After spending most of the long weekend in the bustling metropolis of Calgary, I’ve come to realize something.
Most of y’all are terrible drivers.
Not you, of course. Just like with sex, you are the best of the best. Dudes from far away come just to see a glimpse of your driving ability. Hollywood is constantly on the phone, begging you to show up and drive in whatever Fast and Furious movie they’re currently making. I think they’re up to number 26.
All of your friends, though, suck. They constantly do unsafe things like switch lanes every 40 seconds, follow too closely, go way too fast for driving conditions, pass on solid lines, and about a billion other sins. We’ve all seen those dash cam videos on Reddit.
I’m the first to admit I’m not a perfect driver, especially when I’m in the city and I don’t really know where I’m going. But unlike the 90% of us who self-identify as being better than average, I’m 100% certain I am in the top 50% of drivers. Why? Because I’ve taken a defensive driving course.
Seriously, that will change your life. I know it changed mine.
Professional vs. amateur drivers
There’s a quote on value investing that really applies to defensive driving, too.
“Value investing is like an inoculation. It either takes right away or it doesn’t.” — Warren Buffett
Most of us learn the basics of defensive driving when we’re teenagers, and then promptly forget them until we hit 82 and probably shouldn’t be driving anymore.
When I sold chips for a living, we were ushered into the office one day to take a defensive driving course. It turns out that because fleet insurance was so expensive, the company just went with the bare minimum and paid for damages out of pocket. And it turned out to be cheaper.
If a company is paying out of pocket for any collisions, you can bet your ass it’s in their best interest to educate their drivers on at least the basics of defensive driving.
Defensive driving is a pretty simple concept. If a driver follows a few simple ground rules, they can eliminate most instances that cause accidents. These rules are:
- Leave a minimum of two seconds following time between you and the car ahead
- Minimize lane changes. Pick a lane and stay in it.
- Accelerate smoothly and avoid braking. Coast up to traffic lights instead of going up to the light and hitting the brakes
- Look into the future (focus on what will happen, not what is happening)
- Look around rather than just staring forward
- Make eye contact with other drivers, pedestrians, etc.
How many of you are following these rules? I bet very few do — except those who are professional drivers. They’re much more likely to do so. I’ve seen it with my own eyes, so it must be true.
How this relates to your finances
I guarantee most of you either just skimmed that last section, or read it and immediately ignored it. “I drive just fine, Judgey McJudgerson. We don’t need no wussy rules on how to drive like a wuss. Stop driving like a wuss.”
And yet, just about every Fortune 500 company that employs professional drivers have invested in some sort of driver training. The Smith System is the most popular, and there are countless imitators.
The overall point is a relatively simple one. If you keep doing things the same, you’ll get the same results. It doesn’t matter if the scenario is driving or if it’s your money.
According to the world of personal finance, there’s really only one way to get ahead. The road map looks something like this. Create a budget. Set up an emergency fund. Take excess savings and channel it into a portfolio of ETFs. And then increase your income through a side hustle.
These are all great pieces of advice. But they’ve been repeated often enough that they’re all but useless to anyone who isn’t a beginner.
Take investing as an example. I think people who take all of their cash and put it into Canadian or U.S. broad-market ETFs are going to be regretting the decision a few years from now. North American stocks are quite expensive. I’ve been telling y’all to check out alternative investments for months now, recommending everything from private businesses to buying mobile homes.
My private mortgage business is a great example. Despite housing bears calling the private loan market in Canada words like “toxic” and “dangerous”, I continue to make loans to people that make sense. These loans are covered by equity even if the housing market falls by 20-30%.
I’ve created a lucrative business with equity-like returns by venturing into part of the market where few others dare tread. And I did so intelligently, regularly rejecting loans that don’t come with my required margin of safety.
Wrapping it up
This isn’t to say you should rush out and get into the private lending business, because chances are there are already 14 lenders already in your market and you don’t really know squat about the business. But I bet there is a business you know pretty well.
The average person throwing money at an ETF is like a mediocre driver. Even the bottom 10% of drivers still regularly get from point A to point B without incident. As long as the average ETF investor has a high enough savings rate, they’ll do just fine too. But is it really an ideal result? Wouldn’t you rather get higher returns by thinking a little outside of the box?
Professional drivers drive different than most of us. They look at the road differently. It’s time to bring a similar attitude to our investments. Many people look at investing as a savings problem. Just throw more money at it, and the problem goes away.
But you can’t look at it like that. Savings rates will only do so much. It’s up to you to figure out how to maximize those savings rates.