The Folly of Higher and Higher Returns
These are comments I never had with a fictional client that I have never met. Let’s call that client “Greenie”.
“Well Greenie there are investors, or speculators, who pursue higher returns (say 10% per annum or higher) who succeed for years on end. They roll through time and markets in a state of happy bliss and become the poster children for the all-in attitude we see currently.
“Then there are the individuals in the same camp who have the same approach only to be greeted by -30%, -40% or even worse drops in equity markets right out of the gate. Those people experience a totally different reality and become broken. They are broken emotionally and financially.”
“The message that gets lost in all the noise is that people should understand what they truly need from their portfolio. It is not more is better because more will never be enough. Someone will always have a better investment tale.”
“Green, if I may call you that, there is a consensus currently that markets always go up. Perpetually going up is a great paradigm. If we are all chasing exponential returns from the same small set of options, what do you think that does to price? What does it do to valuations?”
“Back in the eighties, when I was a university student, I was told to read a book titled “Extraordinary Popular Delusions and the Madness of Crowds”. It was written in 1841 and brought to the reader the greatest tales of financial fiasco to that date. The book can easily be summed up by the words in its title:
- Extraordinary = very unusual
- Popular = everyone believes it
- Delusions = a false belief
- The Madness of Crowds = self-explanatory – people are predictable!
The speculator who succeeds and rides the wave typically becomes overconfident and eventually the laws of physics come home and the inevitable occurs. They may or may not learn the rules and escape with a reasonable nest egg. I would like to think so.
The speculator who jumps in only to get the frigid welcome of a severe market drop will often sell at a low never to come back to the market and be held captive by the low returns of the savings account or of the proverbial “mattress”.
Money, and the investments available to help it grow in a somewhat stable manner, should be treated as tools to get you where you truly want to go. Figure out how much you need and then go out and enjoy life within your means.
Les Consenheim is a portfolio manager with Raymond James Ltd -Consenheim Wealth Management and can be reached at 372-8117 or les.consenheim@raymondjames.ca Raymond James Ltd. is a member CIPF.
"This article is for general information purposes only. Individuals should seek professional advice prior to acting on any information referred to herein. "
Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Les Consenheim, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund
