Blessed by the Potato

This is an excerpt from my book The Value of Simple. It has been edited to stand alone as a post.

In the short term the market as a whole (or an index representing it) can go down 50% or more. As you give the market more and more time to work out the short-term fluctuations stocks become less risky¹. For some history, there have been quite a number of market crashes where stocks declined. The worst was the 1929 crash that marked the beginning of the Great Depression. Stocks fell some 90% and took about 25 years to recover. But recover they did, and if you would allow yourself to mark that experience down as a one-off, never-to-be-repeated event, then the worst market crashes involve stocks declining by about 50% (including the recent 2008-2009 market crash). Though those events can be quite painful for investors at the time, they do pass and the markets go on to set new highs. If you held on after any given crash the prices recovered within a few years – that’s long enough that in your day-to-day life you’d wonder if the prices would ever recover, but short enough that it would happen soon enough to matter.

When deciding whether to invest in equities, and how much you can allocate to them, on top of your time horizon is the matter of risk tolerance: your ability to receive a statement from your financial institution showing that the value of your investments had been cut in half, and to not panic or lose sleep at night – or worse yet, log in to your account and sell all of your holdings out of fear or disgust. If you’re the type of person who would panic in the midst of prices falling, seeing everyone else selling and decide that you would join the pack, you would take a “paper loss” that might recover (and given the historical record, would in all likelihood do so) and transform it into a permanent loss. Better in that case to stick to safer investments right from the beginning. Better still though to separate emotions from your investing, and keep a coldly rational long-term perspective.

You need to sort out your risk tolerance in advance: the midst of a market panic and sell-off is not the time to discover your risk tolerance isn’t what you thought and to try to change your plan when it is most expensive to do so. Indeed, that is the time to pull out your planning binder and remind yourself of the long-term plan and what you decided you should do in a market downturn when you were in a calm and rational state.

Unfortunately, there isn’t much of a substitute for that real-world experience of living through a market crash. In Frank Herbert’s science fiction masterpiece Dune, a young Paul Atreides had to endure a test of his humanity called the Gom Jabbar, wherein a magical box simulated the experience of excruciating pain (but left no lasting tissue damage); he had to display the ability to withstand short-term pain and resist his animal instincts in the interest of his long-term future by holding his hand in the box and enduring it by sheer force of will. There are times I wish a similar test existed for investors to accurately gauge their risk tolerance before a market crash, a way to harmlessly experience the pain and roller-coaster of emotions that accompany living through a market crash. Instead you will just have to make the most honest assessment of yourself that you can, and attempt to prepare yourself for what may come — bearing in mind that years-long market crashes and corrections that look like blips on long-term stock charts really consist of day upon day of uncertainty and fear-mongering news reports.

When considering your ability to take risk remember that risk tolerance can also include things like your job or life situation: if you’re in a field that is very boom-and-bust, then you may not want to invest as much in stocks which can also be boom-and-bust-like, because you may find yourself unemployed at the same time that the investments you’ll need to live off of are selling for less. If you’re younger, you have more time to wait for a market recovery or adjust your savings plan than if you are close to retirement. The young can also be more certain of their continued ability to work and save, whereas when you get older your chance of having your investment timeline cut short by a chronic disease increase.

Risk tolerance also touches on your financial ability to suffer losses without destroying your life. If you have a large financial cushion or flexibility in your financial needs you may have a higher risk tolerance. For example, if you were planning on buying a car in four years that would generally be considered too short a time-frame to risk putting the money you have saved up in equities. Yet if you had the flexibility to buy a cheaper car if you did suffer a loss, or to delay your purchase by a few years, it might not be such a black-and-white situation as the timeline alone suggests.

Though I have attempted to put you into the proper mindset with all the warnings of the riskiness of stocks, the simple fact is that investing in stocks is the only easily accessible way to get such high expected returns, with so little effort and expertise required. The warnings are to prepare you for the inevitable rough ride in investing, and not to scare you off of investing entirely. Indeed, including at least some exposure to stocks is critical to reducing your overall risk of running out of money in retirement.

Keep in mind that the volatility of the stock market is very attention-grabbing; market crashes are stressful times and stories of hardship and loss can get passed down through the generations. However, the hidden risks of paying too much in fees or starting too late can be just as costly over the long run – and you cannot recover from those by waiting.

