My Investing History
It has been a long journey from my first investing decision.
I have gone through stockbrokers and Investment Advisors, from a full-service brokerage to direct investing, made more good decisions than bad and developed a process to reduce the risk of investing. I have learned a lot from past experiences, investing books and other individuals. If you read this, I hope you can learn from my experiences and are able to avoid the errors I made. If you make any of the errors I made, or some all on your own, consider them as ‘tuition’ as you learn about investing.
Chapter 1: That sounds good, I’ll buy it
The first investment decision I made was one of my costliest. Not that I lost actual cash, rather, I could have made a lot more money. In 1991 I had saved up $3,000 and was looking to invest it in the stock market. My choice was between this small technology company and Trimark Mutual Funds (at that time a large Canadian family of funds). I chose 3 Trimark mutual funds. Thirty years later that small technology company is one of the largest companies in the world – Microsoft. Trimark, on the other hand, was taken over by another company. Sigh!
In my defense, buying and selling stocks was a wee bit different than it is today. Shares were typically bought and sold in 100 increments, called a board lot (100 shares = 1 board lot); it is a bit hazy, but I think there was a premium for not buying a full board lot; transactions were done via a phone call to a stockbroker; and each transaction typically cost $50.
Keep in mind, Microsoft was not the trillion-dollar company it is now, with a dominant position in computer operating systems, office productivity tools and numerous cloud-based offerings. Microsoft shares were in the USD $60 range, so it would have cost me $6,000, plus exchange, plus commission. Trimark was considered one of the better mutual funds in 1991, I could purchase $3,000 worth with no commission thanks to the funds being back end loaded (the commission declined to $0 if you held it for several years); and I could invest a fixed amount of money each month (dollar cost averaging). At that time, the mutual funds seemed like the better option but in hindsight I kick myself for not choosing Microsoft.
My next purchase a few years later was a company that no longer exists – Novell Networks. If you were in the IT industry during the 1990s you have heard of Novell. For those who were not, it was the dominant network operating system at that time. This was also before the internet was commercially available.
My decision to buy was based on it being a market leader and the shares were cheap enough that I could buy a full board lot (I think it was ~ USD$ 11/share). That was the extent of my research. A few years later the share price had not done anything, and Microsoft was getting all the buzz and attention, so I decided to sell. I recall the share price was a bit lower than what I paid for it but because the Canadian dollar had fallen against the US dollar, I actually made a few bucks.
My final investment was based on a tip on a penny stock (what could go wrong). Nothing went wrong but nothing happened either. When I sold it a few years later I essentially broke even.
Another missed opportunity was not an actual investment, but something I should have done as sooner rather than later (but I was young and knew better 😊). My employer had a pension plan that you could join immediately but you had to join after 3 years employment. After my 3-year anniversary I was automatically enrolled in the pension plan. I did not investigate it at all but found out years later the organization was putting in $2 for every $1 I put in the pension plan. Not too many places give you $2 for each dollar you contribute, and I missed out on 3 years. ☹
So ended my first phase of investing. I had a few mutual funds that I was contributing to monthly (utilizing dollar cost averaging); I had not lost any money through direct investing in companies in the markets (via a stockbroker); and I was enrolled in the organization’s pension plan.
Chapter 2: Look for market leader with price trending up
In the late 1990s I opened a direct investing account. Most of the Canadian banks were starting up an online version of their investing arms and they were eager to sign people up for their new offerings. As direct online trading was just beginning there was not a lot of information on the various online direct trading companies, but I had heard good things about TD Waterhouse (TDW) and a friend worked at TDW, so I opened a TDW account. There was no sign-up fee, no minimum dollar relationship with TD (I had no relationship with TD), just a few ‘Know your client’ type questions and I was good to go. Oh yeah, because I had no TD bank accounts, I had to go to a TD branch and deposit a cheque directly into my TDW investment account before I could buy stocks.
After making an initial deposit I was in business. I cannot remember the first company I invested in, but I am sure it was an Information Technology (IT) company since I worked in the IT industry, and they were the companies I knew and understood. After a few months, TDW asked if I wanted a margin account instead of my cash account. I figured I might as well get it since it might be harder to get down the road. To this day, I have never used margin to invest in any company.
Side note: Margin accounts can get you in a lot of trouble if you do not know what you are doing. Great if the share price goes up but if it goes down, the amount you borrowed you still must pay back in full.
