7 Wrong Facts About Investing

Published by on

I have had more phone calls from individual investors and those who had a computer choose their investments, realizing they don’t know what to do in the current downturn or how to be set up for the impending upturn (when and how this will happen is a mystery to them). We have not had a full market cycle since the bottom in 2009 and this current correction has caused them stress as they realize it is not as easy as they thought.

  • Investors are rational – simply put: emotion comes into account too often and non-rationalism reigns.

  • The Market is efficient – Years and years ago one theory of the market is that it is efficient. This means that securities are always priced correctly at all times. This could not be more wrong. Investment managers and a few wise investors have been exploiting this truth for years. Knowing how and when to take advantage of this mis-pricing, both on the upside and down is through wisdom and experience.

At the end of the last century when tech stocks were running amok, you couldn’t find a day where some talking head didn’t talk about Warren Buffet being a dinosaur who doesn’t know how to handle the new paradigm. He was fully aware that securities were mis-priced to the upside and would come down further than most would expect. After the great correction he went on an investment spree and for the next 15 years he was again considered the guru.

With this downturn he has been buying again and I am starting to hear that he is not understanding our current situation. He’s 85 years old and none of these naysayers have one iota of his wisdom. Last February I wrote about Warren’s investing partner, Charlie Munger. He said one of my favourite quotes stating that Berkshire does well by “Consistently Not Being Stupid”.

  • My large institution thinks of me first – This has never been the case, but as gets harder each year to continue to hit their growth numbers, the public is taking notice. They are getting angry that this drive for continual profit growth is at their personal detriment. I have been running into more and more Canadians looking for alternatives to the captive institutions. They are realizing they are not seen as individuals, but purely as a profit centre. They are fed up.

In a piece I wrote on October 28th last year I expanded on what I consider to be a dead on quote: “The real problem of humanity is the following: we have paleolithic emotions; medieval institutions; and god-like technology.” We are at the front end of the disruption of the medieval institutions. Make sure these cartel-like institutions are looking out for you first. Just don’t jump into this new technology just because it is new. The industry buzzword for these companies is FinTech (Financial Technology).

Make sure that the advice you are given positions you first.

Make sure that their first thought isn’t about their protection and income.

You are number one.

  • Mathematical algorithms will always put me in the right place - Several institutions are implementing Robo-advisor systems and are already trying to distance themselves from the title Robo-advisor. If it walks like a duck and talks like a duck, it’s a duck.

When a series of questions is input to a computer and your portfolio balance and product selection is spit out, you are not the main focus of this process. This makes sure the institution is protected from you at an incredibly low price. This Robo-Advisor then does all of your investing for you.

Automatic algorithmic investment decisions will always underperform over time and do not treat you as an individual: not meeting your wants, needs and your true risk tolerance.

  • I don’t need a professional – in June 2015 I wrote a blog about advisors that are investing by taking their direction from their client.  In this blog I used two studies that showed self-investors underperform advised portfolios over the long term by incredible amounts. There is study after study showing this: I highlighted these two studies in A Disturbing Trend.

This phenomenal outperformance is the average of advisors; imagine what a great advisor can do for you.

  • The internet gives me everything I need to invest – Suffice it to say that the first pages of an internet search is filled with information from very large institutions that know how to get and stay on this first page. It has been shown that almost everybody only reads the first page of search results. I find that many of those who read past the first page read until they find an item that agrees with their thinking, reinforcing their personal view.

  • Business news sources are only thinking of me, not their ratings – the public continues to believe that they are thought of first in the advice given. Selling advertising is first and getting guest “experts” who create any controversy gets more of the public following them. Go to another source and you can get the opposite opinion. No book, TV station, newspaper or internet search can give you what you need for investing year in and year out.

YOUR INDEPENDENCE MATTERS and if you want to see what a truly independent investment/insurance advisor can do for you, call me at 905-846-9060, ext.3838, email me at Terry.McIntyre@manulifesecurities.ca or visit my website at www.terrymcintyre.ca