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.

Monday, November 28, 2011

The Brilliance of Boring Investing & Bloggers for Charity update

I would like to update the Bloggers for Charity initiative and provide some clarifications before I get to my post on the Brilliance of Boring Investing. Firstly, Tim Penner has bid $250 to be a Blogger for a day on The Blunt Bean Counter site, outbidding Bradley Ashley’s generous $200 bid. Anyone want to top Tim?

There seems to be some confusion on the contest and rules, so I clarify:

1. The winning bidder may make their donation to the charity of their choice; it does not have to go to the United Way. My initial post on the initiative stated that the idea for this contest came from a client raising money for the United Way, but there is no charity of choice for the initiative. 

2. Each blogger participating in the initiative is auctioning off one guest post on their blog. The guest post will not appear on all the participating bloggers’ sites. For example, if Tim wins the auction for my site, his guest post will only appear on The Blunt Bean Counter site, it will not appear elsewhere.

3. Bids are made in confidence to each participating blogger’s email, however, the bloggers are encouraged to share the top bid(s) received to date on their site to encourage further bidding. Bloggers must ask permission from the bidder before disclosing the bidder’s full name or they should only use initials or say anonymous.

Although I was hoping for a little more traction this week, many of the who’s who of financial bloggers are participating. It would be great if bloggers of all ilks join the initiative. The following blogs are participating as of today:

Boomer & Echo                     Canadian Capitalist

Michael James On Money      Canadian Finance Blog

Retire Happy Blog                 Financial Highway

Canadian Financial DIY         Where Does All My Money Go

Young and Thrifty               Canadian Personal Finance Blog

The Blunt Bean Counter

The Brilliance of Boring Investing

After reading Jonathan Chevreau’s column titled “Investing is boring: if you want excitement, go to Vegas", in which he quoted Marshall McAlister, the author of the book The Brilliance of Boring Investing, I wrote a blog on the same topic discussing some of my personal experiences.

Based on Jonathan’s column and Jim Yih’s recommendation, I purchased Marshall’s book. For a book on building investment portfolios, it is a relatively easy read, and although it does not have any earth shattering revelations, I think that is the point – keep it simple and boring; it is a book you should consider purchasing.

The Brilliance of Boring Investing was initially intended to be a book for Marshall's clients and thus, the book is very client friendly and understandable. Below is a summary of the final chapter of Marshall's book where he lists seven points, which he calls his 1% solution, to allow investors to take control of their own portfolios.

1. Build a team of qualified professional advisors - investment advisor, tax accountant and estate and will lawyer.

On this point I agree whole heartedly with Marshall. However, as discussed in my Who is your wealth management quarterback? blog, it is not enough to just have a team. You need to appoint one of your advisors as the quarterback responsible for ensuring your advisors are working together to provide a comprehensive and integrated plan and not several disjointed plans. As I suggest in my blog, if you do not have a sophisticated well rounded advisor such as Marshall, your accountant is often a good selection for your quarterback.

2. Discover your sleeping point and ensure your portfolio is composed of enough conservative assets to keep the portfolio at the appropriate level of risk.

This is extremely important advice; however, I am not sure one truly knows if they can sleep at night until they go through a market meltdown. Your sleeping point can theoretically be determined beforehand, but in my opinion, can only be confirmed through actual experience and it may need to be revamped as you recognize what your true level of risk tolerance is after you have experienced a bad market.

3. Recognize the advantage of index based investment tools over that of typical active management in terms of performance, cost and taxes.

Not much needs to be said in reference to this point. Multiple studies have proven only a small portion of active investors actually outperform market indices. If you are a Do-It-Yourself investor ("DYI") and want to take control of your portfolio as Marshall discusses, the ETF options are enormous. Two great resources to help any DYI are  The Canadian Capitalist and The Canadian Couch Potato. Both bloggers have an incredible library of informative blogs on ETF's that not only provide options for your portfolio, but compare many of the alternative ETF’s.

4. Globally diversify your equity portfolio to spread your exposure to as many geographic markets as have merit for inclusion.

Again, pretty much a common investment mantra as global diversification is a key component of any portfolio allocation.

5. Understand the risk and return trade of Value Investing and incorporate the appropriate level of Value Stocks to match your return objectives.

Marshall notes that a great company may have an extremely high stock price that precludes it from being a good investment, yet a so-so company that is moving towards greatness may have better value. As Marshall is from Edmonton, I had never met him or spoke to him. However, this week we talked on the telephone about this blog and I was confused on this point. If you want a so-so company moving towards greatness, is he not suggesting being a stock picker as opposed to a index investor? Marshall said this was a good question (probably just being polite) and said this can be accomplished through pooled and private funds that specialize in this area.

6. Understand the risk and return trade off of Small Company investing and build in the needed exposure to small companies to further diversify and increase potential return.

Historically small cap stocks have delivered a higher return than large companies; however, the risk associated with owning small cap stocks is very high. That is why a small cap. ETF that has a large basket of small cap stocks works; it ensures spectacular flame outs do not decimate your small cap fund.

7. Recognize that as humans we are not always wired to be great investors. Commit to keeping your emotions in check by holding course to the detailed wealth management plan that has been designed for you.

Definitely under the easier said than done category. I would suggest the key to this point is finding your sleeping point under #2.

That’s it for today; on Wednesday I contrast Marshall's proper portfolio construction with the anti-boring portfolio I discussed when I was profiled by Larry MacDonald in Me and My Money.

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.

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