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FROM ZERO TO MILLIONAIRE
A simple, effective, and stress-free way
to invest in the stock market
NICOLAS BÉRUBÉ

To Pénélope, who enlightens me

CONTENTS
Preface
Introduction: “It’s all going to collapse”
Chapter 1: Explosions and Contractions
Chapter 2: Seeking The Rare Pearl
Chapter 3: Our Fair Share of the Profits
Chapter 4: Stocks and Bonds
Chapter 5: Driving at 130 mph on the Highway
Chapter 6: Turn Off the TV, Switch Off your Notifications
Chapter 7: Celebrating Stock Market Corrections
Chapter 8: A Smart Investor’s Guide to Self-Defense
Chapter 9: Grow your Wealth
Conclusion: The Cow and the Shark
Acknowledgments
About the author
Publishing Details

PREFACE
“You don’t seem to give much thought to the matter in hand,” I said at last,
interrupting Holmes
...
“It is a capital mistake to theorize before you
have all the evidence
...
”
Arthur Conan Doyle, The Adventures of Sherlock Holmes
I’m not an investor
...
I’ve decided I’ll do the work
...

Jerry Seinfeld, comedian

T

HE PILE OF books cluttering my bedside table threatened to collapse on my

head overnight, but my mind was elsewhere – I was about to get rich
...
I was convinced
that the stock market was about to crash
...
S
...
We were experiencing
the greatest financial crisis since the Great Depression of the 1930s
...
In my neighborhood, dozens of empty commercial spaces were for sale or
rent
...
It seemed endless
...
S
...
Many observers believed that this rally was meaningless,
that a new and deeper correction was imminent
...


I had just finished reading several books about the financial crisis, including The
Big Short,1 by Michael Lewis, and The Greatest Trade Ever,2 by Gregory
Zuckerman, which told the story of how astute investors predicted the bursting
of the U
...
housing bubble and positioned themselves to profit
...

This time, I decided, the visionary would be me
...
I
decided to invest this amount in a simple idea: that Wall Street would collapse
...
I had to open a
brokerage account that allowed me to trade on the Chicago Stock Exchange
...
My plan
was to add money to my bet as soon as the market tipped in my favor
...

From day one, I lost money
...
Not only was the stock
market refusing to collapse, it was still going up!
I wasn’t going to be discouraged
...

After a few months, the result was clear: I had failed
...
If investing in the
stock market was an exam, I had received my corrected paper, marked with a big
“zero” written in red ink
...
I remember that losing
that amount so quickly was unpleasant enough to make me think about it often
...

In the years that followed, I spent thousands of hours reading about finance and
investing
...
Money Mustache), and many others
...
I took an in-depth look at the lives
and writings of financial giants, including Warren Buffett, Charlie Munger,
Benjamin Graham, and John Bogle, who are considered some of the greatest
investors in history
...

I realized that the stock market is not a casino, nor is it a game of daring or
trickery
...

I also saw that this world I had imagined to be barren was populated by
fascinating characters, fortunes won and lost, and the full range of human
emotions, multiplied tenfold by the prospect of financial gain, one of the most
powerful intoxicants that ever existed
...
This time, I
didn’t regret it
...
Even Warren Buffett
says he lost 20% of his money on an unfortunate investment he made in his early
20s, when he didn’t have the experience to understand what he was doing
...

“Fairly big mistake,” he once quipped
...
(If you already have, I’m sorry!
Some lessons hurt more than others
...
Wealth is found in the choices
we make with the money we have now, today
...
At the end of each
presentation, I took 30 or 40 minutes to talk with the people who came to hear
me
...
I received no such
questions
...

When I returned home after these conferences, I was happy to have had these
exchanges
...
Partly because of me, people
might become investors
...
I knew they were making the
right decision
...

These are the thoughts that led me to write this book
...

At a time when more people in the Western world are investing in the stock
market than ever before, I realize that many investors feel that they are missing
out on something
...
Should
we buy stocks in more exciting companies? Change financial planners or
portfolio managers? Find someone special, someone who can find stocks that
will increase in value dramatically over time? This book will attempt to answer
these questions
...
So let me cover some important lessons in
these pages so that you don’t make the mistakes I did to acquire them
...
W
...

2 Gregory Zuckerman, The Greatest Trade Ever: The Behind-the-scenes Story of How John Paulson Defied
Wall Street and Made Financial History, Crown Business, 2009
...


INTRODUCTION: “IT’S ALL
GOING TO COLLAPSE”
If you’re not sure what to be alarmed about, everything is alarming
...
”

Several years ago, I was having lunch with a friend in a San Francisco restaurant
when he made this confession
...
Near the entrance, yoga
mats rolled up in specialized covers lay jumbled together like multicolored
offerings to the gods of wellness and self-discovery
...
My
friend, apparently, was not
...
“The dollar is no longer backed by gold
...
S
...

There’s no escaping it
...
S
...

“Yes, but little by little people are realizing that
...

“We have enough food to last a year,” he said
...
Behind him, a lady was parking a BMW station
wagon along the sidewalk
...


“Do you buy gold?” I asked
...
I’m in
the process of arranging to have the gold stored
...
”
***

A decade has passed since the morning of our conversation
...
S
...

The price of gold is lower than the day when we had our lunch
...
He was a professional who lived in a nice
house in one of the nicest neighborhoods in one of the most admired cities on
Earth
...
As I wrote in the
Preface, I myself foresaw a dramatic stock market crash, which came very close
to ending my fledgling investment career
...

“I sold everything,” he told me, a bottle of beer in hand, the Christmas tree
glittering behind him
...
I have a bad feeling… I think the next crash will be as
devastating as ever
...
“We’re due
for a good drubbing,” he revealed
...
But the market is now higher
than when they made these dark predictions
...
But around me, it is almost always
men who believe they know how to listen to their gut to know the future of the
markets
...

This hunch that imminent chaos is about to strike can seduce the bravest person,
and the most experienced market expert
...
I will explain why
...
To invest is
to give up spending money now to have more money later
...
The number of employers offering attractive retirement
plans is falling
...

Investing has risks
...

Rather than treading water from paycheck to paycheck, buying financial assets
allows us to gain freedom – and enjoy it – throughout our lives
...

Because investing is not taught in school, many people believe that it is too
complicated, too risky, or too abstract, without realizing that investing well is
extremely simple, and within virtually everyone’s reach
...

If the gains from the sale of a home are striking, it is because, for most of us, it is
the only time in our lives that we are faced with amounts in the hundreds of
thousands of dollars or more
...

Investor Warren Buffett bought his current home in Omaha, Nebraska, in 1958
...
His property is now valued at $700,000
...

Is it any wonder that Buffett has spent his life buying businesses and not villas,
and that he has referred to his house as “Buffett’s folly”?
The reason the rich are getting richer faster than the rest of the population is that
they are not letting most of their net worth sleep in the walls that protect them
from the rain and wind
...


40%

The top 1% of the wealthiest Americans have 40% of their net worth
invested in stocks and mutual funds, while the bottom 50% in terms of
wealth on average only hold 2% of their assets in these types of investments
...
This is no longer true
...
Starting to invest $5
a day at the age of 20 can make us millionaires in retirement
...
Without reading financial newspapers or becoming a finance
nerd
...
In fact, the further you are from business schools, the more of an
innate advantage you have in growing your money
...

Books that teach investing in the stock market often assume that with the
necessary tools to distinguish promising companies, investors can go ahead and
build a portfolio that will grow nicely over the years
...

The latest studies also show that spending our energy and time looking for stocks
that will make us richer essentially makes us poorer
...
This is a counterintuitive
strategy, but one that will pay off and allow you to join the leading group of the
best investors on the planet
...


Through these pages, I will show you how to get better returns than the pros and
experience fewer declines in market storms
...

And if you choose to have a professional handle your investments, you’ll learn
how to select someone who will charge transparent and reasonable fees, and who
will work in your best interests, not in the interest of a financial giant that pays
their salary
...

In Chapter 1, I show how stock bubbles have humbled generations of investors
and how Newton got caught up in one
...

Chapters 3 and 4 are about how index fund investing got invented (and laughed
at)
...

In Chapter 7, I explain how to deal with the inevitable market downturns and
crashes
...


Good practices

No one comes into this world knowing how to invest
...

“How could I have been such an idiot?” If you’ve never yelled that sentence
at yourself in a fury, you’re not an investor
...
A person who wants to increase their physical strength and
endurance is not going to spend their evenings smoking cigarettes on the couch
believing they are getting closer to their goals
...

Unlike the main principles of nutrition and physical activity, good investment
practices are rarely taught in school and are not the subject of extensive
government advertising campaigns
...
The
media sometimes offers us good leads, but they get lost in an avalanche of
information that is more likely to lead us astray than to bring us closer to our
goal
...

As a result, someone who wants to get rich from their investments may engage
in behaviors that impoverish them or, at the very least, deprive them of more
generous returns
...
But the transfer of
knowledge from researchers to the public has largely not happened
...

“An ignorant mind is precisely not a spotless, empty vessel,” wrote the famous
psychologist David Dunning, “but one that’s filled with the clutter of irrelevant
or misleading life experiences, theories, facts, intuitions, strategies, algorithms,
heuristics, metaphors, and hunches that regrettably have the look and feel of
useful and accurate knowledge
...
I didn’t feel like I was doing anything wrong when
I started investing for a dramatic market decline several years ago
...

That person would have been right
...

The Israeli diplomat Abba Eban used to say that “nations and men will always
find the right solution after all other solutions have been tried
...

To understand why, let’s go to the heart of London, at the beginning of the 18th
century, when the most prominent people in society were obsessed with a few
pieces of paper
...


CHAPTER 1: EXPLOSIONS AND
CONTRACTIONS
Thinking is easy
...

But the most difficult thing in the world is to act in accordance with one’s
thinking
...


The summer of 1720 was about to begin, and the mercury was over 70
Fahrenheit in the streets of London when Newton, the genius behind the theory
of universal gravitation and one of the greatest scientists of all time, decided to
invest most of his fortune in shares of the South Sea Company
...

George I, the king of Great Britain at the time, was one of the directors of the
company, which inspired confidence in the eyes of investors
...
The subject was so exciting that it monopolized much of
the conversation in London
...
Within a few months, his investments had doubled in value
...

Far from falling, the price of shares continued to rise
...

Two months after selling, Newton abandoned his reserve
...

In September, a fraud scandal at the South Sea Company erupted, and its shares
quickly lost 90% of their value
...
The scandal was so resounding that it plagued the
British financial markets and undermined business formation for generations
...
6
“I can calculate the motions of the heavenly bodies, but not the madness of
people,” the physicist is claimed to have concluded
...

This episode illustrates how even the most rational and brilliant people can
succumb to a speculative mania which is only obvious in retrospect
...
But nearly a century earlier, another bubble had hit elsewhere in
Europe: the Tulip Crisis
...
One of the most spectacular and
sought-after flowers of the time was the tulip, whose bulbs from Constantinople
had the advantage of withstanding the cold winters of northern Europe
...
Gardeners began to create hybrid bulbs that produced tulips with
brilliant, marbled colors
...

The growing demand, especially in France, drove up prices, so that a tulip
exchange was established in Amsterdam in 1636
...
That’s when
things started to get strange
...

He tells of a sailor who inadvertently ate what he thought was a small onion left
on his captain’s desk, not realizing it was a Semper Augustus, a rare tulip bulb
“the price of which might have been enough to feed the crew for an entire year
...

In 1637, bulb prices began to fall when traders were unable to find new buyers
willing to pay stratospheric sums
...
The collapse of a previously safe investment vehicle shocked the
Dutch public
...


The most important of these, which resulted in the collapse of Wall Street in the
fall of 1929 after years of speculation on credit, shattered confidence in the
American economy and set off a domino effect that led millions of people to ruin
and opened the door to the Great Depression
...
Nearly a
century later, this collapse is still a source of great fascination for the world’s
financial community
...

At that time, investors were scrambling to make investments in technology
companies that often had no customers, no products, and whose profit outlook
was more than a little cloudy
...

In my early twenties, I worked as a journalist for an outdoor magazine
...

At that time, another passion occupied my mind, sometimes with even more
insistence than the world of the outdoors: that of the internet companies
...

In a few months, the value of our investments doubled, then tripled
...
m
...

Watching your investments grow in value day by day makes you feel brilliant
...
Blodget was known for his analysis that the rise
of tech companies was just beginning, and would continue for years to come as
their profits grew
...
His grandfather had made his fortune in the 1920s before losing it all
in the crash of 1929 and the Great Depression
...

“Almost to a person they would say, ‘No, this is different,’” he recalled years
later
...
Also in his early
twenties, he worked in the call center of the discount brokerage department of a
large financial institution
...

“We had so many new clients that people sometimes had to wait an hour on the
phone before they could make their transactions,” Turcot explained to me, sitting
in the loft in Old Montreal where he has his offices
...
Once, I got on the line and the client was snoring
...
I tried to wake him up,
but he was sleeping too hard, and I had to hang up
...
“He would tell us, ‘I was rushing with
my patient because I wanted to do transactions
...
People were
making so much money in the stock market that their jobs were almost
secondary
...
With no takers, sellers were forced to
lower their prices, triggering a cycle of panic
...
Pets
...
19
...

Approximately $5 trillion in market value evaporated in the bursting of the
bubble
...
S
...

