Category Archives: History

Nearly Everything I Learned About Investing I Learned From My Father, Revisited

Happy belated Father’s Day to all the Dad’s out there. This is an older post that I have edited, expanded, and added to.

My father is not an investor or “bank guy” by any means. But thinking back upon childhood and beyond, I realize that a good amount of the things that are important to investing, are the same simple life lessons my father tried to instil in me when I was young.

They are tidbits of wisdom that seem to have limitless application. Here’s a few that come to mind:

Use the right tool for the right job

Whenever my dad caught me trying to hammer something with the handle of a screwdriver, or unscrew something with a butter knife, he used to stop me and tell me to use the right tool for the right job. Taking the 30 seconds to grab a hammer was far better than breaking the screwdriver and being out the time and money that it would take to replace.

The same can be said about investing. We have a variety of products we can choose from, and several of them have their specific purpose. Use a TFSA if you want to save up for a car, not your RRSP. Use an RESP to save for your child’s education, not your un-registered account. There are benefits to using the right tool for the right job, and penalties for not.

knife for the peanut butter, spoon for the jam

I think this advice was brought to the both of us from either the Flintstones or Sesame Street, but my dad would repeat the jingle if we were going to make a peanut butter and jam sandwich. It’s a simple life lesson: be cleanly and organized.

If you are in the fortunate position to have “extra” cash to play with, or if you “have a hunch” that a stock is going to move, hey, more power to you. Take the plunge, if you see fit. But don’t get your ultra-risky speculations mixed up with your legitimate investments that should be the foundation of your savings.

Simply put, don’t take the money you are planning to use for a down-payment on a house and put it all in the latest IPO. If you can take a gamble, set up a separate account and keep only a small portion of your wealth there.

More importantly, it is linked to the “use the right tool” section above: It is important to keep certain accounts separate, even if you don’t invest in individual stocks. We need to remember time horizons when investing, and use the appropriate vehicle.

Do it right the first time

Nothing upset my father more than when he asked me to do something and I did it half-heartedly. Inevitably, he would make me re-do it. It taught me to put the effort into getting it right the first time.

This doesn’t always work with investing; we all make a bad decision from time to time. But if you can make the effort to make sound decisions, you won’t have to try to make up lost ground in the future.

Creating an investing plan for yourself, deciding an asset allocation, and following the plan is far more important that finding the next Microsoft. The fact of the matter is that most of us will never find the next Microsoft early enough, nor would we sell it when it should be sold. But following an asset allocation plan is something that we all can do… easily.

Keep your head up

This was a hockey lesson. I remember forgetting this advice once, and skating full speed into another kid behind the net. My tailbone hurt for a week.

If you are a do-it-yourself investor, then you will have to keep on top of things, especially if you are investing in individual stocks. Buy and hold is a legitimate strategy, and one that I tend to follow. But if you are not reading up on your companies, then you may be left holding some useless Enron stock, which may hurt more than your tailbone.

For indexers, it is important to keep marginally informed, and take care of re-balancing when your holdings get out of whack by a decided percentage, or at decided intervals.

Another day another dollar

More than advice, this is something he would say (still says to this day, in fact) when he got home from work and I would ask how his day went.

I’ve said in another post that I view my human capital as my most important asset, and it really stems from this saying. As long as you can keep working, you can keep earning, which means you can keep saving. It also means that you can spend when you need to, knowing that you have this powerful asset in your portfolio.

I prefer Steve Martin’s version, though: “All I’ve ever wanted was an honest week’s pay for an honest day’s work.”

Do as I say, not as I do

Probably the most frustrating to have to hear, but one of my favourites now, I would get this line thrown at me when I caught him in some sort of seemingly questionable situation where he told me one thing, but wasn’t following his own advice.

This is as important in investing as it is in life. There is a lot of good advice and wisdom out there from several people who know a lot more than you or me. It doesn’t mean that we need to do exactly what they are doing, especially when scale is an issue.