And though I would caution against trying to “time the market”, better returns come from buying when the market is low (remember the aphorism “buy low, sell high”). That will bring us to rebalancing later [in the book], but it’s important to remember that when you’re in the phase of your life when you’re saving money (i.e. when you’re young), you want to be buying stocks when they’re cheaper. So if (when) a market crash comes along, that’s not the time to wring your hands, lament your losses, and consider selling and getting out of the crazy world of investing. Instead it’s the time to cheer the bargains, to buy more, to take advantage of the temporary insanity of the traders to set yourself up for later. Market crashes, as much as they are feared and vilified in the media, usually end up being good for a young investor, and conversely, people do not make money by “waiting for things to settle down.” As long as you have faith that in the long term businesses will continue to be profitable and grow, then eventually your diversified investments should perform for you.

Understanding your risk tolerance in advance is critical for investing success and your ability to stick to your plan through future volatility. Risk tolerance has many components, including details of your situation as well as your psychology.
In the short term, equities can have large losses and high volatility. But history shows that patient investors have been well rewarded over the long term.

1. If you have a definition of risk that is not simply volatility.

I am so excited about the book lately!

Sandi and I got invited back to the Toronto Public Library for our Money 201 course. While that on its own was great, it also helped push the book over 500 sales! That’s not bad for a Canadian release, and the book is still building great reviews, which will hopefully keep the momentum up.

But that’s not the big news. The big, huge, over-the-moon exciting news is that Chapters/Indigo has put the Value of Simple on store shelves! I was just writing about how hard it is to get into bookstores, and just read another self-publishing guide that said to basically forget it as a goal, and then they go and pick it up! I went down to the Eaton Centre right away to visit it as soon as I heard, and there it is. It’s physically there, I can go and touch it or have my picture taken with it — my book, in an actual bookstore! It makes me feel like a successful author and not at all an imposter.

It is a limited release there — in about 25 stores across the country, and only one or two copies each, so it’s best to just go to the page at Indigo to check store stock rather than having me list them here. But the GTA, Ottawa, Montreal, London, Calgary, Edmonton, and Vancouver regions were the spots with copies as of this post.

While for sales this likely will not mean all that much — most book sales are online these days — it is a huge personal achievement, as I had fully given up on the bricks-and-mortar route so their purchasing people decided to stock it without me badgering them. The positive user reviews and decent category rankings must have worked!

I have a few copies here I’ve been holding back for giveaways on other sites, but at this point I think it’s clear that those guys are never going to finish their reviews¹. So let’s build off this excitement and give a copy away here!

What you’ll get if you win:

• A signed copy of The Value of Simple, in your choice of dead tree or ebook editions².
• A fridge magnet emblazoned with the glorious cover of The Value of Simple so you’ll have something to talk about the next time you have a party and for some reason everyone ends up mingling standing up in the kitchen instead of moving out to the couch and chairs where you so thoughtfully put the chips and dip…
• Something else, because good-yet-underwhelming things come in threes, and I’m sure I’ll think of something by then. Until I do, let’s just say an envelope lined with bubble wrap that you can cut open and pop. Pop pop!

How to enter: leave a comment below for 1 entry. To make it a test of skill, eligible entries must either ask an investing-related question that they hope the book will answer, or talk about some part of the investing process you had trouble with. I know I’ve never done this before, but you can get a bonus entry for tweeting about this post (be sure to mention in your comment what your twitter handle is if you’re going to do that so I can assign the bonuses). Contest closes May 30. Canadian addresses only (and if you’re outside Canada, the book really won’t help you anyway).

Too excited to wait? If you’ve bought a copy through my store and end up winning, I’ll just refund your purchase (unfortunately I don’t have that power through my retail partners, but don’t let that stop you from using them… you can always use an extra copy to give to someone special. Did I mention it makes a great graduation gift? Convocation’s coming up…).

1. I would say “and you know who you are,” except that’s likely not true: given that it’s been over 6 months with a few reminders for some of them, it’s probably slipped their mind completely.
2. Yes, I’ve done signed ebooks before. You just have to sign a copy of the title page then scan it in and insert it into the file as an image. More work than for a paper book, but if you like ebooks and that personal touch from authors, nothing is cooler. Well, in the limited context of indie books, and largely because of the uniqueness — other authors just don’t do signed ebooks… yet. Because outside that context, man, it’s hardly cool at all in a world filled with lasers and chocolate ice cream-filled ice cream sandwiches. Anyway, if you want a signed ebook without winning it, you just have to go through my store and mention it in the comments (and send me an email for good measure).

