A growing number of Investors like buying Stocks without a Broker because they’re able to avoid possible Conflicts of Interest and Save on Broker Fees. However, it’s especially important to know what to Buy if you’re not using a Broker
Many investors assume their broker is honest and has their best interests at heart; if this proves to be untrue, they will shop for better stock trading advice from a new broker. Of course, many investors decide on buying stocks without a broker. That can be a successful strategy if you choose the best options for your investment temperament—using our Successful Investor approach.
Buying stocks without a broker: Why it might be a smart move for some investors
As any good stock broker or experienced investor can tell you, bad brokers are all too common. By “bad brokers,” we mean those who put their own interests above that of their clients. Keep in mind, however, that most bad brokers do this in a perfectly legal fashion, by catering to their clients’ whims and weaknesses.
Here are three main practices that bad stock brokers often practice:
Aiming for stability rather than growth
Double dipping
Stressing low-risk, low-return, high-fee structured products in client accounts
Additionally, you may have noticed that your broker sometimes uses unfamiliar words and phrases to describe investment concepts. Some of this stock broker jargon is simply shorthand that brokers use among themselves, to refer to familiar situations without having to go into any detail on the underlying concept. However, the concepts that these “broker-ese” words and phrases represent also serve to further the goals of the brokerage business.
If you find yourself thinking in broker-ese, you’ll naturally make assumptions that are in tune with the goals of your broker. They may be out of tune with yours.
Here’s one example: from time to time, your broker may advise you to sell a particular stock you own because it represents “dead money.” This doesn’t mean there’s anything wrong with the stock, or the company. Instead, your broker simply thinks the stock may only go sideways for a period of months or longer, producing no capital gains for you. So they naturally feel you should sell it and buy something with better short-term capital-gains potential. Continue Reading…
Many of us are familiar with the benefits of investing. Whether you’re looking to save for retirement, earn money in the stock market, or achieve some other financial goal, investing — when done well — can help you build your financial future. But if you’re not professionally trained in the stock market, starting out can be daunting.
Whatever the reason someone has for dipping their toes in the investing waters, starting out can be daunting. There’s a lot of math involved, tricky rules, and an entire lexicon of investing terms to remember. Those who are not scared away may be wondering where to start.
Despite these fears and uncertainties, though, leaping off the investing cliff can help build a foundation toward financial freedom. Here are five tips for new investors looking to get started in the stock market.
1. Set an Investment Budget
It can help to make investment contributions part of a normal household budget. By setting aside a predetermined amount of funds to funnel into investment accounts each month or pay period, one can rest assured that their accounts are being regularly funded, even as the market rises and falls. A good investment goal is typically between 10% to 15% of your income. If one is enrolled in an employer sponsored retirement plan, their match counts towards that percentage goal.
2. Start Investing as Early as Possible
Finances can be tight when someone is just beginning to invest, even with a job that pays their bills. However, once you’re able to allocate a portion of your monthly income to investing in the stock market, it’s beneficial to start investing as soon as possible.
The earlier one begins to invest, the longer they can allow compound interest to accumulate. Compound interest is how your investments grow. For example, if you have an account that pays 1% interest per year and you deposit $1,000 into that account, you would earn $10 on that money in one year. Average rates of return can fluctuate year by year, so make sure that you check out the rate of return on any stock or money market account you may be interested in.
3. Learn Basic Investing Terminology
While those just beginning to invest don’t need to know everything off the bat, there are a few terms they will need to familiarize themselves with to help them make smart investment decisions. For example, what is a money market account, anyway? How about an IRA? Continue Reading…
From one of my favourite blogs and podcasts to listen to (Farnam Street), I recently read a few lines about today-self and tomorrow-self that offered up some reflection.
In a nutshell:
“There is a constant battle in all of us between our today-self and our tomorrow-self.”
Today-self tends to care about today … looking for immediate gratification or in some cases, avoiding doing things today that can be done tomorrow. Very child-like.
Tomorrow-self is like our inner adult, who has the knowledge and experience that it takes time to get meaningful results. That could be working on things like your career, your relationships or your financial independence journey.
