The Unintelligent Investor

I’ve bought and sold securities for around twelve years. My first experience was when, like many others, I was swept up in the excitement of the dot com bubble. Luckily I didn’t have much money to play with so I was able to discover my foolishness without any great expense. I was living in Australia at the time and was lucky enough to put most of my money into a fund run by Hunter Hall called the Value Growth Fund. The fund did well. I also dabbled in a few individual stocks, with more mixed results. I was sucked in by pitches from dot com darlings like Davnet and Solution 6, both of which evaporated in the 2000 dot com bubble and stock market crash. I made up for those losses with a luckier buy: Transfield Services. When I sold my Australian assets and relocated to Canada I’d done OK.

My next experience was in 2005 when I decided to dabble in alternative energy stocks. Again I was lucky enough to have most of my modest savings in my employer’s defined contribution plan, and only had a small amount to put into individual stocks. I chose stocks like Ballard and Seabreeze and made out poorly.

You’ll notice that I haven’t used the word “invest” yet. This is because I now know that I wasn’t investing: I was speculating. I chose stocks based upon their popularity in the financial press and never once looked at PE ratios, dividend yields or earnings growth rates.

I began working with a Financial Adviser at around this time. We started cautiously with a portfolio of mutual funds: mostly large cap North American stocks and some bonds. Then, around a year ago, we branched out and bought two stocks – Telus and TD Bank – which I consider to be my first actual investments. I was excited by being able to avoid the management expenses associated with mutual funds (2% every year!) and with the concept of dividends. Also, the stocks appreciated considerably and that success gave me the confidence to move away from mutual funds. By the end of 2010 my portfolio consisted of roughly equal values of the following securities.

  • TD Bank (TD.TO)
  • Telus (T.TO)
  • BHP-Billiton (BHP)
  • Manulife (MFC.TO)
  • SuperValu (SVU)
  • Canadian Oil Sands (COS.TO)
  • Enerplus (ERF.TO)
  • IBM (IBM)
  • Lithium ETF (LIT)
  • Indian Index ETF (INDY)

I also had roughly equal values in the following funds in my employer’s defined contribution plan.

  • TSX Index Fund
  • S&P Index Fund
  • Bond Fund

I’d prefer not to use these funds but my employer offers contribution matching (free money!). Also their MERs are low (<1%).

I was feeling pretty good about this portfolio. Then I read The Intelligent Investor by Benjamin Graham and everything changed.


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