Investing in the Future

Time to think about the future

So the time has come for me to start thinking about my financial future.

What A Pain.

For the past while, I’ve been having a part of my paycheque diverted into an RRSP savings account. The time has come to start putting it into tangible investments since it’s reached a certain size and the interest in a savings account isn’t going to compound quickly enough.

There are so many ways to invest. Stocks, bonds, mutual funds, index funds, real estate, precious metals…I’m young and make a decent salary, want to buy a place soon, and still travel. Like everybody else on this rock, I want everything.

Investing is one thing I want to be ahead of the curve, though. Everybody else has been to places in the world or whatnot, but nobody ever really plans for their financial future soon enough, but at the ripe old age of 24 I’m going to completely jump into it.

And oh my god, does everybody have an opinion on this. I’ve heard so much “advice,” but I’m leaning towards the Benjamin Graham school of thought (it’s what Warren Buffet follows). It essentially boils down to the base valuations of companies and that there is a certain “sweet spot” and that you have to determine if a company is over/undervalued the same way you would anything else. Would you pay $10 for a bag of chips? Why or why not? You may if you’re really hungry at a truck stop in the middle of nowhere, but you know there are better deals for things elsewhere.

The problem with the stock market is that people buy into it only to get rich. There’s so much greed and emotion that people speculate tend to follow instead of think, because in the end the market always wins. Always.

You have to look at the fundamentals of a company such as cash flow, the nature of the business (is it seasonal, etc), industry, debt, liquidity, growth (too much can be just as bad), is the accounting simple and straightforward or overly complex that you can’t easily see where money is coming and going, deviations in earnings, etc. Then you compare the various ratio stats against industry averages and determine if the company is properly valued.

The problems come with speculators. These people try to see short term or irrational movements of the market and try to buy in or bail on those “instincts.” If a company’s share starts to rise, they try to buy in, but often have already missed the market correction that caused the share price to rise in the first place.

People who only buy stocks because they keep going up are going to get burned because they’re only adding to the correction that the market will force upon them later. Large scale examples of this is what bubbles are. Warren Buffet, the worlds second richest man and the most successful investor ever, was mocked and written off many times because he simply refused to invest much money into technology stocks (following mostly his instincts in not investing in something you don’t understand on top of seeing their insane valuations). The joke was on him a mere half decade later.

I’m going to comment more over time on my investing endeavors in this blog. I won’t comment often due to the fact that I won’t know if I’m doing the right things for at least 5 years, but I’ll try and be often enough so that I can document lessons I’ve learned as well as hopefully show others.