelled out the name of the provider of such simulator so that readers and writers of this blog could judge on their own.

“There’s US$72 trillion invested in capital markets globally with these assets being moved around by literally millions of ‘simulators’. How many scenarios should I make clients aware of?”

That’s for you to answer. You can use your discretion. I personally would like my advisor to at least tell me what heavy weights like Vanguard, Cape, AQR, Research Affiliates are saying.

“The insanely bullish scenarios as well? Or only the bearish ones because they fit with your world view?”

My view of the world is that I don’t know what’s going to happen. Given that I’d like to contemplate varios opposing views. I don’t favor any view over the others. Do you?

“All forecasts have to begin somewhere. Historical returns are a useful starting point.”

That sounds a lot like all your eggs in one basket.

#13 Ustabe on 07.13.19 at 5:34 pm

The tech bubble meltdown ultimately turned out great for me. It blew my brother out of the bathtub and caused him to come whinging to me for help when he wanted to buy a couple of really shabby rentals from a fellow who was similarly afflicted.

50 cents on the dollar real estate was the start and flash forward 30+ years of patiently acquiring/upgrading/selling/buying/renovating and here I am.

As they say…comfortably retired.

Still finding the deal tho…Story Time!

On our last trip we found ourselves in a small village a couple of day’s drive into the North West Territories. The Dene there do artisan work with birch bark and porcupine quills. Falling in love with this stuff I bought a load…a lot really. For a co-op that sees a single digit number of outsiders a month, my purchases were substantial for them, for me…a bit of coin yes but nothing outrageous. The manager of the artist’s co-op told me my single day’s purchases were well over her entire winter’s sales and we are talking a couple of grand, not big money at all.

My plan was to return home and dribble them out through a friend’s store over time.

however we found ourselves in a gallery in Whitehorse a few days later and my wife ended up talking with the manager and told him we had a substantial amount of this stuff after seeing it on his shelves.

Long story short, he ended up with it all (except our keepers), offering me more than 2 times my purchase price. He was happy, getting inventory at less cost than buying from the co-op, I was happy as I had just been paid the majority of our campground fees and gas.

An almost free month long trip, I also added some very fine pieces to our First Nations collection.

See? It can be done, having fun in Canada, making some friends along the way as well as gathering some coin.

#14 Spade on 07.13.19 at 5:47 pm

Most canadians view on investing is now synonymous with risk. Stock market? Risk. ETF’s? What are those again? Diversification in an asset class that you trade on the stock mar…STOP! You said stock market again! No thank you!! Let’s talk about my 18% housing assessment increase.

I can’t talk BP with anyone. But housing gets their attention . They understand that (or seem to think they do). The BP is boring, slothy, risky. If you start saying stuff like annualized returns, equities, emerging markets, you’ll lose them. No grasp. Not even the fundamentals.

This is why we come here.

#15 The Greater Cauliflower on 07.13.19 at 5:52 pm

I bought AMZN in 1999. I was too poor then and could only afford to buy 44 shares.

#16 Shawn Allen on 07.13.19 at 6:44 pm

About Sure Things and Future Bond Returns

Excellent data on the 30 year returns. Good to have.

Much of the future is hard to predict. The return on the S&P 500 or the TSX stock index over the next 30 years is hard to predict. It will almost certainly be positive before inflation. After inflation it might be somewhere in the range of 2% to 7% compounded. Hard to say.

But bonds, those are actually quite predictable.

A 30 year Canadian bond today pays about 1.8% annually before inflation.

If such a bond is purchased and held for 30 years the return is a pretty sure thing to be right around 1.8% before inflation. Sure the annual dividends ($18 per $1000 per year lol) can be reinvested in fresh bonds possibly at higher returns over the next 30 years but that won’t amount to much. So, it is a sure thing that a 30 year Canadian government bond will return about 1.8% annually before inflation over the next 30 years.

Now an index of 30 year Canadian bonds over the next 30 years may be somewhat different. I don’t think it can be a lot different? The bond index, I believe assumes you sell at a capital gain or loss each year and buy the next 30 year bond to maintain that maturity. If rates rise you get a higher yield. But you will be selling at a capital loss that year.

