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Dumb Investment Reasoning

From many years ago, but still relevant.

I saw that HBC has decided on $17 a share for its upcoming IPO, and when I read that I thought:

“… well that is just fine, I don’t care if it’s 2 cents a share, I am not buying stock in that company…”

Why the vitriolic response, you might ask? (aside from the obvious vitriol and bile I normally spout). Simple, a loved one was hired by the Bay, treated shabbily, never really trained and then summarily fired for not fitting their mold of what they wanted in a shoe sales person (in my opinion, of course). Sounds like a perfectly legitimate reason not to invest to me, if you hold a grudge with a company, you should withhold your money and business from them. Will the good folks at HBC care about this? Probably not (not that I really think they should either, I am a single investor and consumer) but this is how I feel.

Stepping back and putting my Clown Prince of Personal Finance (and investing) hat on (no it doesn’t have bells like the Motley Fool guys, that is just too old hat for me), this is a moronic reason not to invest in something, however, I also don’t know enough about the HBC business model and what their prospects for growth are, in the current economic situation that Canada is in (which is something that is essential to know before you invest in this stock or any other stock). In this vacuum of information, a negative opinion like that is good enough for me to keep my money in my pocket (some call it conservative, but abject fear is a good way of looking at it as well).

I knew people in the naughty 90’s who refused to buy Nortel because they didn’t get hired by them, and that reason while petulant, resulted in a fantastic decision (long-term, you could have gotten rich on Nortel if you bought and sold at the right times).

The Warren Buffett statement that if he doesn’t understand a business he doesn’t invest in it, is very valid, and most times I will attempt to follow that, but sometimes I allow personal feelings to help along the way too. The danger is, you can’t put on rose-colored glasses either and ignore bad things because you really like some part of a business either (e.g. I like their logo, their spokes models are hot, or a good friend of mine works there).

Do you have any petulant reasons you have used while investing (or shopping for that matter)?

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My Top 5 Investing Mistakes (Guest Post)

To give myself a little time off, today’s post is a Guest Post, and you know my Opinion of Guest Posts normally, however, this is a post by someone who I trust and also it is an honest explanation by an experienced finance person of the mistakes they have made in their personal finance lives, and those are the kind of Guest Posts I like (i.e. from the heart and personal). Who is TuskTrader? I’ll steal some copy from Preet’s web site as a point of introduction:

This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

Hello readers! I am very honored to be contributing a piece to one of the best personal finance blogs in Canada. I have been asked to share my own investing mistakes. I began this process by recounting my own investing history year by year, and compiling a list that grew shockingly long as the minutes ticked by. It was ego battery at it’s best. The selection process for the top 5 was not as hard as I thought it would be. My biggest mistakes are also the ones I learned the most from and are what guide many of my decisions I make now.

Being a trader, many readers might think the list I am about to reveal to you all will be a big list of trading disasters. If you fall into that category, you will be surprised. As with many people, it is not the actual investment or particular trade that causes the anguish and unfortunate outcome, it is the lack of knowledge, lack of discipline, and other activities surrounding the investment portfolio decisions that have caused most of my regrettable mistakes. The losses I have taken in my own trading account have rarely been due to out of control losing trades. I have been very good at setting appropriate stop losses and I have entry and exit parameters well-defined before I get into a position. Now that I have stuffed in at least one compliment about myself in this piece, I feel more secure about revealing to you all my biggest investing mistakes and regrets.

I do not have the longest investing history. I have actually been a trader longer than I have been an investor. If you are young yourself or if you have someone young in your life, please share these with them. I think the new investor might get the most from my errors.

The first two mistakes I want to discuss have a lot to do with personal money management but they dramatically affected my overall investing performance. They prevented me from investing anything at all and as we all know, the longer your time horizon, the more choices you have to be a successful investor.

Click here for the top 5 mistakes made

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Warnings on Financial Products

After a thoroughly enjoyable discussion with the National Capital Financial Bloggers (and some honoured added guests), I feel reinvigorated. The discussions around the table were about many topics, and my guess is I will be writing about a few of them over the next few days. Still, one excellent topic came up from a representative from Horizen ETFs who was visiting with our highly regarded group (why I was included in this group is again a mystery). The question arose, “Should there be warnings on financial products ?”.

The observation made was that some investment and savings vehicles might need to have better warnings, and in fact Rob Carrick (an honoured special guest) pointed out that if you put a strong warning on financial products, some folks might just buy it because of the warning (I believe you would call that the “Cigarette warning syndrome”).

