As regular readers, you all know I’ve struggled what to do with my investment strategy over the past weeks and months. I’m a contrarian at heart, I find myself attracted to names and sectors that other investors shun. Yet, as I’ve discussed numerous times here, do I really have the knowledge advantage to outperform the market?
After much deliberating, I’ve come up with my investment strategy. While I’m hardly sure I can outperform the market picking contrarian names, I definitely can’t if I don’t try. At the same time, I want the safety that comes with taking a passive approach. How can I accomplish both?
Basically, I’m going to split my portfolio in two. I will invest my RRSP and TFSA in passive index funds. I will split my money equally between 4 funds: XIC (tracks the TSX Composite), XSP (tracks the S&P 500) XIN (tracks the rest of the world) and XBB (Canadian bond index). This will give me a 75% equity and 25% fixed income weighting, which is fine for my age. Every year I will buy whichever one of these indices that is the worst performer for my contribution that year.
For my non-registered portfolio, I will continue to pursue contrarian investments. I will continue to try to outperform the market, and I’ll do a better job keeping you guys in the loop, via The Uproar Fund. I’ll actually start giving you the quarterly updates I’ve promised. I’ll actually start doing more analysis on individual stocks. You’ll still hear me talk about ETFs too, I’ll just usually make it about a beaten up sector. Look for some sort of analysis about once a week.
So that’s it. I’m not ready to admit defeat from active investing yet. What’s fun about this whole exercise is I can compare my results from passive investing directly to active investing. Will it be worth my time? Will the market kick my ass? Only time will tell.
So I’m about to leave for the day, heading downtown to pickup my contacts from the eye place, (more on that later) when there’s a knock on my door. Luckily I was wearing pants, so I go and answer. There I’m greeted by a bald guy, producing a police badge, asking me if I could answer a few questions.
There is nothing like the panic when a cop wants to talk to you. I haven’t done anything more illegal that jaywalking, ever, yet seeing that cop scared the crap out of me.
Anyhoo, he wants to ask me questions about my neighbour. To give you background, my new neighbour bought the house with a possession date of May 1st. He showed up on that day, and then I haven’t seen him or his wife since. The grass isn’t cut, there’s isn’t a piece of furniture in the house, clearly nobody lives there. So the cop wants to know everything I know about the guy, which was a pretty short conversation, considering I don’t even know the guy’s name. When I asked what was up, all the officer said was “I need to talk to your neighbors, and I can’t find them. And if I can’t find them, that’s a problem.”
So I’m a little concerned about my neighbour. But I’m also a little jacked, since there’s some cool stuff going down in my hood.
Random Thing I Enjoyed This Week
I finally got my contacts, after approximately 347 weeks of waiting. Stupid eye place.
If you’ve never had ‘tacts before, you probably think that putting them in and taking them out is really easy. And it is, once you practice enough to get good at it. Until then, you will be hopelessly pathetic at it. Your eyeball will not be happy once you actually get them in or out. It took me 23 minutes to take them out last night, but only about 3 minutes to put them in this morning.
I also find that the right one tends to get cloudy as the day goes on. I asked the eye place girls about it, and they didn’t seem to have any idea what I was talking about. They give me a new right one, and it’s been better so far. So lets hope that works out for me.
Random Thing That Irritated Me This Week
I don’t want this to turn into a Blue Jays piece every Saturday, but I think Jays’ manager John Farrell has the IQ of a waffle. On Tuesday though, CLEAN UP hitter Yunel Escobar sac bunted. I really, really hate sac bunting, and I hate it even more when managers insist on having good hitters do it. I yelled at the tv a lot. I think the guy in my basement was a little scared.
Song That I Like And Therefore You Should Too
You have never heard of Jim Croce (unless you’re a million years like the Big Cajun Man) but you’ve definitely heard this song.
I try to find a way to play this song at least once a day. It’s so delightful. I love finding these songs from the 70s, they’re all new to me.
Simpsons Quote Of The Week
Belle (Burlesque house madam): …are you wearing a garbage bag?
Homer: I have misplaced my pants.
Blogging Snack Of The Week
You know, I don’t think I ate a single thing this week that was any good. I’ve been thinking about this for a solid 3 minutes now, and I can’t think of anything… Wait, I got something.
There was steak, and I barb-e-qued the HELL out of it. It was delightful. I’d really suggest you go out right now and buy some steak, and fire up the ‘que.
So I haven’t really been trying to eat that well lately, since I reached my 220 pound goal. I’m still aware of what I eat, and I’m still making an effort to control my portions, which usually means not taking seconds these days. I went 3 months without eating much unhealthy stuff, so I’m making up for lost time. Somewhat nervously, I weighed myself this week. The result? 218.8. I lost weight and wasn’t even trying. Score!