Turcot remembers the stock market crash as a period of silence: “It became very
quiet at work because clients stopped calling
...
”
One of the regulars was a very nice man, always courteous, he recalls
...
He didn’t call for months
...
We were seeing tons of stories like that
...
”
That’s when my boss and I sold our investments
...
My boss used his profit to renovate his house
...

My experience with the tech bubble gave me the impression that the stock
market was a casino
...

For 10 years, I didn’t invest a penny
...

Watching your uncle lose his retirement fund in the dot-com bubble implosion of
the early 2000s may have scared you so much that you never wanted to “play”
the stock market
...
On some days, they lost 11% of their value by lunchtime
– a collapse so great that you have to go back to the 1930s to find a point of
comparison
...
In the 1990s,
they only went up
...
In the 2010s,
they took off like a rocket, only to fall sharply (and temporarily) in 2020, during
the COVID-19 crisis
...

All this market volatility can obscure one truth: the stock market has provided
generous returns for generations – even after accounting for bubbles, declines,
and crashes
...
S
...

If we include in our calculation the reinvestment of dividends, the portion of
corporate profits returned in cash to shareholders usually two or four times per
year, $1 invested in the largest U
...
companies at the beginning of the 20th
century was worth more than $18,500 a century later
...


We do as Sir Isaac Newton did and find an extraordinary company that will
“definitely” make us rich
...
”
We wait for a crash before investing
...

The fascinating thing about the behaviors that impoverish us is that the behaviors
don’t change
...
Behaviors stay
...

Imagine parents investing a dollar a day on behalf of their newborn child in the
U
...
stock market
...

How much would their investments be worth at age 65 if they were to earn the
historical return of the U
...
stock market, which is 11
...
8 million
...
How much would he or
she have at age 65 if he or she had the same returns on those investments?
The answer: just over $500,000
...
8 million by the time they retired
...

This example fascinates me because it is counterintuitive that the earlier start
would make so much difference
...


A clean slate

Many argue that the game is already lost, that our emotions condemn us to
mediocre returns
...
Let the
experts handle it
...
That said, I am proof that it is possible
to learn from your mistakes, develop smarter behaviors and invest your own
money effortlessly, with less volatility and better returns than professional
investors
...
That
we pay too much in fees
...
That
we jump from one investment to the next
...
That we lose
our patience
...
At a time when instant reaction is valued more than
ever, cultivating the space between what happens to us and how we react to it is
one of the most important challenges of our time
...
It uses them one after the
other, or at the same time
...
Its
favorite game is to make us suffer one day, to please us the next, to scare us the
next month, and so on
...
The idea is to avoid the pitfalls
...

5 Andrew Odlyzko, “Newton’s financial misadventures in the South Sea Bubble,” Notes and Records,
August 29, 2018
...

7 Independent publication, 2021
...


CHAPTER 2: SEEKING THE RARE
PEARL
Failure is simply the opportunity to begin again, this time more intelligently
...


Born in 1964 in a working-class district of Mumbai, Mohnish Pabrai is known
for his legendary calm, his salt-and-pepper moustache reminiscent of that of the
maharajas, as well as for his spectacular results on the stock market
...
“I watched my parents losing everything multiple
times – and when I say losing everything, I mean not having money to buy
groceries tomorrow, not having money to pay the rent
...
”9
At the age of 19, Pabrai immigrated to the United States to study computer
engineering
...
Since then, he
has managed his own investment fund on behalf of his clients, with assets of
over $500 million
...

Pabrai and his colleague Guy Spier paid $650,000 for a meal with Buffett, with
the money donated to a charity that supports young female entrepreneurs
...
I was excited, as
he does not give many interviews
...
Affable and smiling, obviously happy to share
his knowledge and wisdom, he showed us around his premises, including a
sunny, impeccably tidy room where he sits to read and reflect
...

“It’s for napping,” he told us
...
I always
think better when I have a rested mind
...


56%
This is the share of the U
...
stock market in the total value of the world’s
stock markets
...
At the worst of the 2008–
2009 crash, for example, the value of the portfolio he manages for his clients fell
by 67%
...

“Years later, my wife stumbled across a letter to my investors from 2008,” he
said
...
She said, ‘Funny, I didn’t
notice any change in you that year
...
’ Every once in
a while, the market goes through a major correction
...
What’s the point of panicking?”
The investor also explained how he had managed to achieve spectacular returns
in the stock market over the years by building, like Warren Buffett, a portfolio

that rarely included more than ten stocks
...

During our meeting, Pabrai became excited as he told us about a company he
had just added to his portfolio
...
Zinc was essential to many industrial
processes and was increasingly in demand as the global economy expanded
...
“They’re building a new $500 million state-of-the-art plant –
the only one of its kind in North America
...
”
I was shaken by his presentation
...

“What if I put 20% of my portfolio into this company?” I thought as I drove
home that night
...
”
I didn’t keep in touch with the students I was with that day, so I don’t know if
any of them invested in the company
...

I didn’t regret it
...


The myth of the rare pearl
Ask a random person to tell you how to invest in the stock market, and you’ll get
something like, “Well, investors pick the companies they think are the most

promising, buy their stock, and hope those companies are the next Apple or
Google!”
This is what I call the myth of the rare pearl
...
Those who have the skills
to read the future well will be able to find the gem, while the others will fail and
must live with the weight of their mistakes
...
Perhaps you have fallen
victim to it yourself?
For example, why not invest for the future?
We could try to select the innovations that will mark the next few years, then buy
the shares of companies well-positioned to enrich their visionary shareholders
...

The problem with this approach to investing is that it has an atrocious track
record
...

Let’s take one of the most important inventions of all time: the automobile
...
They were right: there are more than
1
...

But investments in automobile manufacturers have generally been financial
flops
...
Nearly all of them have disappeared, swallowed by
competitors or, more often, shut down because of insufficient revenues to
finance their operations
...
S
...
S
...

After the automobile, the arrival of aviation revolutionized the way billions of
people work and travel
...

Not long ago, it was impossible to talk about stock market investing without
someone mentioning cannabis
...
The stocks of the companies that produced it were
skyrocketing in value
...
They were
convinced that they had found the winning formula to get rich
...

A share of the multinational cannabis company Tilray was worth over $148 at
the time at the Nasdaq stock exchange in New York
...

As you can see, it is not so easy to invest for the future by picking out companies
that will transform the world
...

At the beginning of the COVID-19 pandemic, as panic spread around the world,
no one knew if a vaccine could be developed, let alone manufactured in
sufficient quantities to protect entire populations
...


A $10,000 investment in Pfizer stock in the early days of the pandemic was
worth $11,900 a year later, as millions lined up to receive the company’s
vaccine
...

That’s a 20% better return than Pfizer
...

When it comes to exciting stock market investments, I always have in mind this
adage from author Burton Malkiel: “Never buy anything from someone who is
out of breath
...
”11
Buffett notes that away from the happy hour conversations, media radar and
recommendations of the moment, unexciting companies can grow dramatically
in the stock market
...
Since then, it has experienced one of the best stock market growths in
decades: $10,000 invested in Domino’s Pizza shares at the beginning was worth
more than $370,000 fifteen years later
...
“I know what you should invest
in,” we would tell our family and friends
...

Investors don’t want to hear about pizza
...

And they get the results that go with it
...
And I have the numbers to prove it
...

The SPIVA reports measure the performance of active managers against the
performance of the overall stock market in the U
...
and around the world
...
It’s like their report card, handed out on the last day of
school before summer vacation
...

It is easily found on the internet, but I doubt that many professionals mention it
when they meet clients
...
S
...
12 Results are similar formid-cap and small cap funds and are worse for
growth funds which, as their name suggests, are supposed to deliver… growth
...
Let me be brief
...
S
...
This
index represents the 500 largest U
...
companies listed on the New York
Stock Exchange and the Nasdaq Stock Market (also located in New York and

where technology companies such as Apple and Google are traded)
...
For example, $1,000 invested in 1957 in the S&P 500 Index was worth
nearly $1
...
Yes, you read that correctly
...

These firms offer funds called index funds containing the shares of the
companies that make up the S&P 500
...

As for “large-cap,” “mid-cap” and “small cap,” these refer to the size of the
companies in the funds
...


These data show that fewer than one in ten professionally managed funds can
grow their investments at a faster rate than the stock market over the long term
...

Some portfolio managers, including Mohnish Pabrai, have been successfully
beating the market for years
...
Others
will see their returns decline
...

I don’t know if Pabrai lost much money in the collapse of Horsehead Holdings,
but I doubt it
...
Perhaps he had

also sold his investments before the stock collapsed, decimated by the fall in the
price of zinc and problems with the construction of the plant
...


Young people save, but invest little
Young adults aged 18 to 34 are less likely than others to invest: four-in-five
save money, but only one-in-two invest in the capital markets, according to
an Ontario Securities Commission study
...


Is the Caisse beating the market?
But what about the returns of institutional investors, those gigantic and admired
firms that are masters in the art of recruiting the best graduates from the greatest
universities, and that have powerful research and analysis tools coupled with
phenomenal investment power?
Take the Caisse de dépôt et placement du Québec (CDPQ)
...

The CDPQ has an impressive track record
...
5%
...


A growth that seems staggering, exceptional… until you compare it to that of the
stock market indices
...
S
...
6 million today
...
Rather, it is meant to show that stock market
indices are very, very hard to beat
...
Endowment funds of the largest universities
in the U
...
also struggle to beat market returns
...
9% on average over the last 10
years
...

Even Princeton University’s fund, often cited as one of the best performing
endowments in recent memory, and whose managers implement an aggressive,
equity-biased approach, has returned 10
...

Even Princeton University’s fund, the best performing endowment in recent
years, would have turned $10,000 into just under $22,000 in 10 years, a shortfall
of nearly 4,000 compared to a balanced portfolio
...


Invest all at once or make periodic
purchases?
You have received an inheritance or other large sum of money and are
wondering if it’s better to invest it all at once or divide it up and invest it
gradually?
The history of the last 150 years tells us that North American markets go up
about two years out of three
...
So, the answer to this dilemma is to
invest the amount in one fell swoop… keeping in mind that the market can
go down at any time
...


Some will pay off, some will not
...
A few years ago, Harvard University’s endowment fund bought
farmland around the world
...
15 Criticized in the public arena, the fund lost more than $1 billion in the
process
...
On the contrary, they are among the best
...

S&P Global data seems to confirm this: over the 10-year period ending on
December 31, 2021, 83% of institutional investors underperformed the S&P 500
after fees are deducted
...
But what about the kings of Wall Street?
These multi-millionaires and multi-billionaires whose mission on Earth is to
offer an explosive and enviable return to their wealthy clients must surely have a
magic touch
...
Equities, land, private companies,
currencies, metals, whatever: their only objective is to maximize returns while
limiting losses
...
He was then working at a large financial
institution where he oversaw institutional portfolio management
...
“I finally realized that most of these wonderful managers, the most
sophisticated people on the planet in terms of portfolio management, people who
make millions, if not billions, were adding very little long-term value
...
”
This story reminds me of New York-based manager David Einhorn
...

That kind of performance attracts attention: his investment talent made him a
celebrity
...
He was named one of Time magazine’s
100 Most Influential People in the World
...

Then something unexpected happened: Einhorn stopped making money
...
2 billion in 2022, the result of poor performance and client flight
...
“He’s
unable to admit he made a mistake
...
”17 In 2022, Einhorn had
an incredible year, so who knows what the future holds for him?
In his book A Random Walk Down Wall Street, author and economist Burton
Malkiel analyzed the performance of top managers in the United States for
decades
...

Burton Malkiel wrote: “As long as there are averages, some managers will
outperform
...
”18

Buffett’s bet
In the mid-2000s, Warren Buffett made a bet that no financial professional
would be able to pick five hedge funds that would beat the S&P 500 index on
average over the next 10 years
...
But the bet was not
popular
...


Finally, just under 10 years later, Seides conceded defeat
...
2% per year, compared to
a rise of more than 7% a year for the S&P 500
...

And it’s not that Seides just had bad luck
...

Ten thousand dollars invested in 1994 in these funds would be worth $59,000
today, compared to $135,000 if it had simply been invested in the S&P 500
...
Researchers who analyzed
nearly 6,000 hedge funds over a recent 22-year period realized that barely 1,200
had survived the whole period of the study (the mutual fund industry often does
the same thing, closing failing funds – more on that in Chapter 8)
...
21

Choosing the winners
The reason that beating the S&P 500 over a long period of time is so difficult is
because stocks that perform exceptionally well are rare
...
The rest of the stocks (96% of the companies) collectively earned

zero returns, or negative returns compared to one-month Treasury Bills, which
are considered the safest of investments
...
S
...

The fact that it’s so hard to beat the market goes against all the fundamentals
repeated by members of the investment industry, Macpherson noted
...
”23
If I asked you to name the few companies that will provide most of the portfolio
growth in the future, which ones would you choose?
There’s a good chance that Apple, Google, Microsoft, Tesla or Amazon will be
on the list
...

These large companies will likely continue to perform well for years to come
...
As a result, their growth tomorrow may be less
exciting than their growth yesterday
...

What we do know is that the biggest companies rarely stay on top for long
...
S
...

The largest companies in the S&P 500 Index

With the exception of Microsoft and ExxonMobil, the must-have companies of
2003 were no longer at the top 20 years later – and 20 years is a short time in an
investor’s life
...

For this reason, investors should be careful before trying to build a portfolio of
“winning” companies
...

If only it were possible to always bet on the right companies, the ones that make
their mark and that everyone seems to do business with… That’s what the next
chapter is all about
...
3
...
W
...
264
...
16
...

