Financial Jungle

Recently, I received requests from readers asking for some advice on finances. One of them being a Vancouverite who is feeling a little lost in the investment jungle. Please realize that I’m only blogging for fun, and I have no official training in financial planning. Therefore, always consult your independent financial advisor prior to any investment decisions.

To protect the reader’s identity, we’ll refer to him as “MJ”. You can view the full letter here, but here are the highlights:

All my RRSP holdings (which don’t exist anymore for reasons not worth mentioning here) were just some dumb mutual fund that made me negative 2 frickin percent. Anyways, got rid of those. A few months ago, I started off with Credential Direct for 1000 loonies and then jumped ship and took all my holdings to questrade where I had to purchase another 1000 loonies. I started off with Activision which just recently lost me money but am holding Apple and Microsoft. Apple is doing well. Problem is.. I have no idea what I am doing really. I am just going by gut instinct and learning what I can about company activities..etc… I am also thinking I should look into IPOs and signed up yesterday to a fool.com insider’s tips.

Help! I feel like a small tuna in the wrong fish tank. I need tools and education before I end up drowning myself. O so many questions!

Don’t feel bad, MJ. Most of us are in the same boat. As hard as it is to imagine, I think you’re making great progress by realizing that investors traipse when they don’t have a set of principles to adhere to. Sooner or later, you’ll have to decide what type of investor you are. Are you a passive, fundamental or technical investor? Draft up your own investment philosophy, and sign it with your blood. In investing, it’s rarely profitable being the jack of all trades and master of none. Similar to how Derek Zoolander having the patented pose, Blue Steel, every investor should have a circle of competence as coined by Warren Buffett. Stick to the one thing and do it well. Without this contract, it’s too easy to succumb back and forth between the various investment styles.

The contract doesn’t have to be fancy, since the only audience is you. I started my clean canvas over 2 years ago, and till this day, I’m still augmenting it with new tools and concepts that embrace my guiding principles. It’s worth the effort, as it crystallizes your thinking.

I don’t want my own biases to sway you toward one particular investment style, and perhaps one day you’ll return and challenge my own investment philosophy. But, to get you started, I recommend reading the following books and websites:

• The Four Pillars of Investing
• A Random Walk Down Wall Street
• The Investment Zoo: Taming the Bulls and the Bears
• Contrarian Investment Strategies
• The Five Rules for Successful Stock Investing
• Money Chimp
• Investment Strategies for the 21st Century

Regarding the Fool.com Insiders’ Tips, I know nothing about it. Rather than squandering hours and dollars experimenting with the different investment newsletters out there, I recommend checking out the Hulbert Financial Digest, since they’ve done the leg-work for you already.

Please take a moment to browse through my Favourite Blogs widget to the right. Many of these financial bloggers (including Canadian Capitalist, Investoid, Yaser Anwar and SteadyHand) have ample investment experience, and I have no doubt you’ll find their insights quite gratifying.