Now Garth may rush to generalize that “No one” (really?) buys a 30 year bond to hold for 30 years. That would be news to pension plans and anyhow no matter how many times it is traded a 30 year government bond matures at par. And I am just talking about what the bond index will do over the next 30 years. That requires an assumption of holding the bond or the index for 30 years. Astute bond traders may do far better.

If you really want to lock in 1.8% before inflation try to find a zero-coupon bond investment.

Bonds may have their place in a portfolio. I just point out that they actually have predictable returns over their life that are locked in at the time they are issued. They NEVER ever mature at more than par but sometimes they default.

Note that 30 year Canadian government bonds issued in 1989 provided precisely zero capital gains or losses over their life as they matured this year. They were great investments because of their original high yields and the unexpectedly low inflation. The temporary capital gains that they made during their lives as interest rates fell were of course temporary.

#17 Doug Rowat on 07.13.19 at 6:52 pm

#12 Yanniel on 07.13.19 at 5:10 pm

“The only ‘wow’ is that you omitted a date range. Helpful.”

I did not omit the date range. I said “over the next decade”. That means from today to 10 years into the future. Wow.

Fair.

“The insanely bullish scenarios as well? Or only the bearish ones because they fit with your world view?”

My view of the world is that I don’t know what’s going to happen.

Then why cite a single provider with a bearish view and call the simulation “nice”. Could be crap. Guess we’ll know in a decade.

Plus, this particular post is technically neither bullish nor bearish. I’m literally just quoting the long-term averages. The argument of this post is to avoid risky single-security investing.

“All forecasts have to begin somewhere. Historical returns are a useful starting point.”

That sounds a lot like all your eggs in one basket.

We run a balanced and global portfolio. We have eggs in every basket. Unless clients want zero exposure to capital markets, but then talking to us is like visiting a doctor to get a legal opinion.

I applaud clients who are diversified elsewhere, but capital market investing is kinda what we do.

–Doug

#18 Shawn Allen on 07.13.19 at 6:59 pm

Compounded Opportunity Cost

So the TSX returned 6.7% compounded over 30 years.

Say a 35 year old took the kids and wife on a Disney trip in 1989 paying $5000 including flights and hotels and all. (I recall flights from Edmonton to Halifax were over $600 back then so I think $5000 is not too far off for four people)

That $5000 invested at 6.7% would be $34,987 today call it $35,000. You may say I ignore taxes. But if it were RRSP he could have put say $8000 in counting on the tax refund to cover the extra $3000 and the amount would be now $56k or maybe the same $35k after hefty RPSP tax on withdrawal.

Of course that Disney trip may have been well worth the $35k opportunity cost. But probably not if such spending was an annual thing.

Coincidentally, I have been investing for 30 years now and and I can attest that a 7 bagger over 30 years is more than doable. Compounding works eventually. Luckily, did only the one Disney trip.

#19 Dave on 07.13.19 at 7:05 pm

Mark you talked about how overall market return was a revolutionary way to look at returns

Wouldn’t overall returns net of inflation be even more useful? Because at the end of the day what matters is how your purchasing power changes. It seems silly to compare market returns in say the 70’s and not consider that inflation was much higher

#20 APF on 07.13.19 at 7:30 pm

Those figures includes dividend? How can a 40/60 produce an average of 6% if the growth assets give 7%?

#21 Sail Away on 07.13.19 at 8:05 pm

#57 Gravy Train on 07.13.19 at 6:06 am

#8 Toronto_CA on 07.12.19 at 5:19 pm
“[…] [A] huge emergency cash fund doesn’t make sense for many people.”

#23 Sail away on 07.12.19 at 6:25 pm
“[…] There isn’t a need to hold a lot of cash.[…]”

#38 SoggyShorts on 07.12.19 at 8:12 pm
“But in order to ‘buy the dips’ you’d have to be sitting on a bunch of cash that is earning nothing, right?”

————————————–

“[Buffett] thinks of cash differently than conventional investors,’ Ms. Schroeder says. ‘This is one of the most important things I learned from him: the optionality of cash. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price.