With the TDW account I invested in companies I was familiar with while with my stockbroker I invested in companies that typically traded for less than $5.00. Transaction fees at TDW were $9.99 while at the brokerage house they were a percent of the purchase or sale, typically $50+ but always greater than $9.99. I did not do much business with my broker because of the transactions fees and his focus was on resource companies. Since I knew nothing about resource companies, I relied on him to have done the due diligence and make good recommendations, so I did not mind him getting the higher fees.
While I was having some success investing in companies through TDW, my parents decided to open their own TDW investing accounts. I helped get them get set up online, provided some companies to consider and managed my mother’s account.
Being in the IT sector was a good place to be during the internet boom. My employer was a testing ground for a few of the big tech companies (Cisco, Nortel, Bay Networks) as well as for testing innovative technologies, like wireless networking. One day I saw two colleagues pushing around a cart with a wireless router to evaluate its capabilities. The product was from a company called Aironet.
When I heard Aironet was going public I was able to get shares at the IPO price (USD$ 20) through my broker. About a year later Cisco bought Aironet for USD $72/share (to this day, Aironet products are still sold by Cisco). A few months later, Research In Motion (RIM, aka Blackberry) planned to go public. An hour before the markets opened, my broker was able to obtain RIM shares at the IPO price. When the market opened the price of RIM shares skyrocketed. My broker sold the shares immediately and within 30 minutes I had doubled my investment. Not bad for 30 minutes work.
You might think I had the magic touch when it came to investing in tech companies, but you would be wrong. Because I had no system or process for performing due diligence I went by the name and trend of the share price. I got overconfident (mistook brains for the bull market) thanks to big wins in Aironet, and RIM and the internet boom. It was like shooting fish in a barrel, but I started to think it was skill as opposed to being in the right place at the right time.
I invested in big networking companies like JDS Uniphase, Global Crossing, Charter Communications, and others. These were leading companies in the networking industry that all have one thing in common – there share price tanked. JDS dropped from a high of USD $153 to $2; Global Crossing filed for bankruptcy in 2002; and Charter filed for bankruptcy in 2009, allowing it to cancel its obligations to shareholders. Once the bankruptcy was finalized, all of us shareholders were left with worthless shares.
Side note: The same day Charter’s bankruptcy plan was approved, Charter came out of bankruptcy, leaving shareholders with nothing. There is nothing like seeing the company that left you high and dry, came out of bankruptcy and issue new shares that are currently trading for USD $670.00 as of November 2021.
In 2000 I happened upon an interesting newsletter from two brothers going under the name Motley Fool. My big takeaway from their newsletter was select dominant market leaders and hold them for the long term. With that in mind I went to more established companies such as Microsoft, Intel, Cisco, Coca Cola, and Disney. A colleague suggested Apple, but I was not an Apple fan, and it was not the dominant company it is now, so I passed (in hindsight, another brilliant decision, like choosing Trimark mutual funds over Microsoft).
As the 21st century started, I changed jobs to get more business management experience; 9/11 happened; the Internet bubble popped; and life happened. I mostly stayed out of direct investing, leaving the companies to grow on their own. When I changed jobs, I took my pension with me in the form of a Locked-in RRSP (LRSP) and entrusted it to my stockbroker. That did not work out so well as he bought and sold (churned) small resource stocks which eventually cut my LRSP in half. His suggestions seemed like promising ideas at the time, but they generated more in commissions than they did in profits. I put a stop to that and did not invest in another company until the financial crises of 2008 when I invested in a bank stock (classic buy low) figuring Canadian banks always make money so they would rebound. Turns out I was right. 😊 After that I sold a few stocks for various purposes, but all was quiet on the investing front as life unfolded.
To summarize my second foray into the markets, I had an online direct trading account as well as a stockbroker. Whereas phase 1 of my investing strategy was simply “that company sounds good, its share price is trending up”, after phase 2 my strategy had evolved to:
- Invest in companies I was familiar with (no resource companies).
- Mid to large cap companies (no penny stocks).
- Share price had upward momentum.
In hindsight, it was not much better than my phase 1 strategy, but I learned some valuable lessons, a few the hard way (which I now consider tuition).
Chapter 3: A new beginning
In 2015, life had happened, and I found myself in a precarious position – my assets = my liabilities, I was barely making enough money to pay my bills and prospects did not look great. I had moved my Registered Retirement Savings Plan (RRSP) and LRSP from my stockbroker’s firm to CIBC Wood Gundy. The remaining cash in the LRSP was invested in a growth oriented mutual fund and my regular RSP had the bank stock and $2,500 in cash. My TDW account had a few penny stocks in it but less than $500.