Sports TV You Should Watch This Week
Well, I’ll tell you what you’re not going to watch this weekend, and that’s the NHL playoffs. Or the NBA playoffs. How long will Vancouver wait before games, like a year? The NHL should really start game 1 on Sunday or Monday night.
The Indy 500 is this weekend. I won’t watch it, because I don’t really care for watching guys turn left over and over again. I can’t believe NASCAR is more popular in the southern U.S. than hockey. What’s wrong with these people? Right, the inbreeding.
Blogging Babe Of The Week
Next week, I should feature a song by Canadian artist Lights. Her stuff isn’t so bad. In the meantime, let me treat you to her picture.
Quite, quite lovely. I follow her on the Twitter, and she’s pretty weird. Still, when she looks like that, I can look past a LOT of weirdness.
Oh Right, Time For Links
My girl Money Rabbit is facing some major career decisions. For some reason, she didn’t take my “move to Alberta and be my sexy assistant” idea very seriously, probably because I wouldn’t pay her anything.
Krystal has gone to about 288 baseball games in the last week. And she got to meet Pat Hentgen. This Jays’ fan is jealous.
Dividend Ninja warns bloggers about guest post scams. I’ll say it again, I’m more than happy to post good guest posts from legitimate bloggers. Everyone else, who want back links back to their site, can kindly pay for the privilege.
During last week’s link dump, I treated you to a post by dividend growth investor Dividend Pig titled You’re Not Contrarian and Don’t Know Squat. As you can probably imagine, the title of that particular post got me a little excited. Not swear words excited by any means, but a little excited nonetheless. It could be said that I was semi excited.
Anyhoo, I clicked through to the post, and encourage you to do the same, since it’s pretty darn good. To summarize, Mr. Pig tells his readers about a conversation he had with a friend who works on Wall Street. His friend used information that was freely available to make a nice tidy profit on a risky, beaten up stock that the market hated at the time. This “friend” sounds a lot like my kind of guy.
What Mr. Pig concludes from this story is that investors like you and me (mostly you, sorry) are screwed, since people who are involved in a much more intimate way have all sorts of advantage over us little guys. After all, his Wall Street friend was actually involved in the IPO of the company he later made a boatload of money on.
To quote the author:
This of course got me thinking. We all try to be contrarian investors, and many of us believe that we are. There’s no doubt that if you are intelligent, disciplined, and patient, (which I believe many of the wonderful bloggers I read are) you can buy companies at fair prices. But are we really contrarians? Did you buy Citigroup when it was trading at $1? That’s a contrarian investment. What about SuperValu, when it hit $7? Or Paychex at $21?
Here’s the problem with that argument. What he’s suggesting isn’t being a contrarian. It’s being a market timer. And a HELL of a market timer at that. How long was Citigroup under $1? All of 20 minutes? It never actually closed under $1 ($10 to adjust for the recent reverse split), and only spent time under that magical cutoff for parts of 2 days. I could make the same argument for the other 2 stocks presented in the argument. You’d have to be either remarkably lucky or a really, really good market timer to pull that off.
Being contrarian isn’t being a market timer. I bought Citigroup on the way down, twice, getting my position for an average cost of $12. I did the same thing with General Electric, picking up my whole position at $12, right around the time the market thought the world was going to end. Contrarians generally don’t give two craps about picking up a stock right at the bottom, since their target price is so far ahead of the current price. Who cares about another 5% when you’re aiming for 200-400%?
Trying to figure out when to buy a stock is hard for anyone, let alone contarians. Everyone tries to time the market to some degree, with the exception of the girl who just invests her token amount in index funds every month. Contrarians aren’t some sort of super creature who are really good at timing the market. We just buy when the market appears the most dark.
But I’m cherry picking my argument a little, losing focus in the details. The big picture point of the article is, in my view, that contrarians believe they have some sort of knowledge advantage over other investors. Contrarians think they have a unique ability to see past all the noise of the market, and buy something that, to them anyways, looks good. Sometimes this works out, sometimes it doesn’t, but the oversized winners are supposed to make up for the losers.
Then there’s the other part of the post where he’s exactly right. I don’t know squat. Neither do you. We’re not idiots, but our chances of ever becoming experts in the markets are pretty much zero.
And yet we think we are, emboldened by the fact that our friends/spouse/whoever thinks we’re so smart at investing. Our heads swell as we explain to them terms like debt coverage or price earnings ratio. Just because we’re smarter than the average Joe doesn’t mean we’re any good.
