The silver bullet
Oct 9, 2013 / 5:00 am
When I began my career in the investment industry in 1993, the focus was very different; financial plans were mostly talked about rather than done. A stockbroker’s job was to make money for clients and performance was the only measuring stick that mattered. As the Baby Boomers grew older and more complex, so did their financial needs: retirement planning, insurance protection, business transition planning, and education funding started moving to the forefront. Timing now played a role beyond buying and selling a stock. Questions like, “should I take my CPP early?”, “when’s the best time for me to start drawing on my RRSPs/RRIFs?”, “when should I retire?”, and “can I use a family trust?” all became part of the dialogue.
Our roles changed and so did our titles, no longer stockbrokers; we were now Financial Advisors or derivatives thereof. We changed our practices so we could offer our clients financial and estate planning, and still provide good investment advice. Instead of buying and selling stocks, we used mutual funds; then discretionary managers and finally today, we have team members whose only role is to manage that responsibility for our clients.
It’s said though; we never leave our roots far behind. For many of us, the early lessons as stockbrokers will always be close. I thought I would share a few of the enduring ones for those who still have a hand in the managing of their own portfolios.
- Always have disciplines: know at what point you will sell a position if it starts to lose money and know when you will take profits; nothing goes up forever, and yes, it can go to zero.
- Don’t buy on Tips: its rare the times we get something for nothing; closer to the truth is uncertainty loves company.
- The three deadly sins: denial, avoidance and justification will almost always cost you money in the market.
- Diversify: unlike Texas Holdem, going all in will rarely reap rewards; in fact it’s usually at that point that the stock you’re so convinced will go to the moon, starts to plummet.
- Your first loss will usually be your best: if things look bad, what are the chances they will improve? Ask yourself, “If I didn’t have to own the stock today, would I buy it?” Be honest!
- Fast up, all too often, means fast down: If a stock is climbing for no reason at all, and continues to climb, chances are it will fall for the same reasons.
- If it sounds too good to be true, it almost always is: there are smart minds at work in the markets: hedge fund managers, private equity managers, investment counselors; the chances that you’ve uncovered a rare gem that the rest of the free world has overlooked is quite slim, especially if you got the idea from an investment forum or a newsletter.
- Reverse is a gear too: if you’ve bought something and it isn’t working out as planned, pull the plug and live to fight another day. The only people who survived the Titanic where the ones who got off the ship.
- Never double down: don’t throw good money after bad. If you buy a stock and it falls while the rest of the market is going up, understand the difference between a market correction (when everything falls because prices are ahead of themselves), and a bad investment (when your stock falls because there’s problems with the company or industry).
- Lastly, there are no silver bullets: The world is a place of balance and while you might think that it’s different this time, it almost always isn’t. The tortoise had it right, slow and steady wins the race.
This is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in this article. The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member CIPF.
Read more Navigating the Markets articles
- Markets take a breather Dec 11
- Year-end tax planning for individuals Dec 4
- Protecting investments from higher rates Nov 27
- See your future Nov 20
- Generating income in uncertain times Nov 13
- Purple cows and stock operators Nov 6
- Pay now or pay later Oct 30
- The best laid schemes Oct 23
(Click for RSS instructions.)