I’m going to let you in on a little secret — something I’m fortunate enough to have figured out years ago. Bay Street is not your friend. The only thing those folks are interested in is making money for themselves. Bay Street doesn’t just refer to the physical location in downtown Toronto, of course. It refers to the investment industry as a whole, from financial advisors all the way up to bank CEOs. It’s the pundits you see on TV every day and those slick presentations predicting the next billion-dollar market. The true fundamentals of investing aren’t sexy. But they…
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I’m going to let you in on a little secret — something I’m fortunate enough to have figured out years ago.
Bay Street is not your friend. The only thing those folks are interested in is making money for themselves.
Bay Street doesn’t just refer to the physical location in downtown Toronto, of course. It refers to the investment industry as a whole, from financial advisors all the way up to bank CEOs. It’s the pundits you see on TV every day and those slick presentations predicting the next billion-dollar market.
The true fundamentals of investing aren’t sexy. But they will make you rich. Here are three important tips the fat cats on Bay Street don’t want you to know.
Avoid the sexy, new sector
We’ve all heard the story of a lucky investor getting rich by discovering a new growth industry in its infancy.
Marijuana is just the latest example. Folks who started buying Canopy Growth (TSX:WEED)(NYSE:CGC) back in 2016 when shares languished under $5 each are laughing now, even after a massive pullback.
It’s easy to get excited about Canada’s marijuana industry. There are millions of recreational cannabis users in the country, and it’s possible we could attract just as many marijuana tourists each year as well. And in case this huge market isn’t enough to get you excited, there’s also the potential for cannabis-infused drinks, food, and all sorts of other products. And that’s not even mentioning the medical benefits of the drug.
But Canopy Growth stock has hardly been a guaranteed money maker. After shares surged from under $5 each to a high of $75 on the eve of legalization, they’ve fallen some 50% as investors have taken their money out of the industry.
One of the stock’s biggest problems is it can’t be analyzed like a traditional investment. Valuation methods like price-to-earnings and price-to-sales ratios are through the roof. At this point, Canopy Growth is nothing but hype. And as we’ve seen in the past few months, that hype can die in a hurry.
The lesson is simple: jumping on to the sexy new sector isn’t a consistent way to make money.
Boring is beautiful
Bay Street runs on trading commissions. They want you to go in and out of stocks often.
The opposite is the key to success. You want to find great companies, buy them at a fair price, and hold on for a couple of decades. This is the easy way to create serious wealth.
BCE (TSX:BCE)(NYSE:BCE) is a great example. The company hasn’t been a sexy growth stock since the 1990s, yet it keeps chugging along. It has quietly been accumulating assets and cementing its place atop Canada’s telecom sector, which is a pretty lucrative place to be.
Bell’s collection of wireless, wireline, and media assets have quietly made investors rich. Over the last 15 years, including reinvested dividends, BCE shares have enjoyed a 9.3% annual return. That’s enough to turn a $10,000 original investment into one worth $37,000.
A $10,000 investment every year for a decade would be enough to build some serious wealth.
If you can’t beat ’em, join ’em!
I believe investment fees in general are a pretty big rip-off, which is one of the reasons why I own a bunch of bank stocks in my portfolio.
Pretty much any of Canada’s bank stocks have been great investments over time. Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is one of my favourites today because of the company’s long-awaited expansion into the United States, its attractive price-to-earnings ratio, and I like the focus on wealth management. I’m also convinced technology will make Canada’s banks all the more efficient, which will lead to increased earnings.
Oh, and you’ve got to like CIBC’s 5.3% dividend, which is accompanied by a payout ratio of just 50%.
The bottom line
Remember, Bay Street has its own best interest in mind, not yours. They want you to get rich, sure, but only if they can profit in the process. Ignore the temptation to follow the sexy new sector, trade excessively, or pay huge fees for investing advice, and start a path of sustainable wealth creation today.
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Fool contributor Nelson Smith owns shares of BCE INC. and CANADIAN IMPERIAL BANK OF COMMERCE.