Warren Buffet is very good at recognizing value in stocks and whole companies. But he has said that the majority of investors would be better off by buying a basket of index funds.

Check your base

Living on a farm, ladders were constantly in use. Whether it be for changing light bulbs, painting barn doors, re-shingling the roof, cleaning the eaves or picking cherries, we were always up on them. No matter how many times I would climb the ladder,  he used to always tell me to check the footing before climbing, and then again on the first rung or so.

A solid base to a portfolio should be able to avoid (or lessen) the impact of a hard fall from market heights. This helped me when the market was approaching 15,000 (I put the brakes on at about 14 and change in June of 2007). The ladder started to feel wobbly, so I stopped climbing, re-checked my base, stockpiled cash, and had a nice cushion to fall on.

If the ladder starts to feel unstable, check the base, or grab another ladder. High stock prices may offer a great time to move some money into bonds, for example.

Don’t waste Your Money

Kids always go through phases and fads. Often these fads cost money. Whether it is video games, rap music, Pokemon cards or BMX bikes, the truth is that most of these things will be forgotten 10 years out.

My father’s words (and disappointed eyes when I wasted my money on something foolish) have had a lasting impression. I don’t often buy shiny things, and save a very healthy portion of my income.

Put your things away

Whether it was my toys when I was little, tools on the farm, or the jars and packages after making a sandwich, my father always insisted that I put things away when I was finished with them.

Not exactly investing, this mentality has left me with a very organized system for recording income, expenses investments, dividends etc. Good accounting practices are very helpful come tax season.

I’m sure there are several more of these little gems that can be found. Feel free to add some in the comment section.

Smells Like Shoe Polish

My friend and flatmate in my 4th year of university was a geology student. His department had given him some tickets for a dinner and lecture on geology at some geological club in Toronto. Always interested to learn about something I know absolutely nothing about,  I jumped at the chance to go.

The keynote speaker raved about how gold was foolishly cheap, and should  have been twice the price that it was. It was an interesting talk, and had I listened to that geologist, I would have made out all right (not accounting for inflation or exchange rates). Take a look at this. It was 1999, and gold was about $250 an ounce.

I have never pretended to understand our infatuation with gold. I understand it now to be another currency, yes, but what makes it desirable?

Gold has a long history of being something we associate with wealth. Empires in Mexico, India, Europe and others… they have all sought after it. It’s history is nearly as interesting as that of salt.

To tell you the truth, I don’t even like gold really. Sure, I would like to own a bar to use as a doorstop or a wafer to use as a paperweight, but that would just be to be eccentric. Gold jewelery has always seemed Gaudy to me. My wife’s engagement ring, and our wedding bands are platinum. Simple. Stylish. Hard.

Yet gold keeps moving higher, and recently some things have happened that make me wonder if it’s possibly on its way back down.

I’ve lived here in Japan for 9 years, and starting last year a commercial started running that made me cringe. The commercial is selling a class and system to trade and make money from gold. The people in the commercial look very happy after walking out of the class, and then it cuts to them in front of a computer screen in their living room, smiling as they (I assume) buy and sell gold futures.

(This seems to have replaced a similar commercial that used to run, which promised to teach you how to make money in the F/X market.)

But the real reason I will continue to stay away from gold  came last evening when a door-to-door gold buyer showed up at my door.

He was wearing a yellow jacket, and asked if I had any gold I wanted to sell. I said no, and he took a step to try to stop me from closing the door. He showed me a flier with various examples of gold jewelry and asked “Don’t you have anything like this that you want to sell?” I said no, and he asked again if I didn’t have anything like it in the house, to which I answered “I’m poor. I have no jewelry.”

Aside from the fact that I wouldn’t tell a complete stranger if I had jewelry in the house or not, the concept of door-to-door gold buying floored me. Has it come to the frenzy that pawn shops are willing to send a workforce out into the community in search of gold?

That tells me something. It tells me that pawn shops believe that gold will continue to increase, so they are willing to go out to buy gold at today’s price with the expectation that they will be able to sell it even higher next week or next month.

