Why I’m No Longer Trying to Beat the Market

Why I’m No Longer Trying to Beat the Market

Back when I used to troll the dividend growth crowd over in the comments section of Seeking Alpha, a tried and true way to really get somebody’s goat was to just point out how their dividend portfolio didn’t beat some index, usually the S&P 500.

These folks would inevitably respond with how they didn’t care about beating the S&P 500 and how all they worried about was investing in good companies that increased their payments each year. Getting trolled in a comment section was just a bonus, I guess.

Your boy Nelly, meanwhile, was confident his deep value portfolio filled with the trashiest (but cheapest!) companies out there would outperform. Sometimes I did extremely well, like that time I loaded up on Cloud Peak Energy (a coal miner) and tripled my money. I got out right as Trump won, within a dime of the stock’s high. I also made nice gains with trash like Yellow Media, Automodular, Dover Downs Casino, Village Farms, and so on.

But these paled in comparison to some of my losses. I got my ass handed to me on Corus, which is still down more than 50% over my average price. I even averaged down twice on that stock. Winnipeg Free Press lost 90%. Danier Leather at least salvaged something during the bankruptcy process, and I once invested in a Chinese fraud that went to zero. There are more examples but I’ve successfully blocked them from ever entering my consciousness again.

Such a portfolio didn’t have much correlation to the market, which should have made it easier to outperform. At least in theory. But it was also filled with a lot of trash. These were shitty businesses that just needed a small change in sentiment to achieve a satisfactory investment outcome. Except that often didn’t come. Because they were shitty.

This all seems so obvious in hindsight, but younger Nelson actually believed it. Poor guy.

Beating the market 

After stubbornly holding on to this trash portfolio for a few years to try and be different from the masses, I finally got smart and switched to owning a diverse selection of blue chips with a bit of a value bias. It’s working much better.

Let’s compare my portfolio to the TSX Composite. My portfolio has one lingering retail stock, exposure to the U.S. tech market (no Canadian names), energy exposure only through pipelines, and not a nickel invested in any mining or materials companies. This avoidance of sectors is quite intentional. I view them all as crummy businesses without any pricing power. It’s exactly what I don’t want to own.

The TSX, meanwhile, has exposure to all these things.

So what happens if gold and oil soar, while the rest of the economy tanks? These two things generally move inversely to each other, remember. If this happens, my portfolio underperforms the market.

You can probably guess what happens if the opposite occurs. If gold and oil continue to be in the toilet, my portfolio kills the TSX Composite. It’s really quite simple.

So my “outperformance” (or lack there of) depends on two sectors I refuse to own. Nice. Real nice.

Should I compare to another index?

Canada has a number of dividend ETFs that focus on delivering plenty of income while minimizing the impact of a dividend cut. Perhaps I should compare my portfolio to one of those.

My favorite dividend ETF has consistently been ZDV, the BMO Canadian dividend fund. It pays a nice yield — the current payout is 6.5 cents per unit each month, good enough for a 4.75% yield — and it comes with a low management fee of 0.35%. I own five of its top ten holdings and 17 of the 50 total holdings (I guess 18 of 51, since we both have a small cash position). It’s probably the better fund to compare my portfolio to.

But at the same time, perhaps this isn’t the best method. Maybe whichever underlying index I choose loads up on some hot new stock that delivers nice gains. Maybe it gets lucky with a takeover or three. Or maybe I get unlucky and one of the biggest positions in my portfolio blows up. This kind of stuff should even itself out over the long-term, but can have a big impact on year-to-year results.

I think the solution is I track my portfolio versus ZDV or one of the equivalents. But I’m not going to be super serious about it. As long as I’m posting consistent gains and my dividend income keeps going up on a year-over-year basis, I’m good. I’m not going to sweat the small stuff.

Wrapping it up

If I do underperform but I still end up being worth $5 or $10 million, does it really matter? I’m already at a point where our family spends about 80% of our passive income and saves 100% of our active income. Can I call that a 120% savings rate? I WILL NOW.

Remember, a high savings rate can cure a lot of other sins.

As long as I go forward each year, I’m good. And I know that by loading up on large blue chips I’m not going to deviate from the market that much. And as much as it pains Nelson of five years ago to admit this, blue chip dividend growers have a history of outperformance. So I suspect I’ll probably do about as well as ZDV, even if I’m not religiously tracking it.

