Around the time of the stock market lows in March 2009, an acquaintance, who is in his mid-fifties, was chatting about the economy in general and, unsurprisingly, touched upon the market downturn. He asked about my investments and I mentioned that (since I was invested solely in stock index funds) I had a paper loss to report too. I mentioned that I am trying to learn about how the market works and analyze my stocks (not that I will ever become a trader; being an investor suits me just fine!).

His retort? “Oh, the best in business can’t pick winning stocks most of the time”. He paused and then went on “how are we (laypeople) supposed to know?”. His argument was that we should let the financial professionals manage our money and not think that we can do a decent job ourselves.

From our conversation, I learned that most of his retirement money is invested in stocks and mutual funds and so, he must have lost his share in the downturn. I do not know his exact paper loss but it could be substantial. If so, he has been ignorant enough to not have a fair share of his nest egg in conservative investments like bonds. Of course, if he had not sold during those lows, he would have been in safer territory now. In addition, he places too much faith on “the best in business”.

Now, I am not claiming to have unearthed a magical way to beat the market and its experts. The financial wizards of Wall (or Bay) Street maybe trailblazers but I’m not trying to carve a niche for thousands to follow. All I aim to do is to understand my investments. I’d prefer to learn – a little at a time – and be comfortable with my investments than trusting my cash to a mutual fund manager who will beat the market this year and possibly, lose the gains (and maybe, the principal too) in a few years’ time. If I turn out to be a damp squib in investing, I will live with the satisfaction that I tried and found my incompetence. Some people, like my acquaintance, don’t even want to try because, to them, it is a loser’s game.

Finally, it could just be that he was envious that a guy around half his age is making an effort to learn about and understand his investments. The baby boomer probably rues his lost chance and the regret manifests as discouragement to green DIY investors like me.

Make no mistake: I’m not going to understand value investing so well and follow Mr. Buffett into the annals of stock market history. But, is it illogical to trust one’s own judgment after gaining a fair share of knowledge? I’m sure you would have seen the qualities mentioned (in the title of the post) portrayed by people at different points of your life.

Have you had people rebuke your attempt to learn something (not necessarily investing) that most people leave to “expert brains”? Did you pay heed to their words of wisdom? If not, how did your attempt turn out?

Clark is a twenty-something Saskatchewan resident employed in the manufacturing sector. He repaid around $20,000 in student loans and has been working to build his investment portfolio as a DIY investor (not trader) while nurturing plans to retire early. He loves reading (and using the lessons learned) about personal finance, technology and minimalism, when the mood strikes – which happens everyday!

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  1. Houska on February 18, 2010 at 9:56 am

    I can’t know how the conversation felt, but to me it sounds more like the (classic) misunderstanding that investing means picking stocks to win.

    Your acquaintance is right that picking stocks to win is something even most pros aren’t good at. The part he’s missing is that there are other ways to invest, and that choosing well requires knowledge on topics like index investing, asset allocation, and where costs and fees accumulate in the system.

    It’s like saying you won’t learn to drive a car since even Gilles Villeneuve had trouble winning or since it requires a pro to back a tractor trailer into exactly the right place in the loading dock.

  2. andrewbpaterson on February 18, 2010 at 10:41 am

    Great post, Clark!
    I don’t normally read such long text-driven articles, but yours had me hooked the whole way through.
    Maybe that’s because I’m also a 20-something guy looking to DIY investments!

    I don’t think stock-picking is rocket science. I believe that emotions will kill you when it comes to that game.
    I say this, though, not out of experience but out of things I’ve read. I’ll let you know in 5-10 years – when I have a little more investing experience – if my thoughts have changed!

  3. 2 Cents @ Balance Junkie on February 18, 2010 at 11:36 am

    It’s great to see a young person taking the initiative to learn about investing. I think it’s important to understand how the stock and bond markets function whether you choose to use an advisor or not. Whether most advisors should be classified as “the best” at investing is another story.

    One thing I would add to your list of things to study is the effect of the big picture on your investing strategy. Macroeconomic issues can override the fundamentals of even the best companies.

