Friday, December 14, 2012

What Kind of Stocks You Got There, Brent?

In late 2011, I had to figure out what to do with regards to preparing for my retirement.  I’d given up on mutual funds many years earlier and had been plowing all of my extra money into paying off my condo.  In fall of 2011 (freedom 45, baby!), I achieved that and had to figure out what to do next, with the obvious goal of preparing for retirement.

Handicapped by a deep, deep lack of interest in finances and economics, though, my options were limited.  My partner, Brent, has been investing in the stock market for a long time, so I decided I would give that a try. 

Being an essentially lazy person (ok, maybe not “lazy” exactly… but certainly a fan of taking shortcuts when I can), I decided to employ one of my favorite techniques, known as the “Eddie’s Camera” technique.  In the early 2000s, I knew a guy named Eddie, and Eddie was a very thorough and meticulous researcher when he was considering making a purchase.  One time, Eddie was researching digital cameras with the intention of buying one.  He researched and compared and fretted for what seemed like an excessive number of weeks before finally deciding on a camera and making his purchase.  He was very pleased with his camera.  I was also looking to buy a new digital camera.  I did some great research and got a camera that I was very pleased with.  My 30-second research consisted of “What kind of camera you got there, Eddie?”.  It was foolproof!

So, intending to apply the “Eddie’s Camera” technique to entering the stock market, I slyly asked “What kind of stocks you got there, Brent?”.  Brent is a very thorough and meticulous researcher of stocks.  What followed was about a month of mind-numbing instruction on preferred shares, reading prospectuses, and calculating the potential return from a preferred share based on issue date, current price, and declared redemption date.  Well THAT didn’t work.  More to the point, exactly what stocks do you invest in Brent?  Well, Brent being Brent (gotta love him), he didn’t want to just tell me some stocks… he was concerned that he’d make a bad recommendation and I would get burned.  I tried to convince him that I would take full responsibility for my decisions but he wasn’t having any of it.  He insisted that I should learn some stuff and make my own decisions.  Insert long-suffering sigh here.

I started trying to assess some preferred shares, reading prospectuses, and calculating the potential return from a preferred share based on issue date, current price, and declared redemption date.  I wanted to poke my brain out with a stick.  I made a spreadsheet that I could plug some key numbers into and it would do some of the calculating for me.  That helped a little.  I found some preferred shares that generally seemed to fit Brent’s analysis, but trying to glean the key numbers out of the prospectuses was truly painful and, to quote Austin Powers, “just wasn’t my bag, baby”. 

I turned my attention to dividend-paying common shares instead.  They’re a little riskier than preferred shares, but a whole lot simpler to “read”.  The yield is just posted right out there for everyone to see.  No mind-numbing prospectuses or calculating.  By doing some internet searches I managed to identify a number of dividend paying stocks which were hailed by the experts.  I chose the ones with the highest yields and bought a bunch.  How easy is that!?  All I had to do now was sit back and watch my money start to grow. 

Unfortunately (but not surprisingly), that is truly NOT what happened next... insert ominous cliff-hanger music here...

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