“This is a good insight. Holding some cash is not necessarily a bad thing. What’s bad is holding most of your money in the form of cash. That is a nearly guaranteed losing strategy. The purpose of an investment portfolio is to serve as a place where you protect the wealth you’ve amassed.”

————————————-

Three excellent Buffett points:

1. Keep cash on hand for opportunities
2. Don’t be afraid to use that cash
3. The portfolio is your safe place

So yes, definitely let cash build and keep it as dry powder for opportunities. If the opportunity is good enough, use it all.

#22 acdel on 07.13.19 at 8:09 pm

Hey smartass; another good post, I think that is 3 in a row! Hmm, interesting! :)

#23 Sail Away on 07.13.19 at 8:16 pm

#18 Shawn Allen on 07.13.19 at 6:59 pm

Compounded Opportunity Cost

So the TSX returned 6.7% compounded over 30 years.

Say a 35 year old took the kids and wife on a Disney trip in 1989 paying $5000 including flights and hotels and all. (I recall flights from Edmonton to Halifax were over $600 back then so I think $5000 is not too far off for four people)

That $5000 invested at 6.7% would be $34,987 today call it $35,000. You may say I ignore taxes. But if it were RRSP he could have put say $8000 in counting on the tax refund to cover the extra $3000 and the amount would be now $56k or maybe the same $35k after hefty RPSP tax on withdrawal.

————————————–

Let’s say the husband told his wife that they weren’t doing Disney because it would lose them $30,000 over 30 years and she thought it was the stupidest argument ever and that he didn’t care about the family’s enjoyment and this led to irreconcilable differences.

The financial cost could have been much, much worse! Finance rule No. 1: Don’t Get Divorced

#24 millmech on 07.13.19 at 8:21 pm

#3 Yanniel
I have been hearing that same story for about five years now, I continue to make close to double digit returns every year. Maybe the next decade will be the decade of the low returns that I keep being told that the markets will produce, who knows what may come next year.
If you were talking real estate I would be a believer, was out kicking the tires today in the Fraser Valley and some sellers agents were offering discounts of up to 15% on the spot on the prices. There seems to be a touch of desperation as the twenty or so open houses I went through today I was the only person there, I guess bad timing as I was missing the crowds apparently since there was around 100 open houses today.

#25 Yanniel on 07.13.19 at 8:39 pm

#17 Doug Rowat on 07.13.19 at 6:52 pm

“Then why cite a single provider with a bearish view and call the simulation “nice”. Could be crap. Guess we’ll know in a decade.”

Yes, the Research Affiliates simulation could be crap. I don’t think it is bearish per say. Not all assets classes are in the gutter.

They look at data, model the data and based on that they issue a forecast. Not very different from what you wrote about today.

The data itself tells whether the forecast is bearish or bullish. The same simulation you call bearish today might have been bullish a decade ago. Different data sets.

That said, future returns base on historical data could also be crap. Yes. We’ll see in a decade. I don’t mean it as a bet. We simply don’t know.

My point is that due diligence implies looking and interpreting more than one data set. A financial plan should be robust (not bullet proof, just robust)

If Garth gives me a Saturday post I’d be happy to provide more details and more examples. (teasing you Garth)

“Nice”

ah. Semantics. I am a Software Engineer. By “nice” I meant “easy to use”. It was not my intention to infer anything else.

I’d like to point out that the simulator by Research Affiliates is backed by data and studies. It echoes what others like Vanguard, AQR are saying. The example I brought today it is not unique. Lots of people looking at data (not just prices, but valuations, demographics, etc) are concerned. They can be wrong (or not).

In each environment there’s a way to invest profitable. I spread my eggs by investing in varios strategies. Acknowledging that some strategies are meant to be laggers depending on the environment. That’s fine. I call that diversification.

#26 Yanniel on 07.13.19 at 8:49 pm

#24 millmech on 07.13.19 at 8:21 pm

“I have been hearing that same story for about five years now, I continue to make close to double digit returns every year”.

Surely not with a balanced and diversified 60/40 portfolio. In 2017 yes, but not in the last 5 years.

