The Value of Indulging

In 2003, I owned a Dell computer that ran on the Microsoft Windows operating system. Checking my inbox one day, I noticed an email from a good friend. The email had an attachment. My friend being a trusted source, I didn’t hesitate to open the attachment. But what I didn’t consider was that my friend’s computer had been hijacked; and that some anonymous, insidious, multi-tentacled digital bug was forwarding diabolical emails to all addresses listed under his Contacts.

Not so pleasantly infected, my hard drive crashed. And I went into full on panic mode, thinking I lost a mountain of vital information and my very survival was at risk (such is the mindset of a workaholic, stressed out, caffeinated, unbalanced, ego driven male species … that was me, back then).

Once panic subsided, slightly, I hurried to find someone who knew way more about computers than me, hoping that my prized data could be retrieved and rehabilitated. The computer repair guy recovered some but not all of the data, and I recovered some but not all of my mental balance. On his way out, computer repair guy made an off hand comment: ‘have you considered buying an Apple computer?’

At the time, Apple was teeny, tiny potatoes on the desktop / laptop scene, claiming less than 3% global market share. Apple products weren’t trendy, didn’t have mass appeal, and the iPhone wasn’t even a twinkle in Steve Jobs eye. However, the benefit to me, a consumer, of Apple’s minimal market share was that the vast majority (we’re talking 95-99% depending on your source) of viruses targeted Windows based operating systems, not Macs.

The following weekend, I went out and bought a Mac desktop. And in the ensuing 13 years, I’ve gone through a few more Mac computers, not once having fallen prey to a predatory virus. Of course, I also don’t open email attachments unless I absolutely, positively know the source.

Price is What You Pay … Value is What You Get

My current MacBook Pro laptop cost about $1,800, including extended warranty. Not small change, I know. But I don’t judge whether to buy a product based solely on price. No question, price matters, price is a hugely important factor. But its not the only factor that goes into my decision-making.

Value also matters big time. And from my perspective, the MacBook gives excellent value measured by security, reliability, durability, functionality, apps such as iBook, iPhoto, iTunes, and stunning design. So all these factors go into my decision to pay the hefty up front cost. That said, keep in mind that ‘value’ is personal, i.e., you decide what matters to you aside from price.

I’m now into my sixth year with this laptop. And I plan on keeping it until the last drop of juice runs out. Why not? The way I see it, the longer I own this laptop, the more value I squeeze for my money. I don’t need or want the bells and whistles on a ‘new and improved’ version when the current model works just fine.

Blinded By The Light

Aside from rationalizing purchases (and lack of purchases) on economic grounds, I have to admit (because it’s true) that, on an emotional level, I enjoy Apple products. The simplicity of design and ease of use fits with me. So, sure, I could choose to spend way less dough on a competitor’s brand that would satisfy my practical needs.

But you know what? As long as I’m not creating financial hardship for myself or going into debt, and as long as I’m making thoughtful purchase decisions and not losing bodily control and drooling over shiny stuff, I figure it’s okay to open up my wallet from time to time and indulge, treat myself to a luxury.

I mean, it’s not like I’m a consumer programmed Apple groupie, traveling to their shareholder meetings or marketing events introducing new products. And I don’t venture on an annual pilgrimage to worship at Apple’s flagship New York City store on Fifth Avenue, the one that’s open 24/7/365 (http://www.apple.com/retail/fifthavenue/).

Think about that: the store is always open. Who is shopping for electronic goods at 3:00 am? And why, according to knowledgeable employees whom I happened to chat with, is the store just as busy at 3:00 in the morning as it is at 3:00 in the afternoon? I don’t know, maybe you wake from a bad dream and instead of soothing yourself in the wee hours with a blanket, you seek solace among shiny aluminum machines within the confines of a brightly lit, busy retail store?


Enter Buddha

One may prefer to snuggle up under a cozy blanket while another chooses to brush up against a metallic machine. Both are fine. We do not judge.


Right, right, I know, I’m still learning to accept that we are creatures of social programming, too often grasping at whatever we think will soothe our existential angst. Okay, look, judgment aside (because judgment does nothing but fill the mind with negativity), the fact is that Apple astutely saw an opening in the marketplace and people responded.

Though I don’t have a teenage crush on Apple products, consumers whose eyes bug out at the thought of being inside an Apple store, among like-minded devotees, smelling, touching, listening to these precious products, these consumers LOVE their Apple.

Consumption, What’s Your Function?

