Throughout the pandemic, management at National Bank Financial has arranged conference calls for its advisors to give us a glimpse into the philosophies of some of the ‘under-the-radar’ business leaders in Canada and the United States, referred to as the NBFWM Virtual Roadshow. One notable speaker was Josh Brown, from Ritholz Wealth Management in NYC. Josh can often be seen on CNBC and we also include relatable investment, market, and financial planning articles, written by Josh and his colleagues, in our weekly Market Observer emails. Another speaker that really resonated with us was Morgan Housel, Partner of The Collaborative Fund (https://www.collaborativefund.com/about/) , and former columnist at The Motley Fool and The Wall Street Journal. He is also a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, winner of the New York Times Sidney Award, and two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. Lastly, he is author of the popular book, The Psychology of Money, which has been read by most JMRDW Team members, and comes highly recommended.
Like his book, we really enjoyed Morgan’s chat and we felt the need to share with you some of his key takeaways, which are also sprinkled throughout his book.
Understand the difference between rational and reasonable
- Rational is the unemotional spreadsheet approach to investing that discounts behaviours like home country bias or paying down debt. However, home country bias and paying down debt are reasonable and can positively impact performance if they help investors stay invested.
- Risk tolerance as a common measurement tool is flawed. It isolates market decline from other related and negative impacts. Market declines don’t typically happen independently of job loss, mental health issues, mortgage foreclosure, etc. Risk tolerance conversations need to be reframed and more intimate. The best estimate of risk tolerance is previous behaviour.
Power of compounding is very important
- Advisors need to emphasize that the power of compounding is driven by time and not performance. The goal should be “staying in the game.”
Behaviour to succeed as an investor
- The most important quality of a good investor is that ability to can manage the relationship between greed and fear.
Pessimist vs. optimist
- Save like a pessimist. Invest like an optimist. The impact of bad news happens quickly; good news takes longer.
- The Splendid and the Vile: A Saga of Churchill, Family, and Defiance During the Blitz by Erik Larson.
- What I Learned Losing a Million Dollars by Jim Paul and Brendan Moynihan.
- The Big Change by Frederick Lewis Allen.