Joyful Investing

          Successful investing requires enthusiasm more than intelligence.  You will learn quickly and do well in investments that excite you.  You will pick mutual fund managers and other financial professionals you enjoy watching.  You will develop a full understanding of their craft.  You are less likely to turn over control of your toys to someone who has only his interests in mind.

Now that you have found asset classes that will not trigger your worst character defects, you are not required to invest only in the dullest of the lot.  Your fears, resentments, and social entanglements may have lead you to believe that all investing is dull, depressing, or frightening.  With those character issues resolved, investing becomes fun.  Challenge yourself or enjoy sitting on the sidelines watching your mutual fund manager if that gives you pleasure.  Just because you are swearing off day trading as it triggers all your greed and jealousy, does not mean you cannot find excitement from other investments.

Use all your personal experience and background to pick asset classes that you can understand and enjoy.  For many of you, your inventory showed that investing in areas you knew something about triggered the character flaw of over confidence.  Pediatricians invested in HMOs believing they would be better able to pick stocks than the public.  When health care legislation ruined HMO prospects, the pediatricians took losses where specialist made profits shorting the stocks.  Women with double closets picked women’s apparel companies, but were done in because management produced too much inventory.

Experts with humility rather than overconfidence understood that they knew only a little about the investment aspects of their field or hobbies.  Becoming specialists over time, they increased commitments and profits, and had a great time.  Stamp collectors who studied, went to conventions, dabbled for years before making substantial purchases had a great time, and made a fortune.

With the humility gained from taking your inventory and sharing it with another, you can now pursue investing in your field or areas of interest with appropriate caution and good fun.

Balance interest with knowledge of your character flaws and you will be fine.  In addition, if you have investment experience that did not trigger your worst character defects, use it.  If you have been retired 10 years, investing full time, and know what you enjoy and what you do not, use that knowledge.  But also use all of your other life experience.

You may not think any interest you had can help determine your comfort zone.  That is wrong.  You simply need to look at your experience from the right angle.

Does home ownership experience count?

If you have purchased two or three homes in a lifetime and enjoyed it, you have valuable real estate experience.  You may not think it applies to your portfolio but it does.  The same process you used to find your home, you can use to invest in commercial real estate or REITs.

You probably started by looking at neighborhoods.  You set up criteria like safety, schools, and proximity to freeways, shopping, activities, and friends.  All of this you compared to price and future price appreciation.  Then you looked at individual homes.  You set up criteria like size, style, age, condition, maintenance costs, and so on.  You compared homes to homes and each home to the asking price.  Then you made offers, negotiated, arranged financing, closed the deal, moved in, and learned from your process.

Commercial real estate is purchased the same way.  If you can estimate whether or not a home is worth the asking price, you can estimate whether or not a strip shopping center is worth the asking price.  There are more numbers involved but the sense of value is the same.  After you have gathered all your information, looked at all the prospects, talked to everybody, the final decision comes down to experience.  When you remember that track house you first lived in and how ten years later the neighborhood had deteriorated, you will not buy a seemingly cheap building in an iffy commercial area.  You also draw on your shopping experience, your experience in different office complexes, all the years you have spent looking for parking, finding addresses, riding elevators, interacting in anyway with real estate.

Temper experience with character knowledge

Trust your experience but temper it with knowledge of your comfort-zone.  If your inventory shows you relied on your brother’s full service -meaning exorbitant commission- broker to buy losing mutual funds for you, do not repeat that error.  Your character flaws, relying on other’s judgments rather than your own, also known as unhealthy dependence, will operate with real estate as it did with stock mutual funds.  Your brother-in-law may have just the realtor for you, but interview five others as well, and pick the best.

The same character flaw, unhealthy dependence, may also be operating in subtler fashion.  You can buy real estate online without a realtor or an overpriced broker by investing in REITs.  This may appear to solve the unhealthy dependence issue.  Unfortunately, hidden within REITs is another dependence issue.  You must rely on the REIT managers to pick individual properties for you.  If you look at REITs, find out what type of real estate they own and why.  Compare their reasoning with your home purchase reasoning.  Does it make sense?  Trust your judgment.  You do need to spend hours studying REITs; but having successfully purchased homes, you will be good at selecting REITs if you do your research.

