Fisking John Heinzl

The problem with investing is that it is as much an art as it is a science.  There is no one formula which will lead to success.  Investing is more about a person’s temperament than it is about implementing rules of success. Nevertheless, financial columnists are always giving rules of investing.  John Heinzl of the Globe and Mail offers several today in his article “Thirty nine investing secrets revealed at last!“, and I list only the ones in italics that I wish to comment on:

1. Learn as much as you can about investing. Nobody (except maybe your heirs) cares more about protecting and building your wealth than you do.

This is probably not feasible for many people.  Sure if you have nothing to do except read about investing it fits.  But consider my father-in-law who was a successful entrepreneur who started two different prop-shops in his career in two different cities.  His greatest investment was his own business, and when it came to his retirement savings, he needed to rely on others.  My own father was a physician; during my entire childhood I don’t remember my dad ever watching an entire 1 hour television show without falling asleep.  People with successful careers must unfortunately rely on others.

2. As the ING guy says, “Save your money!” Without savings, you have nothing to invest.

3. If you’re having trouble saving, track your income and expenses to the nearest dime for a few months. It’s the only way to find out where your money is going and, hence, the only way to figure out where you can cut back to save more.

Being able to save many not be about tracking every dime so much as keeping in check one’s desires and cravings.  But sure, track your expenditures and see analyze how you are spending or even wasting your money.

5. Keep a percentage of your savings, roughly equivalent to your age, in low-risk bonds or GICs. This is your “sleep at night money.”

In periods of inflation, fixed income assets that pay low interest rates are as risky as any other asset class.  With governments actively seeking to create inflation, all investments are risky.  All of them.

7. Always be on the lookout for “black swans” – rare and destabilizing events that aren’t supposed to happen but do. (Credit meltdown, anyone?)

Well disasters can happen.  Even death.  That’s why it is important to have faith in God and trust in Jesus Christ for one’s eternal salvation.  But being on the look out is not the same as being prepared.  How would one have prepared for the last credit crisis?  I think by not being leveraged to the hilt and therefore having the cash or credit to be able to take advantage of the bargains that will be out there if there is another meltdown.  If it ends in your country being defeat or annihilated in a world war , it won’t matter what you invest in.

8. Invest a portion of your savings in a low-fee index mutual funds or exchange-traded funds.

This is advanced investment advice?  Fifteen years ago when I had a less than $2000 for my registered retirement account I used mutual funds.  But I eschew both ETFs and mutual funds today, because as a DIY investor I pay far less in commissions and management fees at $9.99 per trade for stocks.

9. When buying individual stocks, stick with those that pay dividends, preferably rising dividends.

My best performing stocks don’t pay dividends.  They are small, junior oil companies that are high risk but largely off the radar.  You usually pay premium for large companies that pay rising dividends.  In the long run, they perform very well, but neglected small companies can give multiple rates of return which greatly outperform the dividend payers.

10. Reinvest your dividends and interest payments to benefit from compounding.

11. Remember that investing isn’t a sprint but a marathon – a very, very long marathon. The longer you invest, the greater the benefits of compounding.

This is true.  Reinvesting the earnings from my stocks that pay monthly redistribution has really work out well for me.

12. Don’t listen to stock tips from your brother-in-law.

My father-in-law gave me a great tip:  tfl, which became mel.  It is my best performer thanks to my strategy of averaging down.

13. Avoid “story” stocks. They’re usually duds.

I don’t know what a “story” stock is.

14. Stay out of debt. If you’re in debt, get out.

In October 2008, my wife and I took a HELOC and bought numerous Canadian income trusts.  Thanks to trading, distributions and my day job, I’ve been able to pay it off completely.  Then I borrowed funds on my margin account in order to do carry trade against the US dollar.  I am making net profit from the distributions and am waiting for the investments to improve in value and the US dollar to depreciate.  So far I can’t complain.  Not all debt is equal.  Some debt is good debt.

15. Pay off your mortgage as quickly as possible.

This is too true.  Because we replaced our mortgage with a HELOC. The advantage is that the money that we now borrow against our house is used for investments for which the interest is deductible (in Canada, interest on the mortgage for a person primary dwelling is not deductable, only interest on investments which provide an income).

16. Take full advantage of RRSPs, TFSAs and RESPs.

This is advice for Canadians (like me soon to be) and residents of Canada.

17. Invest in Canadian banks. The same reasons we hate them as customers – too big, not enough competition – are why we love them as investors.

Ok.  Canadian banks however experience periods when they are over bought.  They are not a panacea investment.  I’ve lowered my exposure to banks recently in favor of higher yield oil companies.  I have profitably traded Royal Bank.

18. Invest in boring companies – pipelines, power producers, utilities.

I think Enron was a utility company, power production and pipelines.

21. Always question your adviser, and never pull the trigger on a trade until you get a second opinion from someone you trust.

When we had an advisor he would talk us out of our ideas.  At first he saved our asses because we didn’t know anything.  Later it became annoying; so I took over completely our portfolio and learned to rely on my own judgement.  I win some and lose some, but I now always save on commissions.

22. Read The Investment Zoo by Stephen Jarislowsky.

23. Visit the website,, run by Mr. Jarislowsky’s biggest fan, Tom Connolly.

24. Read The Single Best Investment: Creating Wealth with Dividend Growth , by Lowell Miller.

Thanks Mr. Heinzl!  I’ll have to check these out.

25. Keep your trading costs as low as possible.

27. Keep trading to a minimum to reduce commission costs.

I have had some success, and some failures, in well-timed trades.  My commission at $9.99 are a negligible cost.

28. Resist the urge to check your portfolio every five minutes. It encourages excessive trading.

I confess.  But I don’t trade excessively at all.

29. Consolidate your investments with one broker. It’s easier to track how you’re doing.

Once over 1 million in an account you aren’t insured anymore in  Canada.  Be careful not to exceed that limit.  Also beware of the Madoffs in the world.  The worst possible investment would be to be consolidated in pyramid scheme.

34. Don’t invest in anything you don’t understand.

Thirty-four is very true.  But you don’t have to understand absolutely everything, just the basics like P/E ratios, revenue, dividend yield, book value, market capitalization and net asset value (NAV).  Also, one should have a fundamental understanding of the business, why their products sell, and who are their competitors and their markets.

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