Beat The Bank Suggests Investors Put Down That Coffee And Take a 20-Year Nap.

Stock market volatility has been the subject du jour for a few weeks as stock markets have treated us to more of a roller coaster ride with some generous declines in the mix. But as I mentioned in a recent post, this market volatility is all normal stock market behaviour. It’s normal for markets to fall with regularity. It’s normal for the value of your investments to fall from time to time. And while we should recognize that this all is ‘normal’, we should also keep in mind that the longer term trend has been very positive for the stock markets. We should be long-term optimists.

In one of my posts this week I offered that the Canadian stock markets had given back the gains for the year. That seems like a worrisome event, but if we take a step back, take a long-term view, we can make that stock market decline look and feel very small.

But perhaps the best strategy is to not look or bother at all. In Beat The Bank, Larry Bates shares this wonderful observation.

Rip Van Winkle would be the ideal investor. He’d invest before his nap, and when he woke up twenty years later, he’d be happy.” 

Richard Thaler, Economist and 2017 Nobel Prize Winner

It sounds fantastic but it’s true. A few investment firms have revealed that when they looked at the returns of their investors, the best performance was achieved by those who were quite ‘forgetful’.

From this Business Insider article.

ThoseForgetfulInvestors

Yup when it comes to investing your job at times, and mostly is to do nothing. Leave well enough alone. Doing nothing usually beats doing something. Not thinking beats thinking. Napping beats looking and reading and watching and worrying.

From Beat The Bank Larry goes on to add …

Over the long-term, the stock market has consistently yielded positive returns. But we know that, from time to time, the stock market will decline significantly. Not could decline significantly. Will decline significantly—and frequently! This is an absolute certainty. But no one knows exactly when or by how much. You must accept this reality, treat stock market downturns as perfectly normal, and not react to them. With Simply Successful Investing, you are in it for the long haul. Learning to drown out the noise of the markets will enable you to achieve a far better investing outcome.”

Also on the subject of staying the course Jonathan Chevreau shared this post on The Hub from Fritz Gilbert, Founder of the Retirement Manifesto, Resilience in the face of Market Volatility. The challenge of forgetting about your investment portfolio might be greatest when we are in retirement or entering retirement. Proper planning and coaching can help us prepare for retirement with a portfolio that is designed to take on that market volatility and potentially provide durable income for decades.

In retirement we should be enjoying life, not worrying about stock markets and investment portfolios. Another great resource for all things retirement is the aptly named Retire Happy blog.

And speaking of investors ‘doing nothing’ will pot investors be a little more chilled and patient compared to your typical investor? It was a monumental week in Canada with the legalization of the personal/recreational use of marijuana.

Of course marijuana in various forms became legal on Wednesday October 17th. It’s more than interesting to have a look at the US and International perspective. From CNN here’s Canada Just Legalized Recreational Pot. Here’s What You Need To Know.

That article also included a previous Tweet from Prime Minister Justin Trudeau on why pot was legalized. Canada became the first G7 nation to legalize marijuana.

TrudeauTweet

It’s expected to create an industry that will surpass $4 Billion in sales. To put that in perspective that sales figure would surpass the total sales at Tim Hortons. There’s more money in pot than the Canadian coffee pot? In fact total sales for Restaurant Brands International that includes Tim Hortons and Burger King and Popeye’s was $4.5 US billion in 2017.

Of course those pot sales have yet to be realized. And even if the customers arrive will profits follow? Will investors harvest incredible gains or will this all go up in smoke? This has been more than an investment craze with many Canadians piling into individual marijuana stocks and marijuana ETFs. In my opinion (and from experience) investing in companies that don’t make money, or don’t make a lot of money is more than risky. It’s often an investment based on hope.

There have been more than enough warnings for investors and young investors who might not have yet learned investing’s toughest and most cruel lessons that usually come by way of life’s greatest teacher – experience. Here’s ‘Stay Away’: Bay Street Cautious as Legalization Looms. In that article Bloomberg speaks with 5 portfolio managers.

Ryan Lewenza offers …

Right now it’s all hype and little revenue/profits. We’ve seen this story before and it never ends well. So play it safe by investing in the best of breed companies (i.e. Canopy Growth) and only invest a small percentage of your savings in the space (i.e. no more than 10 per cent).

That 10% reference is code for ‘only invest the amount that you’re prepared to lose’. And again pay attention to the ‘never ends well reference’. Not sure why we’d want to recommend an investment that never ends well. Personally I don’t like to set myself up for losses. When we invest in simple Index Based Portfolios we are buying very successful and mostly very profitable companies in the major sectors of the economy. We can increase our odds of success with companies that are currently profitable with proven business models. With so many companies and sectors in the mix, we can diversify-away individual company risk.

But knock yourself out with pot stocks and crypto. Hey it might all work out. But I’d suggest you be very careful, and be prepared for incredible volatility and potential losses. The world’s greatest investor, Warren Buffett, suggests that we avoid this investment strategy. One of Mr. Buffett’s most famous quotes is …

Rule No 1 is never lose money. Rule No 2 is don’t forget rule No 1.

Thanks for reading. If you have any questions send a note to cutthecrapinvesting@gmail.com, or leave a comment.

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Have a great weekend. Cut The Crap Investing will be on the road with the home office returning to Toronto from Stanhope PEI. 🙂

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