[Back to the first post in the Value of Simple self-publishing behind-the-scenes series]

To cap off the self-publishing series I have Kyle Prevost, co-author of More Money for Beer and Textbooks, and also the host of the similarly titled podcast. He writes for a few sites around the internet, these days you’ll mostly find him at Young & Thrifty and My University Money. More Money for Beer and Textbooks is an introduction to basic personal finance geared for university students, with tips on budgeting, saving money on textbooks, and using credit cards responsibly.

Kyle spoke to me twice about his experiences with MMfBT, once when I was getting ready to publish my book, and again just two weeks ago for this interview.

MMfBT has two authors, so the process for them was a bit different, having a built-in ability to do some substantive editing and review before looking to freelancers and beta readers. They did higher a copyeditor and layout person – found through O-desk – and used a site called 99 designs to get the cover created. The duo reached out to a number of students in their target demographic to read it at various early teachers, as well as bloggers, teachers, and counsellors – as seems to be the take-home message of this series, getting editors and beta readers can be crucial to having a polished, final product. Of course, Kyle cautions that “before going into beta you need to know what you want to achieve with your book and with each chapter and even paragraph. You will get change suggestions that may not be taking the book where you want to go, and even opposing changes.” Indeed, I can say from experience that sometimes the most important thing a change suggestion can be is a signal that a section has an issue – but the suggested change may not be the way you want to fix issue, given the story you have in your head as the author.

Copyediting was a bit of a challenge for MMfBT because Kyle tried to maintain a casual, approachable tone through the book, which means there has to be a balance between keeping some slang and unconventional word usage versus editing to totally proper English.

When it came time to publish, Kyle and Justin went with LightningSource (at the time IngramSpark wasn’t launched yet), and did order a set of proofs, which did reveal a few issues. Included in that was a choice to switch to a matte cover based on the glossy proofs. Again, just plan ahead to have to change something based on the proofs and consider the change fee spent. With LS they had a lot of flexibility over the wholesale discount, so they started with a minimal wholesale discount – enough to get picked up by Amazon, while letting them keep most of the spoils. A bit after launch they were picked up by Chapters, and changed the wholesale discount to a more conventional, bricks-and-mortar-friendly ~55%. And of course, they did register for cataloguing-in-publication and sent copies off to legal deposit.

When we talked about the writing process, Kyle told me that about 80% of the original writing happened in one summer. However it was a lot of time, “definitely there were weeks over 40 hours spent on the book.” Kyle estimates it was over 500 hours of work to put together, at least half of which was on editing. “Endless editing,” as he puts it. While you can start to build some momentum in writing, they found it harder to gain momentum in the editing phase.

They were fairly well-prepared for what was involved in self-publishing, with a starting budget of ~$500, aiming to not lose money. In the end, editing and outsourcing ran them closer to $1500, but the book was much more successful than they had hoped.

They shot through their initial sales goal of 500 copies in no time at all. Then an interview with CBC and a mention by Rob Carrick about three months after launch helped get them into Chapters stores, which led to book signings and talks at schools. Those were the most rewarding parts, having people come up to praise the book at signings. It wasn’t all serendipity: they put in their time calling Chapters outlets and local bookstores to get them to carry the book.

In the end, the book was not just a success in its own right, but served as a boost to everything else they did, adding authenticity and mainstream media attention. Plus his students were now impressed enough to actually listen to Kyle. “I would definitely do it again… but I’m not in a hurry to write another.”

“Be prepared for a long slog,” Kyle begins when I ask him for any advice he has for aspiring writers. “If you’re in non-fiction, the truth is most people don’t read books. You have to write to a niche that will, and gear the book to them.”

Thank you Kyle for speaking with me (twice!) about publishing and your experiences! Be sure to check out More Money for Beer and Textbooks.

[Back to the first post in the Value of Simple self-publishing behind-the-scenes series]

After talking about my experiences with self-publishing, I reached out to a few other Canadian authors to talk about their experience. First up is Melissa Leong, personal finance columnist for the National Post, who wrote the What Kills Me series under her pen name of Wynne Channing. What Kills Me is a bestselling young adult vampire thriller, so she’s able to provide some great insight into what self-publishing is like outside of Canada-specific non-fiction. Moreover she’s been hugely successful, having sold approximately 50,000 copies of the first two books — What Kills Me and I Am Forever — in the series, with fans clamouring for a third.

