Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

You may also like...

28 Responses

  1. Mike says:

    Andrew,

    This is really a great post because it hits on so many points, mainly our emotions and awareness. Speaking for myself, I was only able to get better as an investor when I was willing to admit how much I don't know. At times, I just have to be willing to say, I don't know and instead of trying to make the markets fit my opinion, as what am I missing. When I did that, I was able to use my fear to help me. So to me, will and humility play a great part in investment success. A successful baseball player hits .300 or 30%.

    Learning is one things however it also has it's limitation. What I am referring to is timing. For example, I believe that bonds (in general) have been a great place to be the last 25 years or so. There's plenty of evidence to suggest that rates have no where to go but up and hence, prices down. Not so fast. If things were only that easy, right? It may not become evident that bonds are in a bear market for another 5 years. So, where am I going with all of this?

    I have come to the point where I believe that I'm able to "weight" or position my portfolio into themes (eg asset classes) that should do better on the whole versus a "60/40" split. But I am also realizing this has it limitations and I need discipline or rules to not get to married to these asset classes or themes. These rules lie in a system of money management where many times, I am going against my emotions. So, while I agree with Harry that most act like lemmings, I am just as convinced that one can learn to be successful if they are willing.

    These are the kind of articles that require introspection. What do you think?

    Here's to a great weekend. Mike

  2. DIY Investor says:

    Of course Harry is right. Another way to look at it is this: the safest time to fly was right after 9/11. The situation in Europe will get countries, including non European countries, to put their fiscal affairs in order.

    If it wasn't for dollar cost averaging into 401(k)s I believe most individual investors would be broke today despite fabulous markets over the past 20 years.

    Harry will be buying back the bonds after interest rates have pushed up 500 basis points and selling the stock at a nice long-term capital gain within 10 years.

  3. @Mike

    Mike,

    I think you're right. Sticking to an asset class is probably the best way for most people, but tipping the odds in your favour because you know something or don't or you are gutsy enough to move in a direction others won't is key.

    For example, although I have about 35% on short term Canadian bonds right now, if the DOW dropped to 7000 points or below, I'd ensure that I was 100% in equities.

    I don't think Harry would do the same thing, but I think he has a similar (if not slightly more cautious) idea.

    I'd love to hear about your current asset allocations Mike. What have you decided on for now? I really enjoy your thoughtful perceptions on this stuff.

    Cheers,

    Andrew

  4. DIY Investor:

    You, my friend, are absolutely right. The safest time to fly was directly after 9/11. And the irony is that nobody would take to the skies. If the "evil doers" were going to do anything at all, they'd wait until we were all lulled into a state of complacency.

    I also think you're right about most investors who have dollar cost averaging to thank for their results over the last 20 years. But it's funny. Have you seen the statistics on what returns most mutual fund owners (or even index fund owners) end up getting, relative to the returns of the funds themselves? Most people blow holes in the bottom of their own investment boats by ceasing to buy when markets are low (or even selling) and buying more when the markets give them "confidence". The figures on this are eye-opening. If a particular fund has averaged 10% over, say, a 10 year period, the average investor in that fund has made something like 4%. They pile money in when it performs well and cease to do so when it doesn't. And the more I think about it, the less I believe this kind of thing can be "taught". I think people are wired to figure this out and act accordingly, or they aren't. I sat on a flight, last March, with a fund manager while coming back from Bali to Singapore. Naturally, we got into a converstation. And yeah, this guy was really really smart. But the DOW was at about 7000 points, and he thought I was nuts for buying with both hands because he thought it had further to fall. My response was, "who cares if it has further to fall? I'm buying below intrinsic value–for sure."

    Anyway, I met up with him about a year later and found that he had totally missed the boat, waiting for something "better". I just don't think he had the courage to look wrong, short term.

    Thanks for the comment!

  5. Monevator says:

    I love DIY Investors take on it – the flying analogy, and I broadly agree with Harry and your excellent post. (Where I'd disagree is I think some traders – not ones buying systems off the Internet for $200 and spending their kids college funds, but rather professionals – do seem to get some kind of emotional attachment to the market, and if you're trading short term that's what you need. Think Keynes' 'beauty parade' if you want an intellectual justification for it).