13 “Missing Out: Millennials and the Markets,” Ontario Securities Commission, November 27, 2017
...

15 “Harvard’s billion-dollar farmland fiasco,” GRAIN report, September 6, 2018
...

17 Gregory Zuckerman, “This Is Unbelievable: A Hedge Fund Star Dims, and Investors Flee,” The Wall
Street Journal, July 1, 2018
...
167
...
Harper, “Hedge Funds: Higher Returns or Just High Fees?” Investopedia, April 12, 2021
...

21 Warren Buffett, Berkshire Hathaway shareholder letter, 2016, p
...


22 Hendrik Bessembinder, “Do Stocks Outperform Treasury Bills?” Arizona State University, August 22,
2017
...


CHAPTER 3: OUR FAIR SHARE
OF THE PROFITS
This painting of yours will be like all the other things you started, it will
come to nothing
...

H
...
Tersteeg, Dutch art dealer, to Vincent Van Gogh

I

MAGINE IF YOU could earn money each year by picking the best cyclists in the

world
...

The first way is to try each year to predict which three athletes will be on the
podium of the Tour de France, the most difficult and prestigious cycling race
...

If you are right, you make a killing and multiply your money
...

The second strategy you can use is to ignore all of this and choose each year the
peloton of the Tour de France
...
They ride together in a group
for aerodynamic and other benefits
...
After all, the winners of the race are those who manage to break away
from the peloton
...
And you don’t even have to know the
names of the riders in your group: the peloton will always be well positioned
...

Many of the athletes who will one day be part of the peloton are not even born
yet
...
It doesn’t double overnight
...

So, which of these two choices would you make? Which one would produce a
better track record after 10 years, 20 years, 30 years?
This is a reflection that every investor must make
...
Trying to pick
companies that will outperform and be on the podium that year, or that will stand
out because of their stability or any other desired characteristic
...


Index funds and ETFs – working hard for
investors
Index funds and exchange-traded funds (ETFs) are funds that hold the shares of
hundreds or even thousands of publicly traded companies
...
Since they operate in different sectors (technology, retail, banking,
transportation, etc
...

By far the most popular index funds are those that track the largest companies in
a given stock market
...
S
...

Index funds and ETFs are similar products, but with some key differences
...
ETFs, on the other
hand, trade like a stock
...

One of the advantages of index funds and ETFs is that, just like the index they
follow, they are regularly updated
...
This is what happened to
motorcycle manufacturer Harley-Davidson, which was hit hard by declining
sales
...
In other
words, like the Tour de France, the composition of the pack of 500 companies
evolves to reflect the state of the race
...

But to achieve sustainable success by investing in this way, one must be able to
accurately select the companies that will deliver these epic performances, which
vary from year to year
...


Mutual funds vs
...
The mutual fund is administered by a manager,
possibly affiliated with a bank or other financial institution, who makes
individual investment decisions based on various objectives, such as
preservation or growth of the money invested
...
They
are not actively managed by a manager, and this allows them to charge very
low fees
...
This differentiates them, for example, from mutual funds, which contain
stocks that are hand-picked by managers
...
5% and up to 2
...
2%, and sometimes as low as 0
...

At first glance, paying 1% or 2% in fees may seem reasonable
...
03% and 2% in annual expense ratio is barely
noticeable in the early years, but becomes as vast as the Grand Canyon over our
investing lifetime
...


The financial industry’s business model is largely based on charging clients
various fees through mutual funds
...

Investment professionals’ aversion to index funds is nothing new
...


A “crazy” idea
The first person to publicly raise the idea of index funds quickly became the
laughing stock of the financial world
...

Malkiel was highly qualified – he held an MBA from Harvard and a PhD in
economics from Princeton
...
This would
be a “passive” fund (the Tour de France peloton), which would simply replicate
the composition and performance of major stock market indices, such as the
S&P 500
...

As soon as it was released, Malkiel’s suggestion was shot down
...
”

“The book was not well received in Wall Street,” Malkiel recalled years later on
the Animal Spirits podcast
...
’ [People thought] that
obviously you wanted professionals to manage a portfolio
...
Offered under the banner of Vanguard, an investment firm that
Bogle set up, the fund was simply made up of the 500 companies that made up
the S&P 500 index
...
Due to a lack of interest, he raised just over $11 million
...

“It totally failed,” recalled Burton Malkiel
...
It was a success in that it worked, but it was not a marketing
success
...
”25
One of the criticisms often made was that passive investing was “un-American,”
implying that the American way was for investors to take risks to get exciting
results in the stock market, not give up on beating the market before the game
even started
...
S
...

Bogle, for one, said he wasn’t affected by this cold reception to his cherished
idea
...
“I’m that kind of a contrarian person
...
Once they did,
they never went back
...
The
company founded by John Bogle manages the equivalent of more than $7 trillion
on behalf of 30 million investors in 170 countries
...
The company’s structure is designed so that any profits are
intended to reduce annual fees and thus return to investors’ pockets
...
He continued, “The […] index
fund is the only investment that can guarantee we will achieve this goal
...

“Don’t think you know more than the market, nobody does,” he wrote
...
”
Warren Buffett is among Bogle’s greatest admirers and never misses an
opportunity to point out that he revolutionized the finance industry
...
28
Burton Malkiel’s A Random Walk Down Wall Street is now in its 13th edition
...
An investor who invested $10,000 in a hypothetical fund tracking the
S&P 500 on the day the book was launched (when such a fund didn’t exist yet)
would have a portfolio of $1
...
All this while sitting back and
doing nothing but letting the market work for them
...

“The lower the fees investors pay, the more money they’re going to keep in their
pockets,” Malkiel said
...
John Bogle used to say, ‘In the
investment world, you get what you don’t pay for,’ and I agree with him more
than ever
...

In 1991, Richard Morin invested in the world’s first successful ETF, the Toronto
35 Index Participation Fund, known as TIPs
...

“I never sell anything in my portfolio,” he explains with a smile
...
With five children
to raise, his parents struggled to cling to the lower echelons of the middle class
...

“My father’s typical customer was someone who wanted $200 to buy a
television,” Morin says
...
My father hated his job, but it paid the bills, and it gave him a
good retirement that allowed him to enjoy life
...
He applied and
was hired
...
That ad changed my life
...
Later, he accepted
an offer to run the Mauritius Stock Exchange and set up a regional stock
exchange in West Africa, in Abidjan, before accepting the position of CEO of
the Pakistan Stock Exchange, where he lived and worked for almost two years
...
From generation to generation, Pakistan’s elite
appropriated all the wealth
...
A handful of brokerage firms dominated the market
...
One of the ways we did that was by
launching the first ETF in the country’s history and enhancing the investor
protection fund
...

Few people knew about ETFs at the time, and it took him several years to realize
his dream
...
With eight advisors, the firm manages $300 million in assets for
approximately 700 families
...
“There must be a good fit
...
”
The challenge for firms like Archer, says Morin, is to make themselves known
...


“The average investor has no idea that firms like ours exist,” he says
...
passive management
Active portfolio management involves human intervention: the investor (or
someone acting on his or her behalf) buys and sells stock market investments
to achieve a given objective, such as rapid growth, greater stability in market
storms, etc
...
Note that owning an index ETF does not necessarily
mean passive management: many investors buy and sell ETFs based on what
they believe the market will do, a behavior associated with poorer long-term
returns
...
From nothing a few decades ago, these products now
account for about 50% of total assets under management in the United States,
31% in the U
...
, and 13% in Canada
...
S
...

“In many countries, the investment industry is dominated by large financial
institutions that have no interest in having all assets migrate to very low-cost
solutions,” he explains
...
5% annual fee is much more

profitable for the institution than an ETF that will yield 0
...
”
Why does this system persist?
I think most people don’t know how or how much they pay their financial
advisor or portfolio manager
...

And even if the average investor were to find out, what could they do? Change
institutions, only to find themselves in a similar situation?
I also think things are moving slowly because investors retain a desire to find a
very talented professional manager
...
This is not an irrational goal on the part of investors
...

However, the asset management industry is a master at making us believe they
have abilities they do not have and convincing us that they deliver higher returns
than they really do (more on this in Chapter 8)
...
They are
a legacy of another era, when finance was a boys’ club that ran on the lack of
choice and financial knowledge of the client
...
“Everyone is out to make as much money as possible at the
expense of the client, including charging the highest possible fees
...
”30

Are index funds dangerous?

Embodying the saying that the best way to kill a dog is to say it has rabies, some
financial professionals are warning their clients: stay away from index funds and
ETFs, they are so popular they are very risky! They distort the market! They are
tools of speculation!
They will point out, for example, that the supply of index funds and ETFs has
become dizzying and difficult for the uninitiated to navigate, while avoiding the
fact that the process of selecting a fund can be very simple, as explained in
Chapter 9
...
All of this
without mentioning that these small, specialized ETFs are only used by a tiny
fraction of investors
...
In some years, funds that track the
S&P 500 Index can gain or lose 20% or 30% of their value, or more
...

I can see portfolio managers and investment advisors being restless
...

“But that’s not what our clients want! They want to sleep well at night and avoid
big losses when the markets start to fall
...
”
It’s an attractive argument, and the New York-based financial information firm
S&P Global first analyzed it a few years ago
...
S
...
31 In short, professional investment management
firms failed to deliver on this promise
...
The Omaha billionaire famously said
that in his will, he instructed his executors to invest most of the funds he would
leave to his wife in a Vanguard index fund that tracks the S&P 500
...
Acting
as the yin and yang of our investment portfolio, these assets have the dual role of
making us richer and keeping us sane when a market storm hits
...

24 Ben Carlson and Michael Batnick, “A Random Talk with Burton Malkiel,” Animal Spirits podcast,
October 2, 2020
...

26 Stephen J
...

27 John C
...
184
...
cit
...
24
...
cit
...
Jarislowsky, Dans la jungle du placement, Les Éditions Transcontinental, 2005, p
...

31 Tim Edwards et al, “The Volatility of Active Management,” S&P Global, August 2016
...


CHAPTER 4: STOCKS AND
BONDS
Let everything happen to you
beauty and terror
Just keep going
No feeling is final
...

“We’ll talk about your finances,” he said
...
I was 20 years old, attending
college and working part-time at an outdoor store to pay my rent
...

Freshly hired by an insurance and investment company, my friend was looking
to expand his client base
...

He was dressed in a suit and tie when he received me a few days later, in a large,
deserted conference room filled with the light of the setting sun
...
“I should be asking him about his finances, not the other way
around
...
You could contribute $25 a month
...

He slid a flyer towards me
...

“I don’t want to lose a penny,” I told him
...
One
...
”
So my friend invested my $25 a month in a money market fund, a very safe
fund, but with a return so low that it doesn’t even match inflation
...

I’m glad I opened my account – which I now manage myself
...

If he had, his answer would have been something like: “Nicolas, you are young
...
You can afford to ignore the volatility of
the stock market because your horizon is so far away
...
”

How much should I have saved at my age?
This is a controversial topic, and there are many nuances
...
The asset management firm Fidelity released the following
table that gives an idea of the path forward
...
We also need to factor in the present-day value of our retirement plan
when calculating our assets
...


How to calculate your net worth?
A person’s or household’s net worth is simply the value of all their assets
minus the value of all their debts
...

Median and average household net worth in the United States

Stocks
What my friend should have told me is that a balanced portfolio has at least two
components: stocks and bonds
...
An investor who buys a
share of stock owns part of that company
...

The value of a stock reflects the financial condition of the company, and since
investors are interested in the future, the stock price takes into account the profit
potential of a company in the future
...

The world’s first market where people could buy and sell stocks was founded
in Amsterdam in the early 17th century
...

At the time, shipping between Asia and Europe was lucrative, but risky: the
ships that returned generated profits, but many never returned, decimated by
storms, disease, or pirates
...

Dirck van Os, one of Amsterdam’s wealthiest merchants, co-founded the
company in August 1602
...
At the time, investors went directly to the van Os

house, located on a narrow street in what is now Amsterdam’s Red Light
District, to buy and sell shares in the company
...
Opened in 1611, it is the
first modern stock exchange to incorporate the elements we know today, such
as a high volume of daily trading, as well as the freedom to speculate
...
Those who do this practice
day trading
...
And you probably
have a neighbor or nephew who swears he’s going to make a fortune this way
...
33 I think investors should steer clear from day trading at all
costs
...

But do more frequent transactions increase returns?
On the contrary, they decrease them
...
An analysis of more than 65,000 U
...

investors revealed that those who were very active in the markets obtained
returns that were half as high as those who were not very active
...

The best way to maximize our returns in the stock market is to let our stocks
work for us for years – ideally decades
...
Yes, three years out of ten stockholders get poorer
...


Yet from week to week, month to month, and even year to year, the direction of
the market is impossible to predict
...


Will the stock market always be on the rise?
Not necessarily
...

If such a situation were to occur, my priority would probably be to focus on
survival, such as gathering firewood to stay warm, rather than worrying
about my investment portfolio…

To explain the relationship between the economy and the stock market, investor
Ralph Wanger coined the analogy of the master and the dog on a leash
...

Imagine that the dog owner, who represents the economy in this example, is
walking in New York City from Columbus Circle, through Central Park, to the
Metropolitan Museum
...

In the long run, however, its direction is no great mystery: like its owner, the dog
is heading northeast at about three miles per hour
...
”35

Investing your down payment?
Is it a good idea to invest money that you plan to use as a down payment on a
house in the stock market? If you think you’ll need to withdraw money in
five years or less, you shouldn’t invest it
...
With such a short time horizon, it’s
best to keep the cash in a safe vehicle like a high-interest savings account
...