“5 years”.

That is called recency bias. Google it.

To be clear: I am not against investing. I am not against the ubiquitous 60/40 portfolio. I don’t mean people should sit in cash.

I just mean, diversify beyond one strategy.

#27 Nonplused on 07.13.19 at 9:00 pm

When I was in my 30’s I came into some money through the use of the stock options I was granted from work at that time. My strategy was simple, and 3-fold; first, they offered me a lot of leverage for free, second, since they had fairly long dated expiries and markets tend to rise I should hold them as long as possible and not start “timing” until they were within a year of expiry, and 3rd I thought I was paying enough child support already (the 3rd strategy didn’t work out, I ended up paying much more child support than I would have had I got rid of the options earlier).

After that I became a celebrity financial adviser with some friends and family who thought I should give them stock tips. They were looking for quick returns of 100’s of percentage points. I would tell them the best way to start is saving some money to invest (which is kind of what I was doing by not exercising my options until they were worth something). Then I would recommend fairly boring investments like the X series of TSE funds. Some of these people actually got quite mad at me because they thought I was holding out on them because I didn’t want them to be as successful as I had accidentally become.

So then I would say “look, the way I got my money was to live broke and increasingly in debt while I went to school, got my degree, got increasingly better jobs, paid down my debt, and spent less than I earned. Oh they hated that one! It was like I was downright insulting them!

Meanwhile I lived in a house that was smaller than theirs, did not take fly-away vacations, never bought a new car, never bought a fancy car, and bought most of my clothes at Costco (except for suits for the most part. And Levi’s jeans. I’m partial to them and Costco does not carry them.)

But yet even my mother concluded that I was a spendthrift when my kids showed up with braces. “How can you waste money on something like that when you could buy them a car when they are older???” I guess she didn’t calculate that my ex and I both had dental insurance so the first $4000 was covered for each kid and we got the 10% reduction for paying in advance and then a second 10% reduction for the second child. I thought to myself “how can you convert dental insurance you get from work into a car?” But to be fair she was unfamiliar with dental insurance and thought dentistry was terribly expensive and braces were a showy waste of money. And then when I turned an old used car over to the children to share because I had replaced it she thought that was a waste of money too and they didn’t need a car! Except I had already owned it for 10 years so it wasn’t worth anything and having the kids listed as driving that car instead of mine paid for the car in 2 years insurance wise. And then when it did get wrecked, as is prone to happen with young drivers, I got much of what it was worth back from insurance. At that time they were off to university so the car didn’t need replacing.

Anyway, so my point is you just can’t help people. A forum like this works because the people who seek Garth, Doug, and Ryan out for advice come here because they want the advice. But in your personal life it is best to just keep quiet because nobody really wants to hear what you have to say. If your advice includes “education, hard work, and saving money” you will be seen as deceitful and ungenerous.

PS most of the money I made from those stock options has been invested ever since (or at least what I didn’t pay out in child support). I didn’t spend that either. I realized then and still realize now it was a one-time windfall.

#28 Annual performance on 07.13.19 at 9:14 pm

Very useful info, thx. Where can I find similar info for the past ten years? That is, what would a well-diversified typical portfolio have given (in Canadian dollars) as an annual return in each of the past 10 years?

#29 Shawn Allen on 07.13.19 at 9:54 pm

Rule No. One?

Sail Away at 23 said:

Finance rule No. 1: Don’t Get Divorced

********************************
I can’t argue with that!

Neither would Buffett. He never got divorced even when his now late first wife, Susan, ran off with her old boyfriend to live in San Francisco after the kids were grown. Buffett pretended not to know and she basically pretended to still be with Warren until her death decades after. They were often together but lived apart. Meanwhile she sent a good looking blonde friend named Astrid to fix him dinner and he moved her in. Astrid became his live in companion and he married her after Susan’s death. True Story.

#30 ImGonnaBeSick on 07.13.19 at 10:06 pm

#27 Nonplused on 07.13.19 at 9:00 pm

I like to call those type of people ask-holes. Ask how to do something, then ignore the advice and do whatever they were going to do in the first place.