And Apple loves them back. Because they are the ones who upgrade every new product cycle. They are the ones that make Apple one of the most profitable companies on this planet, earning so much money the company doesn’t know what to do with it (at last count, Apple was sitting on a cash pile of about $240 Billion!). These are the consumers that feel less satisfied with their iPhone 6 because the iPhone 7 was just released. Never mind that the iPhone 6 is as amazing today as it was a year or so ago. The thing is, the 6 is now out of date, out of fashion, yesterday’s news and, well, you gotta keep up, you gotta stay current, you gotta have the latest gadget because … because???

My point is not to trash Apple devotees. If you want to stay current in the product game, well, that’s your call. There is no scorecard, no better or worse, for buying stuff. You do what you decide is best for you. That said, what I’m trying to do is get you to think about what is best for you, and the value you are getting, if any, from staying at the forefront of the electronics product game. In a broader sense, think about what ‘value’ means to you, and whether each purchase you make (computers, clothes, gym membership, travel, whatever it may be – since the use of Apple is only for illustrative purposes) is fulfilling your idea of ‘value’.


Chewy Bit

I bought an iPhone 5c three years ago. And for two of those years, I resisted hounding from my consumption happy teenage son to upgrade, to start living in the year 2016 as he would say. But a few weeks ago I caved, upgrading to an iPhone 6. Not because the 5c didn’t serve my purposes. In fact, it was just fine. The reason I upgraded was because the 6 cost me nothing in exchange for agreeing to lock into a two-year plan. The added bonus? My new plan is less expensive then the previous plan.

How did I pay less for a so-called ‘premium’ (‘premium’ phone is marketing jargon for, we will charge you more for the newest model phone because we can) phone on a new plan? Bargaining. You can negotiate with all the phone companies. They are fiercely competitive with each other, they want your business, and are generally willing to toss in incentives to get and keep your business. If one phone company doesn’t offer you a satisfactory deal, tell them you will walk down the road to their competitor. And be willing to do so. The downside: time and effort researching and contacting different telecom companies. The upside: lower phone bills, more money in your pocket.


Mindful Consumption

A consumer oriented economy encourages us to consume (nothing like stating the obvious). Like most of us, when making a purchase, the endorphins fire and I experience a sense of pleasure and control whether I’m buying a new car, a shiny toaster, even a meditation cushion. This feeling, however, is nothing more than a temporary adrenaline kick and it does pass.

Okay, so the squishy feelings pass. That’s all good. There’s nothing wrong with buying stuff that’s useful, and why not enjoy the adrenaline while it flows. What matters here is the perspective that you bring to your buying decisions, i.e., knowing that while the act of consumption may be a pleasure filled activity, it does not, it cannot, bring any sort of genuine or lasting satisfaction.

Once you’re aware of the limited benefit of consumption, and have knowledge of the social pressure to consume and adorn yourself and your home with status elevating STUFF, you set the stage for a little look-see inside yourself. Meaning, you’re able to bring a whole lot of wisdom to the consumer aisles. Before buying stuff, you’re asking yourself questions that matter, examining your personal values, and considering the costs and benefits of each purchase.

When this happens, when you reflect on yourself like this, your values inform your buying decisions. And the beauty of walking through this process is that peace of mind and clarity follow simply because you have considered who you are, thought about your needs and wants, and thoughtfully determined whether the stuff you want to buy is a good fit for you.


Return of the Buddha 

The Middle Way avoids the extreme of overindulgence or reliance upon pleasure for perfect happiness. In a consumer society, stuff may claim to offer permanent happiness. We may think, if we can only get enough of it we will be happy. The marketing pitch, whether through advertisement, movies or other misleading portrayals, can be intoxicating.

If we fall for the delusion that sensual pleasure, i.e., seeing, hearing, tasting, touching, thinking, whatever it may be, is going to provide lasting happiness, then we are lost because lasting happiness is an inside job. Healthy, happy people find a Middle Way, their own Middle Way, that speaks to Balance, and are grateful for what they have.


 

Avoiding Holiday Debt Hangover

Why Give Gifts During the Holidays?

Yes, we live in a consumer society. Our economy would screech to a halt if, en masse, we did not heed the marketing call of the multi-tentacled beast known as … Retail Store.

And, once called, how may we possibly resist? Especially during Christmukkah (this year, 2016, Christmas and Hanukkah overlap so, to the dismay of purists, and the delight of Retail Store, the two holidays are teaming up in an effort to generate a power boost for the economy. My sense, call me naïve, is that conspiring corporate minds are behind the scheme).

