50 Investing Guidelines To Follow

August 13, 2019

Consider these two stocks.

Over the last five years, Stock “A” has seen its share price sputter with a negative return of 3.19%. Over that same period, its revenue growth ranks dead last compared to its competitors. Its historical valuation multiple also ranks last, which indicates that its competitors have a greater opportunity for growth. This makes sense based on how poorly this company has performed over the last five years.[1]

Stock “B” has been around for nearly 200 years and has seen its share price increase by over 300% in the last 20 years. Over the last five years, they have increased their revenues and dividend by over 25%. Their dividend is extremely consistent, and the last time it was reduced was in 2001. Even with their increased revenues, they are currently trading at 10.40% below their historical valuation multiple. This indicates that there is still room for this stock to grow.[2]

So which stock would you like to purchase today?

It seems like an easy answer.

What if I told you Stock “A” was Scotiabank and Stock “B” was also Scotiabank?

To quote Mark Twain, “There are lies, damned lies, and statistics.” Now, everything I told you was factual, but the way I used the statistics allowed me to control the narrative and bolster my argument.

The same thing occurs every day in the stock market. You have one analyst arguing that you should buy Stock X and you have another analyst arguing that you should be selling Stock X. They are likely both truthful, and each is using statistics to tell you the side of the story that they want you to see.

Investing Guidelines to live by

So before you go out and make a life-changing financial decision based on a stock tip from your brother-in-law, here are 50 investing guidelines that I like to follow.

Have a goal with your portfolio
Have a strategy to achieve that goal
If you want a higher rate of return – take more risk
If you can’t handle the ups and downs – take less risk
If you’re comparing two investments, each will likely look better than the other based on the start date you choose
If you’re comparing two investments that have the same strategy, buy the cheaper one
If you need access to money in a short period of time, it shouldn’t be invested in the stock market
If you’re buying a stock, someone else is selling it to you. What do they know that you don’t?
If you’re selling a stock, someone else is buying it from you. What do they know that you don’t?
The best thing you can do to increase the value of your portfolio is to save more money
Don’t dabble with what you can’t afford to lose
Everyone talks about their winners; you’ll rarely hear about their losers
Don’t let your neighbor’s success dictate your investment decisions – A flashy lifestyle usually equates to debt
Be wary of an advisor selling you on their investment performance – they can make the numbers show you anything
Reading one article doesn’t make you an expert
There’s no such thing as a no-brainer investment
If you invest in passive investments, you will slightly underperform the market
If you invest in active investments, you will likely underperform passive investments
To time the market perfectly you have to be right twice – when you buy and when you sell – good luck with that
Your asset allocation (what you have in stocks, bonds, cash…) will dictate the majority of your return
A strategy that worked last year doesn’t necessarily mean it will work again this year
From Jan 1, 1969 – Oct 12, 2018, the TSX has had a positive return 66% of the time over a one year period
From Jan 1, 1969 – Oct 12, 2018, the TSX has had a positive return 79% of the time over a five year period
From Jan 1, 1969 – Oct 12, 2018, the TSX has had a positive return 100% of the time over a ten year period
If you’re investing, make sure you have a long timeframe
Don’t worry about the day-to-day performance of the stock market – You wouldn’t measure your drive from Winnipeg to Brandon with a ruler, nor should you measure your portfolio on a daily basis; the measuring stick is much too short
The Dow Jones Industrial Average dropped 22.61% in a single day on Oct 19, 1987, which is now known as Black Monday[3]
Had you invested in the Dow Jones Industrial Average the trading day before Black Monday, which would have been terrible market timing, you’d be up 1,110% today – try to find someone who isn’t happy with that return
If you have a long timeframe, stop waiting for the next market correction to invest – it doesn’t matter (see #28)
Let compounding be your best friend
Don’t ever leave yourself overly exposed to one portion of the market
Having a properly diversified portfolio means you’ll always be upset that a piece of it is underperforming the rest
Having a lot of positions in your portfolio doesn’t make you more sophisticated
Having a lot of positions in your portfolio makes things more complicated
Bubbles happen because people can’t stand it when others who are “dumber” than they are get rich
If you’ve blown a bubble before, you know it can eventually pop
Losing money feels worse than making money
Keep your emotions out of it
There are no if’s or but’s – there’s just reality
Don’t be a hero, stick to your plan
If you’re going to double down on an investment, don’t let it be because you’re stubborn
If someone asks you what’s going to happen in the market, your answer should be “I don’t know”
Infinite factors are affecting the market, and you likely control none of them – If it were that easy to predict, we would all be billionaires
Investing is like golfing – It’s not about how many good shots you hit, it’s about how many bad shots you can avoid
Don’t worry about making short-term market moves – Would you sell your car at a ridiculously low price for a bicycle the next time you’re on route to Brandon and stuck in traffic on Portage Avenue? Don’t lose sight of your long-term journey.
Be wary of financial talking heads – They are selling elevators with “plunge and soar” as options rather than “up and down”
Just as it doesn’t matter how good a farmer you are; if it rains on your crop, there won’t be much to harvest. So too does it not matter how good an investor you are; if the President send out a negative Tweet, everyone’s portfolio is going down.
If you want to rip up your investment statement, it’s probably a good time to buy low
If you want to frame your investment statement, it’s probably a good time to diversify your portfolio
Have realistic expectations