To Simplify and Filter

day trader

To simplify and filter; that is the reason I started this blog. The amount of information on investing for retirement is overwhelming, contradictory, and self serving. Some people may argue that my strategy is too simple, but what’s the alternative? Seek out the advice of a financial advisor who, in the worst case scenario, gets paid by putting your money in high fee mutual funds?

And even if your advisor doesn’t make money this way but instead charges you an annual percentage, is it really necessary to pay someone any amount of money for something that you could easily do yourself? I’m not taking about renovating a bathroom here.

Being a successful saver is not about hitting home runs, it’s about not making mistakes. So save 6-10% of your income, depending on your chicken index (the more of a chicken you are, the higher your percentage), invest it in 3 Vanguard index funds and forget about it.

A couple of times a year, transfer money from your savings account to your discount brokerage account, put in a buy order to buy 1,2 or 3 of the funds depending on whether you need to rebalance to keep the 33%,33%,34% ratio and be done with it. It’s that simple.

These simple steps will put you miles ahead of most Canadians who either don’t save or are afraid to do it themselves.

Worse yet, there are Canadians who can’t help themselves and try to become superstar traders. I’ve met some of these folks over the years. What strikes me most about these guys (and yes, they’ve always been men) is that they truly cannot or will not answer one simple question I pose to them.

The question is: How do you know if you’d be better or worse off if you just bought simple index funds instead of doing all your trading? Put another way: How does your performance as a trader compare to a buy and hold index investor? They just don’t know!

Just once I’d like to hear some trader tell me they’ve created a spreadsheet that shows 2 options.
Option 1: starting money and calculate money made (or lost) from trading
Option 2: same starting money but calculate gain or loss if invested in index funds instead.

And then compare the performance of the 2 options. If they can honestly say they are better off investing using Option 1, over a long period of time (not just a lucky 6 months), then good for them. Unfortunately, I have’t met an amateur who has taken the time to compare.

If you absolutely must buy individual stocks, either go for strong dividend payers, or buy shares in companies with a pro who has a very long and strong history of excellent capital allocation. Companies like Warren Buffett’s Berkshire Hathaway, Prem Watsa’s Fairfax Financial or Gerry Schwartz’s Onex Corporation.

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