30 Year Anniversary Message

                                                                                     30th Anniversary Investor Message
May marked my 30th anniversary with BMO Nesbitt Burns. Thirty years tends to make you reflect a lot on the different years and eras and give you a lot of perspective on investing and what works and what doesn’t. I’d like to think some of what I’ve learned over this extended period will be very useful for investors - young and old - and wanted to share some of these insights.

Bet on the House, not the individual gamblers

The thing that strikes me most about the world of investing is the amount of time, energy and resources that get spent on trying to predict short term swings in the economy and markets and the disproportionate impact they have on investor behaviour, when the evidence shows the futility of making predictions and how irrelevant they actually are for investors’ long term financial and investing success. In fact, making investment decisions based on such predictions has time and time again been shown to usually work to the detriment of investors.

I would like basing investment strategies and decisions on market or economic cycle predictions to betting on individual experienced gamblers in a casino, instead of betting on the house, even though the house over time is almost guaranteed to win.

Over the 10 years to the end of March this year, the MSCI World Index has had an average return of 12.2% per year. The main US index the S&P 500 has averaged 13%, and even the very cyclical Canadian S&P TSX market index has returned over 7% per year. Of course, the 30 year numbers going back to when I started as an advisor with BMO Nesbitt Burns are even more compelling when looking at total returns investors would have earned over this period by just being invested in market indices or diversified mutual funds with good track records investing in solid growing companies. This is what should stand out in big bold letters for investors, not the latest market prognostications.

 

Over time, while markets and individual companies can fluctuate significantly, they generally move up. In the case of markets, it’s because economies and the collective earnings of their main companies tend to grow. So if the house is the long term returns noted above, why wouldn’t we bet on it, or, in this case, markets, rather than on the individual gamblers or short term economic and market predictions?

Making predictions is hard, especially about the future (Yogi Berra).

If you think back to March, 2009 in the heart of the Financial Crisis, May, 2020 in the heart of COVID lockdowns, or even last October when markets were selling off due to worries about rising inflation and interest rates, not many people were predicting the ensuing huge market rebounds. They were all quite unexpected and, if you had been staying on the sidelines waiting for all clear signals, you missed out on much of the returns markets delivered over the ensuing periods.

I recently read Morgan Housel’s critically acclaimed 2021 book, The Psychology of Money in which he discusses the importance of psychology in successful investing (I’d rank this book in my Top 3 books on investing and recommend that every investor, young or old, new or experienced, read this book. And it’s an easy and enjoyable read, with many great stories and anecdotes). There are many valuable insights but the three I’d highlight are:

1. Investing success relies on investor behaviour and having a sensible strategy, far more than market timing and individual security selection;

2. The one thing history teaches us is it is full of unexpected or unlikely events that were virtually impossible to predict.

3. Staying invested can be painful and is hard. As Housel emphasizes, while staying invested is undoubtedly key for investors achieving better longer term returns and realizing their longer term financial and retirement goals, it’s not easy and they have to be prepared to experience painful periods with major market declines.

Ian’s and my goals have always been two-fold: Help our clients develop their long term financial plans and investment strategies that will help them to reach their goals, and choose strategies that make the journey less rocky and make it easier to stick with those strategies

 

So, thank you to all our clients – and colleagues – who have made the last 30 years possible and so enjoyable and I hope you found this information of interest and that it will be helpful to your investing going forward!

 

 

 

 

 

Source: https://bmo.sharepoint.com/sites/Classic-Wealth/nesbittburns/ProductsAndServices/FeeBasedManagedSolutions/Pages/ArchitectProgram.aspx