Tuesday, October 30, 2018

Money Show 2018 – Paul Philip

Paul Philip talked in one of the Investing Strategies sessions His talk was called “The 5 Mistakes Every Investor Makes and How to Avoid Them”. He is an Investment Advisor for Financial Wealth Builders Securities Worldsource Securities.

Risk comes from not knowing what you are doing (Warren Buffet). You need more information than ever and also experience. You need to live within your means. There is a difference between cheap and conservative in spending. The S&P500 compounded 10% per year between 1926 and 2017 but you had to have stick with it.

Mistake #1 is market timing. Do not do this. There is a difference between earnings that is available and actual. Over the past 20 years the average equity fund investor made 4.25%, but the equity funds made 8.22%. Life is not linear, it is volatile. There is no great rate of return if you not take risks. It is really not risk tolerance, but pain tolerance.

There are 3 types of market timers. There are the dreamers who believe that they can do it. There are the gamers and then there are the 0.1% of people who can actual market time. In 2016 there were 82.7M traders per day with $346.4B traded. There is why it is hard to beat the market. Also, advisor make money by helping to made trades.

Why do people market time? Part of this is TV shows. These are shows like BNN Blomberg. However, the media want eye balls, they do not want to educate you. John Bogle, founder of Vanguard said that it is great to get out at the top and get back in at the low, but he does not know anyone who has done this. People market time because they are afraid to lose what they have. They also want wealth and power.

Mistake #2 is believing there is a quick way to make wealth. If you have real estate for 40 years, you will make money. Get rich quick does not work. More money is lost in preparing for a correction or trying to anticipate the correction than is lost in a correction (Peter Lynch).

A correction is when the market goes down 10% or more. It does this most years. The average correction is 13.5%. Do not be afraid of them. There will be lots of them. Only 1 in 5 becomes a bear market. A bear market is when the market goes down 20% or more. These happen about every 3 to 5 years. The average decline is 33%. They generally last a year and they happen for different reasons. The economy finds a way to move on. Bear markets can move quickly.

Missing a few days can reduce your gain. If you are out of the market the best 10 days your return would be 4.5%, if you are out the best 20 days the return would be 2% and if you are out the best 40 days you would have lost money. If you had stayed in the market you would have earned 8.22% over 20 years.

There are choices for investing. Choice one for investing is to be active investing in stock and stock picking. Here the buying thinks the stock is going up and the seller thinks it is going down. Choice two is indexing. Do not look for a needle in a hay stack, just buy the hay stack (John Boyle). Choice three is Strategic Indexing. You build on what Vanguard did. Barron’s Market Beaters are spread over 8,000 stock. This is why Strategic Indexing wins. Nobel prize winner picked the 8,000 companies.

Mistake #3 is to misunderstand financial information. TV is for entertainment, not education. Leads you to believe an all-time high means that the market is due for a pullback. However, the market reaches all time highs more than once per month. It is normal and do not panic. What determines investment outcomes? It is determined in the long-term by the mixture of asses in your portfolio.

Mistake #4 is letting yourself get in the way. Predictably Irrational is a book by Dan Ariely. (This is on Amazon.) Problems are overconfidence, confirmation bias, anchoring (the loss of money in 2008 and you cannot get that out of your head) and loss aversion. The investors worse enemy is the investor himself (Benjamin Graham).

Mistake #5 is doing it on your own and being skeptical about the value of the right advisor. The wrong advisor is detrimental to your financial health. The right advisor is worth their weight in gold. You need to work with the right advisor. Find the one that is the right fit for you. You need to be on the same page. You need to be comfortable with your advisor and you need to spend time getting the right advisor.

On my other blog I wrote yesterday about Molson Coors Canada (TSX-TPX.B, NYSE-TAP) ... learn more. Next, I will write about Brookfield Asset Management Inc. (TSX-BAM.A, NYSE-BAM) ... learn more on Wednesday, October 31, 2018 around 5 pm.

This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

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