From the Farnam post:
“Imagine you are tasked with building a brick wall. Today-self looks at the empty space in disbelief, discouraged at the size of the project. Today-self decides to start tomorrow. Only tomorrow never comes because the empty space again seems insurmountable. Today-self decides to talk about the wall they’re going to build, as if it were the same as building the wall. It’s not.
Tomorrow-self knows that no one builds a wall all at once. It’s going to take a month of consistent effort from the time you start before it’s done. Tomorrow-self wishes you’d stop thinking about the wall and focus on one brick.”
How true.
So, as so many sayings tend to go related to behavioural psychology for any sort of success:
think BIG, act small.
Life is complex. Life is very uncertain. We can be easily and often overwhelmed by the magnitude of things and things to do.
At the end of the day, while we need to have our long-term brick wall in mind, we should just focus on one or two bricks each day. Do some of the smallest things well that move you forward. Then repeat. The logic is simple but not simplistic.
From The Behavior Gap:
The wisdom of tomorrow-self is this: Focus on one thing you can do today to make tomorrow easier. Repeat.
Real-Return Bonds Pay A Return Adjusted For Inflation. But When You Buy A Real-Return Bond, You Are Only Protecting Yourself Against Unanticipated Rises In Inflation.
Real-return bonds pay you a rate of return that’s adjusted for inflation, but that’s not always as promising as it seems.
When a real-return bond is issued, the level of the consumer price index (CPI) on that date is applied to the bond. After that, both the principal and interest payments are typically adjusted every six months, upwards or downwards from that base level, to compensate for a rise or fall in the CPI. In general, Government of Canada real-return bonds pay interest semi-annually, on June 1 and December 1.
Look at this theoretical example to understand how a real-return bond works
The Bank of Canada issues $400 million of 30-year bonds maturing on December 1, 2049. The bonds have a coupon, or interest rate, of 2%.
If after six months from the date of issue, the new CPI level is, say, 1% above the level of the CPI on the issue date, then each $1,000 of bond principal is adjusted to $1,010 of bond principal ($1,000 x 1.01). The semi-annual interest payment is then $10.10 ($1,010 x 2% / 2).
If after 12 months, the level is 2% higher, then the bond principal is adjusted to $1,020 ($1,000 x 1.02), and the interest payment rises to $10.20 ($1,020 x 2% / 2).
Consider these three important factors to realize benefits with real-return bonds
The price you pay for real-return bonds reflects the anticipated rate of inflation. In other words, if investors feel that inflation will rise 2% over the long term, the price of the bond will reflect that future inflation increase and its effect on the bond’s principal and interest payments. So, when you buy a real-return bond, you are only protecting yourself against unanticipated rises in inflation.
When the inflation rate falls over a six-month period, the principal and interest payments of a real-return bond fall. In times of deflation, the inflation rate turns negative. In a prolonged period of deflation, the principal of a real-return bond could fall below the purchase price. Interest payments would fall, as well.
As with regular bonds, holders of real-return bonds must pay tax on interest payments at the same rate as ordinary income. That income gets taxed at the investor’s marginal rate. In addition, holders of real-return bonds must also report the amount by which the inflation-adjusted principal rises each year, as interest income, even though you won’t receive that amount until the bond matures. That amount is added to the bond’s adjusted cost base.
Investment guru Howard Marks is the founder and co-chairman of Oaktree Capital Management, the world’s largest investor in distressed securities. Since launching Oaktree in 1995, his funds have produced long-term annualized returns of 19%. According to Warren Buffett, “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.”
As indicated by the title of his book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor, Marks believes that “the most important thing is being attentive to cycles.” In particular, he discusses the importance of knowing where we stand in various cycles. He contends that most great investors have an exceptional sense for how cycles work and where in the cycle markets stand at any given time. Lastly, Marks insists that investors who disregard cycles are bound to suffer serious consequences.
We live in a World of Relativism
There is a great saying about being chased by a bear, which states “You don’t have to run faster than the bear to get away. You just have to run faster than the guy next to you.”
In the context of investing, outperformance does not necessitate perfection. Success doesn’t come from always being right, but rather from being right more often than others (or from being wrong less often). Whether picking individual stocks or tilting your portfolio more aggressively or defensively, you don’t need to be right 100% of the time; you just need to be right more than others, which by definition leads to outperformance over the long-term. To this end, we have outlined some of our favorite concepts and themes which serve as guideposts for achieving this goal.