  4. OTC on February 18, 2010 at 11:41 am

    Buy low sell high, its easy ;)

    What does no one want right now, houses. good investment. oil, ok investment-has moved up some. the big talk: gold, bad investment.

    AT these prices. When everyone is talking about something, play contrarian, it usually means the laymen are all getting in and the big money is getting out. I also like the dollar down at the lows.

  5. OTC on February 18, 2010 at 11:43 am

    Recently gold made highs, avoid that. Dollar made lows as is housing, start looking there. Oil made lows but it was a while back. Look there.
    Don’t look at business or tech until near the election right now growth is worried about the government.

    Had trouble adding to this blog, hopefully I don’t add 2.

  6. Canadian Money Advisor on February 18, 2010 at 11:55 am

    It could be an age thing.. it could be that your friend just isn’t in to money. or both.

    I agree… if you’re going to have your assets invested in something, you should understand what that something is… period… otherwise you’ll constantly worry about the unknown…

  7. Paddlacus on February 18, 2010 at 12:00 pm

    There is something about money that makes some people just shut off. I recently went through a similar situation with my parents. They have never had much money and consequently didn’t know how to handle it. I learned from them and until recently was equally ignorant. A few years ago I got on a plan to pay off my loans and start investing. After the getting out of debt part was finished, I started reading about investing. I knew nothing and was a bit scared. I read about 10-12 books on the subject (all on the theme of ‘don’t beat the market, just match it with low-cost mutual funds or ETF’s and have good asset allocation’).

    After reading these I found I can have intelligent conversations with people at the bank, my friend who works with securities, and, most importantly, my parents.

    When they inherited a large sum of money recently they were overwhelmed. They are both incredibly smart people but both admitted to being stunned by how complicated all decisions were with relation to this money. After speaking to several bank people and myself (who explained more thoroughly what the bank people had said about their offerings), my parents made a decision they feel comfortable with.

    I’ll say again that there is something particular about MONEY that makes many people shut off completely. Either fear or previous bad information or something, many just don’t want to think about it. If I and especially my parents could get educated in a reasonably short period of time, this seems evidence to me that it is never a bad thing to learn on your own, to educate yourself on a topic, and to make decisions.

    At the very least, if you’re going to trust an expert, educate yourself enough to know the right questions to ask and to understand the answers. Even people with the best intentions are seeing their version of helping more through their lens and range of experience than yours.

  8. Ben on February 18, 2010 at 12:47 pm

    Remember what all the “expert brains” did to the entire world economy a while back. I wonder if we will ever fully recover. Unfortunately, they often have their own self interest at heart instead of their client’s good fortune.

    In my opinion, you are on the right track, Clark. Take your time, continue your reading and learning. Stick with the exchange traded funds and pay attention to building a well diversified portfolio. (Cash, bonds and equities all deserve to be part of your holdings).

  9. Steve on February 18, 2010 at 1:32 pm

    This was a well written, concise blog of appropriate length for MDJ readers.

  10. bobby on February 18, 2010 at 1:43 pm

    If one doesn’t even bother to look into financial statements and doing rudimentary FSA, they should not even bother picking individual stocks.

  11. abcstocks on February 18, 2010 at 2:57 pm

    Good post !!!

    I am in my 30s, currently invested in business, stocks and real estate. Real estate portion is very small because stock market attracts me more. I am not sure which category I fall either trader or investor but since I started with stock markets in last 6 years I have experienced once a life downward and upward swings as a newbie in market. Did I made best out of it ? probably not..but very happy with returns overall. I have penny stocks, US and Canadian stocks, ETFs all sort of investment, but it took a long journey and lost good moeny when I learn my safe zone. Investment or trading, everyone has a unique style and if you can find your comfort risk profile and keep emotions out, making money becomes a little easier.

  12. Stefan Alexander on February 18, 2010 at 3:04 pm

    Interesting post.

    You said:

    “If so, he has been ignorant enough to not have a fair share of his nest egg in conservative investments like bonds.”

