What I've Seen

I was hitting line drives in a batting cage at Lambrick Park the first time I really heard about the stock market. It was either 1999 or 2000.

Before then, the only thing I knew about stocks and investing was that I was born a few months before one of the worst ever stock market crashes, October 19th, 1987. The S&P 500 dropped almost 30% that day. They call it Black Monday.

The tech boom was in full swing (no pun intended, I swear) in 1999 or 2000, and most of the parents of the guys I was playing baseball with wouldn't shut up about how much money they were making on a stock called QLT.

Because this happened during the tech boom, you already know how the story ends. But QLT's rise and eventual demise isn't like most small stocks in the late 90s.

What made QLT so attractive to investors? It developed a drug called Visudyne that could stop people from going blind. This wasn't some dot-com with a flashy website and no revenue. QLT had an actual product, FDA approval, and revenues. By 2001 it was one of only 14 profitable biotech companies out of 490 worldwide.

It was about $18 when it started trading in Toronto in September of 1998. Four months later, in January of 1999, after promising Visudyne trial results, it hit $60. And when the FDA approved Visudyne in April 2000, the stock shot up to nearly $120.

Imagine you bought it for $20 and now, eighteen months later, it was more than five times that. Odds are you'd be telling your friends at the baseball diamond. And odds are you'd probably think it would keep going up.

But what was QLT worth by the time I graduated from high school in 2005? About $7. And today it's gone.

That story isn't about the parents at the baseball diamond, though. It's about me.

Our investment perspectives are shaped by our own experiences. What are mine? Black Monday; the highs, lows, and obscurity of QLT; finding a job in the middle of the Great Financial Crisis (the GFC); and becoming client-facing right before one of the best bull markets of all time.

That's why I write what I write.

I've read countless books about the Stagflation of the 70s, Black Monday, the Tech Boom and Bust, and the GFC (and even the Panic of 1819). I'm always conscious that another crash could be around the corner. Not because I'm trying to time it, but because I've studied what happens when people aren't prepared.

I write a lot about diversification. I don't trust individual stocks. When I was studying for the CFA, I found the chapters on how to value individual stocks boring. The chapters on portfolio management and proper diversification resonated with me. I don't want clients to have a QLT experience.

I know what it's like to not find work for months on end. That's why Carley and I keep too much in our emergency fund.

And since 2012, buying diversified investments and not selling them has worked.

Prepare for the worst, be diversified, keep an emergency fund because you don't know how bad things could get, and compound growth is a beautiful thing. That's what I think because that's what I've seen.

And I'm not unique in this. Everyone's investment philosophy–at least those of us in the advice-giving business–is shaped by their own experiences.

Take Jared Dillian, who I would argue is the best finance writer today, for example. He traded derivatives at Lehman Brothers and was working there when it went bankrupt in 2008. He also loves cats. I think that's worth mentioning.

He recently ended a post titled "The Philosophy of Money" on his Substack with this:

I will add one last point—investing is not as important as you think it is. Everyone wants an index fund, or a hot stock tip, or a (cryptocurrency). There is a pretty good chance that you would have been better off putting that money in the bank. When it comes to investing, people are their own worst enemies. The advice to put it in an index fund, buy and hold, and dollar cost average, is not bad advice. People have done very well following that advice. Of course, market conditions have been very favorable. One day we will get a big bear market, and we will see if these people continue to follow the advice, or if they panic, in which case they would've been better off in the bank. Having lived through two great bear markets, I can tell you that one day, the market will come for your index fund. And it will not be pleasant.

I agree with most of what Dillian says here. People are their own worst enemies when it comes to investing. And he has lived through two brutal bear markets: the Tech Boom and Bust and the GFC. That's real experience, and it shaped how he thinks about risk.

But here's where I disagree: long-term money should never be in the bank. (Especially after watching banks fail in 2008. Just a bit of irony in Dillian’s advice given where he was working in 2008.)

Will people panic when the next crash comes? Probably. Some (many?) will sell. But the ones who don't, the ones who hold on for dear life, will be better off than if they'd kept their money in cash.

Dillian is right. There will be another market crash. People will panic or wish they had put their money in the bank right before the drop. But I'd rather they endure it. And years later, I'd love to hear them say: "It was hell on earth. But we stayed invested no matter what. And we're better off because of it."