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The second-worst stock market environment for the sensible investor is what we're seeing today – a grab-fest of buying based on the fear of missing out.

The worst of the worst market conditions are crashes like we most recently saw in 2008-09. A lot of people were scarred by that downturn and have stayed conservative in their investing. Now, they're hearing about all the money being made in marijuana stocks, in cryptocurrencies like bitcoin and in hot sectors like artificial intelligence and robotics. And they wonder…

"I have always sat by and watched as others have seemingly hit the jackpot when it comes to getting 'in' on some new investment on the ground floor," a 50-year-old public school teacher in Windsor, Ont., told me in a recent e-mail. "Apple, Google and the list goes on and on. So now that marijuana [will] become legalized in Canada, I am again asking myself: Is this another 'golden opportunity' for me to finally hit it big? Any thoughts?"

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Yes, I have a few. To start, let's acknowledge how many people are sitting on a lot of cash and feeling like a big, fat wave of money-making is passing them by. The analysis firm Investor Economics at Strategic Insight says the total amount held in cash and short-term investments maturing in less than a year was $1.1-trillion in mid-2017, which was almost 25 per cent of total Canadian household financial wealth excluding real estate.

One of the most unfortunate patterns of investor behaviour is what we'll call the catapult effect. Money gets poured into safe investments after a market shock. As stocks rise and trendy hot sectors emerge, the tension ratchets ever higher. Suddenly – like we've see in the past few weeks – the catapult launches and money flies into the market. That's why some online brokerage firm websites have lately been the internet equivalent of Toronto's Don Valley Parkway at rush hour.

Here's something to think about if you're ready to catapult some cash into weed stocks, bitcoin or what have you. While a lot of money is being made, wealth has been lost as well. Only well after an investing trend has tanked will you hear people honestly tell you – maybe – about their misadventures.

For now, all you're hearing about is how your cousin was early into bitcoin, or the four-baggers your work colleague's 25-year-old kid is hitting with marijuana stocks. But the full accounting of today's investment decisions will only come after these investments are sold at a profit. The heavily traded marijuana stock Canopy Growth Corp. was up 242 per cent for the 12 months to Jan. 24, but latecomers have been punished. The shares as of Jan. 24 were down about 17 per cent from the 52-week high reached earlier this month. You could have bought bitcoin at $16,000 (U.S.) in mid-December and then watched it climb above $19,000 before falling to current levels around $11,000.

It stings when you're missing out on big investment gains, but it's a passing thing. There's no lingering regret felt by people who didn't get into Nortel Networks stock back in the late 1990s, or many oil and gas stocks prior to 2008. Those stories ended badly, as do virtually all episodes where investors stampede into a sector or theme.

Still, people seek the home run investment. This thinking explains a good part of the strength in the housing market. People push through the affordability challenges of buying and owning because they expect quick price appreciation.

A better mindset is to get rich slow. Diversify, set up a regular investing plan and continue it for decades. This is how sensible investors generate wealth.

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As for all that money sitting in cash, here's a three-part plan for putting it to work:

1. Divide and conquer: Invest four equal amounts on a quarterly basis in the next 12 months. You'll have money working for you right away if the markets keep climbing, but your exposure to a sudden downturn is minimized. If stocks keep falling, your quarterly purchases will come at sale prices.

2. Be diversified: Picking stocks with upside gets tougher as the markets rise, so consider a well-diversified exchange-traded fund or mutual fund.

3. Be a buyer when stocks crash: The S&P/TSX composite index fell 33 per cent in 2008 on a total return basis (share price changes plus dividends). In the two years that followed, it gained 35 per cent and 17.6 per cent, respectively. The surest money-making strategy in investing is to buy low.

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