    I’m interested in what you think of Ed Rempel’s recent article on this site, where he compares the long-term return of stocks vs. bonds (and other investments too), and stocks come out ahead. I’m not convinced it’s ignorant to not invest in bonds…

  13. Clark (The Guest Blogger) on February 18, 2010 at 4:35 pm

    Thanks for all the comments and words of encouragement.

    @Houska: Well said, especially the car analogy.

    @Andrew B Paterson: Yes, it’s more mind than math – from learning knowledge and not from experience!

    @Paddlacus: Precisely! Even with an advisor, one needs the knowledge to know the questions to ask, grasp the answers offered and (hopefully) check to see whose interests are being addressed.

    @Bobby: If one doesn’t have the time to go through financial statements, they are better off with an advisor. But, I hope they will have time to inquire (before a crash preferably) where their money is being invested!

    @Stefan Alexander: Good question! It comes down to two things – when exactly the money is needed and faith in a recovery. Yes, I agree with Ed Rempel that bonds and cash will lose to inflation. But, is a person nearing retirement willing to face the swings of the market?

    It simply comes down to luck of the draw: say, I trust in the market and have 90% of my portfolio in stocks while planning to retire in two years. If there is a crash in the second year, I’ll have to work longer (assuming I have a job in that economy) and spend sleepless nights wishing for a speedy market recovery (it will happen but when?). If there is no crash, then yes, your view of having a fair share in stocks will be validated.

    So, who is going to “correctly predict” the market situation during each individual’s retirement year? Invariably, people will retire every year and someone will be part of each market (bull and bear). It is a matter of saying “I’m happy with the returns I’ve got from the stock market and I’ll go for safety of the principal during my near-retirement years.” If one enjoys plans being pulverized, especially at that age (say, even 50-55), then by all means, Stocks It Is!

  14. mojo30 on February 18, 2010 at 10:10 pm

    There are only a couple of portfolio managers that I would allow near my money and unfortunately I dont have the $1mil required to deal with them. Most advisors are out for their own interest and nothing more.

    I invest myself and do quite well, up to this point I never missed having an advisor.

  15. Amit Kalia on February 18, 2010 at 11:12 pm


    Keep it up Clark, kudos for the good work and thank you for sharing your views on this blog. Just yesterday, I was having a similar conversation with my financial advisor, who was not happy that I went DIY route for some of my ETFs that he cannot offer.

    With so much quality information available on blogs like MDJ and many others out there, I see no reason why some DIY investors won’t do well, as long as they have the right attitude and discipline, do not sell in panic or buy when markets are at the top. It makes more sense when ones goal is to not beat the market but to get above average returns.

    @ Paddlacus and Ben- Well said. Good advice.

  16. Leo on February 20, 2010 at 3:35 am

    Ignore what others tell you.

    Seriously. Regardless of whether you think it’s good or bad.
    Interpret what others say, but in the end ignore it and go with your own judgement. Really, unless he has an 8% yoy for the last decade why even talk to him about his investments much less what he thinks, especially if he’s booking a loss.

    Stubbornly stick with your objectives, and own the end result.

    Exception (to this, and every rule for that matter): Warren Buffet et al. who have proven and have walked the walk.

    Post 14 Mojo30 makes sense. Buffet makes sense. And for fun the guy (don’t know who this guy is) who said investing is like holding a golf ball in one hand and tennis ball in the other and watching the bounce differentials like betas for respective markets made sense.

    But don’t take my advice.

  17. Ivar Sala on March 16, 2010 at 7:34 pm

    To my knowledge about 75% of fund managers won’t “beat the market” (e.g the S&P) in the long run.

    I still think that the best option is to become a trader and manage your own money. The best “brains” out there don’t always have very good results (for example Long-Term Capital Management went belly up although it had 2 Nobel Prize winners on its team).

    PS:Clark, I hope you’re not a buy-and-hope investor. Always use stops and know your exact exit criteria before placing a trade or making an investment. Even if you’re a long-term investor.

    PPS: If it weren’t for the government bailouts, Warren Buffet would also be out of business.

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