Day 14 Sleep-easy investing – taking back the power
It is impossible to believe that Canadians – known for our prudence as well as our politeness – would choose to gamble away the savings we work so hard to accumulate, money that we will need to live on in what may be the longest retirements in history.
Yet from 1996 to the early months of 2000, that is exactly what many of us did. It is exactly what too many of us, dazzled by charts and sales pitches, continue to do. It’s time to stop the madness, and we are here to help.
Benjamin Graham felt so strongly about the difference between true investment and speculation that he begins his investment classic, The Intelligent Investor, with a two-page explanation on the distinction. In short, he says that a speculator is anyone who buys stock ‘on margin’ (with borrowed money), who buys a ‘hot stock’, who buys without a full understanding of the risks, or who buys “without proper knowledge or skill.”
In case you’re not familiar with Benjamin Graham, you should know that his most attentive student, Warren Buffett, has applied those early lessons to become the second wealthiest man in the world. Warren Buffett is also the only “investment guru” I know of who actually became wealthy by investing rather than by turning other people’s wealth into their own through fees and commission.
Graham’s definition reveals the tragic truth of the late 90’s – we thought we were investing, but we were speculating, gambling money we couldn’t afford to lose. Worried about retirement, tired of sitting on the sidelines while our friends and co-workers boasted of high returns, we cashed in our Canada Savings Bonds and GICs, even borrowed money, and moved into mutual funds, touted as the ‘safe’ way to invest in the market. With the full support of advisers who only got paid when we bought a mutual fund or stock, we bought companies we knew very little about at exorbitant prices, believing that the astronomical rise in their share prices was evidence enough of their success.