In late 2015 I came across an ad from Motley Fool Canada talking about a small tech company from eastern Ontario. I asked a web developer friend and he said Shopify. I went to Shopify’s website to learn more about them and came away feeling they had a good chance of changing the way e-commerce sites were developed. I called my financial advisor at Wood Gundy and had him buy as many shares as possible with the cash in my RRSP. And so began my third foray into the markets.
Shopify has done Ok for me. 😊 In 2017 I started managing my mother’s TDW account for her and while no home run picks like Shopify, it has grown nicely. I managed to save some money and added a few more companies to my portfolio. I also subscribed to Motley Fool Canada’s Stock Advisor and later their Hidden Gems (small cap companies) service as their philosophy of investing in good companies for the long term resonated with me.
In 2019, seeing that both portfolios were doing well, my father asked me to manage his entire portfolio which was in a TDW account (that is how I came to manage three portfolios). At this time, my investment process was to investigate companies identified by Motley Fool Canada, had upward share price momentum, were dominant in their industry or were an up and comer in a new industry, such as digital advertising. My due diligence was limited, I largely relied on Motley Fool recommendations, especially for companies outside the technology sector (my sphere of knowledge) when I was trying to diversify the portfolios.
I transferred my Tax Free Savings Account (TFSA) account at my financial institution over to my TDW TFSA and late in 2019 I transferred my RRSP and LRSP from Wood Gundy into my TDW account. My TDW account now contains all my investment accounts: margin, TFSA, RRSP and LRSP. I sold the mutual fund in the LRSP, figuring I could beat a mutual fund’s returns, and invested in four companies (so far, I am). Sometime in 2019, TDW rebranded itself as TD Direct Investing (TDDI).
In January 2020 I signed up for a US Motley Fool Stock Advisor subscription to get more timely information on companies listed on the US exchanges. Motley Fool Canada does have US recommendations, but they are primarily, and properly, focused on the Canadian markets. A lot of the companies I was interested in were technology companies that traded on the US exchanges, so this subscription opened a whole new world of opportunities.
A few months later the markets collapsed with the onset of the Covid-19 pandemic. It was a big gulp moment when I saw the markets had dropped by more than 40% in 1 week and all the portfolios were down significantly. My first thought was to sell but I realized that would be the classic mistake of selling low, so I did nothing.
By sheer coincidence I had sold shares in a company to balance one of the portfolios about 2 weeks before the markets collapsed. With the entire stock market down, it was a great time to have cash. 😊 There were so many opportunities that it was hard for me to identify the best ones. I decided I needed a repeatable process to filter up the best companies. With the help of Rob, the web guy (how do you want to be known), the process has evolved into a 4-step process. A key part of the process involves a checklist adapted for the type of companies I am looking for (Technology companies, or technology in sheep’s clothing companies, growth). Using this checklist, I took advantage of the stock market crash to invest in over a dozen companies throughout the year. I have refined the checklist so I am familiar with a prospective company’s: customers, products, management, culture, competition, trends, tailwinds it can ride, and the relevant financial numbers. The numbers are the last thing I look at. If I lose interest while learning about a company, I do not bother with the numbers.
While risk cannot be eliminated, having a reliable process has reduced the risk to the point where I do not panic when the market plunges. I run all companies, from mega cap to micro-cap, through the system and if I decide to invest in the company, I feel I am becoming a part owner (granted an exceedingly small part), rather than a buyer of shares. That shift in mindset has helped me to focus on the company, not the share price. As the company grows, the share price will follow. Assuming nothing has changed with the company, I no longer worry about short term share price movements because I understand the company.
One final note, I recently learned that to beat the S&P 500 Index (my initial goal), someone must underperform that Index by the same amount I outperform it. In other words, for everyone who outperforms the Index there must be an equal number who underperform the Index for the Index to be an average. Given all the financial professionals, money managers, fund managers and other amateur investors out there, it is extremely hard to beat the Index year after year. In the past, I might have put my success to skill but given all the resource available to the professionals I think a fair amount of luck has been involved.
With that realization I asked myself, “if it’s that hard to consistently beat the S&P500, why try when I could buy an Index fund and be guaranteed slightly less than the Index (Index minus a small management fee) without all the work and stress?” I decided it is because I enjoy doing the work that is required to identify and then become an owner of great companies. And I have the time. 😊
So now you know how I got started in the world of investing and some of the highs and low I experienced along the way. I am sure the rollercoaster ride will continue as I start the next chapter of my investing journey.
To be continued …… 😊