In the year 2000, My early mistakes buying High-Expense Mutual Funds

I made my first investment in 2000.

I bought a high-expense ratio mutual fund from one of the big banks.

I remember I spent hours and hours reading the prospectus and looking at the comparison charts. I felt reassured by the five-star ratings given by “experts” of the field.

After a few months of no growth, I switched to the next mutual funds with a five-star rating, recommended by another set of experts.

In the year 2002, I jump into individual stocks

I became frustrated with my meager gains in actively managed mutual funds. At the same time, I was enticed by the financial news. Every day of the week there were so-called experts sharing their stock picks. How can they be wrong, they are on TV?

I cashed out my mutual fund holdings and jumped into the stock market by finding the best trading apps uk.

My first trades were failures. I didn’t know how to buy stocks gdzie kupić akcje, I bought Nokia before it went down. I bought Cisco before it went down. And the few winners I had, I sold them too soon. It was like getting rich, but backward.

The year 2003, I became a financial adviser

I graduated from Concordia University. I couldn’t find a job because my French was not great (still not great). The only place willing to hire me was an insurance company that only hired commission-based financial advisers. I was desperate, so I took the job.

I studied for two weeks, I took some regulatory exams and I had a permit to sell financial products.

By this time I had discovered low-cost index investing.

I started selling high-expense mutual funds and insurances to my clients. The higher the fees, the higher my commissions. I felt disgusted with myself. I felt that I was robbing families of their future.

I quit my job after one year.

The year 2004, I became addicted to day-trading

I read the news every day, I watched all kind of tv programs, I spent hours and hours creating charts, I did many crazy things.

I would buy in the morning and sell in the afternoon, every day. Sometimes I would hold on to the loser (refusing to accept defeat) and many times I would sell the winners (eager to book a win). My income tax was a mess, with hundreds of trades to account for.

My gains were never higher than if I would have placed it in index investing.

The year 2007, A Strike of good luck

I became frustrated with my life. I couldn’t think of anything else other than the stock market, yet I realized that I wasn’t doing better than the index. My girlfriend at the time was sick of hearing me talk about my winning and losing trades, my relationship was suffering, my health was suffering. I feel that I need a way out.

I pulled the trigger and sold everything. I was out. But I recognize that I was an addict. I needed to keep the money away from my own reach. I knew that if I had money in the bank, I would put it back in the market.

Like Ulysses who tied himself to the boat in order not to succumb to the chanting of the sirens, I tied my money in a way that it would be unreachable to me. I bought some real estate to rent a property in Airbnb.

Notice that I sold late 2007. I escaped the stock market downturn of 2008

The year 2009, second strike of good luck

Airbnb was new in Montreal, my Airbnb property was producing lots of cash.

At this time I feel that I have learned my lesson, I feel that index investing was the way to go. I started putting money back into the market at its lowest point.

The year 2009-2016, the occasional stumble

Once an addict, always an addict.

My main goal was to be an index investor.

“Don’t do something, just stand there.” – Jack Bogle.

And I bought the US index fund and the Canadian index fund.

In spite of the extraordinary growth of the stock market, I stumbled along the way. I created a “play account,” or a “gambling account,” but every time I did trade was slapped on the face. I was reminded that I am a poor stock picker and I lost money. Eventually, the message sank in and I stopped doing stock trading for good.

The year 2016 until now

I have seen extraordinary gains since 2009. My money has grown by about 200%. Index investing has made up for all the mistakes I did in the past. I cleaned out my act. Now I only invest in index funds.

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett

My one thing right was to go into index investing.

The probabilities are in our favor. The market always goes up

As we look at the stock market, in any single day, there is almost a 50-50 probability of having a gain. In a single year, the probabilities are 70% gains, 30%, losses. Moving on to 10 years, 95% gain, 5% lose. 20 years or longer, the probabilities of winning are 100%.

The case against stock picking

Let’s imagine you own an individual stock, XYZ. This stock could go up or it could down. You as an individual investor could make your money many times, or you could lose it all. Your probability of winning depends on your temperament, your analytical skills, and a pinch of good luck.

Logically, only 50% of people can do better than the market average. If we take into account the expenses related to investing, then less than 50% can beat the average. It’s like the casino house taking one chip out fo the table every time the roulette wheel spins.

If you take into account all the time spent in studying the market, all the studying, calculating, watching & reading the news, and all the anxiety involved in investing and if you give it a price per hour, and you count those hours as an expense, then your chances of beating the index are even smaller.

The index is the way to go

The index benefits from a self-cleaning organism. Let’s consider the S&P 500, which is composed out of the 500.

Companies are furiously competing against each other to be part of the biggest 500. As some companies lag behind, their stock prices go down, and they are kicked out of the index and replaces by another company which is in the process of growth. It’s like having a football team that is constantly replacing its tired players with a new fresh player. The individual players can be taken out, but the team continues going.

When you buy the index, you just buy once, and you don’t have to spend any of your time analyzing or projecting its return. You know that you will at least will get average market returns, and the cost is so low, it’s not even worth calculating. Vanguard is charging 0.05% for many of its funds, that’s $5 for every $10,000

Diversify by going global

When people refer to “The market,” they are referring to the US market as if it was the only market in the world. We have to remind ourselves, that about 200 years ago, the US, was an emerging market and only England and Holand were considered the real market.

To increase our probability of always having a winner, we have to diversify. Buy the indexes of other countries. Europe, Asia, Australia, China, Emerging Markets.  In the same fashion in which England stopped the economic leader of the world, the U.S. could stop being the economic leader of the world. By having a diversified portfolio you will have a smoother ride and you will be assured of always having the big winner in your portfolio.

Bonds are a drag

It has been proven statistically that bonds are a drag on any portfolio.

To smooth the ride, you don’t buy bonds, you buy international equities.

The only time when an investor should consider having bonds is when they have already reached their goals.

Let’s say my goal is to have $1,000,000. Then when I reach that goal, whatever extra amount of money I have, I can put it towards bonds. Or let’s say my $1,000,000 portfolio increase by $10 ($100,000), I can put that amount of money into bonds.

Related Posts

1. Everyone Should Participate in the Gig Economy
2. Would I rather be rich or smart? How about you?
3. Zero-fee investing has arrived