My basic feeling is that there are only two reasons why anyone should spend more than 5 minutes a year investing.
Reason number one: you don't care about beating the S&P500, but you do care about generating enough passive income to live on. For those with high expenses in relation to their net worth, investing in an S&P500 index fund may not deliver reliable dividends that are adequate to cover living expenses. The yield on the S&P500 is simply too low. Investors who fit into this category have no choice but to seek out higher yielding alternatives to the S&P500, and this search (and the monitoring that follows after you've bought the investments) entails significant time and energy. As a friend of mine told me, "I invest because I have no choice."
Reason number two: you were dropped on your head as a baby. Maybe as a consequence of this, you have this strange impression that somehow you are smarter than every other investor on the entire planet and that you can actually outperform the S&P500 over the very long term - say, 50 or 60 years. Of course you have to just take this purported financial genius on faith alone, for nobody comes to the investing game with 60 years of past experience under their belts. It is irrational to think you can do it, and more to the point, what does it even matter if you were able to beat the S&P500 by a couple of percentage points (which may sound modest but statistically speaking, would be nothing short of epic and highly unusual).
The answer is that hard-core investors are sort of like people who enjoy the color pink. You can't talk them out of it. And after almost 48 years on this Earth, if I've learned one thing, it's that people basically end up doing whatever they feel like they want to do, and that's about all there is to it. I answered my friend from paragraph 1 (above) with this; "I invest because I have no choice, either."
Today is one of the very best days I have had in a very, very long time. For it was today that the stock market finally crashed. Oh, and better yet, I had some extra cash lying around to invest. Yes.
I've had two stocks on my pick list for a few years - Prologis (PLD) and Washington Gas Holdings (WGL). As some might recall, I have owned PLD in the past. It is a REIT that specializes in building and leasing logistical space - Amazon fulfillment centers are a particular favorite for this REIT. Maybe that explains why the price for this company is completely overdone. It is a richly expensive stock, which is why I sold it (and unlike many REITs I have owned and sold in the past, I sold PLD at a vast profit). I bought back $1,000 worth of shares today because REITs are down this year, and PLD's price has come down a bit. I want it on my watch list and being somewhat of a miser, all it takes is $1,000 to get (and keep) my attention.
WGL is another all-time favorite of mine, albeit, with a somewhat bitter history. My son bought this stock when he was about 3 years old because he reasoned that everyone needs electricity. He made a ton of money on this investment of his, and I just let the investment ride until one day, I saw he'd actually booked many thousands of dollars in gains AND, the stock seemed wildly overpriced compared to other utilities. I sold it, obviously. It was one of my classic idiot moves that cost my son many thousands MORE in foregone gains. The stock has only gone up since I dumped my son's shares several years ago as I watched in shame and bewilderment.
The thing about investing is that there are usually two transactions involved - buying and selling. I'm not too bad at picking stocks to buy, but when it comes to selling, my track record is genuinely horrible. I suppose you could call it fortunate that the extent of my idiocy as a seller and my decency as a buyer probably balance one another out, leaving me in the unremarkable position of being precisely average in my skills as an investor. But I have a simple idea to tip the odds back in my favor. Don't sell anything ever again. If I did nothing but buy stocks, I could effectively cancel out my propensity for moronic investment decisions leaving only the above-average decisions behind. What could possibly go wrong!?!
The thing about great investment results is that you only need one or two homeruns over the entire course of your lifetime... and then the only thing left to do is avoid making truly stupid mistakes. Avoiding mistakes is the easy part. It's exactly like winning a game of musical chairs. Music stops, you are lucky enough to get a seat, and when the music starts up again and all the other kids are playing along, you remain firmly seated and REFUSE to stand up again. You do this no matter how loudly people shout "Hey! that's not how the game is supposed to be played!!!!!"
Well if it ain't how the game is played, explain why I have a chair and YOU don't!
It's not about fair, or playing the game the way it is supposed to be played. I'm climbing back into my WGL chair. I bought $1,000 worth of stock today because utilities are down hard this year on interest rate concerns. With any luck, the prices will keep falling and I will have more opportunities to restock my WGL shelves at even lower prices in the future.
The day only got better and better from there. FBL Financial (FFG) is an insurer with an interesting niche: life insurance for farmers. They are a very profitable little company, and for reasons I can't understand, the stock was down 7% yesterday. I bought more today. This company has gotten into the habit of paying enormous annual special dividends in March, and so maybe this month we will see the same. I think it's a good bet - the company's profits are quite solid and leave ample room for a special dividend. If they don't, fine. There's always next year, and the year after that.
These three investments chewed up my reinvestment cash for the month, but I did one more thing. I did a thing so fine, so pleasing and lovely, I honestly believe that it changed me as a person.
I once owned about $20,000 worth of EPR Properties (EPR) which is a specialty REIT focused on entertainment properties (think miniature golf, movies and educational facilities). Last week I sold off about $15,000 of shares because I had about $2,000 of losses that I wanted to harvest - I just put the proceeds into an Ishares REIT index fund (IYR).
Sometimes you get lucky. The price for EPR today crashed by almost 10%, thanks to some weak earnings due to the bankruptcy of a troubled tenant. If I bought the shares back, the loss would be disallowed for US purposes under the so-called wash sale rule. I wouldn't matter if I bought the shares back in a taxable account or an IRA - the wash sale rule applies irrespective. For Portuguese capital gains purposes, though, the rule is entirely different. As long as I purchase the shares in a pension fund or IRA, my losses on the taxable sale are fully recognized in Portugal, which will allow me to offset gains on two other stocks that I've realized this year.
Generally, I don't have to care much about Portuguese income taxes because I have NHR status - that means I don't pay income taxes for 10 years on my non-Portugal source income. One big exception: I am fully liable for capital gains taxes in both the USA and Portugal (although I can claim a credit against my US tax liability for income taxes paid to Portugal).
So with that background in mind, I sold about $2k of VNQ REIT Index shares that I own in a ROTH IRA, and bought EPR properties with the proceeds. For US tax purposes, the transaction accomplishes nothing other than avoiding a 10% loss on the shares I bought back - and I need to make sure I keep records for my taxes next year. For Portuguese purposes, though, I basically transferred EPR shares at a taxable loss (hurray!) into a permanently tax-exempt ROTH IRA (hip hip, hurray!!)... and at a 10% price discount to boot (which makes me feel like I just won the Miss America contest, and I'm fighting to keep my tears of joy from streaming black eyeliner down my cheeks as Bert Parks intones "There she is..... EPR Properties").
And so now, if you see me strolling down the streets of Lisbon, twirling my cane around my pinky whilst I snap my suspenders and sniff that jaunty red carnation tucked into my lapel, doffing my top hat to bemused passers by, now you know what's going on.
Come to think of it, maybe there is a third reason to justify spending more than 5 minutes a year investing. Maybe it has nothing to do with investment returns, or generating sufficient income. Maybe it really is as simple as enjoying the color pink. There are worse vices.
Disclosure: I am/we are long epr, vnq, iyr, ffg, wgl, pld.
Additional disclosure: This is not investment advice and I am not an investment advisor.