#31 Spectacle ( and now an Art appreciator) on 07.13.19 at 11:41 pm

#13 Ustabe on 07.13.19 at 5:34 pm
The Falling in love with this stuff I bought a load…a lot really……..
Long story short, he ended up with it all (except our keepers), offering me more than 2 times my purchase price. He was happy, getting inventory at less cost than buying from the co-op, I was happy as I had just been paid the majority of our campground fees and gas.
————- ::: —————–
Great story Ustabe!
Reminds me of the time I did some consulting for some clients in Vancouver. At the end of the final meeting at their residence , My “Spidy Senses” we’re triggered when follow up and fees were discussed. So, in conversation, which rapidly changed topics to the cache of Artworks being packed and moved from the property I followed the narrative.

Client mentions that I could take something if I wish (sounded like the legal out, Art for fee paid…) .

I grabbed an oddly modern looking piece, but it had a patina. Held the huge canvas over my head to my truck as I walked down the street, placed it in the back. When I showed it to a Dear friend one night, as we christened my new place with Cigars and Single Malt, he exclaimed ” I know the Artist, he was an acquaintance of mine, famous teacher to some other artists in BC over the Years. It was even the secret art canvas used on his show brochure one Year.
Greed got the best of me, I sold for many digits to a private gallery representative. Peak Art market I must add. Can’t say which Artist, nor the amount, says my legal/financial counsel.

Pure luck on my part, but never even cared to even invoice that spineless (ignorant?) pirate , the way it unfolded to my benefit.

#32 millmech on 07.13.19 at 11:58 pm

#26 Yanniel
Absolutely people need to diversify their investments, understand recency bias, past does not equal future returns but time in the market is better than timing the market.
I believe the best investment is in personal growth and knowledge accumulation, currently reading “Range” by David Epstein, incredible book, I usually read one book a month but will reread this one again. Opened my eyes to problem solving biases and knowledge specialization, and how people with a completely different skillset/knowledge(generalists) can solve problems that even NASA scientist could not solve for years.

#33 Lizard Man on 07.14.19 at 12:42 am

Every long term investor has gotten better by understanding past mistakes. We’ve all been there.

Sticky markets says Royal lePage are keeping prices elevated, always a short term situation. Especially when macro conditions are failing, the sticky listing is like having an army of termites gnawing through your porch , it’s going to collapse like it or not.

Why? Life. That’s why. Divorce, death, transfer, bankruptcy and the thousand little things that happen. It only takes a court ordered sale on your block to bring prices tumbling down. Judge days sell in 30…and that’s the new price.

http://www.bnnbloomberg.ca/b-c-alberta-weakness-to-persist-as-stubborn-homeowners-sit-on-sidelines-royal-lepage-1.1284664

#34 SoggyShorts on 07.14.19 at 1:57 am

#26 Yanniel on 07.13.19 at 8:49 pm
#24 millmech on 07.13.19 at 8:21 pm

“I have been hearing that same story for about five years now, I continue to make close to double digit returns every year”.

Surely not with a balanced and diversified 60/40 portfolio. In 2017 yes, but not in the last 5 years.

“5 years”.

That is called recency bias. Google it.

To be clear: I am not against investing. I am not against the ubiquitous 60/40 portfolio. I don’t mean people should sit in cash.

I just mean, diversify beyond one strategy.
****************************************
The thing is that returns have been so good the last five years that when someone was predicting a “1.6% return this decade” 5 years ago for them to be right the next 5 years need to be a disaster. If we get 2 more solid years then for them to be right we’d need 3 catastrophic years and so on.

I’d be curious to know what other diversity you would recommend beyond a 60/40 globally diversified PF.
A house? A rental property? A small business? Gold?

#35 Jay Currie on 07.14.19 at 4:06 am

Excellent advice.

But carve out 10% and swing for the fences. There are great mining stocks, excellent tech stocks out there. Keep 90% dead safe and earing the MBA level return. But then go and research companies that, if they hit, will do 3x, 5x, 100x. You only need one.