The question is not how may we resist but why would we resist? My Buddha, there are gifts to be gotten! Family members, friends, co-workers, teachers, and endless others are counting on us. Because, because, because … this is what we do for others, and what we require of our self. For religious or secular reasons, or simply because gift giving during these holidays is our custom, we do not pause to question. And what’s wrong with that? Gift giving is a self less act. An act of kindness, generosity and goodwill. At this time of year, aren’t we entitled to simply buy without restraint, and take a break from psychoanalyzing our motives?

jingle-bells


Enter Buddha

Be conscious of, and understand, your actions. Know the reasons for doing what you do. Once there is understanding, you free your self of your own, and others, expectations.


Holiday Hangover

Okay, here’s what I’m getting at: do you know how much you spend during the holidays? Can you afford all the gifts? If you answer yes, and your finances will not be worse for wear come the New Year, then good for you. But if you’re in the ‘no’ camp, or say something along the lines of, ‘that’s what credit cards are for’, then I’m here to ask you to please REMOVE YOUR HEAD FROM THE SAND at your earliest convenience.

Kindness, generosity and goodwill must extend to your Self as well as others (for those who interpret my words as meaning you should buy your self gifts, hang in there, I’m about to explain myself better). This means not spending what you cannot afford. Why? Because breaking your budget means you’ll be visited by the Angel of Suffering not too long after the pretty lights come down or the last latke is eaten (lat-ke. Noun. Potato pancake fried in way too much oil, heavily salted, yummy taste, eat too many and arteries revolt).

And to be perfectly clear, if you have to make purchases using a credit card, knowing you will not be able to pay the balance in full by the due date, then this puts you in the ranks of Cannot Afford.

Not having enough money to buy all the gifts that you want is not an issue. Rather, the issue arises when you pretend to be in the Can Afford ranks. Because when you don’t celebrate the holidays within your financial means, the merry season is bound to end gloomy. What happens then? Suffering. And this suffering typically lasts a whole lot longer than a spiked eggnog high.

Once we’ve come down from the toasty endorphin rush that accompanies buying Stuff, and are confronted with the cold reality of a large bill that must be paid in full by the due date otherwise we’ll be charged interest at the prevailing rate as set out in the government approved Credit Card Mafioso Humungous Interest Charge the Sucker Law, we kinda feel … awful.

Our self-esteem takes a hit. We get anxious. Maybe we fall into panic once we’re past the denial stage and admit to our self that our debt has gone up. Again. And we don’t know when or how we’re going to pay it off. And we feel anything but jolly and free. No, just the opposite. Debt is prison.

Middle Way

Buy now, pay later. That’s what we’re sold on, not just during the holidays but all throughout the year. Sure, spending, consuming, benefits Retail Store and the general economy, but is it good for you?

I’m not going to get into what the holidays are all about, because that would be veering too far off the BuddhaMoney path. But I can tell you this: even if the primary purpose of the holidays is gift giving, this has to be done within budgetary constraints. Your budget. And your budget cannot include borrowing to buy gifts. It cannot include falling into debt. Because you will do too much damage to your self.

Think about it this way: when you borrow, you are taking what is not yours. You are taking from your future self; throwing the shackles of debt on to your future self. Why would you do that? Because it’s the holidays and you’ve told your self a story that supports your feeling of entitlement to buy what you want? Because you’ll punt the issue a month down the road, and let future self worry about debt and the accompanying ulcer? Because spending money you don’t have is ‘normal’ during the holidays? Because everyone you know carries debt?

Listen, anyone who cares about you would never accept a gift knowing it would cause you harm. That’s what debt is, financial and spiritual harm. But if we’re not spending money on gifts during the holidays, or giving what we feel are inadequate gifts, what should we do?


Enter Buddha

You are loved for who you are. Knowing how to touch the heart of another, and be touched, is the true gift. Your possessions, your roles, your achievements, your presents, are not you; these are but props, not evidence of your worth.


Hmmm. If you cannot afford to participate in Retail Store mania, give the gift of your self, your time and positive energy. Now there’s an idea. Maybe even priceless. Or, you do what you need to limit spending within a pre-set budget. Doing so avoids the holiday hangover, the terrible stress that comes part and parcel with debt. And just maybe the holidays will be that much more enjoyable this time around.

Fools Buy Gold

 

Goldbug. “You should buy gold.”

BuddhaMoney. “Why?”

Goldbug. “Are you kidding me? Look at the state of the world, it’s a mess and only getting worse.”

BuddhaMoney. “Chaos makes gold an attractive investment?”

Goldbug. “Yes! The more fear, the more gold increases in price.”

BuddhaMoney. “So you’re saying that I should buy gold because people are scared?”

