Weekend Reading – The Elements of Investing (Part 3 of 3)

The Elements of Investing

Over the last week or so, I’ve shared what I believe are the best takeaways from The Elements of Investing. This book is a gem and is one of my investing favourites because it is so matter of fact; straightforward, here-it-is-right-in-front-of-you kinda stuff.

As someone who uses a two-pronged strategy to work towards my retirement dreams (dividend-investing and indexing), this book gave me all the reinforcement I need to prove to me that indexing in my RRSP is one the best investing strategies for wealth creation.

I had so many great takeaways from this book I needed to break it down into three blogposts for you!

Part 1 was posted last week.

Part 2 was posted earlier this week.

Here is Part 3, I saved the best for last with the KISS principle!

Read on to see what I mean.

“As an investor, what should you do about forecasts – forecasts of the stock market, forecasts of interest rates, forecasts of the economy?  Answer:  Nothing.  You can save time, anxiety, and money by ignoring all market forecasts.”

“Mr. Market tries to trick us into changing our investments at the wrong time – and he’s really good at it.   The more you do, the merrier he will be.”

“The stock market as a whole has delivered an average rate of return of about 9.5 percent over long periods of time.  But that return only measures what a buy-and-hold investor would earn by putting money in at the start of the period and keeping her money invested through thick and thin.”

“The changes in stock prices are very close to a “random walk”:  There is no dependable way to predict the future movements of a stock’s price from its past wanderings.”

“There is one investment truism that, if followed, can dependably increase your investment returns:  Minimize your investment costs.”

“The stockbroker’s real job is not to make money for you but to make money from you.”

In the book, the authors lay out what they call a KISS portfolio (Keep It Simple, Sweetheart). 

They claim the KISS portfolio “gets it right” for almost every investor:

  • Save early and regularly, for as long as possible.
  • Use any help you can get from your employer and/or government-sponsored retirement plan.
  • Set aside a cash reserve for when “stuff happens”, at least 6 months is suggested by the authors.
  • Make sure you are covered by insurance, especially life insurance.
  • Diversification will reduce your anxiety; include stocks from fast-growing markets like China, Brazil and India.
  • Avoid all credit card debt – period.
  • Ignore the short-term sound and fury of Mr. Market; the biggest mistakes investors make are letting emotions dominate.
  • Use low-cost index funds.
  • Focus on major investment categories; avoid “exotics” like venture capital, private equity and hedge funds.  The authors suggest most investors should focus on three simple categories:
    • Common Stocks
    • Bonds
    • Real Estate (via ownership of your home).

What do you think about the excerpts I provided you from The Elements of Investing?

Anything you try and live by?   Anything you need to change based on what you read?

Your turn readers, let me know! :)

Take care, I’ll be back next week!

23 Responses to "Weekend Reading – The Elements of Investing (Part 3 of 3)"

  1. Another great post by you, Mark! I must admit it made me a bit envious. Why? Well, Macallan is my favourite scotch : ) Just kidding, I am glad you had good time at the scotch tasting seminar!
    Regarding all the investment advice you’ve nicely picked up for us I can’t add much more. The more I read and learn about investing, the more I realize that simplicity, persistence and keeping emotions in check are the best recipe for success. Let’s not forget minimizing risk, of course. However, there is one more thing that comes to mind (at least to mine)- it’s very easy to get overexcited when those bank accounts begin to swell in a bull market and it’s human nature to want some more and then some more and…and before we know it, greed takes over.

    Let’s take a look at Europe and see what greed and overspending have caused there.

    1. @Elemag,

      Yeah, that Macallan stuff is pretty darn nice. I wish I could afford the 18-year-old bottle we had a sample of. Wow, amazing. Like silk.

      Thanks for your comments. I’m with you, the more I read and learn, the better investor (theorectially) I’m becoming. I just need to ensure my emotions never get in the way of my logic, and I’ll be OK for the long-run I hope! Yes, look no further than Europe for some signs of greed, although that is everywhere I think.

      Hope you had a good weekend!?

  2. Thanks for the mention, Mark! I like the part about ignoring market forecasts. We seem to get inundated daily that it’s a good time to buy or sell. It’s best not to get caught up in all of that noise and just stick to your plan.


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