    Seeing as you didn't like my comment over on IJ's blog, perhaps I can be permitted a link here to show we're not so different, you and I. Here's my thoughts on the very day the market bottomed in March 2009 – and importantly I have stressed many times subsequently that the timing was a fluke, and that the recovery might have taken years for all I knew!

    http://monevator.com/2009/03/11/who-isnt-buying-t

  6. Andrew Hallam says:

    Readers,

    Take the time to read the article that Monevator wrote in March, 2009

    http://monevator.com/2009/03/11/who-isnt-buying-t

    It's rational, clear and damn, the guy writes a lot better than I do. His written style surpasses that of other bloggers I've read. I'm not sure if he writes professionally, but if he doesn't, he should.

  7. DIY Investor says:

    Great piece by Monevator! Many memorable lines. I liked: "Anyone waiting for a clear buy signal will likely wait forever." I would add that there is no such thing as "…a clear buy signal…" and that clients and non-experienced investors don't get it.

    I had a client call up around the 3/09 period and say they wanted to raise a significant amount of cash until the news got better and stock prices were higher. In other they were asking me to sell low and buy high. When I put it to them this way they rethought their position and decided that raising cash at that time wasn't the best policy.

    On the issue of professional investors having an emotional attachment, to me it's more of the performance derby syndrome. I come from the institutional side and at the end of 2000 when stocks were gaping up 30%/year managers were looking at each other and noting how crazy it was but they couldn't get out because they would lose clients if it continued higher.

    Even Buffett was questioned at that time on why he didn't participate in the dot.com sector given that the world was obviously different. Buffett of course had the record where he could say that he wasn't going into something he didn't understand and, of course, his commonsense principles won out once again.

  8. Mike says:

    Hi Andrew, I try to leave my opinions a bit on the side. I can tell you what has helped me become "better" is not doggedly sticking to an ideology, becoming a student of the market and not looking at the little guy as clueless but rather as a source of intelligence that is ultimately reflected in markets; this CAN be acted upon. A lot of professionals damn the markets and people for not doing what they think it should, but the market is always reflecting "reality" at any given moment, regardless of what I think.

    To say that we can't use common sense and logic to improve our investment decisions is also lazy in my opinion. I am not suggesting that to anyone on this thread is saying that, but we all need to remember that the "thinking" little guy (and I emphasize thinking) judges the world in a common sense fashion. Professionals make excuses as to why the housing booms can go on forever, because they are acting in their own self-interest. Then, when the SHTF we all need someone to blame. I met an old lady last year who in 1981 took almost all of her money and locked in 10 and 30 year bonds when interest rates were at all time highs. Genius? Hardly, it was just somewhat obvious.

    Quite similarly, in 2002, when the Federal Reserve decided they didn't want to let the market correct and rates go up, they began what can be called a low interest rate policy; it wasn't genius that allowed me to come to the conclusion that the dollar would weaken in value. Lower rates = lower value. The inverse relationship of dollar and gold is also common knowledge. But I learned that by studying the currency markets. Hey, it really wasn't that hard to figure out, but do you know how many times I've heard how stupid investing in gold is? Truthfully, I won't mention where I am invested because I don't have the energy to debate someone that there is a relationship with gold and fiat currencies.

    What I've learned is that an extremely small fraction of people spend any real time towards learning how to invest because they are either lazy or hear people telling them that "timing the market" is for fools and impossible. And there are plenty of people who take a $1999 internet trading course over the weekend as casualties that serve as proof they are doing the "right thing."

    So, for someone who doesn't want to learn how learn about the financial markets, dollar cost averaging into index funds and "rebalancing" may work out for them. Even that takes discipline I believe. I just think that a lot of people expect far too much from the capital markets, put far too much trust in "theories" given the amount of time they spend learning and educating themselves. I will never buy into the theory that the market is completely random. To me that's just lazy. Remember, I am saying "for me" not judging anyone else's approach.

    Great discussion.

  9. Mike says:

    @Andrew Hallam

    is a really well thought out post by Monevator. It's true that there is never a way to get a "flashing" buy signal. Also, buying equities, when they are down that much only raises the probability you will come out ahead.

    Let me be so "brash" as to only suggest that one of the reasons equities may do well going forward is that stocks aren't all as leveraged versus the real estate and bond markets. Investing in the stock market doesn't REQUIRE borrowing while investing in Real estate almost certainly requires borrowing. Hence, we could say that real estate will correct after stocks. Just food for thought.

  10. I think you really need to keep a long-term perspective. I disagree that you need to be "born" to be an investor; it simply is a question of perspective. People with short-term perspectives are fearful when the markets are down and greedy when the markets are up, and therefore they move with the herd. People who care more about the long-term see the dips as opportunities to buy in at a cheap price, knowing they will likely reap the benefits down the road.

