This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
I have been doing some reading in a quest to learn how I will invest my retirement fund, once my house has been paid off (which at our current pace will be in about 2 years). One book that I recently read, and found interesting was titled “A Maverick Investor’s Guidebook” – written by Mal Spooner. Spooner is a money manager and founder of a former mutual fund company, Mavrix Fund Management Inc. I liked the way the book read, and like most books of this nature gave me some information that I can use in the future, but also left some questions when I was done reading it.
The entire book pushes the reader to become a Maverick investor (or really, to become a Maverick in all facets of life). He is very much against the “herd mentality” that is prevalent in investing and goes into the way of thinking that is needed to become a Maverick. A lot of the book is spent explaining what a bubble is and when you can tell you’re in the middle of one (and how to stay out of it).
There was one chapter that the author wrote about diversification that seemed particularly different than most investment books that I have read. The focus of the chapter is on diversification of stocks. The author does not believe that diversification reduces risk. In fact, his methodology of diversification closely resembles a method of card counting used in Blackjack, when the “count” is ideal, you significantly increase your bets. Spooner’s “Maverick” methodology would be as follows: Start with a portfolio of 50% stocks and 50% bonds. In the event that the stock market decreases significantly (which generally increases the value of bonds), you would take the bonds which are selling at a premium, and increase purchases of stocks, which are now on sale, which isn’t really a method of diversifying at all, it is more a method of market timing.
What I appreciate about Spooner’s investment style, which doesn’t necessarily mean I will follow is the aggressiveness that he pushes. While I don’t really know if I would basically push “all in” as is advocated, there are very few books out there (that I’ve read) which would tell an investor to leave their “safe” holdings and invest in what is currently tanking. The main risk of the strategy is that you will time your purchase or sale decision improperly.
When the investment portion of my retirement plan begins, I would like to think I will employ some aggressiveness to my decision-making, but given my level of risk aversion and feelings towards losing significant amounts of money, this may be wishful thinking.
I’m wondering how you developed your investment strategy? Did you learn from someone else (a book, or website)? Your own mistakes?