Staying on the FIRE PathPosted: September 4, 2018
One of the greatest challenges of investing is keeping the long-term plan in sight. If you are like many investors who are on the FIRE path, then you are probably reading blogs on a regular basis, watching financial TV shows, listening to podcasts, etc., to keep abreast of things. Constantly submersing yourself in media is a recipe for the fear of missing out (or “FOMO” as the kids call it these days). However, keeping your long-term goal in view will help you to properly avoid these fears and keep you on the FIRE path.
Over the past few years I’ve seen a number of hot topics, and seen a lot of people make quick money. Two key areas that have constantly crossed my path have been bitcoin (or any coin or ICO based off of blockchain or some derivative), and marijuana stocks. I have read about many folks making tonnes of money off of bitcoin, and when I overheard someone who works at my local cafeteria talking about it—and how she leaves her computer on all the time to mine bitcoin—I knew that bitcoin had hit the mainstream.
Many of my friends also ask me about marijuana stocks. I personally know of at least one person who made over 100x her money by buying penny stocks in the marijuana sector a few years ago, and those stocks are north of $5.00. If you buy for $0.10 and sell for $5.00 you’ve made a 4,900% (yes, four thousand nine hundred percent). To rub salt in my FOMO wounds, she put the money in her tax-free account, which means she walked away with not having to pay any capital gains taxes.
My view is that folks who make tonnes of money off of early trends/hype such as bitcoin or marijuana are either incredibly patient, have a very strong stomach for the potential of losing money, or are incredibly stupid. Of course, one view is that you should always have “play money” for your investments. E.g. if you say that you’ll spend $100/year on any stock you want, you can probably have some fun playing with penny stocks or bitcoin. Heck, you may make a hell of a lot of money. However, for the most part I see a lot of people being sucked into hype because they do fear missing out on the next big thing, on the next “dot com” craze, or some other fad.
For myself, I have a long-term plan, and to support that goal I’ve got several goals and sub-goals, to help keep me on track. Of late, one of my tactical goals is to improve my asset mix. As I mentioned in my previous quarterly update, my focus over the next six months will be to increase my real estate exposure, which is just over 10%, a far cry from my nominal target of 20%. I consider myself disciplined in that I have an investment strategy at hand that forces me to avoid things like bitcoin and marijuana stocks (however, I have been toying lately with allocating 0.10% of my portfolio towards “fun stocks”, which would open me to up being able to invest in anything just for kicks).
However, even when ignoring hype stocks, by my listening to podcasts, reading, and compiling The Dividend Gangster dividend list, I have been exposed to several interesting companies. For example, one company which recently caught my eye is MTY Food Group Inc. (covered in my July 20, 2018 dividend update). The company recently agreed to purchase sweetFrog Premium Frozen Yogurt. The firm also has a fairly solid (albeit short) dividend history with some consistent increases, and depending on the valuation model it is may be considered undervalued. Seeing companies like this ignites a FOMO reaction, and makes me wonder if I should buy some shares of MTY to get in on the ground floor before it shoots up even higher in value, or makes its next dividend increase.
But it is times like this when discipline and keeping your eyes on the long-term goal—sticking to your plan—is most important. I could certainly go out and buy some MTY next week when I make my bi-weekly stock/ETF purchases, and buying it would certainly satisfy the itch of adding another company to my portfolio, and a potentially strong dividend player at that. When I look back at other companies I could have purchased “for a steal” (e.g. I was originally looking at Lassonde when it was $100/share, and it is now north of $200; or Canadian Tire at $90 and it is now north of $160) but didn’t bother, I am reminded of opportunities I missed out on. That said, purchasing common equity would push me further away from my tactical goal of re-balancing the portfolio by building my real estate exposure.
The simple reality is that capital (for most of us, that means plain old money) is a limited resource. To quote one of my professors, strategy is the “allocation of scarce resources”. Within that context, strategy in investing is the allocation of scarce capital, i.e. the money you have to spend. There is only so much money to go around. And when I view my portfolio in that context, the need to balance my portfolio to reduce overall risk by sticking to my target allocation outweighs the need to scratch the investing itch by finding a new company to add to my holdings.
So, when friends and peers ask me about a hype stock (bitcoin, marijuana), or even a non-hype stock (should I buy some BMO for my portfolio?), my first question back to them is, “What are your long-term goals?” If a stock—hype or otherwise—makes sense to add to a portfolio, by all means, do so. But only if it makes sense. Buying to follow the crowd because you’re sacred of not making the quick money is one of the furthest things form investing strategy I can think of.
Onwards and upwards!