4 Simple Steps To Invest Wisely

Four simple things to help you become a more successful Investor.

1. Have a clear goal, know your risk tolerance and be sure it matches your investments. 

I started in this business on May 15 1999.  During the previous two decades the US stock market index had increased by 20% per year. The US technology index had increase by 86% during 1999 alone.  I remember an ongoing article in the Globe and Mail business section in which a the performance of a Toronto Zoo monkey’s arbitrary stock picks were charted and compared to the performance of the portfolios of a three seasoned stock markets analysts…. the monkey was holding his own with a very respectable annual rate of return. There were countless articles in the media about people quitting their day jobs to devote their time to “day-trading”.

I learned more during the “correction” of the following three years about the business of investing than people 10 years my senior.  Specifically I learned that people become overly risk tolerant in rising markets, and risk averse in falling markets.  It is human nature to be attracted to that which we want and to run from that which frightens us, but unfortunately it means that people become more willing to buy investments as they become more expensive and more willing to sell them when they get cheaper.

To succeed we learn to become the constant in an ever changing world. To do so you’ll need to:

a)       chart a course and to do that,

b)      know to which port you’re headed; and

c)       Assess whether your equipment can be reasonably expected to take you there.

This approach runs contrary to settling for any port in a storm; the results are better too.

 2. Be patient

Aside from being a shining example of a successful investor, Warren Buffet, is well known because he’s a good teacher.  Every year he produces a letter to his shareholders and in it are nuggets of wisdom peppered with a touch of humility and humor.  When markets are volatile, we’ll all do well to take solace and repeat the following quote: “Capital Markets are simply relocation centres; they relocate the world’s wealth from the impatient to the patient”

 3. Diversify by asset Class  –  There are only Five and it pays to have some of each

I remember in the fall of 2000 when the financial markets were melting and it seemed like there was nowhere to hide.  Nortel was leading the way down. I had bought a little bit of Nortel 4 years earlier. During that previous spring, my shares had increased 4 fold, so I though, time to take the profit off the table. I sold half the Nortel shares and used the proceeds to by their supplier.  Needless to say I didn’t avoid much of the crash.  It was not for many years later that I learned of the 5 asset classes.  Owning some of each helps to smooth out returns.

Its desirable to have enough of each category that we can sell a portion so as to return our overall portfolio back to its original weight. Doing so enables the investor to profit in one category and store it safely in a relatively low priced category – Sell high, buy low!  The five categories are

1)      Real Estate

2)      Commodities

3)      Stocks

4)      Bonds

5)      Cash

Jay has taken care of our investment portfolio since 1999. He has always kept on top of the economy and advised us appropriately how/when and when not to invest. We consider Jay a friend and as a result of our long relationship, my sister and brother-in-law and mother moved their investments under Jay’s care as well.

Jay recently called my mom to suggest that we transfer her mutual funds over to a segregated fund, thereby reducing estate transfer delays and eliminating probate fees; a move that will make our lives easier when the time comes.

He is knowledgable, trustworthy, personable, funny and down right nice. An absolutely pleasure to work with.

Shannon Feeney
Feeney & Associates
Human Resources Management Consulting