#36 Andrew on 07.14.19 at 6:02 am

We’re now 10 years into the greatest monetary experiment in history. Bitcoin is a non-correlated, asymmetric return asset. In my opinion putting it in ones portfolio, you can reduce the risk profile, increase sharpe ratio, and produce a material amount of impact on overall portfolio with a single digit allocation.

#37 Renter's Revenge! on 07.14.19 at 7:36 am

So EAFE did worse than bonds over the last 30 years? That’s pretty bad. Aren’t stocks supposed to do better than bonds over the long term? I guess it makes sense because of Japan peaking in 1989. Just goes to show how important valuation is, at least in extreme cases. Btw, what’s the P/E of Bitcoin nowadays?

#38 Bezengy on 07.14.19 at 8:07 am

One thing I don’t understand is why many people think the young investor should take on more risk than the average investor. I would argue that the young investor should be very risk adverse. Mistakes can cost you big time early in your life, and could spell financial disaster. A 55 year old with a substantial portfolio can easily accept say a 25 k mistake, but for a young person it will take years to recover. This of course also relates to a bad housing investment. You simply cannot make big mistakes at a young age.

#39 Yanniel on 07.14.19 at 10:50 am

#38 Bezengy on 07.14.19 at 8:07 am

“One thing I don’t understand is why many people think the young investor should take on more risk than the average investor.”

The academic paper linked below explains why:

http://faculty.som.yale.edu/barrynalebuff/LifecycleInvestingLeverage_v2008.pdf

#40 Yanniel on 07.14.19 at 11:11 am

#34 SoggyShorts on 07.14.19 at 1:57 am

“The thing is that returns have been so good the last five years that when someone was predicting a “1.6% return this decade” 5 years ago for them to be right the next 5 years need to be a disaster. If we get 2 more solid years then for them to be right we’d need 3 catastrophic years and so on.”

I hear you. It is a possible outcome in an universe of possibilities.

“I’d be curious to know what other diversity you would recommend beyond a 60/40 globally diversified PF.
A house? A rental property? A small business? Gold?”

Excellent question for a financial advisor; which I am not :-)

I personally have half my money in a 60/40 balanced portfolio. The other half I use a momentum strategy with modest leverage.

There are many ways to invest. Even simple things like buy and hold can be improved with Cash Secured Put and Covered Calls.

Beyond value investing, buy and hold (and its cousins the couch potato) there’s carry, momentum factors.

Beyond stocks there’s options (and leap options) and managed futures.

There’s people even “harnessing dividends” without the price action.

There’s a lot. But if you are not in a position to really invest time in understanding all this, then you need a savvy advisor than can put your money in varios strategies while minimizing inefficiencies that can come from overlapping.

#41 Long-Time Lurker on 07.14.19 at 11:21 am

Brain implant restores partial vision to blind people

Medical experts hail ‘paradigm shift’ of implant that transmits video images directly to the visual cortex, bypassing the eye and optic nerve

Press Association
Sat 13 Jul 2019 07.51 BST
Last modified on Sat 13 Jul 2019 07.57 BST

Partial sight has been restored to six blind people via an implant that transmits video images directly to the brain.

Some vision was made possible – with the participants’ eyes bypassed – by a video camera attached to glasses which sent footage to electrodes implanted in the visual cortex of the brain.

University College London lecturer and Optegra Eye Hospital surgeon Alex Shortt said it was a significant development by specialists from Baylor Medical College in Texas and the University of California Los Angeles.

“Previously all attempts to create a bionic eye focused on implanting into the eye itself. It required you to have a working eye, a working optic nerve,” Shortt told the Daily Mail.

“By bypassing the eye completely you open the potential up to many, many more people.

“This is a complete paradigm shift for treating people with complete blindness. It is a real message of hope.”….

https://www.theguardian.com/science/2019/jul/13/brain-implant-restores-partial-vision-to-blind-people

#42 Shawn Allen on 07.14.19 at 11:21 am

Index Returns – Don’t Jump to Conclusions

The 30 year index returns are based on a one time investment bought and held for 30 years with all dividends or interest reinvested in the same index.

Useful information but virtually no one invested exactly that way. Be careful not to jump to conclusions.

