Why professional investors are conservative with their money
I sold almost all my stocks - Jim Rogers
Welcome to EC Research Group Newsletter
Previously the Why Alberta Now Newsletter
We’re moving to a new name to better reflect on my whys of writing these newsletters:
Sharing unique market insights you won't hear in mainstream media
No jargon. Critical thinking. Connecting the dots in plain English. Know what others do not.
Empowering busy investors in less than 10 minutes
If you’re new, welcome!
If you’ve been following me for a while, thank you for reading.
I’m here because of the many emails I received from you.
As the first issue of the newsletter under the new name - EC Research Group, I can’t think of a more important topic to write than today’s letter.
The S&P 500 is nearly back to record highs
That's a recent headline.
If one looks at the headline or the S&P 500, Nasdaq, Dow Jones or TSX, the economy and businesses look like everything's back to normal.
Except, what seems "normal" is very much not normal:
We're in the middle of a trade war with no clear sign on how it will end
We're in the middle of a structural demographic change that could impact many US industries - US immigration policy towards undocumented immigrants
We're in the middle of an unspoken cold war with China, Russia, Iran, North Korea
Meanwhile, we are witnessing a bubble ballooning rivalling the 2008 US Great Recession caused by housing crash, or the 2000 crash caused by the burst of dot com bubble.
As a species, humans are not very good at remembering things
Mark Twain said it best:
History doesn't repeat itself, but it often rhythms.
We learn history at school, yet, somehow, the next generation repeats the same behaviors of the past.
We can't seem to escape it.
It is called human nature for a reason.
It's simply too challenging for many to go against their nature.
You might be the few
It's interesting, every time I point out things that my readers don’t agree with, I lose subscribers.
I don't expect everyone to agree with me.
In fact, I'd appreciate a healthy debate.
I'm a human like everyone.
That means, I make mistakes from time to time.
That being said, my goal is to always improve on my modelling and thinking so when I do make the next mistake, it will ideally cost me less and less.
The fact you are still here, it could mean that you are not like the many "mom and pop" investors out there.
In the wealth management business, these people are often referred to as "retail investors".
There's a fundamental difference in how retail investors vs. professional investors invest
In risking more people unsubscribing from today's newsletter, I sincerely hope you will finish reading the letter before hitting the "unsubscribe" button.
For most mom and pop investors, investing is either viewed as very risky or gambling.
The mindset for retail investors on investing is either:
1. I worked too hard and I don't want to lose my hard earned money
or
2. I feel like I'm behind and I need to play catch up
Not many people are in between.
For the FOMO (fear of missing out) type, they usually end up taking on way too much risks and gambling on their hard earned money.
To contrast the mindset with professional investors, their focus is completely different:
Preserve wealth first, grow wealth second.
In other words, professional investors look for investment opportunities based on calculated risk.
They do things that don't seem to make sense to the retail investors:
Sit in cash to wait for the next opportunity
Hedge their portfolio by taking opposite position (in stocks, commonly known as shorting)
Sell their winners even though there's a big tax bill to pay
Sell their losers even though that means they are taking a capital loss
Avoid or being behind on the hottest investments at the time
Buy after a crash when everyone seems to hate that particular asset
Spend years acquiring the asset while there seems like no upside in the immediate future
Why do they invest differently?
It’s because they focus on the risk more than the return.
If the risk is too high, it doesn’t matter how great the upside could be, it’s not worth the risk to them to potentially get the return they might get.
If you have been following Warren Buffett, you may be familiar with his core guiding principles, commonly known as - Warren Buffett’s 2 Rules of Investing:
Rule #1 - Don’t lose money
Rule #2 - Don’t forget Rule #1
It is these guiding principles that make Warren Buffet the investor he is today.
Professional investors spend more time and resources on identifying the underlying risks on each investment than the potential ROI of an investment.
I have never met Buffett.
If I were to ask him what he thinks any of his investment could make him, I would venture to guess his response would be:
I have no idea
Then, if I were to ask him what risks has he considered of any of his investment, I bet he could spend days talking about them.
Of course, I have no way to verify this.
Based on the many things he talked about publicly and during his famous annual shareholder meetings, I think I would get this right.
The market actions today are suggesting bright sunny days ahead
Can the market goes higher from here?
Absolutely.
I don’t have a crystal ball to know the precise time when the wind will change course.
What I’m able to do, is sharing my observations and learnings with you.
This is not a normal time we’re living.
Countless professional investors are now holding record amounts of cash or cash like investments:
They aren’t holding cash to stuff their mattresses.
They are holding cash because they aren’t seeing favorable risk / reward opportunities at the moment.
If you’re still here with me, know that holding cash is not a good investment in general.
Cash loses to inflation every single day.
But, during times like today, where there are higher uncertainties than usual, losing some wealth to inflation may be better than losing a big chunk of wealth.
In case you don’t know who Jim Rogers or Ray Dalio is, I encourage you to look them up if you want to get good at investing.
Between Rogers, Dalio and Buffett, these 3 are the investing legends, they are among the few others I study and follow.
You don’t have to sell everything
I wanted to share with you what professional investors are doing, because, I know, I would want this information if I’m in your shoes:
Reading this newsletter to be empowered, especially about information that isn’t covered by the mainstream media.
And by knowing this, it could mean protecting my portfolio vs. losing them in the next bear market.
For the record, this is not a financial advice.
How you want to allocate your portfolio is up to you.
Could these professional investors get it wrong?
Absolutely.
These investing superstars don’t have access to a crystal ball, no different than the rest of us mortals.
That means they can very well get it wrong.
In that case, we’ll see them rapidly redeploy their capital into investments that make sense.
That’s something we can also do.
Being in cash may feel like we’re missing out at the moment, but it gives investors the flexibility to go back into the action.
Anytime, when the time is right.
Moving to cash may seem simple, but it’s much harder than it looks.
It requires discipline.
It requires going against the crowd.
It requires keeping emotions in check.
One may lose out on some upside in the short term, but keeping the bigger picture and long term success in mind.
Being a great investor is not all about growing wealth, it’s about preserving wealth first.
After all, what’s the point of having all that wealth only to lose it in a flash?
If you like my work, I invite you to share it with others.
Eric Chang
Provo, Utah, USA
June 10, 2025
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