    Great stuff guys.

  11. Andrew Hallam says:

    @DIY Investor

    DIY investor:

    Your client was lucky to have listened to you! I guess making the right decisions can be lonely, and it can take significant guts. I suppose you have to just do what you feel is right and turn off the noise. Most people, I think, don't have the capacity to do that. That's why I suggested in one of my posts that you have to be a bit odd to be a good investor. What's "normal" is following a crowd: into tech stocks in the last 90s, the nifty fifty in the late 50s, California real estate five years ago etc. But on the institutional side, as you mentioned, you might not keep your job or your clients if you end up doing "what's right." And it can take many years before its revealed that your chosen method was the right one—but by then your client or your job is long gone. That would take fortitude!

  12. Andrew Hallam says:

    @Mike

    Hey Mike,

    Thanks for your insightful thoughts, as always. I'm really glad that such an intelligent group of people are engaging in this thread. We're all from slightly different walks of life, investment ideologies, but I love the fact that we can voice our ideas safely, with a civilized group. There really are going to be so many ways to do well.

    So many things can look obvious in retrospect but the decisions at the time can be tough, and contrarian. It does make sense to go long on bonds paying 14% in 1981, but you can also see why everyone didn't do it. For a brief spell, mortgage interest hit 18% that year in Canada. Who wants to buy a 14% yielding bond when the most common debt instrument (the mortgage) was charging more than that? Plus, inflation made that bond look silly, short term. But on the flipside, you're totally right. It's like looking at the stock market with single PE digits in the early 70s. Sure it hadn't gone anywhere for a while–and was it Barrons that published that now- infamous "The Death of Equities" cover story that year, right? But the old lady you met who went with those bonds was right. If inflation kept its pace, we'd all be on the Titanic, so the 14% yield (or otherwise) wouldn't have mattered. She might have known that. But if it proved to be an anomaly (like single digit PE ratios in the 70s) then she could easily take advantage of the "reversion to the mean" (which she did) and make a killing.

    Mike, you always make me think. And I love that!

    Cheers,

    Andrew

  13. Andrew Hallam says:

    @Kevin@InvestItWisely

    Hey Kevin,

    I like the analogy that Dick Davis uses in his latest book, The Dick Davis Dividend. He suggests that not everyone can run a 4 and a half minute mile. There are people who can learn the latest training techniques, eat well, train their minds, learn to physically suffer, take PhD courses in physiology to keep abreast of everything they can—-but still not run a 4 and a half minute mile. There's a genetic physical component.

    In the "Superinvestors of Graham and Doddsville" Buffett talks about investing (value investing, specifically) as an instant inoculation. He suggests that you either get it right away, or you don't, no matter how much time you spend studying it.

    I think that great investing is about having common sense and controlling your emotions. There are so many people who can't control their fear and greed buttons. A friend of mine is a certified financial analyst by accreditation. I don't think the academic requirements for investing get any more stringent than that certification. But she can't invest. She goes with the crowd—wanting to sell everything in March, 2009, and feeling good about getting "back in" when the markets went up again. And she consistently does that, despite all of her training. So, as an investor, she's awful–despite being far far smarter than I am.

    Kevin, you're wired to do this. And because of that, it just looks like common sense to you: learn the premises, and you'll be able to follow them, right?

    But it's not that easy for most people. You're likely a 4:20 miler, metaphorically. But you might be thinking a bit like my buddy, Darren Skuja, who believes that anyone can run a 31 minute 10k if they train hard enough (and they're young enough). But just because he had the gift to run that fast, he thought everyone could acquire that kind of speed. But it's not the case.

    What do you think?

  14. Mike says:

    Hey Andrew,

    Yes, I agree; it's good to simply exchange thoughts and ideas. I've learned that the more someone tries to force their idea on you, the less they believe it themselves. I hope that made sense. LOL More to the point…

    Take the "old lady" – she's at least 75-80, but sharp!!! Now, when I asked her how she "knew" to lock in rates in 81' – her answer was "Well, my annual expenses were $25,000 and I would have had far more than that coming in at 14% interest" (given her principal I guess) It made me realize that she simply solved her own problem with logic.

    In today's market, I can't see lending the government money for 10,15, 30 years for 3-5%. So, personally I don't get into anything with a duration of more than 3-5. TIPS, select muni floaters and things like that the last few years, have been okay versus money market and other cash equivalents.