This brings us back to a very basic question, one that will define your investment philosophy and your returns along with it. Can the average investor beat the market using the tools available to anyone? Can a dividend growth guy or contrarian investor beat the market without an MBA and unrestricted access to Wall Street? Is the internet really the great equalizer in this game, or does too much information hurt the average schmoe?
That’s the question I struggle with all the time. Sometimes, when a get a stock right, I think I’m smarter than the market. And then I get one wrong, and the market kicks my ass. I’m more high and low than your friendly neighbourhood meth head.
I’d like to end this post with an answer, saying that I’m certain that I can outperform the market using only my brain and a laptop. I’ve been investing for close to 10 years now, and I consider myself pretty smart when it comes to this stuff. And, the more I read and find out, the more I’m starting to realize I just might not know anything at all.
Readers, do you believe a solid portfolio using your favourite strategy can beat the market long term? Or, is beating the market over a long term basis a lot of luck with only a little skill mixed in?
So there I was a few weeks ago, just playing around on my laptop a few weeks ago in my living room and minding my own business, when I see a tweet from MoneySense magazine. All I had to do is be one of the first two to reply to the tweet, and I’d have my very own copy of MoneySense’s Real Estate Guide. I was quick on the draw, and totally won, signifying the first time I’d ever won anything.
Then a few days later, much to my surprise, MoneySense emailed me, with some crazy good news. They had screwed up and sent the above pictured retirement guide instead of the real estate guide. Not to worry they told me, the real estate guide would also be sent. Two free books? What a great screw up!
So today I’m passing along my good fortune to you kids. I’ve spent some time reading the Guide To Retiring Wealthy, and it’s a pretty solid read. With a little luck, you could win the very copy I read with potato chip stained fingers. But before I give it away, let me tell you a little about what the book is about.
The book is divided into chapters that cover a decade in financial planning, your 20s, 30s, etc. Each chapter also includes a look into the life of a fictional couple John and Mary, and what they’re worrying about at a certain stage in their lives. No word on whether Mary is hot or not though.Finally, at the end, there’s a self test, so you can see whether you’re on track. Like every other test in my life, I’m probably going to fail this one too.
Your 20s
The book starts off with some tips for 20 somethings, focusing on getting the other parts of your financial life in order- like student loan and credit card debt taken care of. It also dispenses advice on how to start saving, touches on RRSPs and TFSAs, and gives tips on how to buy a car and also tackles the debate of whether a person in their 20s should buy or rent a house. John and Mary also show up, get married, and by the time they turn 30, Mary is pregnant! Let’s hope John is the Dad…
Your 30s
Naturally, someone in their 30s usually has more money related stress in their lives. They’ve just bought a house and maybe have become new parents. Staying afloat while paying a mortgage and raising kids can be tough, adding retirement savings to the mix almost seems impossible. The chapter also touches on insurance needs and whether a new parent can afford to stay at home with the kids or go back to work. There’s also the only RESP article in the whole world not written by Mike at MoneySmartsBlog. Seriously, if you’re looking for RESP advice, Mike is the man. I’m going to harass him on almost a daily basis with RESP questions once I convince some sucker lucky woman to have my babies.
One thing I don’t like about the book is the acceptance of having a car payment. All sorts of experts share their opinions in the topics covered, and they all imply that a car payment is a given. There is no rule you have to buy a new or next to new car. A car bought for $5,000 or $10,000 will not spontaneously combust, I promise.
John and Mary are back, and they’re not doing especially well. They bought a house using a 35 year amortization. They owed money on their credit cards and a car loan. They have a positive net worth, but almost all of it is just equity in their house. I smell a midlife crisis coming up soon…
Your 40s
My favorite chapter in the book so far talks about just how much you’re looking at to retire, along with some basic investment strategies to get there. It also touches on pensions, whether or not buying a rental property should be part of the plan, how to recover financially from a divorce, and tips on how to take a year’s sabbatical. John and Mary are chugging along nicely, no word on whether he’s cheated on her with that hot divorcee who works in accounting.
Your 50s
Even if someone hasn’t saved a significant amount by the time they turn 50, the guide explains they’re hardly screwed. Once the mortgage is paid off, savings can really be supercharged. The chapter also covers adult children moving back in, as well as retirement withdrawal rates, and avoiding debt going into retirement. John and Mary- ah, screw it. They’re boring.
Your 60s and 70s
Oh yeah! You’re finally retired. The final chapters in the book talk about estate planning, adjusting asset allocation of your investments once you retire, and tips on how to get a job that both boosts income and is fun. Easily the best part for me was the section of retiring abroad in places like Mexico or Costa Rica. I’m not sure why more retirees don’t look at this option.