Goldbug. “Hey, I’m saying that I invest to make money and there’s money to be made in gold.”

BuddhaMoney. “I’m not interested in making money from other people’s fear.”

Goldbug. “You’re not getting it. Listen:

  • Gold diversifies your portfolio, and protects against market volatility.
  • It’s inversely correlated with stock prices. When stocks trend down, gold  moves up. When stocks move up, gold trends down.
  • It acts like an alternative currency, increasing in value when the US dollar decreases.
  • It’s hugely liquid, meaning it may easily be converted into cash.”

BuddhaMoney. “It sounds to me like the price of gold is based entirely on supply and demand, and, according to what you’re telling me, demand is highly correlated with fear.”

Goldbug. “What’s wrong with that?”

BuddhaMoney. “I’m not interested in investing in a commodity that has no intrinsic worth, the value of which is arbitrary.”

Goldbug. “Hedge fund managers and billionaires buy gold.”

BuddhaMoney. “While the actions of others may be informative, I don’t blindly follow.”

Fear Frenzy

Smart investors can disagree. Some are gold fans, some are not. Personally, I’m not. I’ve never invested in gold mining companies nor have I bought any gold bullion. Why?

Gold may be a portfolio hedge but it’s a risky one that can quickly drop in value. When stock and bond markets are falling, your portfolio is better protected with good ole’ cash.

Gold does not offer a proactive way to generate wealth. Rather, it acts as a safety net, with demand rising, and price increasing, based on:

  • Growing and persistent inflation;
  • American dollar devaluation;
  • Global economic turbulence; and/or
  • Geopolitical crisis.

In other words, things that scare a whole lot of people.

Be Wary The Fearful

In July, 2016, Jeffrey Gundlach, CEO of DoubleLine Capital, an investment management firm watching over $100 Billion said that, ‘gold remains the best investment amid fears of instability in the European Union and prolonged global stagnation, as well as concerns over the effectiveness of central bank policies. Things are shaky and feeling dangerous. I am not selling gold.’

So what is Gundlach really saying? The sky is falling, horde gold because all other methods of payment will soon be declared worthless? Maybe. But what’s more likely is:

  • Because Gundlach holds a large gold stake, he’s promoting gold for the purpose of increasing its market value; or
  • More importantly for our understanding, Gundlach is saying that gold is the go to asset when ‘things are shaky and feeling dangerous’.

The more people quivering, the more demand increases, the higher the price of gold. Or, as Warren Buffet said, ‘What motivates most gold purchasers is their belief that the ranks of the fearful will grow.’

Risky Trade

Gold is a gamble, a risky, speculative trade, not an investment that pays interest or dividends. Profit comes only from selling at a higher price than what was paid. To paraphrase Buffet, ‘you’re betting on what someone else will pay for gold in the future’.

Buy when price is low (when the fear factor is minimal) and sell when price is high (widespread panic which leads to a gold bubble, such as what happened during 2008-2013 when the price of gold blasted from just over $700/oz to almost $1900/oz) and, sure, you’ll make money. And when the bubble bursts? In 2013, price dropped more than 40% to under $1100.

As for the share price of gold mining companies, these too are high risk plays with share price bouncing up and down largely depending on the price of gold. These companies are not in the business of creating value from gold.

Rather, their business involves digging gold out of the ground and exchanging it for paper currency. Kind of laughable when you consider that it’s the steely eyed goldbugs who claim that paper money is a pervasive conspiratorial scheme perpetrated by central bankers.

If this were so, you would think that gold mining company executives and shareholders would be paid in gold bars rather than choose to receive payment in the currency of choice, US dollars.

Chicken Little Is Not Your Friend

If you don’t subscribe to chicken little’s preaching, and if diversification and minimal volatility is a goal, then gold, and gold companies, are not prudent investment vehicles. Instead, if you’re looking for ultimate security, place your money in a real investment, one that offers safety and generates income, such as US Treasury Bonds or Government of Canada Bonds.


Chewy Bits. A Treasury Bond is a fixed interest debt security issued by the US federal government. Interest payments are made to the investor twice per year.

A Government of Canada Bond is a fixed interest debt security issued by the Canadian federal government. Interest is typically made to the investor once or twice per year, depending on the particular bond.


 

First Comes Love, Then Prenup?

First comes love, then comes prenup, then comes marriage?

Honeymoon Haze

Some three years ago, when friends of mine learned that I was ready and willing to tie the knot for the second time, they asked whether I had considered a prenup.

Hey, friends are good for that, for looking out for you when you might be wearing blinders. Was I wearing blinders? Well, I will say that the thought of a prenup hadn’t crossed my mind, even though I knew that more than 60% of second marriages in the US and Canada end in divorce.