Buying a bond is no more and no less than lending money to a borrower, either a
government or a company, who promises to pay us back in the future, with
interest
...
The bonds considered to be
among the safest are those issued by the U
...
government, or the government of
other developed countries
...

Bonds generate a fixed income, paid out in the form of cash interest to the
bondholder
...

Because government bonds are guaranteed by the government, they are less
risky, and therefore generally offer lower returns than stocks
...


But owning bonds allows us to let our stocks work in peace – that’s their greatest
benefit
...
They also hold their value and protect our assets during a
period of deflation, i
...
when the price of goods decreases, as has happened a
few times in the last century
...
”

Our Roth IRA needs our respect
For some, it’s fingernails on a chalkboard that makes them shiver
...
For me, it’s hearing a variation on the
phrase, “I’ve been meaning to open a Roth IRA but I haven’t found the
time
...
NO! Our Roth IRA should be a top priority, up there with breathing and
brushing our teeth
...

It’s not every day that the federal government allows us to invest up to
$6,500, (or $7,500 if you’re 50 and older, and with some limits for high
earners) by giving us a total and perpetual tax break on the resulting growth
(provided we take out the money after the age of 59½)
...
We can use it to buy stocks, bonds, ETFs…
The money we take out after the age of 59½ will not be added to our income,
and therefore not taxed (there is 10% additional tax if we withdraw the
money before that age, in addition to any regular income tax on that amount)
...
S
...
5 million, tax-free, at age 60
...

Many countries have similar tax-advantaged accounts
...
K
...
These accounts are even more flexible because investors can
choose to withdraw their investment at any time, without paying a penalty
...

This exercise is not perfect, as there is of course a difference between imagining
a drop in percentage and experiencing a drop in dollars
...
An epic stock
market drop can also mean the economy is in crisis and our jobs are at risk
...
)
In the following table, I show how adding bonds to a portfolio has historically
decreased its volatility:
Bonds allocation and portfolio volatility

In his book The Little Book of Common Sense Investing,36 John Bogle, founder
of Vanguard, says a good approach is to start our thinking with a ratio of 50%
stocks and 50% bonds
...

Specifically, John Bogle suggests an 80/20 stock/bond allocation for younger
investors, and 70/30 for mid-career investors
...

Also, investors who have an employer-sponsored pension plan must factor this
asset into their calculation of acceptable risk
...
This may allow
these investors to choose more volatile investments, i
...
, to allocate to a higher
proportion of stocks
...

“My own total portfolio holds about 50/50 indexed stocks and bonds,” he wrote
at age 88, a year before his death
...
But I

confess that half of the time I worry that I have too much in equities [editor’s
note: stocks are sometime called equities – in the context of the stock market, the
two terms are interchangeable], and the other half of the time that I don’t have
enough in equities… Finally, we’re all just human beings, operating in a fog of
ignorance and relying on our circumstances and our common sense to establish
an appropriate asset allocation
...
Having
a reasonable amount of mortgage debt (no more than 2
...
On the
other hand, a person who has credit card debt should pay it off before
investing, because not only are they not getting rich, they’re making the
credit card issuer richer by paying them interest
...
The answer to that question is
yes, and here’s why
...
Those who experience this tend not to be very happy with their lot…
On the other hand, if we have saved and invested a portion of our salary over
a period of years, and if our investments allow us to do so, we will have the
freedom to leave our job when we want to, work part-time, change fields,

retire early, etc
...

Do you love working so much that the idea of retirement leaves you cold?
“No problem!” investor Pete Adeney a
...
a the author behind the popular Mr
...
“Become financially independent anyway
...
”

I am 43 years younger than Bogle was at the end of his life, so I have no
problem with experiencing some volatility in stocks
...
I want to increase
my likelihood of long-term growth while ensuring that my portfolio retains some
of its value when we go through market downturns
...
The important thing is to find the
allocation we are comfortable with
...
But knowing this information does not automatically make
us good investors, just as knowing a map does not make us adventurers
...
That’s what got me interested in investing, and that’s what
prompted me to write this book
...
In reality,
we’re talking about doubt, hope, pleasure, regret, fear, other people’s opinions,
security, ego… That’s what makes this subject so fascinating
...

This is the subject of the following chapters, starting with a seemingly unusual
question: why do doctors invest so poorly?
33 Charles V
...
Kinsman, “The Electric Day Trader and Ruin,” Pepperdine Graziadio
Business Review, 1999
...
Barber et al, “Trading Is Hazardous to Your Wealth: The Common Stock Investment
Performance of Individual Investors,” The Journal of Finance, April 2000
...
216
...

37 Ibid
...
168
...
You have to work hard to
clean up your thinking and make it easy
...


Everyone knows that general practitioners earn a good living, and this is even
truer for specialist physicians
...

They don’t get rich because they are not good investors
...

Jonathan Clements, financial author
Physicians in the United States, the United Kingdom, Canada, and Australia
most often expect to retire around age 60, but actually retire closer to age 69 on
average
...
“Personal savings for retirement are more
important in medicine than in many other professions, because most doctors are
self-employed and will have fewer sources of secure retirement income, such as
company pensions
...
“If I really need money,” she said, “I’m

going to buy stocks in biotech companies
...
”
I tried to explain to her that speculating in biotech stocks was anything but an
investment plan, but nothing helped
...

Financial author and former U
...
securities trader Dan Solin has examined
thousands of investment portfolios over his career
...
”
Why? Dan Solin notes that the fact that these professionals make a lot of money
leads them to believe that they can choose managers who will multiply their
savings and take care of funding their retirement
...
“Men are like numbers: they
acquire value only by their position,” said Napoleon
...

In fact, very smart people are often bad investors
...

Mensa’s brilliant investors who were tasked with selecting great investments
earned returns of 2
...
3% per year during the study period
...
I think any intelligent person can get to be a pretty good investor and
avoid certain obvious traps
...
”42

Get rich quick
However, sometimes investors make good moves, and see the dollars quickly
accumulate in their investment account
...
To those who chose
stocks that “beat” the market
...

Thank you for reading this book so far
...

If this applies to you then, I suggest, unless you have already done so, that you
calculate the performance of your portfolio
...
In the “Backtest Portfolio”
section, you can enter the name of the companies you own shares in, choose a
start date, and then compare your performance to the benchmarks
...
In their minds they gave disproportionate
weight to their good moves, and minimized their average and disastrous moves
...
It is calculated in decades
...

And if you can beat the market in the short term, you conclude that you were
“right
...

“To reach your long-term financial goals,” writes financial author and Wall Street
Journal columnist Jason Zweig, “you must be sustainably and reliably right
throughout your investing life
...
“If I observe the 65-mph speed limit, I’ll drive this distance in two hours
...
If I try this and survive, am
I ‘right’? Should you be tempted to try it too because it ‘worked’?”43
What Zweig is saying is that investing in promising companies or funds with the
goal of an exciting return is a bit like juggling bags of gold and running
chainsaws
...

But you don’t have to think too hard to realize that, sooner or later, the chances
are high that you’ll end up with the blade of a running chainsaw in the palm of
your hand
...
He
wrote The Intelligent Investor, published in 1949 – a bestseller still popular
today and considered the Bible of the investment world
...
One of his brightest students was a young
man named Warren Buffett
...
The idea was to buy the shares of companies that were out of
fashion, had no great prospects, and in which the market had lost interest
...
His strategy was to buy them for next to nothing, enjoy a little
growth, and then sell them
...
Dirty and uninviting, some of these cigar butts were still good for a
puff or two
...
But it soon became obsolete: improvement of analysis tools for listed

companies meant that the true standing of the company was more likely reflected
in the price, and investors stopped using it
...

One of them is investing in an IPO, when a promising young company’s stock
begins to be traded on the market
...

Unfortunately, this excitement rarely translates into attractive gains for investors
...
44
“Buying an IPO is a lot more like playing the lottery than investing in a sure
thing,” writes David Zuckerman, author of the study
...
”45
Other methods, such as technical analysis, may seem powerful
...

According to a study conducted with stock market data from the U
...
, U
...
,
Germany and Italy, technical analysis overall yields worse returns than a
randomly selected portfolio of stocks
...
” No selection method is
infallible or eternal
...
Investing well
requires the right behaviors
...


The sirens of high returns

Around me, I’ve seen that investors are unpredictable when it comes to letting
their investments work in peace
...
When a big market storm came
along, I would ask them how they reacted
...
“I
know it’s going down, but I don’t pay attention to it
...
A friend who had a balanced portfolio of
index ETFs couldn’t stand to see the value of his account fluctuate while stocks
like Apple or Tesla rose dramatically
...
First, he had transferred it to a high-fee
portfolio manager recommended by a friend
...

Then, his attention got caught by a “brilliant and Cartesian” friend who was
working on programming investment algorithms “capable of generating returns
of 10% per month
...

Will my friend eventually leave his investments alone? No matter how much I
deploy logic, arguments and statistics, a new shiny object is always likely to
appear, rekindling his hope of a quick and lightning-fast enrichment
...

This person was nearly 50 years old, had no retirement plan or real estate, and
had saved only $30,000 since the beginning of his career
...

“I understand the benefits of index ETFs and long-term investing,” he told me
...
At my age, with my level of assets, I don’t
have time to waste
...
I know that nine out of ten investors fail in beating stock
market returns
...
”
This person was investing in penny stocks (highly speculative shares of
companies trading at $5 or less on the markets) and buying a handful of shares
of companies in the hallucinogenic drug business, such as LSD, ketamine, magic
mushrooms, and other highly volatile fringe sectors
...
After
calculating his good and bad moves, he had lost money and experienced extreme
stress
...

I sympathize with this investor
...
The
people are beautiful, they have drinks in their hands
...
We want to be part of the festivities
...

When we decide to enter, however, we realize that we were not in front of a bar
window, but in front of the Madison Square Garden hockey rink
...

With his three years of losses, my harried investor friend was beginning to
understand this
...

“You are chasing a mirage,” I said
...
”
When we start investing later in life, the trap is to try to make up for the years
we didn’t invest by chasing explosive returns – returns that are impossible to

achieve consistently and predictably, and that come with high risks of suffering
catastrophic losses
...
But
they also have some advantages
...
We may also eventually receive an inheritance when
we are later in life (the average middle class inheritance in the United States is
over $100,000), which could add to our asset base
...
A 50year-old could be investing in the markets for 40 years or more
...
Invested in a diversified way, this money could work
for him for the rest of his life and minimize the risk that he would have regrets
about the way he conducted his finances
...
I ended the conversation by
simply wishing him good luck
...
Even investors who are well versed in
the history of the stock market, people who already understand and apply the
concepts in this book, can deviate from these principles over time
...

“I had moved away [from index ETFs] for several reasons, including having
more ‘fun’ investing (what a bad reason!) with growth or volatile stocks,”47 he

writes
...
But he also suffered several
losses, “one of which was very large
...
“It’s by making mistakes that we learn
...
48
The self-analysis that this investor is capable of is impressive
...

Financial writer and investor Andrew Hallam, author of the book Millionaire
Teacher,49 realized this several years ago when he decided to sell his entire
portfolio worth over $1 million and replace it with a portfolio of index ETFs
...

“If I was interested in a business,” Andrew writes, “I ordered ten years of annual
reports, then read every word, starting with the juicy stuff at the back (lawsuits,
back taxes owed, etc
...
I took ages to make a stock buying
decision, and I typically bought my stocks when nobody else wanted them
...
We may think of it as “free money”
because dividends are given to us in the form of cash that appears in our
investment account
...
But dividends don’t just fall from
the sky
...
By trying to please its shareholders, it could be
overtaken by a competitor who would use its profits to improve its offer and
would see its stock market value rise to reflect its advantageous prospects
...
51 In the long run, there is
no evidence that companies that pay dividends have a higher return than
those that do not
...
But the author concluded that he was mostly very lucky
...
But my head told me to sell them, in favor
of a total stock market index
...

“When I finally decided to go for it, I had to do it quickly,” he notes
...
”
What made him decide to act was the calculation of how much money he was
leaving on the table by continuing to hold individual company stocks in his
portfolio
...

To those who say he could have beaten the market by 1% a year and made an
extra $400,000, Andrew says the world’s greatest portfolio managers would sell
both arms to achieve that kind of return
...


The chimera of the capital gains tax
Will we pay tax if we sell stock investments that have appreciated in value?

The amount of tax we pay depends on the type of investment account in
which we hold the investment
...
The sums withdrawn are then fully added to our income
for the current year
...

What happens if we sell investments held in a regular investment account for
a profit? There is a certain myth surrounding this type of account: we
sometimes feel that the governments will eat us alive if we dare to make a
dollar profit (called capital gains) on our investments
...

In the U
...
there are two types of capital gains taxes: short-term and longterm
...
After we sell, any capital gains are simply
added to our income for that year
...
The tax rates for those gains can either be 0%, 15%
or 20%, depending on our income that year
...
This investor would get to keep $1,800 out
of the $2,000
...
Some states, including Alaska,
Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas,
Washington, and Wyoming, don’t tax capital gains
...
”
“For all its benefits, acting with an infinite, long-term view is not easy,” writes
Sinek
...
As human beings, we are naturally inclined to seek
out immediate solutions to uncomfortable problems and prioritize quick wins to
advance our ambitions
...
This default win-lose mode can sometimes work for
the short term; however, it can have grave consequences over the longer term
...
Yes, a 60% gain in a few months is exciting
...