List your experiences and interests

Maybe you did not buy any houses.  You may believe that you have no experience that can be useful investing.  Investing is a much bigger topic than you realize.  A high school English teacher for 30 years knows a lot about education.  There are many companies in the education business.  Some have good prospects.  Others do not.  An experienced teacher will be able to estimate which companies have a good product and which do not.  She does not have to succumb to sales pressure to buy an annuity with a big hidden commission when her teaching experience leads to higher long term returns.

A travel agent, an international business person, or a travel addict has valuable knowledge of foreign and emerging markets.  They know which countries are building better hotels, improving transportation to tourist destinations, upgrading airports, lowering barriers to trade.  They know in which countries to invest.  It would be silly for them to be sold municipal bond funds as an appropriate retirement investment.  A half hour studying an annual report of a no load, low fee international fund would lead to decades of enormous returns.

A doctor who know the best medical equipment at the best price and which HMOs are profitable and which are falling apart has valuable investment knowledge.  He would be foolish to let a stockbroker sell him shares in a hot high tech company with no earnings that no one understands including the stockbroker.  How would the doctor ever know when to sell shares and when to hold on and sell something else?

A banker can evaluate corporate bonds as well as any bond analyst.  It would be foolish for a banker to pay hidden fees to a bond fund manager or to buy a biotech, huge load, mutual fund.

A salesperson has a unique perspective on sales dominated businesses.  She may be able to pick out which companies can sell over the internet and which cannot; whereas the convertible bond fund that is being pitched to her as just right for her retirement account has a big load and a bad manager.

Everyone has valuable experience that can help shape a comfortable asset allocation.  Get out paper and pencil again.  A word processor is also fine.

You are going to make a list.  On one side of the paper or screen, list all the interests you can remember.  Start in childhood and work up to the present moment.  List all the experience you enjoyed in childhood as well as all your current experience and hobbies.  List any collections, any activities, all the clubs and societies, as well as jobs, careers, and investments that you found fascinating.  Then opposite each item on the list, write a few sentences about what you liked in each activity.

Fred’s list might look something like this:

·       Basketball

·       Student government

·       Travel

·       Collecting Coke signs

·       Law

·       Running

·       Raising children

Spend a few weeks on your list as you will not remember all your interest right away.  Present concerns often screen memories of the past.  Over time, these memories will surface.

As you make your list, leave plenty of room on the other side of the paper to note what interested you about each of these activities.  Consider the physical, mental, emotional, and spiritual side of each activity.  Opposite basketball, Fred might write, “Loved running and shooting baskets.  Being part of a team even though we rarely won.  Hanging with the guys after the games.  Loved watching great players play and reading about it in the local paper.  Loved to look at the basketball statistics.”  When Fred is done, his chart might look like this:

Doris’ list might look something like this:

1.     Cheerleading.  Fun because we designed our own outfits and made up our own cheers. 

2.     Chemistry.  Creative possibilities but there are exact formulas underneath it all.

3.     Tennis.  Sun.  The smell of the balls and the sound of the balls coming off the strings.  Exercise.  Strategy.  Working with my doubles partner.

4.     Dating.  The thrill of finding the right guy, evaluating him, talking to my friends about him.  Comparing and rating men.  Holding out for the best husband.

5.     Sales.  The thrill of closing a new customer.  Working with people.  Getting to know them.  Repeat customers.  Long term commissions.

6.     Raising the children.  Hugs and kisses.  Cute clothes.  Dolls.  Tea parties. 

Everyone’s list will be different.  The idea is to find an area of interest in your life to profitably apply to investing.  Not all your interests will be appropriate.  But do not leave anything out of your list.  In odd ways, old interest can be rekindled with the right investments.