The thing is, the woman I was soon to marry, my wife, best friend, my partner in laughter and joy, was the kindest, most gentle soul I had known and my brain hadn’t imagined, couldn’t fathom, a scenario where not only would we divorce but she would be unfair toward me in any way. Upon hearing words like this, sensing I had floated up to cloud nine, my friends repeated, with more urgency, the need to consider my finances.

Of course, my brain had been dipped in honeymoon juice, as are all brains when they journey through the honeymoon phase. You know, that period of time when the shiny new love of your life is perfect. If they habitually pick their nose, they’re perfect. If they run a half-marathon, smell like a skunk and refuse to shower, they’re adorable. You’re so ramped up on pleasure hormones that even the disco pop tunes they play every day at five o’clock while drinking a pina colada are filling your heart with warmth and desire.

Still, at some point, as it always does, the haze lifted. And when my feet touched ground I asked myself whether a prenup was good for me. And I decided it wasn’t.

Why? Well, being a guy who knows a fair bit about finances, who knows that conflict over money is a primary reason for break ups, you would think I would minimize my financial risk by having an agreement in place that protects assets I bring into the relationship. That said, my gut told me to assume a holistic view of our impending union (interpretation: the romantic subdued the pragmatist, for better or worse).

For me, marriage is about two people wholeheartedly sharing their life with each other, and part of that sharing includes finances. If you keep finances separate, then you are holding back, putting your self first. And that just didn’t sit well with me. If you’re going to say “I do” you better be willing and wanting to step in with both feet.


Enter Buddha

One is not compelled to marry. Rather, each person has the freedom to decide whether to marry. If that decision is made, then the two people have entered into a partnership. By their nature, partnerships are to be equal.


Under the Bodhi Tree

To challenge Buddha (who would wholeheartedly welcome any challenge), you have to ask whether he would have benefitted from a lawyer and a financial advisor sitting with him while meditating under the Bodhi (pronounced Boh-dee) Tree.

I mean, isn’t it simply a matter of taking care of business that you go with the odds (50% failure rate of first marriage, 60% in second marriages, and atrocious if you venture into marriage a third time or more) and protect your self financially? If you bring a whole lot of dough to the marriage and are used to living a certain lifestyle, why give away that slice of pie to your former spouse after the pillars crumble? Or if you contribute significantly to the marriage in non-financial ways, don’t you have a right to determine beforehand a fair amount of financial compensation for valuable contributions made during marriage?

All In Favour

Agreed, prenups do not fall under any sub-genre of Romance. Regardless, given the close to even odds of marriage ending in divorce, how could you not bring up the issue before the wedding date? A prenup is actually good for your marriage; it may even help sustain your marriage. How so? It will force you to openly discuss what assets each partner is bringing into the relationship, kinds of debts and how much, likely inheritance, saving and spending habits, and financial goals.

The prenup’s basic function is to protect each spouse’s pre-marital assets from a claim by the other spouse in the event of death or divorce. Specifically a prenup may state exactly how much your partner will share in your pre-marital assets in the event of divorce or death (especially relevant to those with children from a prior marriage).

But that’s not its only function. The prenup may also protect assets acquired during marriage by setting a fixed amount for spousal support or eliminating spousal support altogether.

Considering that the median marrying age in North America is approaching 30, it’s more likely that those entering marriage for the first time are bringing assets with them and, just as importantly, debts. For those entering second and subsequent marriages, you likely have more assets, and possibly debt, than when you were younger. All the more reason to have a full discussion about what each of you are bringing to the table. The thinking being that, on divorce or death, the certainty provided by a prenup minimizes destructive arguments about entitlement to assets, as well as minimizing court proceedings and scary legal costs.

All Opposed

Why an agreement focused on selfishness, on me, me, me rather than WE? An agreement that weakens the union through imbalance of financial security? Do the two partners arrive at the table with the same hand? No. One will have less money, fewer assets, therefore less bargaining power. Should one partner object, and the other partner be determined to forge ahead, what is the one with less money to do? What can he/she do? Call off the wedding?

Discuss, discuss, discuss! Absolutely you should discuss money and finances, what you have, what you owe, your spending patterns, values, and financial goals before vowing to spend your life by each other’s side. It would be foolish not to do so.

But why the desire, why the need, to lawyer up and legal language your discussion such that you walk away with a formal contract that sets out ways in which one partner will withhold property from the other, a contract that moves love and trust to shaky ground, one that separates and undermines the marriage before it starts?

