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While I've always loved investing & have managed my portfolio for 20 yrs, I wouldn't call myself a good investor.
It's so hard to be good that I don't even try - instead, I've devoted most of my learning to how to avoid being bad.
1/x How to Not be a Bad Investor (thread)
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It's so hard to be good that I don't even try - instead, I've devoted most of my learning to how to avoid being bad.
1/x How to Not be a Bad Investor (thread)
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2/ "Son, don't focus on investing. You have so little money. Earn more"
Early in your life, your earning power is far more important than your investment returns. Don't get distracted by learning to invest, focus on increasing your income.
Early in your life, your earning power is far more important than your investment returns. Don't get distracted by learning to invest, focus on increasing your income.
3/ "Son, in 40 years of investing I learned one thing - it always goes up."
Investing is fundamentally an optimist's game - you need to believe in the arc of productivity and the power of capitalism and generally just stay long forever
Investing is fundamentally an optimist's game - you need to believe in the arc of productivity and the power of capitalism and generally just stay long forever
4/ “Never cross a river that is on average 4 feet deep” - @nntaleb
Step one of wealth creation is to avoid ruin. Risk is necessary to get returns, but don't invest what you can't afford to lose. As you earn more you can dial up risk
Step one of wealth creation is to avoid ruin. Risk is necessary to get returns, but don't invest what you can't afford to lose. As you earn more you can dial up risk
5/ "Far more money has been lost by selling the winners early, than by buying the losers"
It's rare to pick a winner, so if you do, hold on - because the probability of continued success increases and compounds as it grows (to a limit of course but that's long)
It's rare to pick a winner, so if you do, hold on - because the probability of continued success increases and compounds as it grows (to a limit of course but that's long)
6/ Assume you have no edge
Take it as truth that you are not gonna beat the $trillion finance industry at their own game, and do mostly low cost index investing. It's fine to try and pick stocks, just put limits on how much: eg. I do 75% passive investing and 25% stock picking
Take it as truth that you are not gonna beat the $trillion finance industry at their own game, and do mostly low cost index investing. It's fine to try and pick stocks, just put limits on how much: eg. I do 75% passive investing and 25% stock picking
7/ Concentration creates wealth, diversification keeps it.
"concentration" for most should mean your job/career, not YOLOing TSLA (while that can work, see #4)
And when you have whatever is "enough" for you, it's illogical to risk it, so diversify
"concentration" for most should mean your job/career, not YOLOing TSLA (while that can work, see #4)
And when you have whatever is "enough" for you, it's illogical to risk it, so diversify
8/ Diversification is more than stocks vs. bonds
A real diverse portfolio:
- has geographic and currency diversification
- has hard/uncorrelated assets like real estate, gold, bitcoin
- Adjusts for the industry you work in (i.e. if tech pays your salary, own less tech stocks)
A real diverse portfolio:
- has geographic and currency diversification
- has hard/uncorrelated assets like real estate, gold, bitcoin
- Adjusts for the industry you work in (i.e. if tech pays your salary, own less tech stocks)
9/ Investing is more about outrunning inflation than increasing wealth
Many risk-adverse people feel investing in dangerous and avoid it, but NOT investing is even more dangerous, as inflation erodes your purchasing power.
Have cash for 6-12 mo of expenses, otherwise buy assets
Many risk-adverse people feel investing in dangerous and avoid it, but NOT investing is even more dangerous, as inflation erodes your purchasing power.
Have cash for 6-12 mo of expenses, otherwise buy assets
10/ If you don't know why it's going up, don't sell.
As a retail investor you just have to assume that you're the "dumb money" and there's lots of "smart money" (or insider trading, see #6). When a stock you own seems to be going up for no reason, wait until you learn why.
As a retail investor you just have to assume that you're the "dumb money" and there's lots of "smart money" (or insider trading, see #6). When a stock you own seems to be going up for no reason, wait until you learn why.
