Twelve Reasons For Not Investing/Taking Control

Being a bald guy, there aren't too many bald jokes I haven't heard.  I think I have a pretty good sense of humour, but after a while, even a funny joke starts to get old.  Likewise, I have been around long enough that there aren't too many reasons I haven't already heard from people who say they can't invest in the stock market, other than mutual funds.  Bald jokes I don't care about so much.  I do care about the reasons people feel they can't generate at least a little income by putting some of their money to work in the stock markets.  Here's a dozen, I will add more next time.

"I have my money in mutual funds, why change?"
There was a time when mutual funds made sense for the personal investor.  Today, Exchange Traded Funds (ETF's) are cheaper, and as such, can often outperform all but the best mutual fund.  Also, there is no penalty for selling an ETF, just a regular commission.

"No money!"
Ever see the Fram Oil Filter commercial - "You can either pay now, or pay a whole lot more later!"  Even a very small amount of money can grow to a reasonable amount given a sound strategy and the power of compounding.  Catching up later requires much, much more capital.

"You make things sound worse than they are - I am happy with the way things are!"
Expect higher taxes, more expensive health care, more volatility in the stock markets, slashes to pension funds, lower paying jobs.  I don't think people who have suffered the ill effects of any of these would say I am exaggerating.

"You are just putting others down!"
On the contrary.  Many people have done remarkably well, given the current environment.  That doesn't mean there isn't a better way.

"Clearly, you  have some sort of hidden agenda!"
I play with my hands above the table for all to see.  What you see is what you get.  I have no difficulty showing people what I do.  If nothing else, I want them to become more educated in dealing with the people who are after their money.  Anybody who knows me can tell you just that.

"What about ROI, or free cash flow, or company management, or preferred shares, or rental properties, or... ."
They are all important.  It is normal for newer ideas to raise all sorts of questions.  However, we want to focus, and concentrate on the things that determine our expected outcome.

"You can't live on the income from $5,000.00!"
The important thing is to start now.  I have yet to find "someday" on any calendar!
 
"I don't have enough money to do everything!"
It isn't this or that, it's both.  We should put a little money into other things, and use a little to learn how to improve the returns on our equity investments.  Once that begins to happen, we will find ourselves putting more money into the things that give the greatest return (those without exceptional risk).

"I'm not interested in a get rich quick scheme!"
Get rich quick schemes don't work.  Improving returns will not make us rich overnight, but it can make us more money in a shorter period of time.

"Why does it have to be all about making money!"
Money is only a unit of exchange.  More money means more time for friends, relatives, self, and others.  Few are truly motivated by money - usually, it's what we can do with the money that is most important.

"How can you say anyone can do it?"
Knowing what to do is one half of the solution.  People with a willingness to practice applying it is the other half.

"How can you/we possibly expect to do better than the professionals?"
Actually, the professionals are involved in an entirely different game than us, for a whole variety of reasons.  Few realize it, but our smaller size is our greatest advantage over the professionals.  Also, the internet has made available the tools and information which can benefit the personal investor like never before.

Do you see yourself in any of the above reasons for not getting more involved and taking greater control?

The New Investing Paradigm

Different Process; Different Result

Have you ever stopped to think why home-made bread tastes better than store-bought?  After all, it is the same basic recipe, so why the difference?  We know the ingredients are not exactly the same.  Store bread usually contains cheaper, lesser quality ingredients to save money, as well as preservatives to keep the bread from spoiling, and perhaps other ingredients to speed the bread-making process.  The process, itself, is different.  Most of us at home do not bake hundreds of loaves at a time.  While most kitchens have what is required to bake a loaf of bread, few vendors have the equipment to make all of the bread they sell.  There are good reasons their ingredients, and their processes are different from those we would follow at home.

Viva la Difference
Is institutional investing different from personal investing?  Should it be?  We are subject to so much marketing done by the industry that few people, I have met, see any difference.  The common questions I get are, "Why not give your money to the professionals?  How do you expect to do better when they have so much more in resources at their disposal?"

Ownership
One thing I know for sure, I am going to take a lot better care of my stuff than anybody else will, period.  That is especially true of my money.  We hear so many stories of people who have lost their whole life savings because of this person, or another.  Would it have happened if they could have taken a more active role in the process?  If made aware, most of us are going to put a stop to our losses at a point which is well before everything being gone. 

The Sales Game
Have you ever been to a new car dealership and hung around the smallest car on the showroom floor?  I can tell you there are few sales people who want to spend time with you since most are hoping to land the next big deal on the "super whatever" with all of the toys.  A financial plan tailor-made for us little people is basically the same one made just for everyone else like you and me.  Let's face it, you and I get to speak to the sales people, not the decision-makers.  The sales people are compensated for how much of our money they get us to hand over, not how much they, in turn, make for us.   

Size Matters
Does a multi-million dollar corporation use different financial controls than we would use for our family finances?  I would hope so.  Most of us can see that hiring a corporate accountant to manage our household books is more than just a little over-kill.  Does a whale have different feeding habits than a minnow?  Of course.  The mistake too many people make is in thinking that personal investing should follow the rules of the institutional investors.  Large institutions follow a "buy and hold" approach because they are at the mercy of their own size.  The bottom line is the sales people in the financial services industry promote buy and hold as the only alternative because they want the sale.  I know few sales people who are going to sell one thing, and promote something entirely different.

Setting Expectations
Institutional and personal investors seek a decent return on investment.  Until they lump a whole lot of smaller accounts into larger accounts, the big institutions can't afford us.  It is not cost-effective for them to treat every investment, and every account differently.  They want to make a good return, and earn a revenue stream from charging fees to cover as many of their expenses as they can.  They want us to believe normal returns are in the mid-single digits, that the game is terribly complicated, and also, that a huge investment of time and resources is necessary (to justify their fees).

A New Paradigm
I believe the investing paradigm is changing.  In the beginning, the game was entirely broker-centric.  The broker controlled the flow of information and money.  Everything was done through them.  Then, when the internet provided unprecedented access to information, the process became somewhat automated by the application of computer and networking technology.  The problem with today's model is bigger is less effective than smaller.  Too big to fail is an invention of the owners of the means of finance, meant to serve themselves and their wealthy clients.  Large industrial companies, and technology companies that grow too large in physical size can't withstand the pressure brought about by the application of technology to global markets.  You may be reading it here first, but I am saying a new future of personal investing is beginning with you and I, today.  We can outperform the large institutions if we don't try to beat them at their own game, and if we don't continue to blindly follow the rules they create for us.  We have the technology, we have control of our own money, we have access to all the tools, and we can learn to use and improve our own ability.  The last thing we should do is to want to be just like them.

"Buy and Hold" hasn't worked in the last decade.  I can't predict if market conditions are going to favour a buy and hold approach over the next couple of decades.  Are you willing to risk your future and take that chance?