With this in mind, let me give you a possible scenario:

If you were on your standard On Line Broker website and you started a new BUY transaction, and you selected, say BCMETF.XXX (hopefully a fictitious ID for the Big Cajun Man Exchange Traded Fund (the Nitroglycerin and Blasting Caps version of the fund)), and the following warning icon came up on your screen when you attempted to finalize your transaction:

warnings on financial products
Dangerous Investments Warnings

My question would be, if you saw this kind of warning on financial products come up on your screen (hopefully with a loud klaxon noise in the background), what would you do?

  1. Would you turn off your computer and run and hide in your bed with the covers over your head? (which I think is the correct answer)
  2. Get all macho and say, “I can handle it!”, and plow on ahead?  (the wrong answer IMHO)
  3. Go back and read the prospectus on the savings vehicle one more time to be sure?  (an OK way to deal with it, because at least you go in with your eyes open)

Please reply in the comments, I am very curious since I might try to start a side business publishing financial warning signs.

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How Much Influence does a Shareholder Have These Days?

I hold a lot of shares in various investment vehicles for my retirement and savings, however, how much power do I have to influence the companies that I own shares in? That is a question  that keeps swirling around in my head these days (this time of year I get a lot of prospectus from various stocks, asking for me to vote on various actions at the General Shareholder meeting).

A clarification would be that I owe some common stock for a few firms, and I owe a little stock in many firms thanks to my purchasing of a few Mutual Funds and Index Funds. It could be argued that I don’t really own stock in the latter case, I own portions of a group of stock (since most Mutual Funds won’t let you trade your mutual fund holdings, for the portions of each stock held in the fund), but that is where I start questioning things.

With my common stock, every year I receive a prospectus from the Company, as well as a voting card (and sometimes) an invitation to the Annual General Meeting. At this meeting (usually) I could stand up and voice my displeasure with the firm about their dealings, or how the business is being run (and if I owned enough stock, I might even be able to change that), but who speaks for me with all my Mutual Fund and Index Fund holdings?

The easy answer is, The Mutual Fund or Index Fund manager(s) are the ones who speak and has control of the votes from the common stock held in the funds. I am sure that the board of directors are swayed by the manager(s) since they must be a major block of shares for many companies, and that is where I start scratching my head.

We now have a major stock holder who’s goals are to drive up the stock price (in my opinion) who is now working with the board of directors and the company’s management, who most likely have bonus programs which are based on stock price (partially) as well.  I guess this sentence is a bit accusatory, but it is kind of “hinky”.

I guess I should really read more about this since I wonder:

  • Are there rules about Fund Managers sitting on the board of directors for stocks held by the Mutual Fund?
  • Rules about how close Mutual Funds can work with companies that are held in their funds? Working closely is a loose term, but how closely can they work?
  • The only way I feel I can sway a Mutual Fund Manager is by simply not buying, or selling their fund(s) if they do things that I disagree with, are there other ways? I know I can send them a stern letter, or try to corner them at their General Meeting.

Anybody who knows a lot more than me (which is a lot of you), have any ideas?

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Financial Apocalypse and Sunday’s Best

What are we actually living through is really up for debate these days. Some are saying this might well be the economic system falling (worldwide) falling apart, others are saying, just another bump in the road, and still others are saying this is an opportunity to make a lot of money (those people always make me scratch my head, but they are the ones who might do it (or might not), me I am just standing pat for now). Is everything being manipulated, or is this just the whole system finally collapsing under the weight of countless financial misadventures world-wide? Feel free to discuss, me, I will be in my room with my head squarely under my pillow.

This week has been an interesting one for me, with a peak into the hell that is 2011 for me (personally) and a few other interesting oldies but goodies on Twitter:

  • The Sunday Thought for the week was Pay it Forward, and I think that is important in these scary financial times, to make sure we don’t just think of ourselves, but we need to help out others too.
  • With Stats Canada talking about spiralling tuition fees, I figured I’d bring back University Costs (again), pointing out just how expensive this can be.
  • Remembering my Dad, I recalled Advice: Best Financial Advice Ever, I will miss him.
  • Staying on that topic I also wrote about Fathers and Money.
  • I remember a year ago CPI was at 1.7% but these days, we are just not that lucky.
Enjoy the weekend, it’s Sunday!

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