Homelessness and Investing

Homelessness is a serious problem.  People without residential shelter are everywhere and the problem seems to be growing.  Is there an implementable tactic that will cure it.  Not yet, although many are looking for that.

There is another form of homelessness that is more easily dealt with.  The homeless dollar problem.  What do you do when you have extra money?

Perhaps your accumulation plan is ahead of schedule, maybe you received a bonus at work, or perhaps an inheritance or other windfall.  There are two clear options with many spaces between.

At one extreme you could consume the homeless dollars.  Bigger house, nicer car, a cottage, a boat, an exotic vacation.  Who knows?  The options are near limitless.

At the other extreme there is the invest it all option.  Put it away for more attractive future.  Financial independence.  Early retirement .  Security.  The question becomes, invest in what?

Investing money is not idiot-proof.

One of the great failings is many people confuse stock trading with investing.  They are not at all the same.  The skills for each are nearly diametrically opposed.

Investing requires that you have an awareness of markets and a sound understanding of what makes businesses tick.  Trading on the other hand, denies any knowledge of business but relies heavily on an understanding of markets and how the people in the markets receive and interpret information.  Especially spectacular information.

Between the extremes there is a class of trader who understands both businesses and markets.  These folks tend not to trade against their other market players but rather tend to acquire businesses with a view to changing them so that the market players will value them at a higher price.  Carl Icahn is a successful practitioner of this style.  Given the capital requirement the style is beyond the reach of most individuals.

A second great flaw is to believe there is always something to invest in.  Many poor investments are acquired when times are such that nothing is available at a price that provides a reasonable expectation of profit.  The proper decision here follows Seth Klarman’s advice, “When there is nothing to invest in; invest in nothing.”  In simple terms – Be patient.

Warren Buffett has often said that the market is bipolar.  The correct approach in that awareness, is to buy when Mr. Market is depressed and sell when Mr. Market is euphoric.  As with Klarman’s advice, there will be times when doing nothing is the right answer.

Perhaps the key strategic view to investing is to discover making money in large part is defined by not losing money.  Patience and discipline rank high when there is nothing attractive to buy.  Be prepared to live with some homeless dollars.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact: don@moneyfyi.com  

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