What I have learned in my 32 years on the job

It’s hard to believe that my career in financial services has passed the 30-year mark, but there you go, it has!  Brittany had the great idea that I should reflect on my time in the industry by addressing the following questions: what has remained constant, what has changed, and what have I learned from my experience?   While I don’t profess to be an expert, more on this later, I do believe that time affords us an opportunity to reflect on what has laid before, and what may transpire, in the future.  So, let’s start.

What has remained constant?

• Fear and greed. Human beings are emotional creatures that are driven by impulses of despair and euphoria.  Unless we get a software upgrade, I don’t see this changing.  The good news here is that returns are always available between these polarities.  Warren Buffett’s quote is a good reminder: “Be fearful when others are greedy and be greedy when others are fearful”.
• Diversity is key. I hate to belabour a point – actually, I don’t – especially when it comes to sensible investing.  It never ceases to amaze me how many people want to build a portfolio with just one security.  I liken the activity to building a chair with just one leg. Good luck trying to maintain balance!
• Time is your friend. The long-term investor is always the winner.  Just look at a 50-year chart of the S&P 500 if you need convincing.  Sure, we can find instances where a lottery stock propels a speculator into financial heaven, but this is the stuff of legend.  I will quote Albert Einstein here, “compound interest is the eighth wonder of the world.  He who understands it, earns it…he who doesn’t…pays it”.

What has changed?

• Rise of the machines. Physical trading floors at stock exchanges are a thing of the past.  Last time I checked only the CBOT (Chicago Board of Trade) was left.  As electronic trading has increased, so has the speed of transactions and the velocity of money flows.  This has created instances where algorithmic trading platforms have increased short-term volatility.  The good news is that humans are still the ultimate end-programmer for now.  Stay tuned! 
• Cost to trade. The actual cost of trading securities has declined to a fraction of its former self.  Online discount brokerages, robo-advisors, and supposedly, fee-free platforms like Robinhood, have made it very easy for investors to buy-and-sell without a mind toward transaction costs.  As we all know there is no such thing as a free lunch on Wall Street and this applies here as well.  Many zero-commission platforms sell customers order flow.  And while this generates substantial business profits for these firms, it has the potential to handicap the customer.^[1]
• Democratization of investing. Technological innovations in trading and a reduction in transaction costs, has led to democratization in investing.  Investing is no longer just for rich folks, it’s for everyone!  This is a wonderful realization because now all of us can benefit from the capital markets.  Now, if we can just control our emotions, all would be good.

What have I learned?

• Be wary of experts. Our current world is a deceptive one.  With the expansion of information through the internet, there are new market experts being minted everyday.  Do yourself a favour and guard against their prognostications.  There is no end to great ideas, rationalizations, should-haves, and promises of riches beyond belief.  The path down this road is full of arrogance and eventual tears.  Be wise and stay away!
• Value matters. We live in a world where there is a distinct disconnection between the price we pay and the value we get.  They are never truly in equilibrium.  It is best to remember this.  When it comes to owning a business, which is really what a stock purchase is, if you overpay for its value be prepared to see its price adjusted.  It may take some time, but it will occur, and disappointment and loss will eventually follow.  
• Use a complete toolbox. I don’t believe that any one single ideology is the true path for success in investing.  Why be only a fundamentalist, a chartist, a quant-head?  I am a strong believer in using a complete toolbox for the job at hand.  Each has its strengths and weaknesses, but all of them can complement each other.  What I do subscribe wholeheartedly to is the school of realism.  Don’t let the fantasy of financial wizardry distract you from a sound basis in reality.  In other words, always ask the question:  is this realistic?
• Simple = Success. Complex investors are confused.  They have a lack of focus and they try to hide it in a veil of mystery.  This is not useful.  Buying a good business that grows its earnings, pays increasing dividends, and is transparent on its financial reporting is a recipe for simple success.  Buying an alternative strategy that only a Noble Laureate can unravel is a recipe for disaster.  History is full of both examples and both end in tears.  The first are of joy and the second are of pain.  Just consider the story of Long-Term Capital Management as an obvious case in point^[2]

There are, of course, many other ideas that I could have brought up, but in principle, they would be kissing-cousins of these primary thoughts.  One final word is essential here:  Gratitude.  I am very fortunate to have met an amazing group of people over the years who have trusted my guidance, commentary, and service.  I feel grateful and honoured to act on your behalf and I look forward to prosperous future together.

Patrick A. Choquette

Disclaimer:

The enclosed article expresses the opinions of writer, Patrick A. Choquette, and not necessarily those of Raymond James Ltd. (“RJL”). Statistics, factual data and other information are from sources believed to be reliable but accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James Ltd. is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities.This may provide links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to.Information provided in the attached report is general in nature and should NOT be construed as providing legal, accounting and/or tax advice. Should you have any specific questions and/or issues in these areas, please consult your legal, tax and/or accounting advisor.Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Patrick Choquette, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.

[1] https://fortune.com/2021/03/01/robinhood-trading-app-free-trades-pfof-stock-market/

[2] https://en.wikipedia.org/wiki/Long-Term_Capital_Management