What should we do if a lion rushes at us? The right behavior is counter-intuitive, just like that which the investor must adopt, explains the author Nicolas Bérubé in his new book From zero to millionaire – Invest in the stock market without suffering.
Posted yesterday at 7:00 a.m.
When he made his first investments, says Nicolas Bérubé, he made several mistakes. Like those who flee running before the arrival of the lion or leave the markets running before a stock market crash.
Good behavior is counter-intuitive in both cases: staying calm and not moving. “As with lions, the trick is not to fight danger, but to fight our reflexes,” he writes in his recent book.
“I myself have a hard time getting it into my head that losing interest in your investments pays off”, confides on the telephone the one who is also a journalist at The Press.
PHOTO EDOUARD PLANTE-FRÉCHETTE, LA PRESSE ARCHIVES
Author and journalist Nicolas Bérubé signs his second book, which deals with autonomous investment.
“A person who fell into a coma in January 2020, he continues, and who woke up in January 2021 would have said, seeing his investments: “We had a good year”, having no idea of the market meltdown happened. »
Written in a colorful and lively language, the book stands out from financial works. By closing the book, the budding investor comes out reassured, pumped up and equipped to get started.
The myth of the rare pearl
The author of the bestselling book Millionaires are not who you think analyzed the behavior of large investors to understand how to avoid counter-intuitive errors. With statistics, studies and evocative tables, he destroys several myths.
No, the Bourse is not a big casino. Nor the place where you have to find the rare pearl to succeed.
I often hear the question: who are the next Google, Apple or Tesla? What are the ten companies for 2022? But if we go back, where are the ten companies of 2014, 2017? Nine times out of ten, they have not had good results.
Nicolas Bérubé, author and journalist at The Press
We would tend to think that being a visionary pays off. However, the author identifies evidence to the contrary, whether with the invention of the automobile, aviation or vaccines against COVID-19. “A $10,000 investment in Pfizer stock in the early days of the pandemic was worth $11,900 a year later,” he wrote, while for Starbucks, which had to close hundreds of branches during the pandemic , the shares were worth $14,200.
The author therefore suggests not doing the highly risky exercise of betting on the next Tour de France podium, but following the multitude of riders who will make up the peloton for the next few years.
The stars of finance
The other myth to debunk, according to Nicolas Bérubé, concerns investment professionals who promise extraordinary returns.
When you look at the performance of Wall Street’s kings of finance over the long term as a whole, you can find some that stand out from the pack, but they’re not the same every decade.
Nicolas Bérubé, author and journalist at The Press
In support, the most recent SPIVA report, which measures the performance of portfolio managers compared to that of the stock market. It shows that 91% of Canadian equity fund managers underperformed the index, as did 92% of US managers.
“Professionals will say that those who manage their own money will make mistakes. Yes, it’s true. But we can learn not to. »
Donate half his salary for 25 years
To illustrate the management costs, the author tells the fictitious story of a tourist lost on a dangerous island encountering a rare taxi who offers to take him to the hotel for 50% of his salary for the next 25 years. This is what can happen to our investment returns when we choose certain financial products sold by financial advisors.
An example taken from the calculator “The impact of investment costs” of the Autorité des marchés financiers confirms his remarks. By investing $100,000 to which we add $10,000 per year for 25 years at 6% and a management fee of 2% which seems insignificant, the investor ends up with a gain of $320,000 while the financial institution withdraws $310,000.
What to do then?
The best way to invest for the long term, according to the author, is to buy a fund that includes the largest number of companies and that charges low management fees.
To get the hang of it, he advises aspiring investors to open a brokerage account, buy a balanced index ETF from the Vanguard, BlackRock or BMO families, and let it work. An exercise that could occupy the investor only one hour per year, he says.
“Having an average return, the market return, doesn’t sound very exciting. Yet the Toronto Stock Exchange has averaged 9% per year for over 50 years. When I tell people that, they don’t believe me. I tell them to go and see the numbers. »
Those less comfortable can entrust their money to professionals, who invest in index ETFs and charge fewer fees, he suggests.
“Do not see my book as a rallying cry for the investor who wants to do everything himself. It’s not to everyone’s taste. »
From zero to millionaire – Invest in the stock market without suffering
Nicolas Berube
Editions La Presse
256 pages