Protecting Both Partners

It isn’t uncommon to believe that the wealthier partner is the one clamoring for a prenup. Sure, this may be the case. But a well-crafted, fair, prenup is designed to protect both partners. If you bring big dollars to the marriage and are used to living a certain lifestyle, you’ll want the agreement to specify how much you would owe to your spouse on divorce. And if you contribute to the marriage in non-financial ways, and are sacrificing a career to raise children or pursue other interests, then you want the agreement to spell out fair compensation for your contributions.

Bodhi Tree Revisited

Whether or not a prenup is right for you, well, that’s a personal decision. Should your marriage end in divorce, will a prenup minimize the anguish that typically goes hand out of hand in divorce proceedings? Possibly. Will it make for a more fair settlement of assets? Maybe. Overall, will it help or harm you and your spouse? That’s uncertain. Best I can say is that you should both be on the same page on this issue. If you disagree, with one partner wanting the prenup and the other opposing, and are unable to find compromise, then for the peace and continuing existence of your relationship, it’s not worth it.

So for all you lovebirds thrown off course by the prenup issue, go find a Bodhi tree (or an Elm, Fir, Arbutus, Maple, Redwood or any other tree) of your own to facilitate reflection. Tap into your inner Buddha, share your truth with your partner, and figure out what is best for both of you.

Swinging For Singles

Search the Internet for a phrase like, ‘how may individual investors beat the market’, and you’ll turn up headlines like this:

  • You Can’t Beat the Market So Stop Trying (CBS Moneywatch)
  • Try As You Might, You Probably Can’t Beat the Stock Market (Forbes)
  • 86% of Active Fund Managers Failed to Beat the Market in 2014 (CNN Money)

Stop there and you’re likely to close your browser thinking, no way can I pick stocks on my own and perform better than the market. So what’s the point of investing in anything other than Passive Index Funds?


Chewy Bit. Passive Index Funds mirror the holdings of a market index such as the NASDAQ or S&P 500. If the index goes up, the value of your fund goes up. Likewise on the way down.


But don’t close your browser just yet ’cause it’s not that straightforward. You have to question the integrity of headlines. Because media is in the sales business. Sexy headlines attract eyeballs (I know, I know, I’m guilty on this post with its double meaning – my saving grace: I’m not selling anything). Buckets full of eyeballs attract advertisers. And advertisers are revenue sources.

That’s all fine; we live in a society where commerce greases the wheels. What isn’t fine is when media is irresponsible, publishing poorly researched articles for the sake of filling print or web space, rather than accurately informing the consumer. Regardless, to use a well worn phrase, it is what it is. Unreliable reporting happens and will continue to happen. This is our world. So what do you do? Question the source, research the issue, and bring a healthy dose of skepticism to whatever you read (yes, including BuddhaMoney … we can handle it).

Let’s get back to headlines. Searching the same phrase, ‘how may individual investors beat the market’, also brings up the following, entirely contrary, headlines:

  • Beating the Market: Yes It Can be Done (The Economist)
  • Look Who’s Beating the Market (Wall Street Journal)
  • Shiller says Easy to Beat the Market Long Term (Bloomberg)

Agh! Now what?! From all these presumably respected sources comes polar opposite advice … who do you believe?


Enter Buddha. Reflect upon contradictory information before making a decision. And know that there is no certainty when it comes to investing, and life in general.


Fair enough, you say, both views are valid, they are simply judgment calls. Still, which one is right for me? Before anyone can speak, you answer with the silver bullet question that impresses even BuddhaMoney: knowing that stock picking is higher risk, knowing the odds are stacked against me, why would I try to achieve investment returns that exceed market indexes? Sure, I may get lucky here and there, feel good and pound my chest when the bet pays off, but in the long run, odds are that I’ll have more losers than winners, and my portfolio will be worse off. So , why would I want to swing for the fence with stocks rather than hit singles with an Index Fund?

Follow Alpha

Warren Buffett’s company, Berkshire Hathaway [NYSE: BRK.A], manages a stock portfolio worth somewhere in the stratospheric neighborhood of $130 Billion. Does this mean you should follow Buffett’s lead and invest in stocks too?

Well, consider this: Buffett is one of the fortunate few who follow an active investment strategy (see Chewy Bit, below) that is consistently successful, long-term. But before you go and think you can emulate his success, think about how you stack up to his knowledge, wisdom, experience, temperament, and all star team of experts who engage in this sort of work 5, 6, 7 days / week.


