Part of the joy that comes with running this blog is the opportunity to meet and share personal finance and investing perspectives with folks I wouldn’t have normally gotten to know. Andrew Hallam is one of those individuals.
I’ve been a fan of Andrew’s for a long time. I followed his blog (and continue to do so) long before my praise about Millionaire Teacher was published on my site. This book in particular opened my eyes to the world of indexing and how following some simple financial rules can be your keys to financial freedom.
I recently got a chance to catch up with Andrew to get his thoughts about the current state of the stock market, his current investment strategy, what he thinks about my investment approach, his advice to Gen X and Millennials, and much more.
Andrew, what can I say, thanks for doing this, great to chat catch up after a couple of years.
It’s been some time since Millionaire Teacher – The Nine Rules of Wealth You Should Have Learned in School came out. Any reflections on the book, the advice in it for today?
I’ve thought about doing an updated edition of Millionaire Teacher. But so little in the world of finance actually changes. That might surprise some people who figure that building wealth in the stock market is like walking some kind of suspension bridge-like balance beam in the wind. You know, shifting your body weight to the left, then to the right. Then making pre-emptive adjustments based on forecasts. If building wealth were that hard, I’d be sitting on the sidelines.
There are only two things I would add to Millionaire Teacher, if I were updating it today. When the book came out, Vanguard’s ETFs weren’t available. So I would add those. Plus, Canadians now have the option to buy ETFs that aren’t currency hedged. Investing in a hedged ETF is a bit like rowing a boat with a tennis racket. Better (non-hedged) products are now available. They’re much more efficient, so I would add those in the book.
I remember Rule #4 from this book (Conquer the Enemy in the Mirror) really hit home with me. Why do you think investors struggle so much with managing their own behavior when it comes to money?
Our ancestors developed instincts that were necessary for survival. Those who strongly inherited those traits went on to procreate and survive. It was much like natural selection. Caveman Joe didn’t get up fast enough to run from charging giant crocodile. So he got eaten. And his brother scooped Joe’s wife. They had babies. And those babies were more genetically wired to anticipate danger and flee proactively.
In this capacity, humans are now honed like Olympians. Such genetics were great for the jungle. But they make us lousy investors. In the world of investing, we need to embrace that charging crocodile. Falling stock markets look like immediate dangers. But they aren’t. They’re like discounts at a supermarket. But they wear a crocodile-like costume. The media loves to report danger and fear. So when stocks drop they report, “Investors lose as stocks fall again.” In reality, they should be reporting, “Investors win, as stock get even cheaper!” Anyone who won’t be selling their stocks within the next five years is categorically crazy if they want the markets to rise. But that craziness has been bred straight into our DNA.
That’s why most people have a tough time managing their own money. They think that rising markets are good for those who are adding money to the markets. They think falling markets are bad for those who are adding money to the markets. If they could flip those thoughts (and go against their DNA) most people would be much better money managers.
I know you still follow my site (thanks for that by the way) and I also remember Rule #9 from Millionaire Teacher (The 10% Stock-Picking Solution…If You Really Can’t Help Yourself). Is my dividend investing strategy doomed?
Your strategy of picking strong dividend paying stocks is a good one. It’s great for people who have smoked one or no cigarettes in their life, have only tossed their cookies once (or never) after drinking alcohol, who exercise at least 4 days a week and stay away from processed foods. Such people are rare. They have plenty of discipline. The risk of hand-picking individual stocks is that it causes less disciplined people to switch stocks and question their strategy. I’m guessing plenty of high dividend seeking investors have jumped out of their oil related stocks during the past year or so. Big mistake. I just don’t think most people are wired to stick to a disciplined individual stock picking strategy and beat the market in the process.
I think your approach is a good one. But mine is easier 🙂 I’m disciplined with money, but I’m also lazy, and my lifestyle presents more financial risk. I used to have a portfolio split between individual stocks and index funds. It was about 50-50. But once the portfolio topped about $1.5 million, I asked myself some good, tough questions.
Can you beat the market?
Are you smarter than all the portfolio managers who have trained to do this, full time?
Most of them lose to the market. Those who beat the market over a 5, 10, or 20 year period usually revert to the mean eventually. In other words, the market usually catches them. It’s mentally easier to bet $5000, even $100,000 of hard-earned money to try to beat the market. But I asked myself, “Do you want to be betting over a million dollars on that, knowing that you won’t likely get a stitch of money from a pension?” That answer was a pretty swift no.
When I say that my life is “risky” this is what I mean: I won’t be getting a defined benefit pension when I’m old. I’m an expatriate (meaning that I don’t live or work in Canada) so I won’t be entitled to much of anything from Canada’s social retirement programs. As such, I have to think like a financial academic. The highest statistical odds of investment success are with a diversified portfolio of low cost index funds. So that’s where my money sits.
Readers, what do you make of Andrew’s answers? Agree? Disagree? What would your answers be to my questions? I look forward to your comments.