Before I get into what we talked about I want to note that Melissa has been very open about her writing and publishing experiences, including publishing a two-part set of articles in the National Post about her experience with the first book, and has had plenty of other interviews about her writing and the content of the books themselves. I didn’t want to use up her valuable time rehashing that stuff, so I encourage you to go and read those articles — here we’ll build on what’s happened behind the scenes since the first book and the related Post articles went up.

I started by asking about her thoughts on editing and using beta readers:

“Editing was extremely important to me, especially being in journalism – I know the magic that an editor can do. They can make a huge difference […] Rewriting is key, as well as having an editor. You need a second eye, and not just beta readers, you need someone who’s a professional.” She used a mix of substantive and copy editing from professional editors, but relied on beta readers to spot plot holes and characterization issues. After that, she used a proofreader for a final polish, and a formatter¹ to convert the manuscript into a reflowable e-book file.

For more on her use of beta readers and the questions she put before them, see the end of this post.

For myself and The Value of Simple, the content is intrinsically Canadian, whereas vampires and thrills are international. I was wondering whether her Canadian roots helped build a disproportionate local fan base. Melissa says that most of her readers are from the US and UK, as would be expected from the distribution of the English-speaking population. That was likely helped a bit because she used a UK-based blog promotion service to help drum up interest there. Most of her sales come through Amazon, so many of the Canada-specific issues I talked about earlier in the series would be pretty minor for a more global kind of book like this. She’s also a fan of SmashWords, which gives her the power to generate coupons there for giveaways and reviews.

For the minor debate in cataloguing on whether to use a separate ISBN for each version of the book (e.g. Kindle vs ePub), Melissa chose to go with just one number across her e-book formats.

With two books under her belt, I was really interested to hear what lessons she had learned going in to I Am Forever and what had changed in the intervening years between the first and second book.

“The processes of self-publishing were definitely streamlined between the first and second book,” she told me. Kobo in particular made a big effort to improve their accessibility for self-publishers (and I can back that up — it’s a snap with Writing Life now, vs. my initial experience with Kobo in 2011 where they basically told me to get stuffed if I didn’t have 10+ titles as a publisher).

She was more disciplined the second time around, and got more sleep (cf. her anecdotes in the Post articles from the first book). She set a specific goal, with a deadline (purposely set early, working backwards from a planned timeline), and thought of it as a job. She aimed to write 5k words per week, with a bit of time each day set aside to write.

The second time around also came with a better idea of what was involved in the publishing side and the costs, so she had a budget ready. The first time she just wanted to break even while building her brand and her audience. High on her priorities was to not cut corners — she wanted to pay what it cost for quality work, and focused on what was important. So she paid more for editing, but less on promotion and advertising after having a better idea of what was cost-effective — many ways to advertise books don’t pay for themselves.

To help get people into the series — now that it is a series — the first book is currently available for free, and has otherwise been offered at a low cost. “If you have many books on the shelf under your name, that’s how you make your money, and hope the fans keep coming back for the work.” Also with that interest and audience from the first one she had a pre-order period before releasing the second book, with cover releases, blog book tours, and the ability to pre-arrange reviews to help build buzz.

One thing she was unprepared for with her popularity was pirating, and was surprised to see the book available “for free” on sites so soon after publishing.

“Being a self-published author means that you are an entrepreneur, and that’s something I wasn’t prepared for. I know how to write, how to tell a good story, but I don’t necessarily know how to sell myself or how to sell a product. So that was something I had to work on. And those skills did transfer back to journalism [her day job]. I always found self-promotion really difficult, but I realized that if I didn’t toot my own horn that nobody would do it. Then when I took over the personal finance beat [at the National Post], branding and expanding my personal brand became a goal, to also help the paper.”

A big thank-you to Melissa for taking the time to chat with me. Check out the What Kills Me series on Amazon, and follow Melissa on Twitter (or her alter ego Wynne Channing here).

Footnote 1: and she’s happy to recommend him: Michael Mandarano.
Note that all quotes are my transcriptions from a conversation and any errors are mine.

Just a quick post to let you know that I was a guest on the Build Wealth Canada podcast with Kornel Szrejber, and part 1 is now live on his site. We chatted about the book and index investing, mistakes investors make, and more! Be sure to check it out for a chance to win a copy of the Value of Simple as well!

Also, Sandi Martin and I will be returning to TPL to give Money 201 at the Agincourt branch on May 4th. See here for more details on that!