That’s why I never know what to say when people tell me that they’ve been
getting spectacular returns in the market for a few months, or a few years
...

It’s not that aiming for high performance is bad
...
Is that really what we’re looking for? Our track record as
investors will suck if we crash in the middle of the race
...
Maintained over many years, an
average return makes us heavyweight investment champions
...
Seeing the value of our
investments rise 18% one year, fall 5% the next, and rise 9% the year after that
can make it seem like they’re not going anywhere
...

After 10 or 15 years of investing, something phenomenal starts to happen
...
The
market is not moving any more than it did before
...

Compound interest is simply interest earned on interest
...
The interest we make on an investment accumulates
interest, which in turn accumulates interest…
We find ourselves like Jean de Florette, the eponymous hero of the classic
French novel by Marcel Pagnol
...

Ugolin, his neighbor, explains: “If you start with two rabbits, after six months,
you have more than a thousand
...
”
We want our dollars to become like the rabbits in Jean de Florette
...
We need years to start seeing our rabbits eat Australia –
where 13 rabbits introduced for hunting in 1859 have grown to more than 200
million today (the word “interest,” by the way, means “offspring” in Greek, the
livestock that multiplies with time and births)
...
A politician, scientist, self-made man, and one of the

fathers of the U
...
Constitution, Franklin explained compound interest in
these words, “Money makes money
...
”
Benjamin Franklin didn’t let his own money multiply for 50, 60 or even 70
years, but for 200 years
...
53 Franklin wanted these investments to be liquidated in two
installments, 100 years and 200 years after his death
...
In 1990, the remaining investments, then
worth $6
...
54 This ingenious scheme teaches us that, indeed, money that
money makes makes money
...
Each line contains the number of years it would take to earn an
additional $10,000, the same as our starting amount (amounts are rounded for
ease of reading):
$10,000 × 1
...
1 × 1
...
1 × 1
...
1 × 1
...
1 × 1
...
1 × 1
...
1 × 1
...
1 ≈ $40,000 (3 years)
$40,000 × 1
...
1 ≈ $50,000 (2 years)
Using this example, accumulating $10,000 of growth from a $10,000 portfolio
takes seven years
...
Overall, we proceed from a
starting amount of $10,000 to $50,000 in 16 years, a total return of 400%
...

Compound interest needs time to unfold its unique powers
...

One of my favorite studies on the subject was made by the asset management
firm Fidelity
...

The result: the clients who had the best returns were those who had forgotten
they had an account with Fidelity
...

The prospect of not letting our investments do their work as soon as possible and
for as long as possible should scare us
...
I believe that throughout one’s life, one must achieve a
balance between spending on the one hand, and saving and investing on the
other
...
All the
attention in our society is focused on spending, and very little on saving and
investing
...

When it comes to wealth, the paths we think are shortcuts are often mirages
...


As Warren Buffett likes to say, “You can’t produce a baby in one month by
getting nine women pregnant
...
”

Can you invest before the age of 18?
To maximize the phenomenon of compound interest, it is beneficial to start
investing as young as possible – preferably when a child or teenager
...
Many online brokers offer these accounts, including Charles
Schwab, E-Trade and Fidelity, just to name a few
...


Winning in investing
The reason the power of compound interest is so counterintuitive is that time is
rarely seen as our ally
...
The
incredible computer we acquired a few years ago is starting to slow down
...
Even
our bodies wear out
...
The
investment world is one of the few where time is on our side
...
In this business, the short term is king
...

The irony is that virtually all investors start their careers by buying stocks that
they hope will take off in the stock market
...


That’s how portfolio manager Ian Gascon first became interested in the stock
market
...

“I was fascinated by the idea of being able to make my money work for me,” he
says
...
I was a little naïve… I was buying stocks, but I didn’t really know
what I was getting into
...
A few years later, he won the contest’s
grand prize
...
”
With a master’s degree in finance, a graduate diploma in management, and a
bachelor’s degree in engineering, Ian Gascon could have made a career out of
trying to find stock market investments with spectacular returns
...

Instead, he now manages low-cost exchange-traded fund portfolios for his
clients
...
“The key is to
stay invested
...
If we
invested during a market downturn, and the market goes up quickly, we will be
disappointed that we did not invest more
...

This sentiment is universal
...
We could
always have done better
...
Even when we have good
returns
...

Investing is almost certain to be a disappointment
...


What is opportunity cost?
Opportunity cost is the financial gain implicitly forgone by making a
decision
...
Or a person who keeps a large amount of cash
forgoes the returns that this amount could have generated had it been
invested
...

I realize that buying and selling stocks can be exciting for some investors
...

If it helps you let 90% or 95% of your investments grow for decades in index
ETFs, this method will have done its job
...
Investing should be a mechanical, repetitive process, like a factory
that doesn’t need human input
...
It’s hard for people to accept that
...

38 Roger Collier, “The challenges of physician retirement,” Canadian Medical Association Journal,
January 16, 2017
...

40 Daniel Solin, “Why Smart Doctors and Dentists Make Dumb Investors,” AOL, December 23, 2009
...


42 Oliver Sung, “Charlie Munger: 2021 Daily Journal Annual Meeting Transcript,” Junto Investments,
February 26, 2021
...
com, June 23, 2015
...

45 Ibid
...

47 Retirement 101, “Returning to the Original Strategy,” July 15, 2020
...

49 Andrew Hallam, Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School,
Wiley, 2017
...
com, September 2, 2011
...

52 Simon Sinek, The Infinite Game, Penguin, 2019, p
...

53 Fox Butterfield, “From Ben Franklin, a Gift That’s Worth Two Fights,” The New York Times, April 21,
1990
...
Schwartz, “Ben Franklin’s Gift that Keeps on Giving,” American History, February 2009
...

56 Jim O’Shaughnessy, “Jason Zweig – Psychology, History & Writing,” Infinite Loops podcast, January
28, 2021
...

John Kenneth Galbraith, economist and advisor to several American
presidents

H

AVE YOU EVER visited the Louvre Museum in Paris?

If so, you have probably taken the time to admire the Mona Lisa
...
It is also the most expensive: for insurance
purposes, it has been valued at nearly one billion dollars
...

The Louvre is the world’s largest museum of art and antiquities, with over
35,000 objects, but the Mona Lisa is the one object most people want to see
...
And that its popularity has its origins in a theft that captivated Europe
and the rest of the world a little over a century ago
...

The next morning, while the museum was still closed, they unhooked the Mona
Lisa and removed it from its protective frame before covering it with a blanket
and leaving without being spotted
...
It took more than 28 hours for a painter who was
finishing a painting of the museum’s interior to complain, irritated, about its
absence
...

“Sixty Detectives Seek Stolen ‘Mona Lisa’; French Public Outraged,” ran the
headline in The New York Times
...

The Mona Lisa remained missing for over two years
...
It turned out the thief knew the
Mona Lisa well: he was the one who had made the frame covered with glass that
was supposed to protect it
...
57
No doubt to facilitate its resale, the thieves had targeted a painting of great
artistic value, but little known to the public
...

The moral of the Mona Lisa theft is that a good story can change the world
...

Virtually all investors follow the news
...

Yet, seen through the lens of investment, opening a newspaper, or turning on the
TV is more likely to impoverish than enrich us
...
Dear reader, I’ll let you in on a secret:
journalists are not multi-millionaires!
Yes, economic news is interesting, and articles about personal finance can have
an impact on our lives
...

Those who shout the loudest are often the most wrong
...
S
...

One would expect a man with his expertise and contacts – who seems to be the
epitome of Wall Street – to succeed in beating the performance of the S&P 500
...
A study a few years ago showed that a
fund set up by Jim Cramer had returned 65% over the previous 15 years,
compared to 70% for the S&P 500
...
S
...
We are then
bombarded with headlines such as “Bloodbath on Wall Street,” “Black day for
the markets,” or “Three investment ideas to protect your money
...
His advice: if you haven’t already done so, investors
should disable all notifications from news apps on their phone
...
“It’s not news that matters to you, it’s a hook to pull you
away from your life and into their trap
...
”59
Those who are concerned that their investment performance will suffer are the
ones who most need to put their phones down, he adds
...
Zero
...
It cannot be done
...

Anyone who doesn’t know this yet will know it eventually, when they look back
at their results and realize they’ve beclowned themselves
...

These articles have headlines such as “Bank of America’s stock fell today
...
”
The tone of these articles often leads us to believe that the authors knew that
these falls would occur, and that it is a small miracle that they deign to take the
keyboard to explain it to us
...
In truth, the authors of these articles had no idea
where these stocks were going
...


Bad predictions
One of the most perverse effects of the news media is when they make
predictions
...
In the newspaper, an expert assures us that “the markets
have gone up too much, too fast,” and suggests that we invest for a decline
...

These people might not define it in these terms, but what they are doing is
simple: they are trying to tell us what the future holds
...

If I knew the future of the markets in the short term, I wouldn’t waste my time
talking about it on television
...
To each his own
...
It comes from the fact that millions
of investors are burning to know what lies ahead
...
“The demand being there, it
must be supplied
...
But that was
decades ago
...
That
with all the technology and data available to us, the models have become more
refined
...

For example, in an analysis by Vanguard a few years ago, they wrote, “For the
next few years, our forecast is modest at best
...
”62
Three years after this prediction was made, the S&P 500 was up over 70%
...

At the same time, British financial giant Barclays was predicting a 7% rise in the
S&P 500 over the next 12 months
...


Oops
...

“What smart investors do is forget about what might happen and prepare
themselves for whatever may occur, through diversification, reasoned asset
allocation and, well, patience,” Chidley wrote
...
Unfortunately, the columnist did not stop
there
...
Let’s admit it:
there’s still an element of instinct, of gut – and, ultimately, of betting – in every
decision
...
”
The financial columnist then told his readers what his “gut” was telling him: the
U
...
stock market had gone up too much, too fast
...
Chidley ended by saying that, unlike Wall Street,
the Toronto Stock Exchange was a great place to invest in the coming year
...
S
...
The Canadian stock market, on the other hand, was up three times less
than the growth seen in the U
...
in the 12 months following the publication of
the column
...

These bad predictions are more than a series of anecdotes
...
S
...
S
...

The analysis showed that the experts were right 47% of the time, less than a coin
toss
...

Warren Buffett
Making fun of bad predictions is easy
...

As we read them, we may be tempted to make changes to our portfolio to reflect
what the pros are saying
...
They speak with authority
...

In an interview, author and investor Andrew Hallam told me that one of the keys
to his success in the stock market for more than three decades was that he paid
no attention to the warnings of financial professionals, the analyses of
economists and the major events that were supposed to move the markets
...
“In the short term,
the stock market is like crack: you should never fall under its influence
...
It is the systematic aspect of investing that is important
...
”
Steve Forbes, founder of Forbes finance magazine, once said that financial
experts know that it is impossible to predict the direction of markets in the short
term
...

“In my business, you make more money selling advice than following it,” he
once said
...
”65

Electoral investment
In 2011, during the economic crisis, the polling firm Gallup asked 1,000 adults
representative of the U
...
population which investments they thought would see

the most growth in the coming years
...

A decade later, the results were in: the respondents interviewed by Gallup were
terrible investors
...
The same amount invested in real estate
was worth just over $23,000
...

So, the more unpopular an investment was with the public, the higher its returns
proved to be
...
At the time the survey was conducted, the
U
...
economy was in a near-depression
...
The public didn’t want to hear about them, even though we know today
that stocks had tremendous potential
...
But the market is not interested in
what seems logical, normal, or obvious
...
Keep
...

Warren Buffett once said that even catastrophic events that mark their time, such
as wars or pandemics, should not stop us from investing
...

To put it mildly, the news was not reassuring in 1942
...
S
...


Three days before Buffett bought his first stock, The New York Times included
the headline, “Japanese Smash Bandung Lines
...
” The next day: “Foe Clearing Path to Australia; reports
98,000 give up in Java
...

Rushing into the markets during World War II, Buffett would nevertheless enjoy
phenomenal returns for the rest of his life
...

Some say that the times we live in are more uncertain
...
That an epic recession or a gigantic
political crisis is about to happen
...
Violent events have
always threatened world peace
...

Here is a short list of negative events that have occurred in the last decade:
Russia launches an illegal, large-scale invasion of Ukraine, thousands are
killed
...
C
...

Iranian-backed rebels attack oil refineries in Saudi Arabia
...

North Korea conducts a sixth nuclear test
...
S
...
To everyone’s

surprise, Donald Trump is elected
...

The European Central Bank adopts a negative interest rate
...

I don’t know about you, but just reading this list makes me nervous
...

Despite these tragic and dramatic events, a $10,000 investment in U
...
stocks
has grown to more than $34,000 over the last decade, an annual return of more
than 13%
...
This should not
prevent us from investing
...

Several warming scenarios for the coming decades are on the table, and it is
unclear how humanity will respond to the risks posed
...
K
...

Their analysis shows that the most economically affected countries could be
India, Singapore, and Australia, where market returns are likely to be lower
than they would be without the impact of warming
...
For example, Canada, the
U
...
, and Switzerland would see an increase in productivity and higher stock
market returns over this period than they would have without warming
...
“The analysis also focuses on economic impact and market returns,
not the many other negative side effects of global warming
...
”66
Another study, conducted by the multinational insurance company Swiss Re,
also shows that the economies of South and Southeast Asia are particularly
vulnerable to the adverse effects of climate change, and that the advanced
economies of the northern hemisphere are less vulnerable
...
68
Nevertheless, it would be much larger than it is today: there are 7
...
8 billion of us by
2050
...
In this regard, ejecting
polluting companies from our portfolio has never been easier, which will be
explained in more detail under “Choosing ESG Investing” in Chapter 9
...
We can learn to live with the returns that will be offered to
us in the future, even if they are lower than they have been in the past
...
That the
growth experienced in the 20th century cannot continue in the 21st century
...

