Wednesday, May 12, 2021

What Might Have Been

I’ve let some very lucrative opportunities slip through my fingers over the years.  I won’t call them regrets as I’ll explain later, but I could have ended up with a lot more money than I have now.  Here I describe the top three potential paydays that got away from me.


I spent my career as a cryptographer, so it’s not too surprising that I took an interest in the workings of bitcoin when it first appeared.  I learned how it worked and appreciated the clever way it was designed to mimic mining for gold without the need for a central authority.  For a while, that’s as far as my interest went.

Later, some enthusiasts formed a group to work on mining bitcoins, and they wanted me to join.  I was tempted, but decided that I had other things to do with my time.  Given the way I tend to get obsessed with technical projects, if I had joined in those early days, I could have mined thousands of bitcoins.

When bitcoin prices were manipulated upward to spark the mania we’ve witnessed, I would have sold my bitcoins off a little at a time to avoid having too much of my net worth tied up in a volatile currency of questionable real value.  It’s possible that I could have ended up with around CDN$50 million after taxes.  But I’ll never know for certain what might have been because I didn’t join the group.

Apple Stock

I bought 3000 shares of Apple stock in October 2000.  They were only $20.54 each.  A little less than three years later, I sold them for a loss of about US$3000.  Since then, Apple shares have split 2 for 1, 7 for 1, and recently 4 for 1.  If I had held onto this stock, I’d have 168,000 shares now.  As I write this, these shares trade at $126.85, for a total of US21.3 million.

I would never have held on all the way to today without selling any shares.  To reduce risk, I would have sold small blocks of stock along the way.  My best guess is that I’d now have about CDN$10 million after tax from holding these Apple shares.  But I didn’t hold them, so I’ll never know for sure.


I had the good fortune to work for a tech company that had its initial public offering in the midst of the late 1990s tech boom.  I had no way of knowing what was about to happen, but the company’s stock price grew to 20 to 100 times any sensible valuation.  I did well with my allotment of stock options.

Leading up to the IPO, I had the chance to move into management but turned it down.  I decided I was happier doing technical work.  If I had embraced management for just a couple of years, I would have received substantially more stock options.  I could easily have ended up with a few million more dollars.  But, I chose reasonable working hours and work I liked better.


It’s tempting to look at these missed chances and draw some lessons like “when you see an opportunity, go for it” or “don’t be left with regrets,” but I think this is wrong.  None of these outcomes was foreseeable.

In the early days of bitcoin, there were believers in bitcoin as the future of transactions, but nobody was talking about getting rich from a crazy runup in bitcoin prices.  Bitcoin miners were geeks who liked the technology.  They weren’t young people seeking their fortune.

Fifteen to twenty years ago, Apple was just another small tech company that seemed sure to get crushed by the Microsoft behemoth.  Betting on Apple back then made no more sense than betting on several other tech companies.  But none of the others grew to what Apple is now.

My whole career I avoided management because I didn’t like the work, didn’t think I’d be good at it, and didn’t want to work the long hours management requires.  I had no way of knowing that enduring management for a small slice of a decades-long career would have a big payoff.

I’ve focused here on missed opportunities, but I’ve had a tremendous amount of good fortune in my life as well.  Some of the random choices I’ve made have paid off in unexpected ways.  The real lesson here is that life is unpredictable, and you’re destined to be fortunate sometimes and unfortunate other times.  There’s no point in mooning over what might have been.  Look to the future.

Friday, May 7, 2021

Short Takes: Leverage Losses, Financial Advice, and more

Speculation that we’re in a bubble is growing.  I don’t know how to identify bubbles while they’re happening, so the most I can say right now is that the prices of stocks, bonds, and real estate are high.  But let’s suppose for the moment that all three assets are in a bubble.  What are we to do with this information?  Maybe one or more of these assets will crash.  But what if they keep rising for quite a while longer before this crash happens?  What if the economy booms and we grow our way out of the bubble without a crash?  There’s no guarantee that selling assets and waiting for a crash will work out well.  Because I don’t know what’s going to happen, I’m sticking with my investment plan.  The only change I’ve made is to lower my expectations of future investment returns.  So, I haven’t changed the way I invest, but I haven't grown my spending as much as my portfolio’s growth dictates in case future returns disappoint.

I managed only one post in the past two weeks:

The “Explore” Part of a Portfolio

Here are some short takes and some weekend reading:

John Robertson
tells a deeply personal story about personal loss and financial loss due to leverage.  When it comes to investing with borrowed money, everyone is a genius until suddenly they’re not.

Ben Felix (video) explains what is and is not good financial advice.  He says that investing is largely a solved problem, but goes on to explain the ways that people need help.  He makes an excellent case that most people could benefit from an advisor who does a good job providing this help.  I have little doubt that he is able to do a good job in his practice.  However, after listening to many financial advisors of different types, including those who work with high net worth clients, I have my doubts that most of these advisors perform Ben’s list of tasks well.

Jason Heath answers a question about making spousal RRSP contributions in your 70s.

Monday, April 26, 2021

The “Explore” Part of a Portfolio

Many people advocate having a portfolio made up of mostly a core of low cost index funds along with a small “explore” part for taking concentrated risks on favourite investments.  This can work well enough if you’re realistic about it, but most investors cross the line to self-delusion.

