Dedication

      To my clients, who taught me most of what I know

      Acknowledgements

      One of the new and exciting developments in writing compared to fifteen years ago when my first book appeared is the use of the Internet and social media. Communities that did not exist then have developed into powerful tools to examine attitudes and opinions, and to use as valuable resources. In particular my “associates” on Twitter led me to many contributors with strong views about investing, bubbles, and real estate, and helped me refine my point of view. Thank you to all of my Twitter friends. To find out what these people are saying, follow me on Twitter at @hmacbe.

      I would like to express my deepest gratitude to the all of those who helped with this project:

      Jonathan MacLeod, Sarah Kelley, and Kaitlyn Wietzel provided many extra hours of effort to fill in during my absences while my writing took me away. I could not have done this without you.

      My partners and colleagues at Richardson GMP; the support that you have shown throughout is amazing.

      Many people who challenged me to justify what I was asserting and made the final product much better.

      All the good people at Dundurn, who kept me on schedule, for the most part.

      Don Loney steered me in the right direction and provided his considerable expertise.

      Professor Alan Walks read an early draft of part of the manuscript and corrected my mistakes.

      Ben Rabidoux, North Cove Advisors, provided valuable assistance throughout.

      Fraser and Laura; your encouragement means everything to me.

      Nancy; none of this would be possible without your love and support.

      I would also like to acknowledge the help of many people, some of whom I’ve forgotten (I’m sorry) and some who wish to remain anonymous. Thank you all.

      All the mistakes and mine and mine alone.

      Readers should always get independent advice before making any investment decisions. Any advice given in this book cannot be relied on to determine an individual’s best course of action. Only an advisor who knows all the circumstances of an individual’s specific situation can provide investment advice. Seek professional advice before taking any action.

      This publication contains opinions of the writer and may not reflect opinions of Richardson GMP Limited. The information contained herein was obtained from sources believed to be reliable, but no representation, or warranty, expressed or implied, is made by the writer or Richardson GMP, or any other person, as to its accuracy, completeness, or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any of the securities named herein. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trademark of James Richardson & Sons Limited. GMP is a registered trademark of GMP Securities L.P. Both used under licence by Richardson GMP Limited.

      Introduction

      As an advisor to Canadian investors, I meet regularly with individuals and couples to discuss their investments, personal situations, and retirement plans. On most working days in the year there will be one or two or more of these one-hour (sometimes longer) meetings. Often the clients’ questions boil down to two things, especially as the aftershocks from the 2009 market meltdown were still being felt: “Are my investments safe?” and, “Will I have enough money to retire?”

      If the stock market has done exceptionally well over a period of years, another question will pop up occasionally during these meetings. It can be expressed in various ways but the underlying premise is this: “How am I doing compared to other investors? Am I falling behind?”

      My client base is admittedly a very small sample of Canadians. However, listening to them gives me a valuable window on the thinking of Canadian investors. I get a feel for their concerns and fears as well as their dreams and hopes for the future. Feedback from readers of my first book, Investment Traps and How to Avoid Them, cemented my conviction that Canadians in general had the same experience with investing that I observed with my clients.

      Over the years the Canadian public has demonstrated a moderate interest in stock market investing during normal times. Most Canadian investors don’t pay avid attention to the stock market or bond market outside of meetings they have with their advisors or when they review their monthly statements and at RRSP (Registered Retirement Savings Plan) contribution time. In other words, they devote only a small part of their time to thinking about investments unless, of course, we are in the middle of a financial crisis like 2009, or a boom like 2000. And that’s perhaps exactly the way it should be.

      I’ve had a gradual awakening in understanding this over the decades as investing in stocks and trying to understand the economy and writing about it has been a lifelong passion for me. But I’ve learned that most people prefer to focus on other aspects of life.

      So when there’s a change or a new trend in my clients’ attitude toward a particular investment or if a new concern appears during the discussions I sit up and take notice. If I get twenty or thirty people over a short period of time mentioning similar concerns or displaying the same attitude, it gets my attention. In a long-standing practice that reinforces my ability to identify something new, at the end of each meeting I transcribe my handwritten notes taken during the meeting and enter them into a computer-based profile.

      One of the most extreme examples of this sudden change was in the late 1990s when clients started to ask about technology stocks and the Internet. For example, Nortel Networks (originally known as Northern Telecom) became a hot stock and a favourite vehicle for speculation and conversation topic. In the early 1980s it was the oil and gas stocks, especially Dome Petroleum. In the mid-1990s it was a gold mining stock called BRE-X that mesmerized investors. When the public gets consumed with interest in the stock market during a boom like they did during the dot-com bubble, it’s a clear warning sign. These are classic examples of buy-high traps, as discussed in my earlier book. My clients and I were lucky to avoid getting caught in the dot-com bubble trap, partly because I heeded the clear warning signs that came with that hot sector and partly because it was clear that the valuations accorded to those stocks were stretched beyond anything ever seen before.

      After the dot-com bubble burst I became more sensitized to signs of the formation of new bubbles. During the stock market decline (bear market) that followed the bursting of the dot-com bubble, investors’ attitude toward stocks changed. Something was different in how they talked about the stock market, retirement, and investing in general. But it was a gradual adjustment so it took a while to notice what was happening.

      I can’t remember the exact moment when I first noticed the change but I can narrow it down to a time near the end of 2002 during the last days of the downward spiral of the stock market. After 2000 most clients were still talking about the dot-com bubble and their attitude had changed from “Why don’t we own any technology stocks?” to a feeling of overwhelming relief and gratitude that we had escaped the devastation that many investors suffered. After that bear market, there were many discussions about stocks and the issue of safety and risk in the stock market. Since most of my clients experienced investment returns that were very positive relative to the market index (because we didn’t own any technology stocks) our conversations about risk and the stock market were usually calm and thoughtful.

      The boring, basic industry stocks that we’d owned throughout the late stages of the bubble (1999 and 2000) in the mining, industrial, transportation, and energy sectors finally started to outperform and patience was rewarded with substantial gains. However, it became clear that clients couldn’t watch the stock market collapse as it did without being