    My logic is simply that bonds rates will rise "soon" In order to finance debt, short term rates first, then long bonds get sold b'c rates on the short end pay the same. Then as long bonds are sold, the yield curve adjusts and all rates are higher. This is common street knowledge (nothing unique) right?

    But right now (in the immediate) if you look at the market and capital flows what I see is an international flight to quality; specifically the dollar via capital flow into the 10 year bond. Hard to see? Check this link and look how rates have dropped the last 3 months.

    http://www.marketwatch.com/investing/bond/UST10Y

    Then look off to the right and what do you see a bunch of headlines talking about how rates have dropped the most since March of 09.

    That told "us" gold was entering into a real bull market and the inverse dollar/gold had to be ignored as AU was now rising against all fiat currencies and somewhat in tandem with the dollar. This could cause gold to break out to much higher price levels as the flight to quality continues. That's what I see.

    Of course, this is just my opinion. I hardly ever suggest my thought process to anyone, because they will not accept it if it doesn't fit into their comfort zone or if they can't reference it in one of the investment books they've memorized. If they can't apply modern portfolio analytics (P/E, P/B, etc) it is silly for them to consider. And if their "process" works for them, then who am I to challenge it?

    To me a yield curve or the TED Spread is a much more useful tool because it tells you where money is headed. Again, all my opinions and I reserve the right to be wrong. 🙂

  15. DIY Investor says:

    @Andrew Hallam

    I have to say that experience plays a big role. At some point you see big market drops as opportunities and you understand that trying to pick a bottom or a top is futile. My best trades have all been early or late!

    Today's investors are getting a lot of experience in a short period of time because we have been through some serious ups and downs in a protracted period.

  16. Hey Andrew,

    You're quite right that we are all limited by our genetic potential in terms of the maximum potential that we can achieve. We are all wired to a certain potential strength and intelligence.

    However, long before we hit our genetic limits, we have many other limits that are imposed upon us, do to a lack of knowledge, a lack of training, and a lack of experience.

    Your friend might be well-trained academically, but she has not learned to control her emotions nor understanding the reasons behind them. If she worked on that, then she quite possibly could become a better investor.

    There are indeed limits to the growth we can achieve; few are talented enough to rise to the top of their chosen hobby or profession, but you don't need to be at the top. I believe that through experience, a willingness to learn, and a willingness to adapt and change, that you can get "good enough".

    There is perhaps a genetic determinant to how willing someone is to adapt and change, and if someone is not willing to work on their weaknesses then perhaps they will fail as an investor. In order to get toward your goals, you have to believe in them first. It just takes knowledge, experience, and training. After all, we were all born knowing nothing.

    Maybe I'm just a bit too optimistic 😉

    As always, good stuff!

  17. Mike,

    I always like reading your posts and comments. You definitely put a lot of thought and attention to detail in what you write.

    I've recently been reading about modern monetary theory; what do you think would happen if the US government decided that they didn't need to offset their spending with debt? What if they realized that they have access to a printing machine with almost universal power; the power to print and redistribute at will 😉

    It sounds laughable, and that's what I first did when I read about this theory: I laughed. After all, isn't that what Argentina and Germany tried? Not exactly. The more I read about it, the more it seems to make sense, at least on an operational level.

    Just cause something makes sense doesn't mean it's a good thing, though. I think it would probably lead to much more damaging consequences (think: not hyperinflation, but significant inflation and currency devaluation, not to mention social unrest) down the road if politicians realized what they could do with that kind of power.

  18. Andrew Hallam says:

    Kevin,

    I love your optimism. I guess I'm a little jaded. After giving seminars on managing money and after trying to guide my friends over the past decade or so, I'm amazed at how the emotional component controls logic with so many people. My friends are definitely smart, but from what they have shown me over the past decade, they (and it kills me to say this) would be better off investing in (even) a basket of actively managed mutual funds–with an advisor who cracks the whip and forces them to dollar cost average into them.

    That said, you are absolutely right as well. That prospective 3:52 miler isn't going to break 4:30 on his first run. He needs to be trained. And yeah, most of us aren't near our genetic limit on anything. But I have found the process with friends over the past decade to be incredibly frustrating. These are people who can really talk the talk, but they'll admit that when push comes to shove, their hearts force bad decisions, regardless of the histories of bad decisions they've accumulated.

    DIY investor, however, has a fascinating business model that you should check out. He could likely show me how I'm dead wrong (and perhaps there's just something wrong with my circle of friends and acquaintances!). He essentially gets clients ready to handle their own money, and when they're ready, he fires himself as an advisor. He has been at this a long time. And I would love to hear his take on this. Kevin, considering that he's actually doing this, (and the fact that he hasn't given up!) tells me that you might be more than just optimistic. You might be 100% right.