And that tells me something else. If there are commercials advertising how you can make money in gold, and pawn shop dealers showing up at my door, well, to me that’s about the same as a shoe-shine boy telling me to buy stocks. It’s advice that stinks, and will leave you with a headache if you stick around too long.

BOJ Intervenes in the F/X Market

By luck, it seems that my recent posts on the carry trade and exchange rates were very timely; the Bank of Japan intervened in the foreign exchange market today, trying to slow or stop the yen’s continued rise.

It has been an interesting couple of days here. Yesterday, Prime Minister Naoto Kan won in a landslide victory to remain president of his party, meaning he will continue as Prime Minister, and spare Japan from having its third leader inside of a year. Kan has only been in power for three months, but was challenged by Ichiro Ozawa, a Dick Cheney-esque character nicknamed “the Shadow Shogun” by media, and who was expected to win due to his long years of networking and back-room dealing.

I think the Ozawa camp is out playing golf today.

With the election over, and with a strong vote of confidence from the party (he won with a vote of 721 – 491) Kan and the BOJ jumped into  the For/Ex market today selling yen and buying dollars*. Last I saw it had had the effect of raising the dollar by about 2 yen. Not bad, but in reality it merely cancelled the effect of yesterday’s yen movements. (Most people had expected Kan to stay out of the markets, so after the election results were released the yen rose.)

[Edit: I just read that there is no confirmation on what currency the BOJ bought, but it looks like they at least began by buying U.S. dollars.]

It is a valiant move, as Japan needs to protect its exporters, but I wonder if it is not “too little, too late.” The yen is hovering around a 15 year high, and as a Canadian who wires money home, I’d like to see it stay around these levels. Compared to the 126 yen to $1 CAD I was paying a few years back, even the 2-yen movement won’t change my position, which is to keep sending my money back to Canada.

In the end, I think it is people like me that the BOJ needs: retail investors who sell yen to buy some other currency.

Rice Field Art and Your Portfolio

Since 1993, rural farmers in the north of Japan have been using 4 different kinds of rice to make beautiful images that grow in their fields over the summer.

What started out as simple images made by a small group of crafty farmers has grown into a yearly event where thousands of local and far away volunteers come to help plant the rice in spring, and watch it grow into something spectacular by late summer.

Designs range from historical people (such as Napoleon or the picture seen above, which is a period piece warrior) to comic book characters to mythical gods.

I’ve known about these fields for a few years, and often thought them to be an amazing testament to art and effort, but they never rang as loudly as recently, when I was merely staring at one and it came to me: these fields are the artistic and edible epitome of what one’s  portfolio should seek to achieve:

1. Diversity – If all the plants were the same variety of rice, it would merely be a palate of solid colour. Place the right variety of rice in the correct place, and you have strategically created a masterpiece.

Quite often, it is the asset mix of a portfolio (over the individual securities) that produce the majority of its long-term sustainable gains.

I think we have all heard the idiom “Don’t put all your eggs in one basket.” Putting everything into one stock, fund, bond, or term deposit may bring you a short-term benefit, but in the long-run, it is probably best to determine an asset mix that you are comfortable with, but still allows for some global, security, or industry diversification.  I accept the “put all your eggs in one basket… and then WATCH THAT BASKET!!” approach, but I think it works best for savvy business owners.

2. Growth – Rice field art is a slow process and there are thousands of people who put in a lot of effort. In the winter they come up with an idea and draw the plan. In the spring they scale the design and plant the rice. In the summer they water, fertilize and watch their growth. And in the autumn they reap what they sowed.

I like the statement “Get rich slowly,” as it seems more organic, and definitely less risky than phrases like “getting in on the ground floor.”

Yes, there are those lucky ones that strike Microsoft gold, but the majority of us should concentrate on developing our plan, following it through, and harvesting the rewards in the future.