The problem with this view is that the decline of the West has been predicted
every year for over a century
...
Let’s just say that investors who made
investments based on this premise probably did not cover themselves in glory
...
He
agreed, for example, that China will continue to rise in the 21st century
...

“Ask students graduating from college where they’d rather live – the U
...
or
China – and I bet 99% will choose the U
...
,” he told me
...
In terms of purchasing power, adjusted for the cost of living,
Americans are still more than five times richer than the Chinese
...
And even if economic growth were to be slower in the West,
that’s still where the innovation is, says Housel
...
’ Ask
students to make a choice between these two stages of manufacturing for their
careers
...
”70
And those who believe that a country must increase its political and economic
influence at all costs to experience an increase in wealth and standard of living
should take a look at the United Kingdom
...
Yet a $10,000
investment in the U
...
’s largest companies in 1984 was worth nearly $190,000
in 2020, when reinvested dividends are taken into account
...

This propensity for humans to pay a lot of attention to negative news is rarely as
visible as when it comes to the financial markets
...
Worried experts then follow one another to
try to shed light on this “stock market panic
...
” They wonder if there will be a “contagion” in the real
economy, if a “recession is at our doorstep
...
Is it any wonder then that so few people invest, and
even fewer invest well?
Stock market crashes are one of my favorite topics in the investment world
...

How do we keep our cool when the value of our investments is plummeting and
our brother-in-law texts us to tell us he’s sold everything? That’s what we’ll see
in the next chapter
...

58 Jennifer Booton, “Jim Cramer doesn’t beat the market,” MarketWatch, May 16, 2016
...
com, June 4, 2019
...

61 Benjamin Graham, The Intelligent Investor: The Definitive Book on Value Investing, Harper Business, p
...

62 “The 2018 forecast: rising risks to the status quo,” Vanguard Canada, December 7, 2017
...
S
...

64 Guru Grades, CXO Advisory Group, https://www
...
com/gurus
...

66 Craig Botham and Irene Lauro, “Climate change and financial markets,” Schroders, February 2020
...

68 Christopher Flavelle, “Climate Change Could Cut World Economy by $23 Trillion in 2050, Insurance
Giant Warns,” The New York Times, April 22, 2021
...

70 Ibid
...

Morgan Housel, financial author

D

URING A THUNDERSTORM on

the afternoon of May 10, 1752, a brave
volunteer in a sentry box with a metal rod that rose 40 feet into the sky
north of Paris saw a spark appear before him
...
The author of the experiment, ThomasFrançois Dalibard, had just verified the hypothesis put forward by Benjamin
Franklin that lightning was an electrical phenomenon
...
To appease them, the Greeks
and Romans erected temples where lightning had struck the ground
...
That succeeded only in endangering
the person who climbed the bell tower to operate the bells: during a 35-year
period in Germany in the mid-1700s, 386 churches were struck by lightning, and
more than 100 bell-ringers were killed
...
71
Thanks to Franklin and Dalibard, lightning rods appeared on ships and buildings,
ensuring the safety of their occupants during storms
...


Lightning bolts are a good starting point for understanding one of the most
terrifying phenomena for investors: stock market crashes
...

Yet, like electricity, they should be celebrated by most of us
...


Investing without panicking
I experienced this myself a few years ago when La Presse, the newspaper I work
for, became a non-profit organization
...
Almost all the employees
chose the first option
...
I had calculated that even with
so-so returns, I would end up with more money and more flexibility than what
was being offered by the multinational investment manager
...
He didn’t want to manage his own
investments, so he withdrew his money and entrusted it to a financial advisor
...

As it happened, all of this was taking place during a period of falling stock
markets
...

At the Christmas party, while a 1980s hit was playing on the dance floor, my
colleague tapped me on the shoulder: “I’m already out $15,000!” he said in my
ear
...

A few days later, he came to see me at the office
...
“I’d like your advice,” he said
...
What do you think?”

I raised my arms in helplessness
...
Nobody has a
crystal ball
...
”
The markets stopped falling
...
My colleague was smiling again
...
He didn’t sell
...
But
such an experience does not happen on our phone screen
...

Humans are all different
...

Others will have trouble keeping their cool
...
These “safer” investments are supposed to offer growth and the
assurance that our investments won’t melt away in a stock market crash
...

The selling point that supports these financial products is that stock market
crashes are bad and should be avoided at all costs
...
Seeing the value of my portfolio
decline used to trouble me, but I’ve now done a 180-degree turn on the issue
...

The importance of learning how to react to market downturns cannot be
overstated
...


Common, inevitable, and necessary
During the COVID-19 market crash in 2020, my investments melted like never
before: in a few weeks, a hole equivalent to years of salary appeared in my
account
...
Yet I
don’t think I have any special gifts or interest in masochism
...

Humans can’t sit quietly: We’re always fretting, always dissatisfied, always
trying to make progress, always trying to divine the future
...
72
Steeper declines are regularly on the menu
...

What about a 20% decline? Such a drop has occurred every seven years on
average over the past century
...

The famous “stock market volatility” is so common that it should not surprise us
anymore
...
For example, since World War
II, it has taken an average of four months for a correction of 20% or less to be
resolved, and for the market to continue as before
...
74

Even after the ultimate cataclysm in finance, the stock market crash of 1929, the
market took less than a decade to heal
...
This was
made possible by the fact that dividends, the portion of profits that companies
give to their shareholders, continued to be paid out during the Great Depression
...

Market corrections are not punishments
...

“Market returns are never free and never will be,” writes financial author and
investor Morgan Housel
...
Accepting that your investments will fall in value is the
price you pay for growing them over the long term
...
Without risk, there is no return
...

As a result, investors “form tricks and strategies to get the return without paying
the price
...
They attempt to sell before the next recession
and buy before the next boom
...
But the Money Gods do not
look highly upon those who seek a reward without paying the price
...

He draws parallels with entrepreneurs or real estate owners, who are among the
most financially successful people in society
...
“They
look at their profits, they look at their sales
...
They think long term
...
”
Experience counts for a lot
...

“They get a significant amount of money, and they invest it all at once
...
Every sudden move causes them to panic
...
The numbers, that’s 20 percent
...
Let’s leave our portfolio alone
...
The value of our investments will fall
...
These funds contain the stocks of hundreds, if not
thousands, of companies
...

But many individual companies have never recovered, and their stock market
value can eventually reach zero
...


Paying too much

In addition to fearing corrections, we are also generally terrified of paying too
much for the investments we buy
...
“The markets have gone up 31% in the last year,” we might
say
...

I can understand this impulse: like everyone else, I don’t like paying full price
for everyday items
...
When it comes to investing, this strategy will make us poorer
...
So if you delay your investing because the market has had a strong
run, or because it’s at new highs, you could be delaying for a long time!
The S&P 500 hit a record high once every 20 business days on average since
1928, writes financial writer Ben Carlson
...
The year after a bullish year? The index was up… nearly three years
out of four
...

And after a spectacular, absurd, Himalayan rise – say, a 50% rise in 12 months?
After such a performance, we are clearly due for a good correction, right?
Well, no
...
5%
...
And that doesn’t
even include dividend payments
...
78

Another way to look at this is to imagine that you toss a coin in the air
repeatedly and write down the results, heads or tails, on a piece of paper
...
The fact that you get tails does not mean that
you are “due” to get heads
...

In the case of a coin, the odds are 50% to get heads and 50% to get tails
...

This lesson is counterintuitive, but markets that are peaking should not keep us
from investing
...
But consistently predicting their timing and
extent is impossible
...
Some do,
some don’t, some aren’t sure because their spouse is “taking care of it
...

Personally, I consider the 529 Plan to be the electric bicycle of investing,
because the U
...
federal government helps us propel it by allowing
investment to grow tax free when the money is eventually used to pay for
“qualified higher education expenses,” such as books, housing, etc
...
There are no 529 contribution
limits, but since contributions are considered gifts for tax purposes, the
maximum an individual can give to qualify for the gift tax exclusion is
$16,000
...


100% scary
As investors, we all dream of investing when the market is depressed after a
sharp drop
...

When you look at a drop on a chart, you see an opportunity to buy stocks at low
prices
...

You can rationalize past declines because you know how they ended
...
It’s like going into a dark cave without a flashlight
...
We feel our way through, as best we can
...
It fuels
fear, softens our brains, and makes us doubt everything
...
Oh
yes, and as soon as we make our purchase, the chances are good that its value
will drop instantly
...
Let’s just say it’s not very pleasant
...

In the long run, markets have always found a way to make new highs
...
Keeping a cool head in these moments is the challenge of a lifetime
...


Author and financial advisor Garth Turner summed up the sentiment this way:
“In my 35-year career, I’ve seen the same movie repeatedly
...
Market corrections are the exception
...
Crises are sharp and short
...
”
Investors with a balanced, diversified portfolio should not be seduced by the fear
industry, which becomes louder than ever during stock market crashes, Turner
writes
...
”79
Investor and author Howard Marks describes his thought process during major
stock market crises this way: “I think you can reduce it to, either the world ends
or it doesn’t… And if it doesn’t end and we didn’t buy, then we didn’t do our
job
...
80

Missing the elevator
When the COVID-19 crisis began, major stock market indices fell sharply
...

Like millions of investors, I had my eye on the markets
...

When I had no money to invest, I did nothing
...
People who had been investing for years
...
Who worked in finance
...
They decided to sell their
investments with the intention of buying them back later at a better price
...
Here are some examples of the
headlines one could read:

Dow drops nearly 3,000 points, as coronavirus collapse continues; worst
day since ’87 (CNBC)
...

Trump blames China for coronavirus pandemic: ‘The world is paying a
very big price for what they did’ (CNBC)
...

780 million people in China are living under travel restrictions due to the
coronavirus outbreak (CNN)
...

Global economy already in recession on coronavirus devastation: Reuters
poll (Reuters)
...
Except for 9/11, I have
never seen so many apocalyptic headlines published simultaneously
...
We now
know that this was wrong
...

“On average, the market starts to rally six months before the good news arrives,”
says portfolio manager Richard Morin
...
”
My friends bought back their investments in a hurry and missed out on some of
the upside
...
In every crisis, many investors miss the entire
rally
...
They are then paralyzed, unable to resign themselves to
buying back investments that have since appreciated significantly in value
...

Holding on to our investments even when they lose value is important because
good days come without warning
...
S
...
Nejat Seyhun
...
81
Selling in a panic, or in anticipation of a panic, also means that we believe we
can predict the future – perhaps the most expensive “gut feeling” an investor can
have
...

“I never know what markets are doing to do,” said Warren Buffett
...
In 10, or 20, or 30 years, I
think stocks will be a lot higher than they are now
...

Imagine that, by some incredible stroke of luck, a person could buy investments
every time they hit their lowest price after a drop
...
4% higher than

someone who just invested money each month, without worrying about the ups
and downs
...
4%
...
Listening to
that little voice in our head that tells us to wait before investing is a mistake
...

In investment more than anywhere else, our instinct can sink us
...
Once you’ve determined your allocation between stocks and bonds, the
best thing to do is not try to change things
...
Take it
out when we need it
...

If it’s hard to do, it’s mostly because we’re not equipped to be good investors
...
When enemies looted our food supply, or fire
threatened our family, we responded
...

Investor and author Patrick O’Shaughnessy summed it up when he said, “Instead
of trying to predict what will work, focus on avoiding the common pitfalls
...


“We were told a hundred times not to run when lions charged us,” he said
...
You just have to have that lesson beat into your
brain a hundred times ahead of time because the basic instinct, as is so often the
case with investing, is to run
...
Dollars that were ours the day before are no
longer in our possession
...

As with the lions, the trick is not to fight the danger, but to fight our reflexes
...
The reason: they trade less than men and prefer to invest in
diversified funds
...
81%
annually over a three-year period
...
86

We are passengers
When I was a university student going home at the end of the day, I had to take
the subway for a 14-station ride – and then hop on a regional bus that left every
hour and a half
...

Sitting in the subway car, I kept looking at my watch to see if I would make it in
time to catch my bus
...
It was

often at times like this that the subway made endless stops at empty stations
...
I was going to miss my bus!
Then I realized that my behavior made no sense
...
Spending my time being stressed would not change
the outcome
...
Once
I was on the subway, there was nothing I could do to change that equation
...
I remember the
liberating feeling I had when I realized this
...
The sooner we realize this, the sooner we understand that our
emotions and anxiety are counterproductive
...

I live on my salary, not on my investments
...

I also realized that the investor who obsessively tracks the value of his
investments is a bit like a skier who would spend his day focusing on the
technical details of the ski lifts
...
But, like the investment, it is a tool, not an end
in itself
...

All this to say that no one controls market downturns
...

Market drops are inevitable
...

It’s simple, but it’s not easy
...
It’s not supposed to be easy
...
”
So, should you manage your own investments? Let professionals handle them
for you? Let’s find out in the next chapter
...
267
...

