Are Stocks Sexy?
Heresy, I say! What kind of money manager would even think to make a case for not investing in stocks?! Stocks are our industry’s lifeblood and the lifeblood of the capitalist dream – you know, a means to raise money for companies so they can bring us better products and services and all that jazz. Also, stocks are sexy – whoever sat around a campfire or a cocktail party bragging about the bond they bought that went through the roof and they dumped presciently right before it crashed to earth?
Now, don’t mistake my rant against public equities as a non-belief in the capitalist system or in company ownership – after all, my biggest personal asset is my ownership stake in Crystal Wealth, a private company I started in 1998. And I know lots of wealthy people who have either made their fortunes through private company ownership and risk-taking or through inheriting a fortune from a predecessor who did.
I can almost hear your brain screaming silently at me, “but, but, but, I made a ton of money on Apple, Microsoft, Tesla, Google, etc…” Have you ever noticed that your brain is great at remembering the awesome decisions you’ve made but equally great at greying out the not-so-great decisions you’ve made? It reminds me of a lady I once knew who would only talk about the money she won at bingo without taking into account how much she spent. Or, if I must admit, it also reminds me of myself regaling people with tales of how I won $1,500 on a horse race ONE time without saying how many other times I lost a couple hundred.
I contend that the public equity markets are thinly disguised casinos where you might get lucky but where the cards are stacked against you and if you play often enough, there’s a good chance you’ll lose in the end. Let’s face it, most professional money managers and analysts are wrong more often than they’re right so how could an average advisor or individual beat them?
Act As If
If you want to be as rich as a bank, act like one. Take your money, combine it with other people’s money if they’re willing to lend it to you at a low interest rate (like we loan the banks our money at a negative interest rate when you include fees), and lend it out at a higher interest rate. If you can consistently make money without losing it, you will outperform everyone else in the long run. Check out my lowest yielding mutual fund that I manage against the S&P/TSX 60 Total Return Index over the past 9 years or so:
Why take risk when you don’t have to? Don’t believe the old adage that you have to take higher risk for a higher return – it simply isn’t true. Just don’t lose money! One of my business partners once told the story of a professional tennis player being asked how she consistently won against her opponents and she replied, “I don’t try for fancy shots, I just focus on getting the ball back over the net and I let my opponent make mistakes.” Great advice in investing as well as tennis and many things in life, I’m sure.