The following post is written by Bryan, the founder and blogger at IncomeSurfer.com
Hello! I am Bryan, the founder of IncomeSurfer.com
. On Income Surfer you will read about techniques and strategies to live a fulfilling and balanced life, both financially and relationally. I offer a monthly newsletter that includes changes in my family’s portfolio, assets we are looking at buying/selling, and interesting articles that give a historical perspective to the capital markets. You will also read articles about my family’s quest for balance, our travels, and how we have changed our lives to be more fulfilling. My business partner and I currently have three outstanding valuation tools under development. Income Surfer is also on Twitter, @IncomeSurf
My wife calls me a helper. I like to help people. Stranded motorists, confused neighbors, the homeless in our community. I genuinely enjoy helping people. I believe I’m paying it forward, because so many people helped my family build our life. With that in mind, below are 10 investing lessons I’ve learned. I hope some of you can benefit from my successes, failures, and general ideas.
Investment fees: You get what you don’t pay for-
I know I’ve spent a lot of time writing (my most recent article
) about how fund expenses and fees are detrimental to your investment returns. Worse yet, costs compound just like returns. In fact a 2.5% fee deducted from an 8% investment return, would reduce the theoretical portfolio return by 50%….over a 40 year time horizon. While a 2.5% fee sounds expensive, many investors pay even more. Suggestion: Know your expenses and minimize them where possible
No one cares about your money like you- This may come across as common sense, but many investors need to be reminded from time to time. It is far easier for an investor to be lazy and blindly follow the suggestions of a broker or financial planner, than it is to ask questions and put in the time to learn what is going on. “That’s what I pay them for” you might say, but the fact remains that your hard earned money is on the line. Ultimately you are responsible for your money, and your lifestyle would suffer if something went terribly wrong in your portfolio. Suggestion: (If you use a financial professional) Ask lots questions and put in enough time so that you are comfortable with: 1. Your investment professional, and 2. The investment approach and allocation you settled on.
By the time your investment thesis has been embraced by the news media, it’s too late-How many times have a family member or friend told you about their new “can’t miss” investment idea……which in your mind has been a well established theme for months or years? This has happened to me more times than I can count, and it usually ends very badly for those last to the party. The fact of the matter is that most retail investors have horrible timing. Whether it was rental housing in 2006, Chinese stocks in 2007, or internet stocks in 1999, the top was near. While there isn’t a hard and fast way to recognize that an investment theme has gotten frothy, some easy clues can be found in the news media. When national magazines and television shows are full of features of investors who “hit it big” with a given asset, or the financial projections where a given asset class will grow forever……recognize that the end is near. Whether the result of competition, speculation, or “irrational exuberance”, such booms always end. Suggestion: Don’t invest in something when everyone you know is already invested in it. More times than not, you’ve missed the boat.
Best values are often found in out of favor assets-
As I mentioned in my article a few weeks ago, I often find my most compelling investment ideas in “out of favor” sectors or companies. While not always the case, these groups of shunned and beguiled companies are a great place to search for investments. As I documented in the free March Newsletter
, I began to invest in emerging market stocks again during the late January/early February sell off. At that point, most emerging market index returns had been negative for the 6 month, 1 year, and 3 year time periods. Investors had largely given up on the “emerging markets story”. Suggestion: When you’re looking for new investment ideas, take a cautious look at the worst performing or least liked investments.
Time is your friend- I can’t stress this lesson enough to young people. Many of my best investments, were my earliest investments. Within our dividend growth portfolio, it is incredible how much the quarterly dividends have grown since the investments were originally made. This is an example of giving companies time to grow their profits and dividends. Suggestion: Begin investing in your financial future as soon as you are reasonably ready.
There are as many investment styles as there are investors- Each person’s personality and investment style are different. One of my best friends is a stock trader….and a very good trader. In fact, his portfolio did better than mine from 2008 to 2011. He used leverage and had fantastic returns over those years. I began to wonder if I was doing something wrong, because my results lagged his, and I was still investing how I had in the mid 1990s. I have always made a few swing trades per year, but I began to think about making more and riskier trades. Fortunately, I realized that his returns weren’t taking anything away from my returns……and that my fundamental value style was better suited to me. Ironically, after increasing his money 5 fold in three years….he quit stock trading all together. He found it to stressful, so perhaps it wasn’t suited to him either. Suggestion: Utilize the investment approach that fits YOUR goals and needs.
You can trade junk (if you must), but only buy quality assets- Keeping with our discussion of trading, I believe it’s fundamentally important to only buy quality assets. I ONLY buy assets that I can see owning for the next 10 plus years. Anything else, isn’t worth my time or investment capital. The fact of the matter is that I’m not good short term market timer, but if I can old quality assets for longer periods of time…..I don’t have to be as precise in timing my purchases. Suggestion: Be sure to differentiate between mediocre and quality assets. Only buy the quality assets.
Save Early, Save Often- This goes back to my discussion above about time being our friend. The sooner you start saving, the more you can save, and the more time you can give your investments to perform. It’s a simple mathematical exercise to demonstrate why a 25 year old needs to put away dramatically less money (per year) than a 45 year old, in order to achieve the same result years later. If you don’t save money, then you won’t have any money to invest. Do yourself a favor and start early. Suggestion: Begin saving in an automatic and consistent way, as soon as you are able.
Get better investment returns by knowing and understanding yourself-
I wrote a whole article
on this point, last month. I feel it is essential to understand your strengths and weaknesses, and do your best to capitalize on your strengths and minimize your weaknesses. Many investors are impulsive and emotional, for example. I’m certain that those investors would benefit from employing a dollar cost averaging approach to investing. That way they are not tempted to buy (or sell willy-nilly), and instead stick to a program. Suggestion: Take some time to understand yourself, especially your strengths and weaknesses.
Follow YOUR plan- This is my most important suggestion. It has elements of each of the lessons listed above, but is wrapped in a comprehensive shell. It’s fine to reanalyze your plan every couple years to be sure it’s working out as planned, but something may be wrong if you change your strategy that often. The number one thing you shouldn’t do is change your plan every year to reflect the approach that made the most money the prior year. As silly as it sounds, I know several people that chase returns in this way. Surprise, surprise, their portfolio dramatically underperforms the indices. Suggestion: Once you develop your plan, be very slow to deviate from it.
What have I missed? What lessons would you like to share?