You are not going to get rich by investing $500 this month. But if you do that for the next 350 months while increasing your investments at or above inflation, plus re-investing dividends, interest, and allowing for appreciation, you stand to have a very nice portfolio when you want to retire to the location of your choice.

Any one of us can be a money farmer by designing our plan, planting our seeds, watering our plants, and reaping our rewards. You just need to remember that it takes a little effort, and a lot of time.

For anyone interested in seeing more of these rice field canvases, you can see a Google image search here, or site search here.

Nearly Everything I Learned about Investing I Learned from My Father

My father is not an investor or “bank guy” by any means. But thinking back upon childhood and beyond, I realize that a good amount of the things that are important to investing, are the same simple life lessons my father tried to instil in me when I was young.

They are tidbits of wisdom that seem to have limitless application. Here’s a few that come to mind:

Use the right tool for the right job

Whenever my dad caught me trying to hammer something with the handle of a screwdriver, or unscrew something with a butter knife, he used to stop me and tell me to use the right tool for the right job. Taking the 30 seconds to grab a hammer was far better than breaking the screwdriver and being out the time and money that it would take to replace.

The same can be said about investing. We have a variety of products we can choose from, and several of them have their specific purpose. Use a TFSA if you want to save up for a car, not your RRSP. Use an RESP to save for your child’s education, not your un-registered account. There are benefits to using the right tool for the right job, and penalties for not.

Use a knife for the peanut butter, a spoon for the jam

I think this advice was brought to the both of us from either the Flintstones or Sesame Street, but my dad would repeat the jingle if we were going to make a peanut butter and jam sandwich. It’s a simple life lesson: be cleanly and organized.

If you are in the fortunate position to have “extra” cash to play with, or if you “have a hunch” that a stock is going to move, hey, more power to you. Take the plunge, if you see fit. But don’t get your ultra-risky speculations mixed up with your legitimate investments that should be the foundation of your savings.

Simply put, don’t take the money you are planning to use for a down-payment on a house and put it all in the latest IPO. If you can take a gamble, set up a separate account and keep only a small portion of your wealth there.

Do it right the first time

Nothing upset my father more than when he asked me to do something and I did it half-heartedly. Inevitably, he would make me re-do it. It taught me to put the effort into getting it right the first time.

This doesn’t always work with investing; we all make a bad decision from time to time. But if you can make the effort to make sound decisions, you won’t have to try to make up lost ground in the future.

Keep your head up

This was a hockey lesson. I remember forgetting this advice once, and skating full speed into another kid behind the net. My tailbone hurt for a week.

If you are a do-it-yourself investor, then you will have to keep on top of things, especially if you are investing in individual stocks. Buy and hold is a legitimate strategy, and one that I tend to follow. But if you are not reading up on your companies, then you may be left holding some useless Enron stock.

Another day another dollar

More than advice, this is something he would say (still says to this day, in fact) when he got home from work and I would ask how his day went.

I’ve said in another post that I view my human capital as my most important asset, and it really stems from this saying. As long as you can keep working, you can keep earning, which means you can keep saving. It also means that you can spend when you need to, knowing that you have this powerful asset in your portfolio.

Do as I say, not as I do

Probably the most frustrating to have to hear, but one of my favourites now, I would get this line thrown at me when I caught him in some sort of seemingly questionable situation where he told me one thing, but wasn’t following his own advice.

This is as important in investing as it is in life. There is a lot of good advice and wisdom out there from several people who know a lot more than you or me. It doesn’t mean that we need to do exactly what they are doing, especially when scale is an issue.

Falling from the top of a ladder hurts the most

Okay, I don’t know if he ever said these words exactly, but he used to always tell me to check the footing of a ladder before climbing, and then again on the first rung or so.

A solid base to a portfolio should be able to avoid (or lessen) the impact of a hard fall from market heights. This helped me when the market was approaching 15,000. The ladder started to feel wobbly, so I stopped climbing, re-checked my base, stockpiled cash, and had a nice cushion to fall on.  

 

I’m sure there are several more of these little gems that can be found. Feel free to add some in the comment section.