Chewy Bit. The purpose of an active investment strategy is to find pockets of the market, and particular companies sitting in those pockets, that are undervalued and provide the opportunity for above-average returns at average or below-average risk. If an active investment strategy is not able to reliably identify and seize upon such opportunities, then the strategy is worth bubkus.


Let’s pull back on the reins here. I’m not saying you cannot be successful at the stock game if you’re not Warren Buffett. Not at all. What I am saying is that if you’re intent on implementing your own active investment strategy, know that the bar is set high, and not a whole lot of folks clear the bar on a year-in, year-out consistent basis (see, Is Stock Investing For You – http://buddhamoney.com/stocks/is-stock-investing-for-you/.

But hey, if you have a system that works, then good for you, that is truly excellent. I’m not here to dump cold water on investing in stocks, only to say: be cautious, do your research, analyze objectively, know the challenges that lie ahead. And if glitches arise, you always have the option of re-balancing your portfolio and switching to Index Funds.

The Road to Retirement is Paved with Index Funds, Not Gold

According to the master himself, “… by periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.”

Reinforcing this quote, in his 2014 annual letter to Berkshire Hathaway shareholders, Buffett says that, upon his death, the trustee should place: “90% [of his money] in a very low cost S&P 500 Index Fund. I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.”

Buffett goes on to say: “Both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.”

The farm reference is a telling analogy. When planting seeds, it takes time for a crop to grow. Same with investing in an Index Fund. You buy the Fund and you wait for it to grow, rather than frequently buying and selling and being obsessed with the stock markets daily movements. Over the long term, if the past 100 years of stock market activity is any guide, the stock market will grow and you will make money. It’s an utterly humdrum, low cost way to invest in stocks. And it’s been shown to be a heckuva way to grow your wealth.

Nitty Gritty: What Funds To Buy

Alright then, Passive Index Funds it is. Still, which Funds to buy? Like most investing issues, you’ll get opinions all over the map on this one. Here’s my calm, collected thinking:

Buy funds only from reputable financial behemoths, ones that would shake planet Earth to its core were they to falter, i.e., would be bailed out by government should geo-political meteors strike. In particular, Vanguard and Blackrock’s iShares. Canadian investors may also check out BMO funds.


Chewy Bit. American readers may be familiar with BMO through its American bank, BMO Harris Bank. Chewy Bit beneath the Chewy Bit: three Canadian Banks – Royal Bank of Canada, TD Bank and BMO – went on a shopping spree of sorts in America some time after the recession debacle of 2008; enhancing the two countries continuing path toward commercial integration.


For Americans with stock funds on their radar, you need only two:

  • US Large Cap. Vanguard S&P 500 ETF (VOO:NYSE)
  • Global Small Cap. Vanguard Small-Cap Growth ETF (VBK:NYSE)

For Canadians, consider these two:

  • CAD Large Cap. BMO S&P / TSX Capped Composite Index ETF (ZCN:TSE)
  • Global Small Cap. Mawer Global Small Cap Fund (Fund Code: MAW150)

Why a small capitalization Fund you may ask?

Buying small companies (i.e., market capitalization under $500 million) on an individual basis is generally higher risk, no question. But in a Fund that comprises hundreds of companies, this risk is mitigated simply because of the number of companies involved. If one or two or three companies blow up, the effect on the fund’s value would be minimal
presuming those companies make up only a small percentage of the total value of the fund.

According to Morningstar Ibbotson data, from 1926 through 2012, small-cap stocks averaged an annual return of 12.28 percent, compared to 10.08 percent for large cap.

[http://www.bankrate.com/finance/investing/small-cap-funds-versus-large-cap.aspx] You’re recommending a Mawer mutual fund? That doesn’t wash! Mawer follows an active investment strategy.

True, Mawer Global Small Cap is a no-load, actively managed mutual fund, not an Index Fund. And the management fee for this Fund is definitely higher than that charged by Index Funds.

But based on the long term performance of this Fund, Mawer makes a compelling case for being cut from Buddha/Buffett cloth. And those pricier management fees are more than made up for in net return: the Fund has been crushing the benchmark Russell Global Small Cap Index [http://www.mawer.com/our-funds/fund-profiles/global-small-cap-fund/]. For what its worth, I have happily held this fund for many years for friends and family whose investments I manage.

It’s important for me to end this post by telling you that, in no way, shape, or form have I received any sort of compensation from any of the financial companies mentioned. Just sharing my knowledge and opinion, folks, for the greater good. Would you expect anything less from BuddhaMoney?

Is Stock Investing For You?

Who Are You?