Which, of course, begs the question. Why not just buy ZDV and be done with it? But unfortunately we’re out of time.

Your Personal Finances Should Be Boring

Your Personal Finances Should Be Boring

Just like this blog post. HEYO. 

Uh, I make the jokes around here, Italics Man. Your role is to go straight to hell and stay there forever.

One of the things about being a sometimes-personal-finance-and-often-investing-blogger (or NAMBLA for short) is you sometimes feel pressure to do stuff so you have blog fodder. A finance blogger most of you have heard of told me that very thing one day, and I didn’t immediately dismiss her as crazy. That came later, when she demonstrated that she was, in fact, batshit insane.

If I ever felt this pressure (don’t worry, the only pressure I feel is CRIPPLING CHEST PAINS), I can easily get away from it by buying a few stocks and then telling you guys about it. I’m steadily adding money to my investment accounts and then putting it to work. I try to diversify much more these days, which means I’m constantly buying smaller or medium-sized positions in what I view are great companies. The diversification part is in case I’m wrong, which is entirely possible.

But what’s a fella to do if you’re not into active investing? There’s nothing exciting about making your monthly contribution into two or three index funds. And saving 20% of your income each and every month is about as sexy as your grandmother trying on new underwear. IS THAT A THONG? GRANDMA!

Hell, getting rich the old fashioned way might be the most boring thing outside of a computer-generated image of a black hole. NOBODY CARES, NERDS. CALL ME WHEN YOU FIND ALIENS. You save 10% or 20% or whatever percentage of your income, slowly put it to work, and repeat 40,000 times. No wonder people get bored and feel the need to spice it up with all sorts of nonsense that will make you richer slightly faster.

But the boredom should be embraced. It’s a desired side effect, not some complication that needs to be addressed. Keep your finances boring and add the spice to other parts of your life. Like have you ever considered unprotected sex with strangers? I hear that’ll get the ol’ heart pumping.

Who I’m Reading — 2019 Edition

Who I’m Reading — 2019 Edition

As the original content here at the ol’ FU machine slows from a trickle to potentially being blocked by kidney stones (finally, a urinary tract joke here at Financial Uproar), I figure I have two options. I can either post more or set you kids off in a different direction to read some folks who are absolutely killing it.

Laziness wins here usually, and today is no exception. But this kind of counts as new FU content, right? What if Italics Man showed up? God I hate that guy.

I figure I’ll divide this bad boy into different parts for the different types of blogs I’m following these days. Let’s start with the personal finance folks and move on from there.

Let me say before I start that I’ll likely be leaving out plenty of blogs I read and enjoy, but not with the same veracity as these ones. It’s a great time to be a finance aficionado. There are literally hundreds of blogs out there filled with useful information presented in a entertaining way.

Personal Finance

Some of these will combine personal finance with a little investing stuff. STAY IN YOUR LANE YOU RAT BASTARDS. Sorry, I have an anger problem.

Gen Y Money 

Gen Y Money is authored by a mid-30s anonymous author out of Vancouver, the former owner of Young and Thrifty and one of my original internet girlfriends. You may scoff at such a thing being juvenile and immature, but another one of my former internet girlfriends is now my wife. Seriously. Sorry, Gen Y Money but we’re sidetracking here. We’ll be back to you in a minute.

In 2012 I wrote the third post in an annual installment called Hot Finance Blogger Chicks, back when this blog was even creeper and more desperate than it is now. I became friends with one of the women featured and things went from there. We were dating a couple years later and have now been married for 3.5 years. How I managed to pull that off is beyond me. And since I don’t want to tell people how we really met, I just say “oh, we met online.” Which is a shame. I should tell that story!

Anyhoo, back to Gen Y Money. Somehow, after working a full-time job, being a mom to a toddler, and traveling a ton, she still has time to post some of the best finance content out there. She has solid net worth yet lives a pretty modest life, constantly watching her pennies despite being well on her way to becoming a millionaire. And that’s without her husband’s contribution, and I’m pretty sure that guy is loaded.

