If you’re a dividend investor or an owner of any securities (like ETFs) for that matter that pay you regular dividends or distributions, you’re already aware of the financial security they provide. That’s a reoccurring message I loved in The Single Best Investment.
As an investor, I’m learning more and more that my portfolio will forever go up and down, in bonds, in equities or both.
There will always be some volatility and Lowell Miller’s book reinforced that concept with me; I shouldn’t really care what Mr. Market does.
If I have as Miller says reasonably good long-term investments, the down markets shouldn’t make me fret nor should market highs make me celebrate.
“Pick reasonable investments, stay even-keel, be satisfied with slow and steady, get your money making money through reinvestments, hold a few more equities than bonds. Keep it simple.”
Since buying The Single Best Investment, I’ve re-read this book a few times over since. Here are my favourite takeaways from this book:
On Common Sense:
“Common sense means having reasonable, achievable goals. Common sense means spreading out your risks, but not so much that you lose control over your portfolio. Common sense means never trying to hit a home run, and never berating yourself with remorse for a situation that doesn’t work out.”
On Investor Behaviour:
“One reason investors are always waiting to get out even, is that they don’t like to experience loses, which are a form of pain. Loss aversion – the greater impact of the downside than the upside – is a fundamental principle of the human pleasure machine.”
“The fears of the client drive the investment process more than the knowledge of the financial adviser.”
“Emotions influence investment decisions like the moon directs the tides, and to succeed over the long term you’ve got to do more than open a brokerage account and keep your records. You’ve got to tune in to who you are, what you want, how you behave in various conditions, the kinds of change you might be capable of and the kinds you are not.”
“You will not succeed if you trade a lot. You can only win the investment game by actually being an investor.”
“Clearly, if you plan to live for more than ten years or so (in retirement), your investment must rise enough to overcome the effects of inflation – and this is true of the income your investment produces if you need current income or will need income later. History has shown that stocks are far superior to fixed income when compared to inflation. The average annual inflation rate for the past sixty years (in the U.S.) has been 4.10%. Inflation compounds. Chances are high that in any given period bonds will not beat inflation.”
“If you feel so insecure about an investment that you’d be tempted to sell on a 10% or 20% decline, you need a better and more understandable investment, or an attitude adjustment or both.” As such “investors need to be willing to take human bites, to seek gains that are commensurate with a moderate risk profile.”
“The gains are like bricks; you slowly and carefully place one atop the other. By and by – though not instantly – the shape of the building emerges. Many people can’t wait. They want to throw up a plywood pre-fab in a weekend. However, the bricks of this compounding building aren’t like the bricks you know. These bricks have the ability to generate new bricks, like a living thing. And these bricks can grow larger, like a living thing.”
“Compounding is really one the great processes on earth, and it’s given free to all who care to participate in it. Unfortunately, few do.”
“Think of anything you’ve done over a long period of time, whether it’s a skill or a relationship or a hobby or even just living. You’re probably a lot better at it and you probably know a lot more than you did when you started. This is the effect of compounding.”
Inflation at 4.10% would be a real eye opener for many, especially those without a growing income! Imagine if interest rates jumped to double digits as they did in the mid 70’s. We had just moved back to Canada and had to take a mortgage at 18%. Painful, but it opened our eyes to the effect of high interest costs.
I can’t see inflation running that high for a few years. Never say never!