The Closest You'll Get To A Sure Thing

Since I first moved to Toronto in 1986 and got my first job as a stock broker, I’ve seen a lot of the ugly underbelly of the Bay Street/Wall Street money machine beast.  I’ve also seen a lot of success and wealth created over the years. I’ve fought long and hard and have learned a lot of very important lessons both from keeping my eyes open and observing others and also from my own hard knocks and failures and losses.

Yes, I've had losses and I’ve made a ton of trading and investing mistakes just like everybody who has ever traded or invested has.

I bring all this up because this Easter, at a family function, I got a great question from a niece, a variation of the most common question I get from many new investors:  I am going to graduate this year and I've saved a few thousand dollars. How and in what should I invest it in?

Money and life is complex, and so is my answer.

If she was going to buy stocks with that money, I suggested she check out some of my current employer's top recommendations and buy a few shares of her favorite two or three from the model portfolio. Otherwise, she could also visit some of the larger financial institutions' websites for their picks.  Regardless of what stocks you buy and when you do it the first time, when you first start out investing and trading, you should be prepared for painful times and lessons which will cost you money and profits in your portfolio. You should consider upfront what you would do if you started putting that money to work and immediately saw it blow up.

I remember reading articles in Institutional Investor back in 2007 that quoted “professional” institutional brokers and salespeople explaining how they were selling “risk-free” securities that guaranteed 5% or more income. Within twelve months, those people's employers, the Morgan Stanleys, JPMs, and Goldmans of the world, needed trillions in new taxpayer support and bailouts because those “risk-free” assets weren’t.  In Canada, few people remember the ABCP fiasco (Do the words:  "Asset-Backed Commercial Paper" ring any bells?)

I also remember the time I was watching television and a speaker gave a presentation about his options trading formula and before he could get to the microphone, he screamed to the audience, “Forget everything else you heard today, if you follow my options trading plan, you’re guaranteed to make money and never lose.”

Don’t think anybody’s immune to huge losses and wipeouts. Even the Warren Buffett’s and other financiers/insiders of the moneyed world, who had hundreds of billions of dollars invested in the same TBTF (Too Big To Fail) banks that would have been wiped out and other assets that too would have been wiped out without all the “emergency measures” and welfare and bailouts and accounting changes that were made back in 2008 too, obviously can’t avoid mistakes too. Buffett’s big money has enabled him to spend the last few decades buying warrants, convertible debt and discounted equity directly from giant corporations in ways that retail investors can’t even fathom, much less get access to.

So think about all that even before buying a single share of any stock in any publicly-traded company. And before you pull any trigger and open up any stock account, I’d suggest asking yourself if that money might be better used in starting a new app company or website business that you have come up with and think could be a big winner. The experience of running a business and more to the point, the upside of betting on your own actions creating value rather than betting on other people at other companies ability to create value for you as a shareholder, is probably the best bet for your money at this age and stage of your life.

"You’re 18. You’ve got a whole career and a whole life ahead of you. Bet on yourself first. Stocks and other people can come later. And either way, understand that it will take a lot of time, perseverance and luck to make that few thousand dollars you’re looking to put to work in the stock market turn into something meaningful to your overall future income and investments."