By: Stuart Hay, HNW Financial
I am constantly amazed by the ways that our brains work. It fascinates me because, even though people are wildly different from one another, as a population we tend to think the same ways about certain things. We may come to different decisions in the end but we often go through a lot of the same thought processes and feelings on our way there.
For most people, the strongest lessons come more from the most emotional events we experience. If you make a big mistake (and can figure out where you went wrong) you’ll probably change your behaviour to try to never feel that way again. On the other hand, if you do something really enjoyable, you’ll likely try to repeat that positive feeling.
If the mistake is too small, the lesson may be too subtle to really learn from… especially for us men. 😉 Many times we need to be hit over the head with a concept before we fully understand it. We need to feel it.
From a financial perspective, the amount of money involved adds to the emotion behind the decisions and the power of the lessons that result. To illustrate:
• When a $50,000 portfolio moves 20% the fluctuation is $10,000
• When a $500,000 portfolio moves 20% it is $100,000
• When a $5,000,000 portfolio moves 20% it is $1,000,000
The lower amounts are certainly not meaningless but they are also not life-changing for most people and therefore the lessons are small. They don’t move the needle. When your portfolio changes by the amount you earned last year or more, either up or down, it sets the stage for real lessons. Lessons that get remembered forever. A drop by that much can be terrifying – especially if it is unexpected. When things inevitably rise later on by that much and more it feels fantastic. The outsized increase also brings with it a level of belief and understanding that smaller amounts simply can’t generate.
I found these lessons started happening for me once I really committed to this plan. As many of you know, my first role out of university was as an advisor at Investor’s Group. I got immersed in the investment world right out of the gates and learned the edge owning businesses has over bonds early on. Similar to some religions, I went out at a young age (at times even door to door) trying to convert the world to this way of thinking and what really happened was that I got converted myself.
I left Investor’s Group in 1996 and eventually moved into the recruiting world where I helped people find new jobs and companies find strong new employees. I was no longer thinking about investing in businesses all the time and became distracted by other places to put my money. In the early 2000’s I was seduced by real estate. When the oil and gas boom took our Calgary home with it, I got sucked in.
I watched our $132,500 home (an incredibly meaningful amount of money to me at the time) rise to $450,000 a few years later. I enjoyed that feeling a lot and tried in vain to duplicate it. Finally, by 2009 I realized that the confluence of events that caused this anomaly was unlikely to happen again… certainly not with the regularity required to make a successful long-term investment policy out of it.
Fortunately, throughout these years I continued to invest in RRSPs and then a family RESP. I was putting any extra funds into real estate but thankfully I didn’t stop my equity investing program. Eventually, almost in spite of myself, I developed the meaningful amount of money necessary to generate the good lessons that came out of 2012 and 2013 when the market finally began to rip.
My belief returned with a vengeance and I really started to lean into investing this way. That’s when things genuinely started to move for me personally. As our account grew, my belief grew. As my belief grew I funnelled even more money into these investments (instead of into real estate) and our account grew even faster – even though it was a lumpy ride.
On a side note, it was about this time I figured out that it doesn’t matter if our account goes up because we saved new money or it goes up because the market increases the value of the investments we already own. Saving money is hard. Keeping some of the money you earn is a success. Buying shrewd investments that go up is also a win. The end result is the same and, more importantly, the feeling is the same.
Finally, in 2016, the opportunity to personally return to this industry as a profession came when Dave moved out to the island. I understand completely how life-changing investing this way has been for me and my family. Now I do my best to help as many people as possible come to the same realization and eventually the same success.
The key is to go all in… like this:
Please note: BASE jumping is an exaggeration that only crazy people do! The concept is what’s important; 100% commitment is the place where real success comes from.
You have to own enough of something to feel it.
We at HNW certainly do. We all own the same investments as our clients and the growth in our assets under management has been astounding. We have gone from $95M at the bottom of the COVID crisis to very close to $200M today. Those of you that have been with us for that whole period, especially the ones with larger accounts, have certainly felt it.