My Money Wizard

There are very few bloggers I’d encourage to quit their job and write full-time. I practically begged the guy behind My Money Wizard to do so in an email exchange we had a few months ago. Other bloggers are writing posts like 5 Ways to Save On Groceries (Use Coupons!) while he’s doing Build Wealth 6.5 Times Faster By Adding Compound Savings to Compound Interest. Which would you rather read? Exactly.

And this isn’t the same old content recycled with a sexy title, either. It’s consistently good stuff. MMW has the ability to look at personal finances in a unique way yet still distill it down to what’s really important.

Mr. Tako Escapes

There are two different types of financial independence blogs out there. The first clearly exists as a way to make money for the early retiree, and I follow very few of these. Oh, you travel hacked yourself a vacation and you just happen to write about it in a blog post with plenty of affiliate links? Oh, yeah, this is for my benefit.

Mr. Tako’s post-retirement life is delightfully normal in comparison. He eats most meals at home and spends time entertaining his kids. They travel a bit, but not much. Hey, the kids are in school. He keeps busy blogging, doing housework, and so on. It’s not nearly as sexy as living abroad or traveling a ton, but I enjoy it.

Mr. Tako’s investing posts are top notch, as are some of the recipes he posts. Perhaps his greatest talent is he doesn’t take any crap from commenters. I love it.

Asset-Based Life

Paul from Asset-Based Life might be the best personal finance blogger nobody reads. Or maybe people read him now, I dunno. He’s entertaining, funny, and every post is just dripping with nuggets of wisdom. And he recommended a delightfully cheesy magic show I saw last time I was in Vegas. Hell, he’s even invited me to visit on multiple occasions. I will take advantage of this in the most selfish way one day, by showing up at the airport unannounced and demanding he chauffeur my ass around. Paul will do it because he might be the perfect man.

Investing

This section will be longer. With the exception of the blogs featured in the first part of this, I just don’t read much personal finance stuff any longer. Sorry, guys. I just don’t need to.

Don’t Fuck With Donville

Let’s start with a recent new blog I discovered called Don’t Fuck With Donville. This guy is great. He’s a growth investor with preference with high ROE companies that have good growth potential, just like former hedge fund darling Jason Donville. He swears worse than I do (yes, it is possible), unabashedly drinks too much and partakes in some now legal whaccy tabaccy. It’s the funniest blog out there without the initials FU.

Divestor

If you like contrarian thinking about all sorts of Canadian small-cap companies, Divestor is your place. He’s one of the best analysts out there. My only issue is his post frequency has dried up a bit over the last few months. COME ON MAN, I NEED MY FIX.

Canadian Value Stocks

There’s a reason why I was linking to Tyler every damn link dump. He finds cheap obscure companies and does an absurd amount of research on them. You can tell he’s legitimately interested in becoming the best investor he can be, rather than just trying to leverage this into a job or notoriety.

I’d like to sit and have a beer with everyone on this list, but Tyler would probably be #1. We’d geek out for hours and maybe I’d go in for a kiss during a particularly tender moment. WHATEVER GUYS IT’S 2019 WE’RE OKAY WITH THAT NOW.

Money Maaster

Big fan of Jordan’s despite his clear inability to spell master right. Wait I’m being told that’s actually his name. Nah, I’m not buying it. Change your name to something better, Jordan.

Jordan and I have a very similar investing strategy. We both insist on dividends, and both can even be talked into some of the better dividend growth names. But we both insist on getting decent value, too. There’s some overlap in our portfolios, and I often find myself interested in the names he discusses.

Dividend Growth Investor

DGI is one of the original dividend growth guys on the interwebz, blogging about his favorite kinds of stocks for longer than a decade now. He’s tremendously respected, and it’s easy to see why.

Much of his premium writing is now reserved for his newsletter subscribers, which is great for his business but a little sad for the rest of us cheap bastards who are too big of a tightwad to pay the very reasonable subscription fee. I can’t help but feel a little responsible for this; I encouraged the guy to start his newsletter for like a year before he finally got around to it. If you’re going to pay anyone for help, make it DGI.

I’d almost consider the guy a friend and I couldn’t tell you the first thing about him. The internet is a weird place sometimes.

Ian Bezek

Like DGI, Ian Bezek keeps a lot of his writing exclusive to paying customers, but he’s generous enough to keep a steady stream available to shlebs like me who get kicked out of exclusive clubs like Ian’s Insider Corner.

