Easy Money

How you treat your parents might be related to how well you think your life has turned out. Once you’re near the pinnacle of your life you’ll probably ponder how you arrived there. You’ll realize your dad was grooming you for success and deserves much of the credit or sometimes parents tried their best but it wasn’t quite good enough. Sometimes their best was pathetic and should have been illegal. If your parents were unsuccessful in life then you’re at a disadvantage.

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If I had a dad or mom who had an interest in the stock market it would have at least given me an edge. The most common Canadian investments in the stock market are Canadian banks due to the oligopolistic banking system and conservative regulations. Even as a considerably safe stock they generate good returns.

In 1995 an 18-year-old could have about $1000 worth of Royal Bank stock or they could have bought a sound system for their car that went boom…boom…boom. Look at me…boom…boom…boom. If one could have delayed gratification that $1000 could be in the area of $15,000 today…BOOM! One could and probably would entertain the idea that a stock can go to zero. The odds of someone stealing your boom box within 1 year at 3 AM is about 1000 times greater though.

If I was someone’s dad I would say to my kid, “hey butthead, you want to spend all of your money looking cool to your friends for 5 minutes or do you want an opportunity to laugh at them forever?” Even better, I’d get them started when they’re pre-teen and buy them shares of a company to get their interest. 10 years will go by and they’ll be like, holy shit! You can’t tell kids anything, you have to inspire them.

Above is a Toronto Dominion bank investment calculator. Just $1000 invested in 1973 with dividends reinvested would be $517,758 today. This beats investing in real estate on many fronts. You don’t have to mow your stock’s lawn or worry about your loser tenants plugging up the toilet.

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You do the math

 

If this stock chart could go back to the beginning the line would be touching your feet. Sure, past performance is not a guarantee of future returns but if I had to invest my money this option looks promising.

No one in my family embraced the stock market which is why it was never included in the family curriculum. They probably heard you could make money in the stock market but more importantly to them you could also lose money. Humans are very uncomfortable with anything that involves risk especially if there is any possibility in their mind of their money going to zero.

I’ve learned that sometimes it’s too risky to feel safe.

 

 

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The Stock Market

It’s common for people to think that you have to know something to make money in the stock market. If you don’t it feels as if you’re just throwing your money into a dark hole and hoping for the best. The stock market can be like believing in Jesus — one way to look at the overall stock market is that it will one day get you to heaven. You just have to believe.

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S&P 500 Index(500 of America’s largest publicly traded companies)

During the Great Depression, 1970s, tech bust and the Great Recession you may have questioned your faith but the market has always pulled through. The trajectory still appears to be heavenly.

Past performance is not a guarantee of future returns but what is certain is that if you were invested in the S&P 500 index anytime before 2018 you would be up on your investment. You can pick individual stocks for greater returns but then you might have to know something.

What will happen in the future is anyone’s guess but I think the most rational answer is that this chart in the long term will continue going up. If you don’t believe it will then you’re betting that America is soon going to shits and will never recover. From my experience the ones who believe the world is going to apocalypse mode are the ones who don’t like how their life has turned out. I know because I used to be one of them.

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It’s not all fun and games in the stock market. There can be periods of frustration such as the years between 2000 and 2013. If you had invested in the height of the year 2000 then you would have ridden a roller coaster just to be even in the year 2013. That sucks. If you had contributed to your investment all the way through though you would have made out just fine. Buying on dips is quite imperative.

This is not investment advice. I’m just presenting the facts. As far as history goes all that you had to know to make money in the stock market was to contribute regularly to an American index fund, have a long-term mindset and not panic sell.

 

 

 

Stock Tips

The stock market is often seen as a vehicle for getting rich quick. It happens but far more often that approach leads to horror stories.

It always starts off the same way. Someone they know who is supposedly smarter than them gave them a “stock tip.” My tip to you is to be careful about stock tips. The thing about stock tips is that it does something to a person psychologically. The monkey brain wants to believe that it stumbled upon something special that no one else in the tribe knows about. This unique circumstance will hopefully catapult their rank among their peers and take them away from that average schmuck status.

A woman I know in my neighbourhood told me how when she was younger she put in some money into a stock that was supposed to make her rich. A wealthy relative had given her this tip and the fact that he was wealthy gave him more credibility. He was wrong and she owed $10,000 to her credit card because of it. She said, “it took me a long time to pay that one back.”

Lesson #1: Be careful about stock tips and don’t use your credit card to buy penny stocks.

In the year 2009 a guy I knew told me he was putting some money into the natural gas market because it was at an all-time low. Like a monkey seeing a banana in an alligator’s mouth I saw it as an opportunity even though it was based off basically nothing. The funny thing is that I knew that this guy had been consistently losing money in the stock market since 1999 and yet I thought this time would be different. Well, I wanted to believe that anyway. In a month I was down 75% of my money. Eight years later and the price of natural gas is roughly the same. If I stayed in that stock I would be down 90-something percent today.

Lesson #2: Be careful about stock tips.

Shortly after high school a guy I knew informed a handful of us of this new tech stock that was going to begin trading soon on the public markets. If we got in early we would see our money go up 100 times. They piled in with their money and some of them with their parents money. Everyone was talking about the islands they were going to buy. This company never went public. This company wasn’t even real. They gave all this money to some guy who had nothing but a story and some suckers who bought into it. The question is why didn’t anyone do any research or ask for some kind of proof of existence? I don’t know, maybe they didn’t want to discover any information that would give them doubts.

