Even smart people make dumb investment choices, and taking the wrong lessons from the crash will make it worse. Want to really build your wealth? Stop trying to beat the market
by Michael McCullough
Did you hear about the Calgary trio of Nicole Rumley, Owen Watson and Brandon Thompson, who managed to generate a 22% return when North American stock indices dropped 35%? Their secret, they said, was shorting a stock that subsequently plunged, quickly netting them $50,000.
There, did you feel it? Your heart rate quickening? You might be disappointed, then, to learn that nobody actually made anything. These were Mount Royal University students playing with $100,000 of imaginary money in a contest put on by the Bissett School of Business over the course of the 2008-09 academic year, which happened to coincide with the worst stock market collapse since the Great Depression.
Your reaction offers a clue to why otherwise smart and accomplished people make rotten investment decisions, says Bruce Sellery, a former anchor on the Business News Network (BNN) turned investment educator. In a market crying out for saviours, Sellery is a bracing splash of cold water. Everybody’s looking for the financial clairvoyant who saw through the market meltdown and can foresee what’s going to happen next. To Sellery, it’s human nature to seek out the magic formula that will enable you to beat the market, to leap into action when the markets are in turmoil.
And it’s dumb, dumb, dumb.
“There isn’t a soothsayer out there who’s going to be able to predict market moves,” he states. Not more than once, anyway. “What’s going to make a much bigger impact for people is doing some basic things right.” In other words, forget about beating the market. For most, just meeting the average market returns – with a minimum of fees – would be an improvement.
Before he got into the financial media, Sellery worked in marketing strategy and corporate training at packaged goods company Procter & Gamble. Becoming dean of diversity training – getting employees to shed their subconscious prejudices about gender, race and sexual orientation – he discovered he had a talent for leading tough conversations, which would serve him well in his broadcasting career.
Then, after 10 years on television as a financial journalist, he decided he was done. He moved from Toronto to Calgary, where his partner of the past three years lived. In January 2009 Sellery launched Moolala, a training company targeted at people who come to investing reluctantly. He puts on public seminars and private sessions for clubs, associations and employee groups. He has a book of the same name coming out next September with McClelland & Stewart. So far Moolala hasn’t been a big money-maker, more a labour of love. “I’m hugely passionate about improving people’s financial quality of life,” he says in a voice that sounds more sincere than comes across on the printed page.
Sellery wanted to do something for the vast majority of investors who weren’t watching finance TV all the time and frankly shouldn’t be. “I started thinking about what is it that has smart, capable people continue to do dumb things with their money? That’s the issue. It’s prevalent,” he says. “When I walk to the front of the room and ask people if they know someone who fits this description, they all raise their hands, and most of the time they’re talking about themselves.”
The participants at his seminars are often surprisingly successful at their careers. “I speak to some really high-end audiences – business clubs, senior executives,” he says. Some are even financial advisers themselves, yet their own finances are in a mess. They’re wondering what they’re doing wrong. In a lot of cases, it’s that they are consuming snippets of advice, both the good kind and the hype, from banks, brokerages, money managers, ratings agencies, business schools and the financial media – which together form a kind of investment-industrial complex which ultimately sustains itself, earned or not, on the business of individual investors. For those investors, a financial turnaround is typically a matter of taking a few steps back and clarifying their goals and the best way to get there before acting. Rethinking money. Not overthinking it.
Terry Shaunessy jokingly refers to himself as “the only socialist money manager in Alberta.” It’s a peculiar claim coming from someone who works mostly for the super- rich, helping make them richer. But, like Sellery, he’s jaded with the state of Canada’s financial services industry, which he sees as a tight-knit cabal of banks owning brokerages owning trust companies owning mutual fund companies owning life insurance companies. “I’m not a huge fan of massive corporations. I think the public gets ripped off,” he says.
Shaunessy used to work in the heart of the beast. He started as a research analyst for pension funds and foundations in Toronto. He later moved upstairs, managing Canadian balanced funds for HSBC and rising to president of Gordon Capital, one of Canada’s largest, brashest independent brokerages.
“When I was head analyst for Merrill Lynch in the 1980s – pre-Internet, pre-BNN, pre-CNBC – I provided basic information. You could see how inefficient the markets were at that point,” he recalls. With a little digging, an analyst might find something the rest of the industry didn’t know, let alone the investing public. But technology and communications improved such that every bit of information on a big, widely traded stock was immediately relayed around the world and reflected in the share price, a kind of stock market nirvana economists call “efficient markets.” Thus the advantage of analysis of large-cap stocks started to disappear.
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