The Real Reason You Like Certain Stocks

Have you ever been to a carnival and been approached by someone who offers to give you a prize if he can guess your weight, or your age, or the month you were born in?

If you haven’t, it’s great fun — especially the age part. The weight part might be a little uncomfortable for some of us. We give the guesser just tiny morsels of information, and he manages to pretty much nail the age thing.

I’ve often wondered how they manage to do that, and so I did some Googling. To guess your age these guys use clues and context, focusing on things like:

• The age of people that are with you

• Your relationship with those people

• Signs of grey hair

• Signs of wrinkles

• Body type

• Posture

The guesser also gives themselves a margin of safety by giving themselves a range (five years is common), and some will use a notepad to write down two different ages. They’ll then cover one up with their thumb at the last minute.

It’s really not that hard, especially if you have some training. An older woman with two young children will most likely be a grandmother, but one young and spry enough to spend the day chasing after her grandkids. That one piece of information alone would be enough to put her age range somewhere between 55 and 70. A couple of other questions, and the guesser has enough of an idea to make a pretty good guess.

And if the guesser is wrong, Grandma gets a nice little toy for one of the grandkids. Not bad.

The interesting part of this story isn’t about carnival games. It’s how easily you can take very simple clues and use them to figure out information about someone — and all without the person realizing what you’ve done.

The easy way to do this is with pop culture references. I have a serious mental disorder where I quote The Simpsons all the time, but only from seasons 3-9. If someone gets the joke, then guessing their age in a 5-10 year window is pretty easy. Combine that with other hints, and you’re cooking.

The limitations of guessing someone’s age are pretty obvious, but that’s just the tip of the iceberg. Good salespeople will use similar tricks to figure out what a customer wants and use that knowledge to counter objections. Your boss might even be using these tricks to figure out what motivates you to work harder. And I’ll bet that a lot of wives are using subtle little behaviors to make their husbands do thing or act like they want. Men, of course, aren’t smart enough to pull this off with our wives.

In one way this is a little depressing, since we all assume that we’re unique with our own thoughts, wishes, and desires. But what an astute few have figured out is a certain few events have shaped our lives more than we realize.

How this applies to investing

During a school trip in grade 11 I got talking to one of my chums. He was in grade 12, and had life all figured out. As we all did at that age.

He had been accepted at a local university into the business school. He was going to do his four years, get a degree in commerce, and eventually become an accountant. Even back then he was confident he’d make between $80k and $120k per year by the time he was in his late-20s.

He wouldn’t have to take out student loans, either. His father managed his RESP, which had done incredibly well. The account was stuffed full of growth stocks that were beating the market pretty substantially.

Plus, the internet was really taking off, and everybody couldn’t stop talking about the potential. If just 5% of total retail sales migrated over to the internet, bulls argued, these stocks were actually undervalued.

This conversation happened in the year 2000, and we all know what happened next. The tech bubble burst, and these stocks fell. Hard.

Undeterred, my friend’s dad continued to hold those tech stocks. He might’ve even averaged down. By the time the second year of university was done, the RESP was effectively out of money. He was forced to get loans for the second half of his education.

The good news is this story has a relatively happy ending. He used a combination of summer jobs and newfound frugality to make it through university with a reasonable debt load. The job market was decent and he found a junior position with an accounting firm within a couple of months.

We met up last year and chatted about the last 20 years. He had also been bitten by the investing bug and we spent pretty much the whole time talking about it. And, just like me, his portfolio is stuffed into boring companies. He has shares in Telus and TC Energy and Manulife. I pitched Rogers Sugar to him and he was immediately smitten with the idea.

What quickly became apparent was his father’s decision to invest his RESP so aggressively scarred this guy deeply. My friend now takes considerably less risk than the market, has a fat emergency fund, and he encouraged his wife to get the most secure government job she could find. You can tell he’s constantly thinking about the risks of every financial decision.

Still, he’s in great shape. His RRSP is stuffed, he’s maxed out his TFSA every year since it was introduced, and is on pace to pay for both of his kids’ university educations in full. For some reason he’s especially passionate about that last thing. I can’t imagine why.

One financial event that wasn’t even the guy’s fault scarred him so much it impacted his life 20 years later. And there’s a very good chance it’ll continue to affect him 20, 30, and 50 years into the future, too. It’s pretty amazing that this had such a big impact on him.

How it all comes together

When I first got interested in investing I was fortunate my dad was available to teach me all about it. He had the knowledge, and a luckily-timed (at least for me) broken leg ensured he had the free time to teach me all about it.

He taught me all about how he invested in real estate. I used this knowledge to amass a small portfolio of properties by the time my peers were done with university. I held those properties for decades, and they spun off predictable cash flow the entire time.

These properties are the biggest reason I ended up financially independent at a relatively young age. I reinvested all those profits — plus a big chunk of my savings — and let compounding do its thing.

But I’m also convinced that real estate helped shape my love of dividends. My dad taught me that cash flow was king when it came to real estate. Sure, you’d get some gains over time, but it was best to view those as a hidden benefit. Cash flow is what paid the mortgage today.

When I started investing also shaped how I do it today. I started investing in stocks in the mid-2000s, but I was mostly a real estate investor back then. I didn’t really get into the market bigly until the 2010s.

What style dominated back then? It was dividend growth investing. Folks had just lived through the financial crisis, which taught them that stocks could actually go down. Of course they insisted on income. Who wouldn’t in that environment?

Compare that to investors who cut their teeth in the mid-2010s through the 2020s. These people have never experienced a long-term bear market. Sure, they went through March 2020 and the Trump tariff tantrum a few months ago, but these were short-lived downturns.

They don’t care about dividends, and why should they? As far as they’ve experienced, markets don’t go down. And if they do, it’s no biggie. They bounce right back again.

The bottom line

The point of this week’s newsletter is simple. Small events will have a big influence on your financial life. And, perhaps most importantly, your formative years will directly influence what kind of investor you are.

My friend is risk adverse because of one decision his father made. I like dividends because that’s literally how I was raised. And of course the kids these days are going to like growth. All they know is a world where growth works.

The interesting thing about all this is it isn’t anything we can really control. These behaviors are caused by deep emotions we barely remember experiencing. Our lizard brains remember the scars deeply, and the logical part of our brain has no idea of the impact.

It also goes to show just how futile it is trying to change anyone’s mind about their investing style. You might have all the logical arguments in the world, but you can’t out-logic a lizard brain. It just doesn’t work.

One more thing

Canadian Dividend Investing is a reader-supported publication that helps Canadians find better dividend stocks, increase their passive income, and ultimately retire richer.

Sign up for our premium newsletter today, which gets you:

• Two pieces of long-form research every week

• Three model portfolios to help you pick and choose stocks

• An ever-growing dividend security list, which ranks the dividend safety of more than 110 different Canadian dividend stocks. This list warned readers about BCE’s dividend cut, and is currently warning about a few more shaky payouts, too

• Visibility into Nelson’s portfolio

• A collection of investing resources, some of the best pieces on investing you’ll ever read

• Much, much more

All this is available for just $200 per year. Upgrade your subscription today!