If you want to do well in the investing game, you have to know yourself. What am I talking about? Know how you think, your behaviour patterns, and your emotional makeup. I’m not saying it’s easy, reflecting on yourself, questioning whether you’re as smart and beautiful as you think you are (okay, listen, you are smart and beautiful but that doesn’t mean you should stop asking the hard questions; I mean, think how much smarter you will be once the answers start flowing, and how much better you will be as an investor which, naturally, will make you that much more beautiful!).

Why should we take the time to understand our self? Because knowing what drives us in certain directions facilitates better decisions for ourselves, for our loved ones, and paves the way for a more peaceful journey, whether in the wide world of investing or in other worlds.

The Investor, The Bull and The Bear

During the so-called Great Recession of 2008-2009, with doomsday soothsayers operating in overdrive, how did you respond? And was your response any different during the rapid fire, insane, this is the big one, run for the hills, market collapse that we had in January/Feburary 2016? Was the end of capitalism nigh? Did you run to your investment advisor demanding that he/she sell everything? Did you bury your head and refuse to look at your monthly statements for fear of reading smaller and smaller numbers on the bottom line? Resign yourself to everlasting poverty? Dump your securities portfolio, buy gold, build a bunker, load up on hardware, ammo, spam and water?

Or, rather than allowing fear and panic to rule, did you tap into your inner Buddha who calmly reminded you that Bear markets last an average of 18 months and lose an average of 40%. And after the Bear retreats? The Bulls charge the stage for an average of 97 months. And in that time, the 40% and a whole lot more is recouped. The moral of the story of the Investor, the Bull and the Bear? When the Bear growls, it’s generally best to just sit there, and do nothing.

Chewy Bit. One of the more enjoyable authors in the Buddhism realm is Sylvia Boorstein who wrote a book playfully titled, Don’t Just Do Something, Sit There – http://www.amazon.com/Dont-Just-Something-Sit-There/dp/0060612525]

These numbers I’m throwing at you are all fine and dandy and true. But do they matter to you when, for the most part, you lead life with your heart? And if your heart is aching and telling you one thing, it sure is tricky to let that feeling go and allow your head to make the call.

So if fear or greed or anxiety or exuberance or any other heartfelt emotion are stressing you too much, recognize this about your self. Own it. And then follow your heart. Know how YOU respond to winning and losing investments, market run ups and market meltdowns. In short, what is your investment comfort level? Keeping in mind there is no right or wrong. This is about YOU and what works best for YOU.

If you know that you get all jittery when numbers start falling, then it’s best that you build a portfolio that will help smooth the ride, i.e., larger cash and fixed income component, less exposure to individual stocks (maybe adding Mutual Funds and/or Exchange Traded Funds for equity exposure instead of individual stocks). And if your temperature rises too fast when your portfolio is heating up, and you’re prone to convincing yourself that all of your holdings have a one-way ticket to the moon, then know that about yourself too, and stick to a plan that says you will sell a certain percentage of your holdings at certain price points. Because for the most part, moonshots return to Earth with a thud.

To give a hand up to your self-knowledge, take a look at the line graph below, setting out the typical emotional rollercoaster experienced by the vast majority of investors:

blog-4

Better yet, download this graph, stick it on your fridge and learn from it the next time (and there will be a next time) your emotions get out of hand.

Investing Archetypes

Active Investors buy and sell securities with a view to achieving a better return than market indexes (i.e., NASDAQ, S&P 500). This can be done. But keep this in mind: investment management firms and advisors don’t tell you that it’s not often achieved on a consistent, year-over-year basis. In fact, close to 80% of active fund managers perform worse than a range of Indexes over extended time periods, i.e., 2, 5, and 10 years. 80%! That’s a big ole’ whopping number that deserves your attention.

Passive Investors typically buy and hold Index funds. The advantage is you pretty much earn a return equal to the return of the particular Index. The disadvantage is that you will not do better than the Index. But for those who aren’t interested in excessive risk, and understand that less than 20% of Fund managers beat Indexes, the safer, less risk, less volatile, preserve the nest egg approach to investing suggests that Index funds are well worth considering for your portfolio.

Index Funds represent a simple approach, nothing fancy, hip, cool, trendy, or anything to brag about. It’s the turtle approach to investing; slow, steady, and possibly downright boring. And that’s exactly what most investors should seek: a boring, completely not sexy, portfolio that makes you money. And when the next chicken little is madly squawking about the sky falling, you can simply turn out the night light and pay no heed.

Chewy Bit. A stock market Index measures the value of a segment of the stock market. For example, if an Exchange Traded Fund tracks all US technology stocks, then that Fund’s return will be in line with the performance of all US technology stocks.