My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Thursday, August 4, 2011

Boring is good when investing

Jonathan Chevreau of the National Post recently wrote a column titled “Investing is boring; If you want excitement, go to Las Vegas”. The premise of the article is that “successful investing should be boring, which may explain why so many excitement-seeking investors suffer disappointing returns.” Mr. Chevreau goes on to discuss a self-published book by Edmonton-based wealth counselor Marshall McAlister, titled The Brilliance of Boring Investing: An Academic Approach to Portfolio Design. Chevreau notes the book begins with a quote from Nobel laureate Paul Samuelson: “Investing should be dull. It shouldn’t be exciting.” He then goes on to note that there’s a paradox, in that McAlister notes “the portfolio process that requires less work from investors can actually deliver the best long-term investment returns.”

John Heinzl of the Globe and Mail also recently had a column advocating a passive portfolio. The article asks “What is the biggest threat to your portfolio?” and the answer is “you.” One of the self-defeating behaviours he notes is “You thrive on excitement.” Heinzl says investing is not supposed to be entertaining, but the 24/7 flow of information, really over-information, and conflicting reports cause many to buy and sell constantly. He notes the important thing is to have a focused strategy, instead of trying to know absolutely everything about an investment.

I am not surprised by the assertion that boring investing brings forth the best returns and that passive investing beats active investing. (I wrote this blog a few weeks ago, but this week there has been a discussion on passive investing by the Canadian Capitalist, Michael James On Money and the Canadian Couch Potato). I however, will not focus on the passive investing issue per se, but on John Heinzl's observation of personal behaviours.

Mr. Heinzl’s comments about over- information ring true to me personally. I am an information hound. At times using Sedar, Canadian Insider, reading financial statements, management discussions and analysis, frequenting stock bulletin boards and listening to conference calls and so on. However, lately I have stepped back from active investing to some extent and I have been able to view other active investors with a more dispassionate view. I am astounded, especially in reading stock chat boards, at the amount of information constantly dug up by posters. They often drive each other crazy with this over-information, especially in quiet periods, when the company they are invested in does not release pertinent information. It is quite eye-opening viewing this information feeding frenzy from the outside.

Some investors are able to filter this morass of information into coherent research and due diligence and thrive on information, however, most investors are not able to process over-information dispassionately. Personally, I enjoy having a few speculative stocks, my Las Vegas as Mr. Cheverau would say; however, I agree, you need a lot of Iowa and North Dakota to be a successful investor in most cases.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

1 comment:

  1. North Dakota isn't boring, they've got Mount Rushmore... no wait, that's South Dakota. Well, they've got an NHL team... no wait, that's Minnesota. They've got a world-class city! No, sorry, they have Fargo. Gee, North Dakota is boring!