Ben Carlson does a good job justifying the existence of explore-type investments in his article The Case for Having a Fun Portfolio.  After all, people are entitled to spend their money however they want.  Not every expenditure has to be part of a logical long-term plan.  We can buy a beer, or a motorcycle, or some favourite stock if we want.  So what if the long-term expectation is that the explore part of people’s portfolios will underperform indexes.

All the logic makes sense up to this point.  But just about every stock-picker I know can’t resist taking this a step further.  “Besides, the stock I picked is going to do great.”  In their hearts, they know their stock picks are going to outperform.  Past results don’t seem to deter them.  They wouldn’t bother with the explore part of their portfolios if they truly believed they would lose money over a lifetime of picking stocks.  All the evidence says that professional investors today set good relative prices so that individual investors who choose their own stocks are essentially making random picks.  The odds are against the small guy, but hope springs eternal.  I prefer to find hope in other pursuits.

Friday, April 23, 2021

Short Takes: Estimating Future Returns, Leveraged Blow-Up, and more

The email delivery of my blog posts is run through Feedburner, and Google has announced that they’re dropping this email service in September.  So, if my posts are to still get out to email subscribers, I’ll need to find some other way.  My first attempt to find a replacement came up empty.  Suggestions for an easy solution are welcome.

I managed only one post in the past two weeks:

If Simplicity in Investing is Good, Why is My Portfolio Complicated?

Here are some short takes and some weekend reading:

The Rational Reminder Podcast takes an interesting look at how to estimate future stock returns.  What they’re trying to do is harder than what I did.  I didn’t concern myself with what would happen in the near future.  I just used a conservative estimate of corporate earnings growth, and presumed that the market price-to-earnings ratio would decline to more typical levels by the time I get to be 100 years old.

Bill Hwang’s huge personal loss with his Archegos family office doesn’t seem very relevant to personal finance, but it does serve as a reminder of the dangers of leverage (borrowing to invest).  Warren Buffett says “Never risk what you have and need for what we don't have and don't need.”

Big Cajun Man reports on changes to the disability tax credit in the latest federal budget.

Wednesday, April 21, 2021

If Simplicity in Investing is Good, Why is My Portfolio Complicated?

My recent article on A Life-Long Do-It-Yourself Investing Plan describes a way to make investing uncomplicated while keeping costs to a reasonable level.  Reader reactions were very positive, but some of the questions I received are worth discussing.

“You’re advocating simple investing, but your own portfolio is complex.”

That’s true.  If the all-in-one exchange-traded fund VEQT had existed back when I was switching to index investing, I might have used it for all my stocks.  Unfortunately, it wasn’t around back then, and I settled on a mix of 4 stock ETFs.  In trade for this complexity, I estimate that I save approximately 0.29% per year in MERs and foreign withholding tax (FWT) compared to owning only VEQT.

As it happens, I’m well suited to building a spreadsheet to manage my portfolio, including automating rebalancing and following asset location rules.  Even so, if I were starting out today with no spreadsheet, I might forgo the savings and just buy VEQT for all my stocks.  However, given that I’ve already done the work to decide on a set of rules and have automated them all, I’m happy to save the 0.29% each year.

Much of my writing on portfolio details over the years has been aimed at investors like myself.  If you enjoyed your high school math classes, then maybe you have the temperament to manage a more complex portfolio.  However, I’m confident that the vast majority of people would be happier with something simpler.  It’s not just about a trade-off between effort and savings; there are many ways to mess up a complex portfolio.  You could end up doing a pile of work and saving nothing, or worse.

“Can I see a version of your spreadsheet with your personal details removed?”

I’ve started to make a public version of my spreadsheet several times.  Each time I despair at how hard it is to make such a spreadsheet generic enough to be widely useful, and simple enough to be understandable.  So, I doubt I will ever complete this task.

This may be rationalizing, but I’m not sure I’d really be helping my readers if I made a version of my spreadsheet available.  Maybe being willing and able to do the work of creating your own investing spreadsheet is a necessary condition for success at managing a more complex portfolio.

“You’ve got me thinking I should change my portfolio to match the simple portfolio you described.”

The biggest potential problem with making such a change is capital gains taxes.  If you have investments in a non-registered (taxable) account, you may have to realize capital gains to make a change.  Think carefully about adding a tax burden when making such a change.

If you’ve got a complex portfolio, it might make sense to simplify it, at least in your TFSAs and RRSPs/RRIFs.  However, if you already have a simple portfolio using one of the all-in-one ETFs that include bonds, the benefits of switching may be small.  The prospects for long-term bonds aren’t great right now, but your exposure to potential losses may be fairly low.  It pays to do some calculations before jumping on the latest investing idea.

If you’re already running a fairly simple low-cost portfolio successfully, there may be no reason to change.  If you want to change your portfolio because it will give substantial benefits, then go ahead.  But if you find your reason is an emotional need to seek perfection, then I suggest giving yourself permission to have a portfolio that isn’t quite perfect.  In my own portfolio, I sometimes have some fixed income in the wrong account because it was just easier to do it that way when I rebalanced.  The financial cost of doing this is trivial, and I’m not seeking perfection.

“There are other good ways to keep investing simple.”

That’s true.  I laid out one good way for someone to start an investment portfolio and then maintain it simply for a lifetime.  There are other ways, including many differences in the details.  Maybe you want an 80/20 all-in-one ETF, or you plan to buy an annuity with 25% of your portfolio when you retire.  We can debate the merits of these choices, but at a higher level, they just represent small differences.  The important things to focus on are simplicity, low costs, and avoiding mistakes.