It’s all about Fear and Greed: Valuation just goes along for the Ride
The factors that drive bull and bear markets, bubbles and busts are too plentiful to enumerate. The simple fact is that more than any other factor, it is the ups and downs of human psychology that are responsible for changes in the investment environment. Most excesses on the upside and the inevitable reactions to the downside are caused by exaggerated swings in psychology.
Many investors fail to reach appropriate conclusions due to their tendencies to assess the world with emotion rather than objectivity. Sometimes they only pay attention to positive events while ignoring negative ones, and sometimes the opposite is true. It is also common for investors to switch from viewing the very same events in a positive light to a negative one within the span of only a few days (or vice-versa). Perhaps most importantly, their perceptions are rarely balanced.
One of the most time-honored market adages states that markets fluctuate between greed and fear. Marks adds an important nuance to this notion, asserting that “It didn’t take long for me to realize that often the market is driven by greed or fear. Either the fearful or greedy predominate, and they move the market dramatically.” He adds:
Investor psychology seems to spend much more time at the extremes than it does at a happy medium. In the real world, things generally fluctuate between pretty good and not so hot. But in the world of investing, perception often swings from flawless to hopeless. In good times, we hear most people say, “Risk? What risk? I don’t see much that could go wrong: look how well things have been going. And anyway, risk is my friend – the more risk I take, the more money I’m likely to make.” Then, in bad times, they switch to something simpler: “I don’t care if I never make another penny in the market; I just don’t want to lose any more. Get me out!” Buy before you miss out gets replaced by sell before it goes to zero.
Without a doubt, valuations matter. Historically, when valuations have stood at nosebleed levels, it has been only a matter of time before misery ensued. Conversely, when assets have declined to the point where valuations were compelling, strong returns soon followed. But it is important to distinguish cause from effect. Extreme valuations (either cheap or rich) that portend bull and bear markets are themselves the result of extremes in investor psychology. Importantly, human emotions are both fickle and impossible to precisely measure. Noted physicist and Nobel Prize winner Richard Feynman articulately encapsulated this fact, stating “Imagine how much harder physics would be if electrons had feelings!”
Amnesia: The Great Enabler of Market Cycles
Another contributor to irrational investment decisions, and by extension market cycles, is the seemingly inevitable tendency of investors to engage in Groundhog Day-like behavior, forgetting the lessons of the past and suffering the inevitable consequences as a result. According to famed economist John Kenneth Galbraith, “Extreme brevity of financial memory” keeps market participants from recognizing the recurring nature of cycles, and thus their inevitability. In his book, A Short History of Financial Euphoria, he states:
When the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely self-confident generation as a brilliantly innovative discovery in the financial and larger economic world. There can be few fields of human endeavor in which history counts for so little as the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.
Average and Normal: Not the same thing
In many ways markets resemble the swinging pendulum of a clock, which on average lies at its midpoint yet spends very little time there. Rather, it spends the vast majority of the time at varying distances to either the right or left of center. In a similar vein, most people would be surprised by both the frequency and magnitude by which stocks can deviate from their average performance, as indicated by the table below.
S&P 500 Index: Deviation from Long-Term Average (1972-2021)
Over the past 50 years, the average annual return of the S&P 500 Index has been 12.6%. The Index fell within +/- 2% of this number in only three of these years, within +/- 5% in only nine, and within +/- 10% in 22 (still less than half the time). Lastly, the index posted a calendar year return of +/- 20% of its long-term average return in nine of the past 50 years (18% of the time).
Also, when a pendulum swings back from the far left or right, it never stops at the midpoint, but continues to the opposite extreme. Similarly, markets rarely shift from being either overpriced or underpriced to fairly priced. Instead, they typically touch equilibrium only briefly before snowballing sentiment and resulting momentum cause a progression to the opposite extreme. Continue Reading…
Posted By 
A growing number of Investors like buying Stocks without a Broker because they’re able to avoid possible Conflicts of Interest and Save on Broker Fees. However, it’s especially important to know what to Buy if you’re not using a Broker
Posted By 