These are not the returns that someone investing new money regularly each year in those indexes for the last 30 years would have received. Not that anyone said they were but some people might think so.

#43 maxx on 07.14.19 at 11:23 am

Portfolio returns, tax efficiency and global demographic trends are all important, perhaps none more impactful than current central bank methodology:

(0-36 sec)

https://www.youtube.com/watch?v=QYiCP1kxL1E

#44 millmech on 07.14.19 at 12:05 pm

#40 Yanniel/#34 SoggyShorts
I am researching LEAP options slowly, calls and puts seem to require a lot more market knowledge and time to execute effectively( for me anyways).
Currently looking for property around $300k that can be rented out at a 7% return, property has have room for carriage house for me to retire in along with a re advanceable mortgage to give me tax write downs for when my RRSPs get withdrawn. Planning to hopefully have a retirement that I end up paying no tax on with the bonus of a refund every year through proper planning. Lots of research and working with an advisor is a must, failing to plan means you have planned to fail.

#45 Sail Away on 07.14.19 at 12:07 pm

#39 Yanniel on 07.14.19 at 10:50 am

#38 Bezengy on 07.14.19 at 8:07 am

“One thing I don’t understand is why many people think the young investor should take on more risk than the average investor.”

——————————–

The academic paper linked below explains

——————————–

Absolutely terrible advice for the average person. Academic and theoretical. Let me explain:

For a 25-year old with a 70 yo mind, or an experienced mentor to guide them, this is theoretically feasible. For an average 25 yo living paycheck to paycheck with debt and bills, the emotional toll of trading on margin is a recipe for disaster. First and foremost is the overwhelming likelihood that they’ll choose poor stocks (remember, they’re inexperienced), get slaughtered, end up losing it all, and avoid the market forever after.

I just watched this exact trainwreck with a 26 yo engineering grad whose whole world fell apart during the December downturn.

Bezengy wins.

#46 Shawn Allen on 07.14.19 at 12:40 pm

Risk versus Age

#38 Bezengy on 07.14.19 at 8:07 am

One thing I don’t understand is why many people think the young investor should take on more risk than the average investor. I would argue that the young investor should be very risk adverse. Mistakes can cost you big time early in your life, and could spell financial disaster. A 55 year old with a substantial portfolio can easily accept say a 25 k mistake, but for a young person it will take years to recover. This of course also relates to a bad housing investment. You simply cannot make big mistakes at a young age.

**********************
Well yes and no. True a young person can’t afford the same dollar loss as an established older investor.

But a young person has the capacity to withstand a far higher percentage loss. If a young person investing $6000 per year ($500 per month) and loses the entire first year’s investment on some risky stock it’s just as though they started investing one year later. It need not be a big financial blow and it is a real and valuable lesson learned.

But it will feel like a total body slam and could turn that young person off investing in equities forever.

In theory young people have a big capacity for risk. In practice their emotional risk tolerance is often far lower.

Just starting out? Simply using VGRO or VBAL are not bad ways to go.

Actually, just using the mutual funds of the nice lady at the bank is a valid way to go too in the early years since 2% of squat lost to fees is, well, squat (actually 2% of squat). They can worry about lower fees when they have more than squat to which the fee is applied.

#47 SoggyShorts on 07.14.19 at 1:57 pm

#40 Yanniel on 07.14.19 at 11:11 am
#34 SoggyShorts on 07.14.19 at 1:57 am

Thank you. After the shallowest of googling those, I’m not sure they are for me. I am a DIY investor, but I don’t want it to be a full or even part-time job, and those seem rather time-consuming.
As for getting another advisor, I’m a little gun shy about that since mine had high fees and was an alpha chaser who cost me money.
I’ve been tempted many times to go with Garth, but even a 1% fee seems crazy to me when I’m looking at very early retirement in 1-2 years (I’m 39 now) and going with a 3% rule. I mean depending on how long I live we’re talking about paying someone half a million dollars over the course of my retirement.

#48 Yanniel on 07.14.19 at 2:17 pm

47 SoggyShorts on 07.14.19 at 1:57 pm

Did you ever consider having more than one manager?

