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moneysense.ca, 8/12/08
Are you a De-Value Investor?
“I’ve procrastinated for years with saving and investing. Now I feel I need to catch up.”
There are a lot of investors in this boat and the sea can be rough and unforgiving. Do you have a tolerance for risk? What is your definition of risk? How much risk can you tolerate? Have you ever asked yourself these questions?
“This stock has gone nowhere in 4 months! I need to sell. The analyst said that this stock should have doubled by now!”
Adequate patience and realistic expectations are hallmarks of successful long-term investing. Analysts have two knocks against them: they are paid for an opinion and view the business from external sources. What you need to do, in any situation, when receiving advice is ask yourself who stands to benefit most from the advice being given. If the quick answer is not “you” than you have to question if there’s a conflict of interest that is impacting the opinion you are receiving.
“I haven’t met with my advisor for almost two years. I like them because they send me chocolates at Christmas each year.”
When you pay for a product or service you should expect to receive something tangible in return. If you’re paying a premium to receive advice and no advice is being given than you should be asking why you’re paying that premium in the first place. How much is a 3% MER on your portfolio worth to you? 3% over ten years is 30% of your potential returns that you’ve paid for a service – are you getting a value-added service or performance? Whose interests are being served as a priority?
moneysense.ca, 8/12/08
I am not a de-value investor but I still have some things to do before I become a value investor. Nice article by the way
Nice article Brad.. The thing that always amazes me is how people hold mutual funds that cost them more than 0.50% per year.
Smart would be to pay off the mortgage before any investments are purchased, and smart would be to have put all money in GIC’s in 2008 before the stock crash. A lot of smart people thought that GICs did not bring back very much money… and that they could gain 10 percent in stocks. When they lost 10-15 percent this year… I laughed when all my money was in GICs and money market altimira accounts.
RS & DGI – thanks for the kind words.
L505 – I think a number of investors look back now on their investment decisions with a much better view of what their risk tolerance should have been. The troubling fact is that when the markets recover, start making new highs and the fever once again takes hold only a few will actually remember that there’s still risk out there despite the attractive returns.
The frustrating part about the markets these days is that some stocks which continue to post higher and higher profits every business quarter are still getting their share price dragged lower and lower with the overall market. Although the temptation is to add to my position in these stocks, that would un-diversify my portfolio in a huge way as I already hold more of these stocks than a typical 5% allocation in a single stock name.
The more I learn, the more I know that I don’t know anything!
Thanks to CC and Brad for this opportunity to understand more about PF.
Nice article. I just want to announce my new entry into the blogoshere. CC, Preet and others have inspired me to give it a shot. Comments, suggestions etc for a newbie like me are not only welcomed but encouraged.
[...] Canadian Capitalist asks “are you a de-value investor?” [...]
“a tour of a manufacturing plant to get a sense within the first hour or two whether an investment is something that fits my style or requirements to own.”
I happen to work in a manufacturing plant and I’m not sure what anyone is supposed to get out of touring the facility. As an investor, I’d probably be looking around going, well that was fascinating but what is it that you wanted me to see? I see machines making things and forklift ferrying material around, though I kind of figure that’s what the capital on the balance sheet of a manufacturing firm was. I see there’s actually people employed so you can justify your expenses, which I already kind of figured since stuff is leaving the plant and getting sold. It feels like saying, “I’m not a mechanic, but show me the guts of your used car anyway so that I can be completely mystified as to whether or not its a good car.”
[...] The Canadian Capitalist: Are you a De-Value Investor? [...]
GSS – Part of my investing approach is to investigate the corporate culture of a company and to evaluate management prior to investing.
I’ve toured a number of locations for prospective investments over the years and I’m not so much concerned with how many forklifts the company has or their capacity to turn out so many widgets per hour.
Frequently you’ll find me talking to the workers on the floor of the production plant or near the loading docks in order to assess what’s happening at the bottom level of the company to see if it matches the same enthusiasm as that from the top.
From a productivity viewpoint that’s very important. If management is involving all employees into the operations of the company they have a vested interest and enthusiasm to continue working efficiently. I think most investors would be surprised what I’ve learnt from such conversations in passing.
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