11/ If everyone thinks something is a bubble, it's usually not a bubble.
When you see some froth, don't let the fear that it will drop by 30% make you sell - sure, that will happen eventually, but it also might double first (See #5)
When you see some froth, don't let the fear that it will drop by 30% make you sell - sure, that will happen eventually, but it also might double first (See #5)
12/ Time in market beats timing the market
If you have cash you don't need for a while and can invest it, don't think about waiting for a good price, because no one knows and the lowest price going fwd could be the current one - just invest it now and let compounding start.
If you have cash you don't need for a while and can invest it, don't think about waiting for a good price, because no one knows and the lowest price going fwd could be the current one - just invest it now and let compounding start.
13/ The finance industry is full of survivorship bias
For every wallstreetbets stonker who made 10k into 1M, there are a thousand who lost that 10k.
For every financial adviser and fund that has 10 years of good returns, there are at least as many that shut down
For every wallstreetbets stonker who made 10k into 1M, there are a thousand who lost that 10k.
For every financial adviser and fund that has 10 years of good returns, there are at least as many that shut down
14/ Compare risk-adjusted returns
When someone says they beat the S&P 500 by +30% and claims they're great, recognize they might have achieved it by simply buying really risky stocks that might have done -50% worse than the S&P if the market had a bad year.
see Sharpe Ratio
When someone says they beat the S&P 500 by +30% and claims they're great, recognize they might have achieved it by simply buying really risky stocks that might have done -50% worse than the S&P if the market had a bad year.
see Sharpe Ratio
15/ The "correct portfolio" is as much a personal finance question as it is an investment return one
Your portfolio should change as you age, gain wealth, and have dependents. It's a function of risk tolerance and cash flow needs.
Your portfolio should change as you age, gain wealth, and have dependents. It's a function of risk tolerance and cash flow needs.
16/ Asset allocation > Fees > Taxes
When constructing a portfolio, care first and foremost about WHAT you own, over fees and tax considerations, in that order.
Eg. Emerging market ETFs have high fees, but it's more important in the long run that you're exposed to them
When constructing a portfolio, care first and foremost about WHAT you own, over fees and tax considerations, in that order.
Eg. Emerging market ETFs have high fees, but it's more important in the long run that you're exposed to them
17/ Compare after-tax returns
Due to taxes, not all investors will see an asset with the same value. Your personal tax situation (tax rate, jurisdiction, sheltered or tax free account, etc) can change the math so always compare returns on an after tax basis.
Due to taxes, not all investors will see an asset with the same value. Your personal tax situation (tax rate, jurisdiction, sheltered or tax free account, etc) can change the math so always compare returns on an after tax basis.
18/ Fees really matter in the long run
Even the 0.25% robo advisors charge you can reduce your end wealth by 20% over 30 years
It's not hard to learn how to make your own ETF portfolio. Here's something I wrote for some friends (Canadian): https://docs.google.com/document/d/1TD6TgvzfaY3AqMhOLS5bGoHt8W1jdkFQF0ypLhnPi_k/edit?usp=sharing
Even the 0.25% robo advisors charge you can reduce your end wealth by 20% over 30 years
It's not hard to learn how to make your own ETF portfolio. Here's something I wrote for some friends (Canadian): https://docs.google.com/document/d/1TD6TgvzfaY3AqMhOLS5bGoHt8W1jdkFQF0ypLhnPi_k/edit?usp=sharing
19/ Structure your assets tax efficiently in the right accounts
Certain assets are taxed more favourably in certain accounts (detail in the link from #18)
Eg. US dividend paying stocks are best in RSP because the US gov has a treaty with Canadian so they don't withhold 15%.
Certain assets are taxed more favourably in certain accounts (detail in the link from #18)
Eg. US dividend paying stocks are best in RSP because the US gov has a treaty with Canadian so they don't withhold 15%.
Lastly, this is not financial advice. Don't listen to random people on twitter and talk to a financial advisor or accountant etc etc.