  19. Andrew Hallam says:

    @DIY Investor

    DIY investor:

    You have loads of experience teaching investors to "go it alone". What percentage of those you deal with end up being emotionally capable of doing it? And how long does it take most people to be "ready"?

    Andrew

  20. Another very enjoyable read Andrew. Great comments and contributions by others. Of course Harry is right. Buy good solid companies and hold them forever. Buy some bonds, and hold them forever too. Change or manage your allocation by buying either stocks or bonds when those prices are low. Rinse and repeat as often as you wish and can afford. Take emotions out of the equation. My belief (success in finance is no exception) is the following:

    start with a 1/4 cup of unwavering motivation or passion +

    1/4 cup of education or talent +

    1/4 of experience, and add,

    a 1/4 cup of continual learning

    …and you'll get =

    ___________________________________

    success.

  21. Andrew Hallam says:

    Financial Cents

    I absolutely love that recipe. And I think you started off with the most important ingredient of all. Great turn of a phrase, " Rinse and repeat as often as you wish and can afford."

    I should call you the investment Buddha!

    Cheers,

    Andrew

  22. Monevator says:

    @Andrew Hallam

    Andrew, thanks very much for your generous assessment of my writing! And of course for highlighting my post. Much appreciated.

  23. Monevator says:

    @DIY Investor

    Thanks DIY Investor. It still goes on – I heard an anchor on CNBC asking a value investor yesterday if he was sticking by his decision to invest last week/month now the US market had fallen c.15%, or was he put off by the volatility! Er, no. He was not put off!

  24. Andrew,

    What happened to your site! I can barely keep up with all of the new comments! 😛

    I can understand your frustration; given everything that you know, it must be so easy to see the mistakes that your friends make, and frustrating when they listen to your advice, acknowledge it, but still give in to their emotions. Sometimes, emotions can get the best of us.

    What you said about DIYInvestor's method is interesting. When we start bicycling as a kid, many of us need tricycles in order to not fall over. After a while, we are ready to set out on their own. I believe that most people can get the basics down (after all, the most basic investing strategy is fairly easy: buy an indexed fund and hold. You can gradually add other concepts like asset allocation down the road).

    I believe that many people simply think it's more complicated than it has to be because they read about all sorts of esoteric terms when they read about it in the paper or on the internet, or especially when they talk to their advisor. The truth is that you don't need to be a pro or be particularly talented to do well in the markets: you simply need to stay the course! Even someone just holding indexed funds alone still does much better than someone going in actively managed funds or worse, market-linked GICs (I see no point at all to these if you are investing for the long term).

    @DIY Investor

    "I have to say that experience plays a big role. "

    Definitely! I only got started a couple years ago, and I am learning a lot.

    @Andrew

    I'm glad that I discovered your site; I've learned a lot by engaging in these discussions with intelligent fellow bloggers, and also by reading your posts. Great stuff!

  25. Thanks Kevin,

    I'm actually really really happy with the thread contributions; I'm so darn impressed by how intelligent the comments are. Thanks for that. Guys like you have definitely added to the quality of my blog.

    I agree with you about index funds. It's funny. So many people believe they can beat diversified baskets of indexes, but statistically, they don't–and they won't.

    As I've mentioned to you before, I'm getting closer and closer to a fully indexed concept myself. Like most people, I started out in mutual funds (in 1990) migrated to common stocks, but slowly, those are being trasncended by indexes. I don't have a U.S. or Canadian equity index yet, but my bond money is all in XSB.TO and my international equity money is all in VEA.

  26. @Monevator

    Monevator:

    It's my pleasure. Your writing is superb and I really enjoy your blog.

    As for investors fearing volatility, my thought is that investors should have a really good course in financial history that they teach themselves before investing a penny in the markets.

  27. Enjoy Andrew and fellow readers 🙂

    Canadian mutual funds lag index, again:

    http://www.theglobeandmail.com/globe-investor/mar

  28. Financial Cents:

    I love it! It's super that they take into account survivorship bias in this assessment. It sure makes the argument for passive investing pretty solid, doesn't it?

    I'd love to see the same assessment/comparison done in a taxable account, after taxes. It adds at least a further 1% advantage, compared to the active approach.

    Thanks for sharing this link!

    Andrew

Leave a Reply