73 Thomas Franck, “Here’s how long stock market corrections last and how bad they can get,” CNBC,
February 27, 2020
...

75 Morgan Housel, The Psychology of Money, Harriman House, 2020, p
...

76 Ben Carlson, “All-Time Highs Are Both Scary & Normal,” A Wealth of Common Sense, November 29,
2019
...
2019 in the Stock Market,” A Wealth of Common Sense, January 21, 2020
...

79 Garth Turner, “Suck it up,” Greaterfool, April 15, 2021
...
75
...
Nejat Seyhun, “Stock market extremes and portfolio performance,” Towneley Capital Management,
1994
...

83 Nick Maggiulli, “Why Market Timing Can Be So Appealing,” Of Dollars And Data, January 20, 2020
...

85 Ron Lieber, “Les femmes, meilleures que les hommes?” La Presse, October 30, 2021
...


CHAPTER 8: A SMART
INVESTOR’S GUIDE TO SELFDEFENSE
The hardest thing is the decision to act, the rest is just tenacity
...
After a long evening of partying

from bar to bar with a merry group of locals, everyone goes home and you
end up wandering alone on a poorly lit country road
...
The few people
you meet do not understand you and stare at you
...
You tell the driver the name of your hotel, and
he nods
...
”
“What?” you answer, insulted
...
“But all my colleagues – if they ever happen
to pass by here and see you – will ask for this fare
...
If you try to go alone, in my
experience, you won’t make it
...
”
If true, this story would probably rank among the worst travel scams ever
...
It is not presented in those terms, of course
...

But that’s the reality
...

This is no accident
...
That it makes sense to invest with them
...
But it’s easy to lose sight of the fact that some of the
professionals who assemble our asset portfolio are not impartial
...


Collecting customers
A few years ago, financial writer and investor Andrew Hallam did a test
...

Once there, they were to ask for a simple portfolio of index ETFs to be built for
them
...

In his analysis, Andrew notes that he doesn’t think this is the result of a grand
conspiracy to deceive the client
...
And those employees have sales goals to meet – whether
explicit or implicit – and so they must promote the institution’s products
...

“Investing is a bit like renovating a house,” they say
...
But it’s usually better to let the experts handle it
...
S
...

What they don’t say is that The Wall Street Journal and several economists
question the methodology used by the Dalbar study, which they say inflates the
underperformance of independent investors
...

To use the example of the cab driver on an exotic island: even if that driver was
right that you would be safer with him, does that justify demanding 50% of your
salary for the next 25 years?
Let’s say we have $100,000 in investments in a balanced portfolio, and we add
$10,000 per year
...
That 2% fee is typical: in a rare attempt to paint a complete
picture of investment expenses, a 2014 Financial Analysts Journal analysis
found that the average actively managed mutual funds costs investors 2
...
88
At the end of 10 years, and assuming a growth of our investments of 6% per
year, the impact of the expense ratio will have caused a shortfall of nearly
$45,000 in our investment account, an amount that includes the fees charged as
well as the growth that we would have obtained on these fees if they had still
been in our possession
...

After 25 years of saving and investing, the “hole” in our account created by the
impact of the management fee will be $310,000, while our gain will be
$320,000
...

And, after 35 years, the shortfall from the 2% annual management fee will be
$785,000, while our gain will be $650,000
...
We take the risk
...
But he will potentially extract
hundreds of thousands of dollars from this relationship, which often amounts to
a few meetings over the years
...

For example, you might send a bill payable on receipt of $30,000 to a retired
couple every December for managing their $1
...

Good idea, isn’t it? No? So we agree on one thing: the current model serves
someone, but it’s not the customer
...
His conclusion: it is possible
to withdraw 4% annually from our investments, with an increase to cover
inflation, without fear of running out of money for at least 30 years
...
Bengen based his scenario on a diversified portfolio of
60% stocks and 40% U
...
bonds, and took into account returns since the
1920s
...
5% of our portfolio per year without running out of money
...
Also, it doesn’t take
into account our ability to cut back on spending and take less money out of
our investments during market crashes – which would allow us to take out
more than 4
...
“It’s not a law of
nature,” Bengen said
...
It’s empirical
...
”89
One of the biggest proponents of the 4% rule is Peter Adeney, also known as
Mr
...
Adeney told me an easy way to know if our
investments are enough for us to live on is to have a portfolio that represent
25 times our annual expenses
...
“A worker who saves 50% of his or her income could
retire after 17 years
...
”

A million or else…
Portfolio manager Marc-André Turcot knows this dynamic well: it has provided
him with a salary for years
...
There was
little talk of money at home; it was in college that he started reading books on
the stock market and finance
...

“It was love at first sight,” he explains
...
He
became a financial planner
...
I fell into the sales world
...
He was responsible for his own travel expenses
...
“It was all about the new money we were bringing in
...
I wanted to take care of
them, but I didn’t have the time
...
So he handles emergencies
...
His clients were left with high-fee
mutual funds in their portfolios
...
”
What did the customers say? They said nothing, because they didn’t realize they
had inferior products
...
And even when
it’s listed, it’s not the full fee, just a portion
...
”

Can an independent manager move to the
Seychelles with our money?
Not if the funds are held with a custodian
...
In the U
...
, one of the oldest banking
institutions, JPMorgan Chase & Co
...
In short, the manager takes care of assets selection in our investment
account, but he or she does not hold the money and is not authorized to make
withdrawals: only the client is authorized to do so
...

“The institution only puts its energy on people who have a million or more
...
It’s not a nice cocktail
...
”
The worst part, he says, is that all financial institutions have an ethics manual
that employees must sign every year
...
”
Wanting to move on, Turcot then went to work for the full-service brokerage
branch of the same financial institution
...

Again, although indirect, the pressure was high to sell the client ever-more
expensive financial products
...
So, the more fees, the more we get paid
...

He founded his own agency, Demos Family Wealth Management, attached to
Raymond James, a large independent asset manager
...

Turcot does not use any mutual funds in his clients’ portfolios: he chooses the
stocks of the companies in which he invests for the long term, makes very few

transactions afterwards and keeps the fees low for his clients
...
That’s it
...
Independent portfolio
managers all have “horror stories” to tell
...

Financial institutions are masters of opacity, he says
...
People
think they’re paying about 1% a year in fees, but they’re often paying close to
2%
...
”
Morin recalls a couple who came to him several years ago
...

“On the advice of their financial institution, this couple kept a $150,000 balance
on their line of credit, while at the same time they had an investment portfolio of
about $1 million
...
If the couple
sold investments to pay off their line of credit, the bank lost on both sides!”
It’s not just banks that take advantage of clients
...

“For example, some firms only publish returns for a few accounts, which do not
reflect the performance of their average client,” he says
...
”

What is the Securities and Exchange

Commission (SEC)?
The Securities and Exchange Commission (SEC) is the regulatory and
supervisory body for the U
...
financial sector
...
S
...
Roosevelt’s New Deal program,
whose goal was in part to prevent another Great Depression
...
The SEC receives more than 31,000
complaints and reports of questionable or fraudulent practices per year,
according to its most recent annual report
...
The
organization maintains a registry on its website to verify whether the
company or person we want to do business with for our investments has the
right to engage in activities related to the advice or sale of financial products
...


Another little secret of the mutual fund industry: poorly performing funds are
often closed, and their assets are merged with those of other funds
...
This regular housecleaning allows mutual fund providers
to boast that their returns are more attractive than they actually are, notes Morin
...

87 Jason Zweig, “Just How Dumb Are Investors?” The Wall Street Journal, May 9, 2014
...
Bogle, “The Arithmetic of “All-In” Investment Expenses,” Financial Analysts Journal, 2014
...


CHAPTER 9: GROW YOUR
WEALTH

T

O START INVESTING, I see three choices, which I categorize by the level of

autonomy on the part of the investor:

1
...
automated management platforms (some autonomy), where most of the
investing is done for you, and
3
...

Let’s look at each of these in turn
...
Discount brokerage
Let’s start with the least expensive way to invest when it comes to fees:
managing your own investments online in a discount brokerage account
...
In short, it is the starting
point for the independent investor
...
Some of the
more popular include Fidelity, Charles Schwab Brokerage, TD Ameritrade,
Vanguard brokerage services, E-TRADE, and Robinhood
...


It is possible to open several accounts at once
...
Each of these accounts
is like a “box” in which you can put the financial products you want
...

Just like in a 401(k), the retirement plan offered by 56% of employers in the
U
...
, contributions to an IRA are made with pre-tax dollars, meaning we
don’t have to pay taxes on those dollars in the year they are earned, reducing
our tax bill for that year
...
The annual IRA contribution limit in 2023 is $6,500 for
people under 50, or $7,500 if you’re age 50 or older
...

Roth IRA contributions, on the other hand, are made with after-tax dollars,
meaning we don’t get to reduce our tax bill in the year the contribution is
made
...

Logically, a Roth IRA is an ideal retirement savings account if we’re in a
lower tax bracket now than we expect to be in during retirement
...

In short, an IRA and a Roth IRA offer a great mix of tax savings, giving us
some of the relief now and some in the future
...

We can also transfer investments that we have at another institution
...
I transferred many accounts
this way over the years
...

We also can set up automatic fund transfers, such as every payday, so we can
invest without noticing it
...

Brokerage platforms used to charge up to $20 for a transaction to buy or sell an
ETF, regardless of the amount invested
...

Doing it all ourselves is not necessarily the cheapest option if we miss out on
some of the benefits, such as getting expert advice on the right stock and bond
allocation to adopt, or getting the advice of someone comfortable with the ups
and downs of the markets who can prevent us from selling everything at the
worst possible time
...

One of the benefits of this type of investing through a discount brokerage
account is that we keep more of our returns for ourselves
...
Once in place, our investments require virtually no
attention from us
...
It
suits my personality and ensures that my investments will grow and benefit from
compounding for decades
...

There are two approaches: buy a few ETFs, or buy one multi-asset ETF, which is
an all-in-one solution
...


ETFs
Buying index ETFs means building a diversified portfolio of stock and bond
funds ourselves
...
For the equity portion: the Vanguard Total World Stock Index Fund ETF
(VT), which includes stocks of more than 9,000 American and
international companies
...
For the bond portion: the Vanguard Short-Term Bond ETF (BSV), which
contains U
...
government, high-quality corporate, and investment-grade
international dollar-denominated bonds
...
In short, that’s it
...
3% (for a more
aggressive 80% stocks/20% bonds portfolio)
...
And
the expense ratios for these two funds are incredibly small: they represent an
annual 0
...
04% of the portfolio size respectively
...
S
...
Investors often ask if they could just invest in the U
...
stock market
instead
...
S
...
S
...
Also, U
...
stocks have outperformed international stocks over the last
decade and a half, but there’s no guarantee that this will continue to be the case
in the future, or even that this trend couldn’t reverse
...
S
...
03%
...
These
dividends are usually paid out in cash four times a year and can be automatically
reinvested (free of charge) by most brokerage platforms in the purchase of new
fund shares
...

Canadian investors can buy the diversified Vanguard All-Equity ETF Portfolio
(VEQT) for the stock portion of their assets, and the CI 1-5 Year Laddered
Government Strip Bond Index ETF (BXF) for the bonds portion
...
K
...
S
...
K
...
For the bonds portion, iShares Global Govt Bond UCITS
ETF (IGLH) is diversified and can be easily bought and sold on the London
Stock Exchange
...
It’s not much, but it’s still
more than one
...

These funds are already diversified and balanced, including U
...
and
international stocks as well as bonds
...

This is the option I have chosen for my smaller accounts, such as my Roth IRA
...
I like the minimalist
look of these funds: clicking on my account and seeing only a single line of text
and numbers makes me feel like I’ve done my homework, or have a tidy kitchen
...

In this category, the iShares Core Growth Allocation ETF (AOR) is composed of
80% stocks traded in the U
...
and several other countries, and 20% bonds issued
by the U
...
government and other developed countries
...
It
consists of 50% U
...
and international stocks, and 50% U
...
government bonds
...
15%
...
24%
...
S
...
These funds assume that you will retire in a certain year,
say 2040, or 2050, so the asset mix in the fund changes over time to reflect the
need for more stability as this date approaches
...
There is a $1,000 investment
minimum, and the management fees are 0
...


Investors in the United Kingdom can look for the Vanguard LifeStrategy family
of index funds, which are offered in different versions, from 20% in stocks to
100% in stocks, and have a management fee of 0
...

Studies have shown that investors who buy all-in-one funds tend to behave better
and end up with more money than investors who buy multiple funds, because
all-in-one funds make it harder to try to speculate or time the market
...

We may not agree with the actions of some of these companies – for
example, they may produce fossil fuels, weapons, or tobacco products
...

To address this, some ETFs exclude certain companies based on
environmental, social and governance criteria, an investment choice known
as ESG
...
They however sometimes keep the “least bad” of the
companies in an industry, so I encourage you to read the details of the funds
you are interested in
...
This trend has begun to push companies to do better on the
environmental front to avoid being excluded from these new financial
products
...
S
...
The management fee for this fund is a very reasonable 0
...

In Canada, an equivalent ETF would be the iShares ESG Aware MSCI
Canada Index ETF (XESG), with an expense ratio of 0
...

U
...
-based investors can invest in the iShares MSCI UK IMI ESG Leaders
UCITS ETF (UKEL), which offers broad exposure to U
...
companies with
“high environmental, social, and governance performance relative to their
sector peers,” and has an expense ratio of 0
...

If your ETFs are not ESG, all is not lost
...
For example, the $1,000 we pay for Apple
stock does not end up in Apple’s pocket, but in the pocket of the person or
institution that held the stock before selling it to us
...
But our money does not
help that company fund its operations
...