A Chance To Win The Book
Overall, the guide was a pretty solid read. It’s packed full of great tips for people of any age who are interested in getting their retirement savings on track. Now I bet you want a chance to win the book, huh? Well, you’re in luck. I’m giving you all sorts of ways to win! Just do one (or all if you’re so inclined) of the following to get a chance to get the book.
1. Leave a comment (1 entry)
2. Mention this giveaway on the Twitter (1 entry) Make sure you @ me when you do, or I’ll have no way of figuring out if you did. If you become a new Twitter follower or you already follow me, I’ll give you a bonus entry.
3. Link to this contest on your blog (3 entries)
So there you have it. You could easily get 6 entries to this contest, easily the greatest to happen to anyone. And since I fully expect to get about 9 total entries, you’ve gotta like your chances! I’ll draw for the winner on Friday June 3rd, and announce the winner in the link dump the next day. Oh, and you’ve gotta live in Canada or the U.S. to win. I’m not shipping this thing all the way to Timbuktu.
This is the scene in a northern Alberta town called Slave Lake last week, as the town got in the way of an out of control wildfire, burning over a third of the town into the ground, including the town’s administrative building. Since the fire knocked out utilities, even the people who will be lucky enough to be able to go home to an untouched home will still have to wait weeks until they can go back. The devastation is truly amazing, both federal and provincial governments have stepped up with promises of support and money to help rebuild.
Luckily, nobody was killed by the fire, a remarkable feat in itself. Everybody managed to leave town ahead of the fire, setting up evacuation camps in nearby Athabasca. As people wait for the opportunity to return home, what about the people who don’t have a home to return? Should they go back to Slave Lake and attempt to rebuild their lives? Or should they leave forever?
The Case For Rebuilding
Slave Lake is their home. In many cases, they’ve lived there for years, sometimes decades. As members of the community, citizens of Slave Lake have become intertwined with their community. Kids have established relationships with peers in school, and as a result, parents have established extended relationships with other parents. As someone who still lives in the town he grew up in, having a sense of community is a convincing motivator.
If someone stays in the community, they have the satisfaction of helping to rebuild. Sure, Slave Lake will suffer, probably for years. After all, a third of the town has been burnt down. However long the rebuilding process takes, those people who believed in the community will be the ones to reap the rewards, at least from a pride perspective. Think about how exciting it would be to have a role in shaping the new community.
The Case For Leaving
Losing a home to fire is one of the most horrible things anyone can go through. Besides losing priceless items like keepsakes and pictures, a victim is losing a part of their innocence as well. A home is supposed to be a sanctuary from the evils of the outside world, a place where someone can go and truly let their guard down and relax. A home is the place where you feel with most comfortable, a little spot in this world that’s truly yours. Now imagine losing it in the span of a few moments.
A very natural reaction would be to leave that place forever. While you’ll always have the good memories, those memories will forever be clouded by tragedy. How hard would it be, spending day after day in a place, surrounded by people who were starting over from scratch, after such a horrific event? That would drain even the strongest of us all.
Leaving town could be the best thing to happen. Leaving means a new job and a new community somewhere else. Perhaps that job is fantastic or leads to a life changing opportunity. Maybe a single person meets the love of their life in their new home. All sorts of benefits can await someone who’s just willing to step out of their comfort zone, maybe a tragedy is just the thing they need to kick start a new life.
What Would I Do?
It’s simple. I’d leave town forever. I’d maybe come back every now and again to visit my old stomping grounds, but I’d head out and take the first good opportunity I could find.
For me, it would be heartbreaking everyday to spend time in a place crippled by disaster. While the rebuilding effort would be exciting, I just don’t think I could get into it. I’d very quickly turn into one of those old guys who’s constantly pining for the good ol’ days. Naturally, I’d disagree with some part of the plan for the new town.
I’ve often thought about leaving my small town and starting over in a new place. Even though I think my reputation is good, the old saying is right; it does precede me where ever I go. A fresh start in a new town could be the jolt that reinvigorates me. Suddenly I’m the new guy, rather than being the guy who’s been around town forever. I’ve never really experienced this feeling.
Moving away is the easiest way to distance yourself from the tragedy. If you’re not surrounded by the charred remains of what was once your neighbours’ house, then it becomes a lot easier to focus on other things. It would take awhile, but I’d become a member of my new community.
Readers, would you stay and help rebuild? Or would you leave town forever?
Note: I know I promised a giveaway today. But I was busy working all weekend, and haven’t had a chance to read the book I’m giving away. I’ll read it tomorrow, probably on my patio. So look for the giveaway on Tuesday or Wednesday.
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