I’m fighting an uphill battle here at the ol’ Financial Uproar blog.
This isn’t my first unpopular crusade. I’ve been saying for years now that financial literacy education doesn’t work, but nobody seems to listen. Instead I’m inundated with blog post after blog post saying things like “how come I didn’t learn this stuff in school.” Except they did learn it in school, they just don’t remember. Which is my point exactly.
Financial literacy is just the latest example. I’ve crapped on giant emergency funds and life insurance and going to college and a million other things over the years. Hell, I even made fun of all your digital nomad dreams. I am the financial world’s insufferable contrarian.
And I love it.
Contrarians are the best people, and I’m not just saying that because I am one. They have the most interesting ideas. I am 100% convinced they are better investors. And perhaps most importantly, they have the ability to think about the world on their own, rather than just giving into the tyranny of the majority.
Think about your life. How often have you kept an unpopular opinion to yourself because you knew it wouldn’t be popular? I can think of at least two times this weekend, and I’m the asshole who doesn’t usually hesitate to speak up in such situations.
So after slobbering all over myself for a few paragraphs, let me get to the point of this post.
It’s okay to try
The prevailing advice in the personal finance world about investing is all about index funds. You should dollar cost average into a reasonable basket of such funds. And that’s it. There are no other investment alternatives.
I can certainly see why people would give that advice. I’ve been known to say the exact same thing, especially when a rookie investor is awed by my GIANT PE- I MEAN INVESTING PROWESS. If you can’t read an income statement, you have no business investing in individual stocks. You should stick to index funds.
Most people don’t know squat about business. Thus, they have no business doing anything more complicated than passive investing.
But here’s where I differ from most. I believe that with practice, the average person can get to the point where they can read a balance sheet. It won’t happen overnight, but it is certainly an achievable goal.
Once someone gets the basics of business down, the sky’s the limit. Then can invest in all the weird crap I like to talk about like tiny micro-cap stocks and weird-ass real estate and mortgages and all sorts of other stuff.
Not only do those things have better return potential, but they’re fun too. I like telling people about the stocks I’ve found, especially smart people who can poke holes in my investment thesis. There’s also a whole world of real estate investing folks out there. I’d participate in such a world if Canada’s real estate wasn’t so damn overvalued.
Stock picking may be a necessity
Here’s an interesting conundrum for the indexers out there. What happens when indexes don’t go anywhere?
I firmly believe both U.S. and Canadian stock markets are overvalued. I think putting a large portion of your net worth to work in these expensive markets at this point in time will end up in disappointment. It always does when markets are this overvalued.
At least stock pickers can choose cheaper companies. I’m pretty happy to buy High Liner Foods at 13 times earnings, for instance, especially when all of its peers trade between 20 and 30 times earnings. It might fall with the market, but over the long-term I like my chances buying a dominant player at such a cheap multiple.
And there’s always the option of investing in stuff that isn’t the stock market.
Let’s wrap it up
Too often, my peers in the finance-o-net will chastise anyone for having the audacity for wanting to learn about the world of business. The average person can’t beat the market, they claim, so why even try? But that’s just not true. I’ve killed the stock market averages since 2001 by investing in a combination of undervalued assets.
Don’t get discouraged. A good business education will pay off in spades. Pursue it. You can do it for basically free anyway.