What I like best about Ian is his relentless skepticism and contrarian thinking. I remember first discovering him after he commented on some of the dividend growth articles on Seeking Alpha, basically saying that a lot of the dividend growth names were overvalued and you needed to be selective. And guess what? He was right!

He currently lives in Colombia, which I think gives him a pretty unique view on the world versus a U.S. or Canadian-based analyst. And he was kind enough to write about Grupo Aeroportuario del Pacifico, which is a fantastic growth stock in a terrific business. I bought it only because he brought it to my attention, and I’m up approximately 30% plus dividends.

Trapping Value

If you’re into distressed Canadian assets usually with big dividend yields (and really, who isn’t?), then Trapping Value is your man. He combines thoughtful analysis, subtle jokes, and just the right amount of snark into some of the best analysis out there. And he’s prolific, too. That dude churns out good stuff more often than I change my underpants.

That’s it, kids

You don’t have to go home but you can’t stay here.

An Ode To 22-Year-Old Nelson

An Ode To 22-Year-Old Nelson

I would just like to take the opportunity to thank 2005 Nelson for everything he did so 2019 Nelson could live in comfort. Gosh, what a guy. I’d buy him a drink because Lord knows he was too damn cheap to buy one himself.

I remember one night working overnights at the ol’ grocery store where I decided on a path for my life. I would become a millionaire by the time I was 30. Then I could do whatever I wanted. I told my buddy and he actually believed I could do it.

So I did everything possible to get there. I walked to work despite it being a 20+ minute one way trip.And then I’d walk 8-10km per shift. Not surprisingly, I lost weight doing this job.

Working overnights came with other added benefits. Not only did I go to town on all the old donuts — which were free for the night shift guys — I also didn’t have many evenings free to hang out with my friends. Yes, I actively discouraged having a social life to end up slightly richer. I’d hang out a bit with my co-workers after work, but for the most part I’d come home at 9am, put on the ol’ BNN (ROBTV back then), and pass out at noon. I’d be up at 9:30pm to do it all over again.

By the time I was 22 I was promoted to Evening Manager, which came with a half-decent raise and plenty of opportunities for overtime. I even got a bonus at the end of the year. I maybe could have made more by moving to Alberta’s booming energy sector (remember, this is 2005), but I stayed put because I liked the steadiness of the grocery business and I didn’t want to work outside.

I did sometimes consider moving a little closer to work, but never seriously. That’s because I lived in my parents’ basement for the low, low price of $200 per month. I took full advantage of that deal and stayed until I hit 25. I figure that decision alone put $100,000 into my pocket.

Young Nelson wasn’t just being a cheap ass. He was also investing as fast as he could. Every spare dollar was put to work, first into real estate until those deals dried up. Then my cash was split into the stock market and our rapidly growing private mortgage business. I invested all I could and then borrowed to invest some more. I remember going into the bank as a 22-year-old and asking them to use the equity in another rental house for a down payment on a new property. And they actually agreed to it. No wonder the Canadian housing market is in a giant bubble.

In short, the first few years of my adult life were spent sacrificing so older Nelson could afford to take it easy. Young Nelson has never been fully thanked for it, so I’d like to take the opportunity to do so now. Thanks young Nelson. You’re the best.

And one more thing, young Nelson. Don’t worry, you will actually have some success with the ladies. They’ll start to appreciate what you’re doing in a few years. At least a couple of them do.

What about balance?

It’s a good thing young Nelson didn’t read anything on the internet about balance. Because he sacrificed everything those first few years.

I remember cracking $30,000 in yearly earnings for the first time That year I probably spent $5,000 all-in. My biggest expense was rent, but I made that worthwhile by eating all my parents’ food. I’d have the occasional meal at McDonald’s. I walked everywhere and my entertainment was cable TV, downloading music on the internet, and library books.

That’s an 83.3% savings rate. Not every year was that good, but I bet I averaged a 75% savings rate until I moved out at age 25.

Young Nelson sacrificed greatly so older Nelson doesn’t have to worry about money any longer. I know that the $25,000 I saved as a 20-year-old isn’t alone responsible for where I’m at today, but it was a damn good start. It bought assets that are still spinning off reliable cash flow today. I just did it over and over again.

