Stick to what you know or seek help

By Chris Cassidy, CEO

I initially enrolled in college planning to be an English major. I took several English courses my first year ranging from Evolving Canon, where I studied classics such as Shakespeare and Chaucer, to Creative Writing, where I read Cather and Carver and wrote my own stories. Thankfully for my ego, no copies exist of anything that I wrote in that class!

In Creative Writing class, my professor would advise me to “write what you know.” Although I was never able to write a novel, and I ended up double majoring in economics and business, I apply the concept of “write what you know” to investments. Whenever I tried to write about emotions I’d never felt, or concepts I had no personal experience with, my stories were terrible. Similarly, any time I have strayed out of my investment comfort zone, I have regretted it.

In college, I started an Ameritrade account with the money I earned working summer and winter breaks. I invested in three companies, whose financial statements I had analyzed in a financial accounting class. These were profitable companies, with strong balance sheets, and I was able to read and understand their annual reports. After making these three investments, I had about $100 left over and decided I was going to invest in a promising fitness penny stock trading at $0.05/share. I thought, “if this stock goes to just $1, I will have made 20 times my investment.” Before the semester ended, the stock went to zero. Lesson learned.

When I did my MBA Program, I took a class in Options Trading. The Professor used a computer simulator to give all of us $1 million dollars of fake money, so that we could place large trades using options and derivatives. Within a few weeks, most of the class, including me, had lost all the fake money we were given. Lesson learned.

For me, my comfort zone is investing in individual stocks of profitable companies whose financial statements I can analyze and whose annual reports I can study. I also feel comfortable analyzing high-quality bonds and exchange traded funds (ETFs). Having a comfort level with the assets that you own allows you not to panic when financial markets are volatile.

Why would I sell a wonderful company that I’ve analyzed for years just because markets are stressed?

Unfortunately, sticking to what you know is very limiting. It is very hard for anyone to be an expert in multiple fields, and if you only tend to the areas where you are an expert, many important areas will be neglected. Consequently, it is important to know when to ask for help.

I am not an estate planning attorney, and despite working at a Trust Company, I never had an estate plan until two years ago. At the end of 2021, with my daughter’s birth a few months away, I decided it was time to get a plan in place. For me, the motivating factors were having a Will that named a guardian of my child in the event my wife and I passed away prematurely, having a Power of Attorney that gives my spouse the ability to manage my affairs in the event of incapacity and having an advanced health care directive in the event I need emergency medical care.

Although I was not an expert in estate planning, I was able to utilize my colleagues at Trust Company of Vermont for advice, and a local attorney for drafting documents. I now sleep better at night, at least when my daughter isn’t teething, knowing that I have an estate plan in place. I hope I won’t need to utilize it for quite some time!

In this Newsletter, Jeanne Blackmore has written an article about the importance of estate planning. In addition, Paul Copeland has written an article on the importance of sticking to your core competencies in investing. Both have a very high level of expertise in their fields.