#49 Yanniel on 07.14.19 at 2:20 pm

45 Sail Away on 07.14.19 at 12:07 pm

Leverage = risk. That’s not necessary so.

Leverage can be a powerful tool in risk control.

As for the paper. Did you notice there are Nobel price winners as contributors? Just saying.

#50 TurnerNation on 07.14.19 at 2:23 pm

My proxy for overall NASDAQ health is Shopify.
SHOP.TO or .US
It’s struggling here.

Yeah, these guys: ” Stock Pickers [Digest] sees “room to rise” in the stock, but warns that Shopify currently trades at a “very high” 344 times its likely 2019 earnings of 95 U.S. cents a share. Hold.:

#51 Yanniel on 07.14.19 at 2:41 pm

#45 Sail Away on 07.14.19 at 12:07 pm

“For an average 25 yo living paycheck to paycheck with debt and bills”

Stereotypes. I don’t know what makes you think this gal/guy should be investing. To invest (leveraged or not) you need money and your example has none.

Risk comes in many forms. A household with two profesional incomes and a high savings rate can assimilate other risks easier than your 25 something stereotype.

I came to this country when I was 27. I had 50 bucks in my pocket. I fit at that time your stereotype.

I concentrated in getting a job, in increasing my income. It took me years to be an investor. But it can be done.

How long to become so arrogant and condescending? – Garth

#52 Yanniel on 07.14.19 at 3:19 pm

“How long to become so arrogant and condescending? – Garth“

It was not my intention to come out like that. I apologize.

#53 mike from mtl on 07.14.19 at 3:29 pm

#42 Shawn Allen on 07.14.19 at 11:21 am
Index Returns – Don’t Jump to Conclusions..
/////////////////////////////////////////////////////////////////////

Exactly. Pointing to pure index (most notable being sp500) as basis of past returns is misleading. The vast majority of people don’t invest this way, especially outside of America. More realistic to find GICs, crappy mutuals, too much home bias, or ‘stock pickers’ of various success.

I know that was the case for me, all-equity, high fee mutuals that got an okay few per cent, but never recovered from 09. With a bit of knowledge I have some real returns.

Also it is a completely different time now, online brokers decades ago hardly existed, ETFs didn’t really come about until 2010s.

#54 Yanniel on 07.14.19 at 3:31 pm

“How long to become so arrogant and condescending? – Garth”

I apologize. That came out wrong.

Oops. Nobel PriZe. With a Z.

#55 Tommy Sanderbaul on 07.14.19 at 3:37 pm

When we get hyperinflation or high inflation like back in the 1980’s, it will not matter anymore what your money is invested in. By the way, if you add in all the new taxes and fees by our socialist Liberal, NDP, Greens etc. we already have higher inflation than stock market gains over the last 19 years.

#56 Capt Serious on 07.14.19 at 3:43 pm

There is no chance of getting north of 5% from bonds given current yields. Starting yield to total return is highly correlated.
I simply will not believe we’ll get 10% from US equities going forward. Something like 7% would be a home run. It’s very difficult to get high returns following a period of high returns. Even accounting for the tech wreck and 2008, equity returns have been spectacular. Maybe it’s different this time, but I would not bank on it.

#57 Karlhungus on 07.14.19 at 9:47 pm

“For an average 25 yo living paycheck to paycheck with debt and bills”

Stereotypes. I don’t know what makes you think this gal/guy should be investing. To invest (leveraged or not) you need money and your example has none.

Risk comes in many forms. A household with two profesional incomes and a high savings rate can assimilate other risks easier than your 25 something stereotype.

I came to this country when I was 27. I had 50 bucks in my pocket. I fit at that time your stereotype.

I concentrated in getting a job, in increasing my income. It took me years to be an investor. But it can be done.

How long to become so arrogant and condescending? – Garth

Garth you are becoming far too sensitive in your old age. Nothing condescending about this guys post

Read them all. – Garth

#58 Alex on 07.15.19 at 2:55 pm

Great post, every young investor should be aware of these fundamental concepts to a long-term investment strategy.