Friday, February 23, 2001
The 10 Biggest Investment Mistakes Canadians Make and How to Avoid Them
For Ted Cadsby, there is a pot of gold at the end of the rainbow. That reward, he says, is available to investors who understand, really understand, the risks they take. President and CEO of CIBC Securities , the mutual fund arm of the bank, he has put together a wonderfully clear, painlessly instructive explanation of the differences between risk and perceived risk.
His ten mistakes lead off with misunderstanding risk, then investors' futile attempts to time the market, excessive trading in the name of asset allocation, excessive belief in the powers of active management, preference for investing very close to home, lack of understanding of one's own portfolio, lack of understanding of one's performance, and failures to understand the powers of compounding, the role of tax, and the cost of portfolio insurance.
Mr. Cadsby's advice can be summed up on two words, "have faith," for markets reward investors who are diversified and patient. The old advice, buy low and sell high, which is obviously right, is hard to do in practice, for when stock prices are low or bond prices high, investors in each market have an obvious consensus of belief. The higher wisdom is to go against the common wisdom, buying out of favour companies or investing in depressed national markets. These things work and the reason they do is implicit in Mr. Cadsby's view of the market - when asset prices are at their lowest points, they demonstrate emotion more than reason. In sum, Mr. Cadsby advises making long term commitments to entire asset classes and markets in the historically proven and therefore probable tendency for prices to rise. For both novice and experienced investors, this book has much to offer. With clarity, wisdom and charm, Mr. Cadsby has established himself as an author who must be read. Indeed, without understanding the differences between risk and risk perception, few investors will be able to become proficient investors.