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, May 17, 2021

The stunning story of a patient investor who made good

Investment managers and professionals swear by two mantras. The one that gets the most buzz is to understand your risk tolerance. But it’s the other that I want to discuss today: have patience and conviction with your investments. This holds true whether you have hired an investment manager or investment advisor to manage your investments, or are a do-it-yourself investor.

I recently encountered a stunning example of the value of patience in investing. I was preparing a client’s tax return (note: the client has given me permission to discuss this example, without using their name). In preparing her return, I flagged that she may need a T1135 Foreign Income Verification form, which reports foreign holdings. My client had about 2500 shares of Apple stock, and I was unsure whether the shares has an adjusted cost base of more than C$100,000—the threshold to require that form.

The client said no, the original cost was far below the $100,000 threshold. It was just that she had held her Apple shares for around 14 years and not sold them. The client also provided me a summary of her stock purchase history. She had purchased 100 shares of Apple stock in 2008 for around C$16,000 and basically held onto them. She had only sold off a small portion once: in 2012, to help fund a house purchase.

The summary provided was startling. The 2,500 Apple shares that she owns had a fair market value of $375,000 (as of mid-April). Yet all she did was buy the original 100 shares 13 years ago for $16,000 and wait. Time and stock splits, and Apple’s overall strong performance, took care of the rest. What a textbook case of a patient investor (especially so given Apple’s stock price has been all over the place).

As someone who in shredding my tax returns a couple years ago realized how many flyers I had taken, how many disruptive stocks I had purchased looking for the big winner, I felt really ridiculous. I felt even worse when I realized that my first blog post on The Blunt Bean Counter in Sept 2010 was called Why Didn't You Buy Apple for $25?

In that post I discussed famed money manager Peter Lynch, who among many other suggestions noted that by just paying attention to what is going on around you and having some basic common awareness, both the novice and the sophisticated investor can find growth stocks in their day-to-day lives. I then commented in the 2010 post: “think of how much money any of us could have made paying attention to the iPod fad. Kids were suddenly walking around with white wires hanging out of their ears attached to these newfangled ‘Walkmans.’ In retrospect, how could we have missed this and not bought Apple?”

Why I did not buy Apple after writing that blog post is beyond me—and my clients’ timeline is fairly similar to that initial post.

Apple is just an example. You could have purchased most any Canadian bank in 2008 and had spectacular gains if you held the stock. Maybe not as large as Apple, but still substantial with significant less volatility.

So the moral of the story: Patience and conviction in your investing are especially important. That does not mean once you buy a stock you hold it for life; you still must review whether your original reasoning and thesis for purchasing the stock is still valid and whether the company is still growing. But good companies tend to stay good companies, and flipping from one to another or looking for the next disruptor is not necessarily the best strategy. Take it from me.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

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  1. Hi Mark,

    That's an interesting story, but I disagree with your conclusion that "Patience and conviction in your investing are especially important." You could just as easily tell the story of someone who held a concentrated position in Nortel for the long term.

    When it comes to picking stocks, our convictions are just random. For every gambler with a huge win there are hundreds who lost almost everything. The problem is that we forget about all the losing stocks that took these gamblers down.

    1. Hi Michael, I get what you are saying, but that is why I said "you still must review whether your original reasoning and thesis for purchasing the stock is still valid and whether the company is still growing". In any event, a valid point and a diversified portfolio is the way to go for most, but I have not forgot my losers :)