Lesson #3: Be careful about stock tips. And you’ll never be able to afford an island.

This is not to discourage anyone from getting involved in the stock market. Actually, I encourage it in most cases. Just don’t bet the farm on penny stocks or companies that have not been around for very long. A long-term approach investing in solid companies or just the S&P 500 index has historically proven to work well.

 

 

 

Back to School

Late last year I was enrolled in a stock market investing course which was a disappointment. It may have been a satisfactory course if you knew absolutely nothing and if Wikipedia didn’t exist like in 1995. Half the class didn’t even show up for the last lecture. This instructor was relevant 20 years ago. Another example of humans becoming obsolete but still hanging on with 2 fingers. I find it odd how there is only one course in this city on stock market investing but handfuls on subjects such as pottery, photography and cooking.

Yesterday marks my third piano lesson. My piano teacher says I’m the worst student she has ever had and wonders how I even got this far in life without losing a body part. She said she has 5-year-old students who play better with their toes. She may not have said any of that only because she’s happy to take my $37.50 Canadian dollars for 45 minutes of instruction.

When I was a kid my mother offered to put me in Kung fu lessons stating that I could fall back on teaching for money if I had to. I declined and she more than willingly accepted because it would save her money.

I bought the best cheapest digital piano from Costco online. If I wasn’t home at the time of delivery I wonder if the UPS guy would have just left it in front of my door.

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If nothing else it makes for a decent piece of decorative furniture.

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Illusory Options

If you’re not good at making decisions when you have multiple options then life will narrow it down for you while you can’t decide. Sometimes we think we have options because time is on our side but often it’s just the illusion of freedom to procrastinate.

When you’re quite certain of your goals it makes it easier to get there because you know where you’re going. The quickest route between 2 points is the straightest line. If you’re not sure where you’re going everything becomes a successful distraction.

I should have given more thought to what an old friend said to me many years ago. We were talking about jobs that I could do and I forget what he said exactly but it ended with, “you’ve basically narrowed it down to nothing.” I didn’t disagree but I continued to go against my will without an exit plan. Life kept on making the decisions for me. I just couldn’t dream past a job, or I could but fear made itself an obstacle.

After I quit my job to do “nothing” I came across what I thought to be an opportunity in the stock market. In 2010 I swore off ever getting involved again with any financial paper asset that could lose value. I was convinced the stock market was a scam. Everything can seem like a scam if you expect to succeed greatly without having the knowledge to do so.

After researching, and deliberation with myself I slowly put in 65% of my savings into high risk growth stocks, 15% into growth stocks, 3% into one safe stock and the rest into what I called, money for the year in case nothing happens or if shit hits the fan. A professional financial adviser would have you do the exact opposite but my goal wasn’t to crawl to the finish line in 30 years. Conventional rules will get you conventional results.

Most people who have done what I did end up with a sob story. A few of them end up jumping off of a bridge. If I tell you it won’t happen to me because I’m smarter than them you’ll roll your eyes and whisper a prayer for me or against me.

It sounds crazy and it might be but this is what can happen when you don’t give yourself another option…you either succeed greatly or fail greatly. The rationale was if I didn’t do this then I would be going back to work. If I did it and failed I would be going back to work. However, if I succeed I might not have to go back to undesirable employment. It was almost a choice between die, die or live.

 

Stock Market Tales

2004: I read about a new business that provided digital photography printing technology to big chain stores. It seemed like it had promise and their shares were cheap so I put $1000 into it. It went nowhere for a while and I cashed out of it at a 10% loss.

2010: A friend who had been investing in the stock market for years with poor success convinced me to invest in an ETF natural gas stock. The rationale was that natural gas was at an all time low so that it should bounce back up soon. I had an extra $2000 kicking around so I put my money in. The very next day I was up $400. That would be the last day I was up at all. In the end I was left with $500. I could have bought 150 homeless people dinner with the money I lost.

Since I departed from my job back in Sept 2015, I’ve been involved in the stock market game. Near the beginning of this new venture I was up $1200 from a $6000 investment within a matter of days. If I had cashed out right then my return would have been better than 90% of what professionals accomplish in a year. Of course within another few days my $1200 went to zero and then -$1200.

This time around was different though. I had learned from my mistakes and from the mistakes of others, and had a different strategy before I even purchased a share. Fast forward 8 months and I brought my stock portfolio back to the positives by staying disciplined and following the cardinal rules. Today, I’m back in the negatives because I made another mistake.

Managing your own money in the stock market is like lifting weights…most people have tried it but a small percentage stick with it and an even smaller percentage achieve any meaningful success.

Most people look at the stock market like they do a casino…they hope to score big in a short amount of time. What I’ve learned from my most recent folly is that having long-term success in the stock market is no different than achieving success in anything else. No one can be very good at any profession without taking the time to learn and make mistakes. To think you can succeed in the stock market with an uninterrupted upward trajectory from the beginning is the same as believing you can build a house for your family because you built one for your dog.

They say 9 out of 10 people fail at making money in the stock market. I believe the failure comes from biting off more than your stomach can handle which will emotionally and/or financially cripple you.

To anyone thinking of getting in the stock market game, I would highly recommend that you take it slow and not have your first priority be making money but instead to learn. Have a small amount of money invested so that it has your interest but not enough that you will potentially lose sleep or your kid’s lunch money for the year. Expecting to score big from the beginning would be like trying to be a professional without ever completing the amateur level.