Five Reasons to Love Stocks, No Matter What the Market is doing

Investing

[This article was originally printed in the Financial Post]

I was reading a new investment book this week, Market Masters, by Robin Speziale. (Well, I sort of had to read it, since there was a chapter on me in it!) The book is a collection of interviews with successful investors, and makes for a very good read. At the end, Speziale speculates on what actually makes a good investor.

One of his conclusions: good investors simply love the investment game. If you think about it, most successful investors are very, very rich, yet most keep plugging away, trying to find good stocks and get great performance, year after year. They are not doing it for the money. The love of the process, and the passion for investments, means that these portfolio managers are never really ‘working,’ but just doing what they love. And why not? There are many things to love about the investment world, whether you are a professional or not. Here are five of them:

Lazy people can make money, and get annual raises too!

When speaking about investments to young people, I always highlight how investments are one of the only ways a lazy person can make money. Invest in dividend paying companies, and every three months, or every month, another deposit lands in your account. What did you have to do for this free money? Absolutely nothing. What’s more, if you buy the right company, you might get annual raises — dividend increases — as well, all for, again, doing nothing. Lazy long-term investors, in fact, can do very well indeed.

It is always interesting

Even though I have been in the business, like, forever, every day is entertaining. Companies get taken over, have problems, discover oil, make acquisitions, grow earnings, win some contracts and so on. You almost never know what might happen with a company or with the market. As I write this, one of the stocks we follow is halted. News could be good, or could be bad, but either way something is going to happen. It is hard to get that variety in other businesses.

There are tax advantages

Capital gains taxes have the lowest tax rate in Canada, so when you make a good investment and take a profit, you get to keep a lot of it. Dividends in Canada come with the dividend tax credit, making dividends a preferred form of income over salary for most Canadians. So, while others slave away at a salaried job and pay the highest marginal tax rates, many investors are sitting back, earnings gains or dividends and still paying lower tax rates.

Math works in your favour

When you pick a bad stock, you can have a 100 per cent loss, when that stock goes to $0. However, when you pick a great stock, you can have a 1,000 per cent or more gain. You can only lose all of your capital on the bad investment, but can make 10-times or more of your capital when things go well. Thus, one good winner makes up for a few big losers. You really only need one amazing stock pick in your life. Don’t believe me? Take a look at Intuitive Surgical, a $6 stock in 2001, trading at $620 per share today. Or, how about Monster Beverage, trading at 18 cents, split-adjusted, in 2001, and now at $130 per share. That is a 72,122 per cent return in 15 years.

Business can be bad and you can still make lots of money

When you are employed, and your company has a tough year, you might not get a raise, nor a year-end bonus. In the market, though, you can still make money when things are bad. Either through selective stock purchases — not all stocks go down, even in a bad market — or, for those more aggressive, through short selling. You can still profit, even when times are horrible. What other business can say this?

Now, since I have been in the industry so long, I clearly might be biased here. But you have to admit, compared to many industries, investments do have a lot of good qualities.

Peter Hodson, CFA, is CEO of 5i Research Inc., an independent research network providing conflict-free advice to individual investors (www.5iresearch.ca).

[This article was originally printed in the Financial Post]

MarketMasters

Robin Speziale is the national bestselling author of Market Masters, which is available at Chapters, Indigo, and Coles as well as Costco and Amazon.ca. He lives in Toronto, Ontario. Learn more about Market Masters.

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