Asking for help
Buying an ETF in a brokerage account is simple, but there are a few details to
know
...

Also, the interface offers us two prices for the fund: the “bid price” and the “ask
price,” which usually vary by a few cents
...
It is by pocketing

this difference of a few cents that the firm that handles the transaction makes a
profit
...
Employees can answer your questions and
help you take your first steps as an investor
...
For example, a 60% stocks and 40% bonds portfolio
will be out of balance after a year in which stocks have risen strongly
...
We can then sell some of the stocks ETF and buy some
of the bond ETF as required to return to the 60/40 allocation
...
This is a
psychologically difficult thing for investors to do, so the rebalancing provides a
helpful process for us to follow to carry out this task
...

Without rebalancing, the stocks portion of our portfolio will probably sooner or
later outpace the bonds portion, which could be a concern in the event of a
sudden market decline
...

John Bogle, the founder of Vanguard, was not a big advocate of portfolio
rebalancing, and chose not to do it himself for his own investments
...
S
...
“In my opinion, this small difference is statistically
meaningless,” he wrote
...
“Rebalancing is a personal choice, not a choice that statistics can
validate
...
Maybe, for example, if your 50% equity position grew to, say, 55% or 60%
… […] Use your own judgment
...

Full access to stock and bond ETFs or index funds
...


Disadvantages
No barriers to bad behavior (e
...
, selling in a correction, not investing
enough money, etc
...

No professional advice
...
m
...
m
...


2
...

These automated digital platforms make ETFs accessible to anyone with a
smartphone
...

These services are primarily aimed at younger investors, but investors of all ages
can benefit
...

The main advantage of these services is their simplicity: they take a daunting
task (investing) and turn it into something familiar and simple to perform (as
simple as transferring money from one account to another)
...

Based on our responses, the platform assembles a diversified portfolio consisting
of a series of index ETFs representing U
...
, international and emerging markets,
as well as bonds
...
We don’t
have to buy funds and sell them, or even rebalance our portfolio back to the
original allocation between stock and bond ETFs
...
We can
also withdraw our money at any time
...

Also, their graphical interface shows us what our investments could be worth in
10, 20, or 30 years
...
Does the
investor who has $35,000 in investments really want to sell it all and give up
having, for example, $70,000 in 10 years, $140,000 in 20 years, or $280,000 in

30 years? The platform won’t prevent investors from pulling out money during a
stock market crash, but at least it can make them think twice before they sell
...
Others, like Schwab Intelligent
Portfolios, charge no fees but require a minimum of $5,000 in the account
...
These platforms have understood this and now offer
their clients the opportunity to call, email or schedule a video chat with a human
advisor who can help them optimize their portfolio
...

For example, the financial planner will be able to suggest an asset allocation
between stocks and bonds that suits the client’s age, income, and future needs
...

Having a financial life analysis done by an independent financial planner can
cost a few thousand dollars, a bill that increases if several types of assets are
involved, such as real estate investments
...

Diversified ETF portfolios at the click of a button
...

Advice from professionals
...
g
...

Potentially limited access to human advisors
...
Doing business with a professional
The third option is the most expensive in terms of fees, but the simplest and most
reassuring for everything else: deal with a professional
...
I completely
understand that, and having read this book so far, if you choose to work with a
professional then you will do so with full knowledge of the facts
...
This investment of time is not a handicap here: we want to know what’s
going on with our investments – and have the peace of mind of knowing that
someone knowledgeable about the markets has their hands on the wheel
...


Investment advisor
An investment advisor (sometimes spelled adviser, with an “e”) is an individual
or company who is paid for providing the client with advice and managing their
investments
...
Investment advisors working
for registered investment advisor firms (RIAs) have a fiduciary duty to their
clients: they must recommend the best products for their needs, not the product
that pays them the highest fees
...

In this field, the gold standard is the Chartered Financial Analyst (CFA)
designation, which is hard to obtain and ensures that the person managing our
investments is competent and knowledgeable
...
17% of assets under management per year
...
The National Association of Personal Financial Advisors
(NAPFA) website is a good place to search for a fee-only investment advisor
...
They can develop a plan of action
adapted to our needs, constraints, and objectives
...

The financial planning profession does not have its own regulator
...
“This designation requires at least three years of experience, imposes
fairly rigorous standards to earn and maintain, allows investors to verify the

status of anyone claiming to be a CFP and has a disciplinary process,” says
FINRA
...


Accountant
According to FINRA, accountants are trained to provide “professional assistance
to individuals and companies in areas including tax and financial planning, tax
reporting, auditing, and management consulting
...
Some accountants may sell
investments, but their main professional focus is the U
...
tax code
...
This is where a family office
comes in
...
MFOs typically get paid by taking
a percentage of the assets under management: according to one study, the
average minimum annual fee in the U
...
is $92,897 per year
...

Let’s inform them that our investment preference is a diversified portfolio of
index ETFs with a very low expense ratio
...

Chances are that some professionals will recommend that we invest in mutual
funds – which historically have been the bread and butter of this industry
...
Let’s also

ask them to give us the sources to back up what they’re saying – and, no, the
promotional material produced by the company that pays their salary doesn’t
count
...

Personalized service
...

High barrier to bad behavior (e
...
, selling in a correction)
...


Disadvantages
Potentially high fees
...

Our interests may conflict with those of the financial institution
...

When asked about the type of training that has allowed her to win so many races
in her career, U
...
marathon champion and Olympic gold medalist Joan Benoit
said that she leaves her house, goes to the end of her driveway, and she either
turns left or turn right
...
” And there you have it
...


91 Tim McAleenan, “John Bogle Doesn’t Rebalance His Portfolio,” The Conservative Income Investor,
November 5, 2019
...
17%,” RIA in a box, July 23, 2019
...

94 Tom Burroughes, “Family Offices, Wealth Houses Should Re-Think Fee Structures – Study,” February
9, 2021
...
The longest journey is the journey inward
...


Lifeguards have developed an effective system to protect people from sharks
...
If a lifeguard sees a shark, they communicate by radio
with their colleagues
...

During one of these no-swimming episodes, we saw a group of vacationers
running to the ocean
...
In front of us, about 50 feet
away, a gray fin split the waves, causing terrified screams on the beach – just
like in the movies
...

Did you know that sharks kill fewer people than cows?
Sharks cause an average of five deaths per year worldwide, while cows cause an
average of 22 recorded deaths, including by kicking or trampling their victims
...

Sharks are terrifying, and each of their attacks makes headlines around the globe
...

The paradox of the cow and the shark sums up the world of investing
...
We are afraid of the shark (market
crash, a missed opportunity, the next recession, etc
...

The “shark” type risks are very visible
...

The “cow” risks are invisible
...
They should challenge
us, but they have nothing to impress us
...

I also like the cow and shark analogy because the image of the shark is often
associated with the world of finance
...

But, as this book has shown, almost all sharks have worse returns than cows,
which just graze on the grass and watch the trains go by without worrying about
the growth of their balanced investments
...
What looks
threatening is not always threatening
...

For example, while everyone fears a dramatic scenario such as a stock market
crash, another more mundane scenario can hurt us much more: not investing
enough
...

When we’re in our first few years of investing, the biggest danger is not that our
assets will go down
...
To expect the
markets to do the work for us, and then to panic if they don’t
...
It is conditioned to avoid uncertainty and seek
security
...


Everybody makes mistakes
I’m fascinated by a now-forgotten moment in the history of Larry Page and
Sergey Brin, the co-founders of Google
...
Through an intermediary they told the
head of Excite, the internet portal that dominated the market at the time, that
they were willing to accept a million dollars for Google
...

Then they indicated that they were willing to accept $750,000
...

Today, Page and Brin are among the 10 richest people in the world, with a
combined net worth of nearly $200 billion
...
Not you
...
Nor the boss of Excite
...

I noted earlier in this book that many investment professionals discourage their
clients from investing without their help
...

I want to accumulate assets, not responsibilities
...
They’re not comfortable managing large amounts of money,

they’re afraid of making a mistake, picking the wrong fund, not confident in
their ability, etc
...
But I also believe that many
people can manage their own investments
...

The ability of people to adapt their behavior to particular situations is often
underestimated
...

What the media did not show were the billions of people around the world who
changed their behavior in rapid and unprecedented ways to slow the spread of
the virus
...

Wearing a mask in public, which was previously almost never seen outside of
Asia, became commonplace from Chicago to Sydney
...
Humans adapt
...

I did not study in this field, my parents and family were not interested in it
...
I don’t know the U
...
Fed
Funds Rate by heart
...

So why am I interested in money and the best practices to make it grow?

I am attracted to the combination of two extremes: the passive and the
exponential aspect of investing
...
Once invested, my salary also starts working, and
earning money
...

And it floors me
...

The Roman philosopher Seneca wrote over 2,000 years ago that we should
aspire to control our reaction to negative events in life just like the lion tamer
puts his hand in the animal’s mouth, or the guard gives the tiger a kiss
...
Pain,
poverty, disgrace, imprisonment, and exile are feared by everyone
...
”
Posted on the wall of my office, this quote has accompanied me during stock
market crashes
...

Just like the tiger that opens its mouth and roars, the numbers in red on the
screen do everything to try to scare us, to make us react
...
Nice try, sorry
...
e
...

In the eyes of the market, none of this matters
...
The idea that such a thing is not only possible, but commonplace, will
never cease to fascinate me
...
At 99 years of age, Charlie Munger is one of the
great investors of our time
...
He’s
extremely erudite – the man is a veritable quote machine
...

In 1953, as a 29-year-old lawyer, Charlie Munger divorced his first wife
...
The separation was devastating: Charlie lost
almost everything, including his home
...

A year later, his son Teddy was diagnosed with leukemia, the blood cancer that
was incurable at the time
...

Charlie and his ex-wife would go to the hospital to visit their bedridden son, who
was getting weaker every day
...

Teddy Munger died the following year at the age of nine
...

In a fascinating essay on Munger’s life, author Safal Niveshak writes, “It would
have been tempting for him to just give it all up and turn to vices (alcohol,
drugs) as so many around him had done at that time
...
”95
A few years later, in 1959, Charlie met Warren Buffett at a dinner party
...

Warren and Charlie built the Berkshire Hathaway conglomerate, now one of the
largest companies in the world, with over 350,000 employees and annual

revenues of more than $275 billion
...

Bad luck did not leave him
...
This event was difficult to accept for a
man who considers reading his favorite activity – the duty of anyone who wants
to learn and improve
...

In a speech to graduating law students at the University of Southern California
(USC) a few years ago, Charlie Munger said that one of the lessons he learned
from the misfortunes in his life was to never feel sorry for himself
...
“Every time you find you’re drifting into self-pity, I
don’t care what the cause, your child could be dying from cancer, self-pity is not
going to improve the situation
...
Life will have
terrible blows, horrible blows, unfair blows, it doesn’t matter
...
[…] Every mischance in life [is] an opportunity to
learn something and that your duty [is] not to be immersed in self-pity, but to
utilize the terrible blow in a constructive fashion
...
No life is perfect
...

We can have failures in investing
...
“I don’t like any feeling of being victimized,”
Munger once said
...
I’m a survivor
...
I wanted to suggest that you, the

reader, try to put yourself in the shoes of the famous detective
...

As you read through this book, some may say that I’ve made up my mind
...
I will answer that I have never been guided by any philosophy or
investment method that I would have fallen in love with: I base myself on facts
...
I have accumulated this information and these principles year
after year, often at the cost of humiliating mistakes
...

I know that for some, the advice to “buy ETFs and move on” is not a valid
solution
...

If this is your case, I’m not saying that you shouldn’t be an active investor, that
you shouldn’t do stock picking
...


A little removed from the world

Since I was a kid, I like to calculate how long I can stay underwater in a lake
while holding my breath
...
Knowing that with each attempt, I get a
little better
...

Underwater, I am removed from the world and I am part of it at the same time
...
We must learn to be calm, to stir as little as
possible in an environment that has everything to make us react
...
We must realize that everything is better when we
are a little removed from the world
...

95 Safal Niveshak, “A Story of Courage and Hope from the Life of Charlie Munger,” safalniveshak
...

96 Ibid
...

Thank you to my wife Pénélope Fortier for her patience, her support and her
words of encouragement that accompanied me during the writing of this book
...

Thank you to Richard Morin for helping me with this project, and to Stephen A
...

Thank you to Peter Adeney, Van-Anh Hoang, Jean-Sébastien Pilotte, Andrew
Hallam, Morgan Housel, and Mohnish Pabrai
...

Thank you to Jean-François Bouchard, President of Éditions La Presse, and
Pierre Cayouette, Publishing Director of Éditions La Presse
...


ABOUT THE AUTHOR
NICOLAS BÉRUBÉ is an award-winning financial writer and reporter with La Presse,

one of Canada’s largest news organizations
...
Initially published in French, De
Zéro à Millionnaire was an instant bestseller in Canada
...
com
Website: harriman
...

Originally published in Canada in 2022 as De Zéro À Millionnaire
...

Paperback ISBN: 978-1-80409-026-8
eBook ISBN: 978-1-80409-027-5
British Library Cataloguing in Publication Data
A CIP catalogue record for this book can be obtained from the British Library
...
This book may not be lent, resold, hired out or
otherwise disposed of by way of trade in any form of binding or cover other than that in which it is
published without the prior written consent of the Publisher
...

No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result
of reading material in this book can be accepted by the Publisher, by the Author, or by the employers of the
Author
...




---