Time to start getting into the meat of things.
my investment approach and portfolio strategy have changed over time.
Going a bit back in time will hopefully help give some context on how I got to my current investment approach and why I feel this is the best approach to have taken for myself.
Prior to turning the age of majority (18 years old) and being able to make my own investment choices, my mother had put aside some money for me and had invested the funds in GICs (Guaranteed Investment Certificates). These are available in Canada and the U.S. equivalent would be called CDs (Certificate of Deposits). I’d also added to the total invested through self created small business ventures (you can only officially get a job at age 15 and I wanted to start working before that so I found ways to earn money myself) and part time jobs during that time. I’d learned the value of compound interest as my mother insisted that I sit in the personal banker’s office while the funds were invested or reinvested. The personal banker didn’t like having kids in her office however it was probably one of the best things my mother did for me on my path towards achieving financial independence. Heed my words for Lesson #1: Ignorance is not bliss when it comes to managing your money and investments. Understanding money will make anyone’s life easier. Not understanding it will make things more complicated. Watching the money grow year over year (those GICs paid 12%-13% annually back then as it was a time of high inflation) really got me excited, especially considering how long it took to earn and collect money from working. As I’m writing this, GICs pay much, much, much less. Should I have added “much” a few more times to emphasize that further?
By the time I’d turned 18, I’d picked up really informative (insert heavy eye-roll here) literature at the bank branch on other investing options. Namely, mutual funds. I’d had my prior experience with the personal banker when it came to GICs and they appeared to be the person to deal with to invest my money. Remember lesson #1 above? was I ever in for a shit-kicking (lesson #2 is coming shortly). Having read the glossy literature on the amazing superpowers of mutual funds and seeing the incredible recent returns in the precious metals mutual fund, I asked the personal banker to invest about half of my investments into that mutual fund. To be fair, she did try to dissuade me from putting so much of my money at the time into the precious metals mutual fund stating that it was a high risk investment. I was 18 with an intelligence far superior to the average person, I could do no wrong. I pushed ahead and had her place the order regardless. One week after the order had been placed, the precious metals mutual fund had lost 50% of its value. As I was so cooly calm and collected, I ran back to the bank branch with sweat running down my back and liquidated that mutual fund back to cash. I’d acquired Lesson #2: When something goes up in value, it can also go down. That was firmly burned into my psyche. I also came to understand Lesson #3: Buy low and sell high. Not the other way around. You need to know what you’re investing in and clearly I had not done my homework. Over time though, I would. This blog can’t just be about my stupid blunders even if they might be considered highly entertaining. As I write this blog post, my investment portfolio now sits at over $1.6 million so I did do some things right too.
As much as the mutual fund fiasco had humbled me, it didn’t deter me from applying lesson #1, lesson #2, and lesson #3 moving forward. I was going to acquire as much knowledge as possible in regards to investing and get my money to grow so it could eventually work for me. Not the other way around.
At this point, I’d been left with a bad taste in my mouth in regards to mutual funds. After some further reading, I was determined to beat the system. I wanted to buy broad based mutual funds which had gone down in price over a few days and then resell them a few days later when they would jump back up. Back to the bank branch I went and for a few trades, it was going nicely. By the way, the internet was not a thing yet so I physically had to go there to complete the transaction each and every time. No big profits but I was growing my stash bit by bit. After about the fourth or fifth visit to the branch, the personal banker was fed up with me. She explained that I couldn’t buy and sell mutual funds at that frequency or additional fees would be charged. This is when she opened my eyes to opening a discount brokerage account.
From that point on, until 2017, I traded stocks using a swing trading technique. Mainly, I would buy a blue chip stock like a bank, a telecom company, a pipeline company, etc. I would watch that list of stocks and see if the price would drop over a few consecutive days. If the drop amounted to between 1%-2%, that was my trigger to buy it. Once bought, I immediately set a sell price at 0.25% above my purchase price and brokerage transaction fee combined. It worked even with only about $20,000 invested however I’d eventually work my way up to doing this with $700,000 to $800,000 a shot. I’d do this about four to six times a month. Most times, it would work in my favour selling within about 15 minutes after setting my sell order however sometimes it would not. Also, it was not replicable nor consistent. If it was that easy, everyone would do it and we’d all be driving lambos, chowing down on caviar while sailing the Mediterranean on our multiple mega yachts. So yeah, not that easy. Sometimes I would buy and I might have wait up to 6 months to see it go back to profit. Every transaction was a gamble (yes, looking back in time, I don’t consider what I had done as anything other than gambling). Also, it did wreak havoc on my nerves and required a very heavy, watchful eye. It was a full time job while holding a full time job. How do you maintain that when one day you should be retiring and enjoying the fruits of your labour? It was exhausting. And then, 2016 happened.
I was watching CBC News around August of 2016 and there was a story about a couple who had retired early in their 30s with a $1 million investment portfolio. I was intrigued. How? How did they manage it? The gist of it was investing in low cost broad based index ETFs (Exchange Traded Funds). Think mutual funds but traded like stocks on the stock exchange and costing very little compared to the fees charged on mutual funds. I had been completely unaware of this possibility until that time. I decided to investigate further as I’ve never found it good to rely on one source only even as good as it all sounded. It was a good decision.
During that time, I continued my swing trading approach while setting up a spreadsheet of a mock balanced and globally diversified ETF portfolio. I wanted to see how it would perform in real time and at the same time backtrack as many years back to see if there was consistency throughout. This has allowed me to see how it reacts during boom times as well as during recessions. I also broadened my research on ETFs, along with acquiring the knowledge around the power of rebalancing (I’ll talk more on these specific topics in future blog posts). By early 2017, I had gone from a mock balanced and globally diversified ETF portfolio to the real deal. Over time, I would also come to see the value of holding a small amount of individual stocks in exceptional cases which I’ll explain more in a future blog post. The best part. It allowed me to free up my time and leave emotions, stress and uncertainty at the door. Something that had plagued me throughout my investing history. More to come on that too.
On that note, here is the overall investment portfolio setup:
My intent on a go forward basis is that whenever I make a material change to the portfolio setup, I will be posting it here so that things remain transparent.
In my next blog post, I’ll explain how to know whether the investment portfolio is competitive or not.
Anyone wish to share their investing journey? Investment plan? I’d love to hear from you.