How one amateur investor pick stocks for fun and profit - MoneySense

How to pick stocks for fun and profit

Book review: Your returns can benefit when you avoid some golden rules

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SPEED READER

Book: Stocks for Fun and Profit
Author: Herman VanGenderen
Publisher: Tellwell Talent

Sold by: Amazon digital services

Price: Hardcover, $65.71; Paperback, $33.92, Kindle Edition, $9.99

WHO IT’S FOR: Investors—both novice or experienced—seeking to learn more about investing on their own online or alternatively, those who want to build their investing literacy so they can work with an advisor to reach their goals quicker.

MORE SPECIFICALLY? Those who like to do their own stock investing as well as those who seek financial freedom in their lives. VanGenderem himself was born on a small dairy farm to Dutch immigrant parents and grew up in a large family with modest means who grew up to be a successful investor in both stocks, business, and real estate.

WHAT’S IT ABOUT: It’s an actual account by VanGenderem that follows his investment strategy from 2014 onward.

IS IT EASY TO READ? Some parts of the book are a bit complicated for the new investor but the bottom line is to start small and invest in some of Herman’s more tried and true stocks and over time branch out from there.

WHY IT’S NEAT: Author VanGenderem not only shares his stock-picking advice but also gives you the play-by-play on how his stocks have performed over the years.

Why is the format of the book original? VanGenderem started a monthly newsletter on June 1, 2014, coinciding with the peak in the Canadian market, and after a significant run-up in the American market. VanGenderem includes two years worth of monthly newsletters in the book. Each chapter of the book is one month’s edition of the newsletter. This way the reader can experience as close as possible the fluctuations and emotions experienced through these challenging times and his behavioral response to them.

Do we get to see portfolios? Yes, VanGenderem runs both a model TFSA, RRSP and unregistered account throughout the book to show readers hot to build a great stock portfolio over time.

Topics VanGenderem covers? How to pick the best value stocks per sector, how to diversify out of Canadian stocks and which international markets you should be in, how to use leverage as well as stock options (puts and covered calls) as insurance during volatile markets. It’s a book with a fair amount of detail but with good advice for both the novice investor as well as the diehard DIY stock picker.

Related: Read more about the author’s TFSA

Red flags for bad company stocks? When it comes to picking winning companies and their shares, red flags for stock pickers should be bad management and debt load.

Key takeaway? “Start slow, build confidence and prosper. Very few things can be guaranteed in life, but what can be guaranteed is if you ‘Take the Pay from an Hour a Day to Put Away’ and invest it wisely, you will build significant wealth over time.”

Excerpt: “Next Steps in Your Journey ” (final chapter) 

What you have just read is truly unique. I have read in the range of 40 investment books and have not seen any that chronicles actual investments in actual portfolios over time. As I read and reread the monthly newsletters (that are compiled in the book) for editing purposes, I found very few embarrassing moments in the over two and a half years of chronicling my investments, despite the challenging climate over this period of time. That is a pretty good accomplishment considering the stock market is often referred to as “the great humiliator.” On the contrary, I found lots to be proud of and hope the effort bears fruit for readers. The investing world is full of advice and analysis, much more than can be readily used, so it is up to us to figure out who is providing valuable, concise and non-sensational guidance.

Related: Learn more about TFSA limits and use our calculator to see how much room you have

I recently read another sad story about a person’s investment experience with their retirement account, in which they had invested more than $100,000. Over a 10-year period, the account had grown by a measly $1,500. And here’s the kicker: it had accumulated $25,000 of fees over the same period of time. Whose fault is this? While most would pin the blame on an irresponsible adviser, does the client not share part of the blame? What did this person do to oversee the adviser’s efforts? If this person had read Issue #8, January 5, 2015, “Is a 15% Gain Better Than a 22% Loss?” would they have been better prepared to evaluate their own portfolio performance and be more educated in discussing the performance of the account with their adviser? Whether working with an adviser or investing on your own, the issue outlining how to calculate annual returns is one of the most critical.

While writing this newsletter (book), I tried to integrate many other useful educational components in addition to providing stock selections organized into portfolios. Those portfolios were developed quicker than they would likely be developed in real life, especially if you are just starting out. They do, however, illustrate how to build a stable and resilient portfolio over time. I hope to have adequately illustrated that better performance comes from minimal change, rather than perpetual tinkering. It is important to think like an investor, not a trader. This investing rather than trading mentality will reduce workload managing investments but is contingent on making good stock selection decisions to begin with. While the amount of material in the book may have seemed overwhelming, please keep in mind that only a few changes were made each month and the book covered two and a half years worth of material. It is my aim with the newsletter (book) to have subscribers spend just a couple hours per month on their investments.
The stock market may be considered risky but I don’t look at it that way. It may be volatile and there might be risky, speculative stocks, but overall every bear market has given way to recovery and growth. The real risk resides in oneself and one’s reaction to volatility.

The markets never sleep and as we are approaching book publication I wanted to update you on portfolio progress to June 1st, 2017. The TFSA is having a good year and is now up 5.7%. A couple of times through the bear market I promised to dig out of the hole without resorting to panicky changes and that’s what we did. I hope this clearly demonstrates the point that the real risk resides in oneself rather than in the market. The RRSP slid marginally to being up 16.4%, mainly due to the Home Capital Group situation. This demonstrates the importance of controlling position size so that no one company can dramatically negatively affect the portfolio. The regular account continues to power forward and is now up 39.1%. That’s pretty good!

Your next steps are up to you. As the old saying goes, “you can lead a horse to water, but you can’t make them drink.” I hope the book provided enough motivation and know-how to make you want to take a drink from the stock trough. Start slow, build confidence and prosper. Very few things can be guaranteed in life, but what can be guaranteed is if you “Take the Pay from an Hour a Day to Put Away” and invest it wisely, you will build significant wealth over time. For Canadian readers, should you wish to continue reading my work, please fill out the subscriber’s agreement and mail or email you1st.stocks@gmail.com and check out www.you1stenterprises.com. Your Success Is Our Quest.

MORE ABOUT ME AND MY TFSA