The thing is I remember this not being much of a sacrifice to young Nelson. Sure, he wanted a car, but would always balk at the price, especially for insurance. Walking everywhere really wasn’t a big deal. Those free donuts were still damned delicious. My parents’ basement was comfortable and spacious. And most importantly, making these decisions allowed me to get rich in a hurry while the rest of my generation was piling on student loan debt.

So to young Nelson and to everyone else living that kind of life so they can be free in the future, I salute you. And trust me, the journey is worth it.

Most Books Are Too Long, Dammit

Most Books Are Too Long, Dammit

I try to read between 30 and 50 books a year, but I’m not super religious about it. Reading is supposed to be a pleasurable experience, and I think it’s pretty dumb to set pleasure goals. If you like to read and are feeling it, great. And if you’d rather watch TV or something instead then what the hell do I care? You do you, Sparky.

I also strictly read non-fiction, because one of the main reasons why I read is to learn stuff. There are nuggets of information in fiction books, but nobody reading Love on the High Seas is doing so to learn about 18th century pirate culture. They’re flipping those pages to get to the BONIN’, BABY.

(Things are getting hot and heavy in the captain’s quarters)
“Oh, Blackbeard! The rumors were right. You really are a savage!”
(There’s a knock on the door)
“Captain! We’ve spotted a merchant ship! Should we attack?”
“Aaaarrrrrrrr, baby. I gotta go get some booty.”
“Don’t you have all the booty you could ever want right here?”

Well, that’s it, kids. That’s the greatest joke in Financial Uproar history. It’s all downhill from here.

My book problem

One of the added benefits to following so many finance folks on Twitter is there’s a constant stream of book recommendations crossing my path. Many of these books sound interesting, so I make a note to check them out later.

Aside: how I don’t pay a nickel for my reading habit

Once I crack into these books, I find the same thing over and over again. An interesting sounding book quickly becomes bogged down with too many examples, pointless stories only vaguely related to the overall point, and other strategies designed to stretch an good topic into a whole book.

Basically what happens is a book with 100 pages of good, interesting material gets stretched out to 250 pages. I’m told this is because book stores insist upon it. They want to charge $20 for a paperback, and you ain’t getting that much for something that looks like a second-grader’s first chapter book.

(There’s probably a business idea here. Take the average 300 page book and condense it down to 80-100 pages. Call it Books for Busy People. People would love it because it wouldn’t be hard for the average person to finish 50 of these a year and then they could say they’ve read 50 books this year.)

I understand why an author wants a longer book. There’s no reward for them to present the information in a neat condensed form. A thicker book means a higher price tag, which means the author gets paid more. Nobody is going to conclude the author of some little pocket book is the master of a certain subject. And writing a book is often a vanity project. Nobody’s going to be impressed by the guy who boils down complex concepts to a manageable word count.

More books should be articles

Every now and again you stumble upon an interesting topic somebody wrote 4,000 words about and every minute of it is fascinating. You read it with gusto and maybe keep the tab open for a few weeks so you can refer to it again.

And that’s enough. That’s all you need to know about a topic because it was just the right amount. The author has done a good job hitting all the key points with just enough examples to prove their point.

It’s exactly how a book should be.

I find I’m abandoning more books than ever these days because they’re clearly stretched out to meet some arbitrary word or page count.

For example, I recently read The Confidence Game by Maria Konnikova, a book all about scams and how these folks think. I thought it was a fascinating concept that was bound to be an interesting book. And it was. There are some stories that were equally hilarious and infuriating as oblivious victims kept finding ways to separate themselves from their money. But it was also 75-100 pages too long, weighed down by sometimes 3-4 stories to illustrate one point.

It has gotten to the point where I get halfway through a book, and I fully understand what the author’s getting at. It’s time to stop because the book isn’t going anywhere. It’s just repeating itself. But I’m loathe to give up on a book halfway through, so I press on and don’t really enjoy the second half. This is why I don’t like to give myself reading challenges or pick a specific number of books to read. It creates an incentive for me to not abandon a book when I should be.

Let’s wrap this up

You should talk. This 800-word article could easily be summed up in 300 words. 

Thanks, Italics Man. You’re a great guy.

Anyway, that concludes my old man yells at cloud rant for the week. Am I just losing my attention span when I get older? Probably!