Once you have completed your list, compare it to the list of investments within your comfort-zone.  For each investment, see if there is some aspect of your interests that is an innate part of that investment.  Doris might find collecting vintage cloths incorporates some of the things she enjoyed about cheerleading and now enjoys raising her children.  The mathematical formulas in constructing a creative bond portfolio may trigger the same love she had for chemistry.  The same thrill she gets from closing customers, working with long-term customers, and collecting long-term commissions can be found in renting to new tenants, getting to know long-term tenants, and collecting ever escalating rents.  Working with a trustworthy financial advisor can be like working with a tennis doubles partner or even evaluating dates for good long-term possibilities.  The fun of comparing and rating men can be found in an investment club comparing and rating investments.  A women’s investment club can do both.

Fred’s interest in collecting coke signs is an investment.  The skill of careful collecting can be applied to all investment categories.  Stocks collected one at a time and held for decades do very well as do convertible bonds and singe family homes.  Fred’s interest in travel, concepts, and history can be applied to emerging market stocks.  His love of watching great players play basketball and evaluating their statistics, and his interest in research, will help him find great emerging market investors running great emerging market funds.

The case of Dr. Dee

Consider the case of Dr. Dee, who we met elsewhere on the website.  When he retired he had $300,000 stuffed into a Keogh and $700,000 in mutual funds in a brokerage account.   He never spent more than an hour a week looking at his investments.  Everything he owned in both accounts was picked by his stockbroker.  He did not know if he ever paid a load on a purchase or if he outperformed or underperformed any benchmarks.  He was not even sure if he made any money from his investments as he never kept accurate records of how much he added and withdrew from his account each year.   He did not know what his asset allocation was and what would suit him better. 

His inventory showed that his biggest investment character defects were inactivity and unhealthy trust of sales people.  A little voice had been telling him for years that he should get more involved with his investments but he had ignored it until he retired.  Suddenly with very little to do, that little voice began to scream at him.  While he saw from his inventory what had happened, he believed that he had no experience that could help him establish a better asset allocation.  However, it turns out he has extensive, valuable experience.

In thirty years of dental practice, Dr. Dee rented six different offices.  He was practically an expert on medical office rentals.  In 1983, he and two other dentists invested heavily in a medical building development.  In 1989, they gave the building back to the bank after each paid $100,000 to be released from a $3 million mortgage.  He learned all about personal liability, excessive leverage, and overbuilt markets.  He had all the experience necessary to buy and structure a successful long-term medical building.  He knew more about dental supply companies than a Wall Street analyst.   He and his wife had traveled to every major city and destination in the world over the last 30 years.  They could easily distinguish between the prospects for an investment in Indonesia from the prospects in Ireland.  And he had extensive experience working with a stockbroker.  He could clearly see that his former broker had no ability to determine the best asset allocation for him in retirement and had never provided him with any useful information on his returns or the fees he paid or the effect those fees had on his returns.

Once Dr. Dee figured out he had half his money in loaded bond funds and half in loaded U.S. stock funds, he realized he only had two asset classes and they were correlated.  Over a period of years, he sold all the bond funds and half the stock funds paying attention to back-end sales charges, taxes, and future fund prospects. 

A third of his money he invested in three low leverage, income producing medical buildings; two locally and one out of state.  Though retired, he loves chatting with the young dentist tenants as much as the high rents they pay. 

Another third of his money he invested in three no-load overseas stock funds.  Every trip he and his wife make, he talks to local brokers and business people to see if his fund managers are up on the local market.  He has observed that expensive countries, those with strong currencies, make the best investments.  Countries that devalue the currency to attract tourists to the cheap hotels and resorts tend to fall apart. 

The final 1/12 he invested in 10 dental supply companies he knew well. 

Now, when he needs to sell any shares or make a real estate transaction to fund his living expense account, he knows exactly what to sell and how much.  He does not need to pay any commissions or reinvest in something he does not understand.  And he has fun investing.

When fun is not a remote possibility

You now know much about yourself.  You have done an investment compatibility inventory and shared it with a friend.  You have done an interest inventory.  Many fun investment ideas should now be apparent.  For some of you, though, nothing is clicking.  Your past investment mistakes still wear on you.  Little hope has entered your consciousness.  Do not despair.  Click on the "Up" button at the top of the left margin and then click on the "Power to Change" button.  There you will find help.

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