I was wondering whether most people would think about investing to either grow or maintain their net worth alone. And while this is what initially excited me about the newly found (for me) world of investing, I was quite blown away by the side effects. Let me explain.
Some side effects of investing:
Financial literacy is not the side effect of wealth. Wealth is the side effect of financial literacy. Nobody teaches us how to grow generational wealth. I wish they did at school when most of our habits were formed. It’s quite difficult to teach an old dog a new trick as they say. Luckily, for me, I had no idea about investing before finding this great source of information and pool of wisdom shared freely by legendary investors like Saul and many others.
I say luckily because it is much easier to form new habits than it is to replace existing ones. Since I had zero knowledge in investing it was easier for me to accept this method of investing instead of having to fight with existing beliefs. It seems that there are many contradicting beliefs when it comes to investing (and anything else for that matter).
Even though I read most of the content here on TMF I still couldn’t understand the gist of it. Something was telling me that collecting stocks was not how it was supposed to be done. You can see here on my very first post how clueless I was https://discussion.fool.com/4056/how-to-follow-recommendations-3… .
After reading around, the name Saul came up and I couldn’t even locate the board — just to give you an idea of my skills and abilities (or lack thereof) https://discussion.fool.com/4056/hi-how-can-i-find-sauls-board-3… .
It’s been a year now since I started lurking here and I would never think that I would actually have something to offer. But here I am a year later pouring my thoughts and experience to anyone who just found out about investing (or maybe it was only me who was living under a rock for the past 35 years).
Just to give you a quick background on me, I always loved watches since I was a kid. I still remember my first Casio (worth $10) that I got as an Xmas present when I was 5 or 6. I was spending a lot of time reading about mechanical watches and horology in general and one day while reading an article, an older guy was saying that watches are not a good investment and that even the S&P500 would give a better return in the long run. And I thought, “What is this S&P500?” So, I started reading.
That pushed me to start saving 60% of my after-tax income. I was finally looking at my day job as a way to provide for my newly found love and trying to find ways to milk my 9-5. It also pushed me to improve my skills and land a better-paying job so I could save more. I never upgraded my lifestyle as I was used to living frugally anyway. This is a great position to be in (if you are young enough at least). I took all the excess of any promotions and salary increases and put that into my portfolio. The only thing I upgraded as I got a better pay, was the amount I give away to strays (cats mostly).
Personally, I don’t get excited about to-the-moon spikes because even if my entire portfolio goes 10x tomorrow morning I’d still need to go to work as I inherited a large debt when my mom passed away and the family’s debt is now on me. And that’s ok. (Boohoo!) Everybody’s got a story, everybody’s got a struggle.
I like Saul’s method because it focuses on reality and not on fiction. People chase stocks or things (NFTs, crypto, etc) that could make them instant millionaires. Everybody wants their marshmallow https://www.youtube.com/watch?v=Yo4WF3cSd9Q . And they want it now.
By following Saul’s method, following companies, knowing what I own and why I own it, and listening to earnings calls I feel that I have learned so much. Just by listening to the earnings calls alone, I learned a little about what makes a great leader, how they think, how they articulate their thoughts, how they address issues, and much more. By following Saul’s method, I also became a better partner, a better provider, a better employee, a better human being. Yes, all that came as a side effect of learning how to invest in great companies.
In addition, by following Saul’s recommendation on trying to understand the process so I can do it on my own and knowing what I own and why I own it, it made me handle price movements with ease. Like Monday’s recent fall even after a super strong quarter. By learning all this you can identify opportunities and add or initiate positions accordingly. If you have no clue, then you might get scared away.
But make no mistake, the money made or lost is very real so don’t just gamble. This board is a place to actually learn — for free — to do it properly. I’d personally give all my belongings (although not much) just to be able to have found this a decade ago. Even if I was a millionaire, I’d happily give that away because you can always make it back by knowing the way rather than someone handing it over to you and you’d probably end up flushing it all away that way.
And yes, it’s easier to grow from $1m to $2m to $3m to $4m (arithmetic sequence) rather than going from zero to $1m (geometric sequence) but this is the beauty of it. You need to love the procedure. Maybe I’m excited because this is like a whole new world or maybe it is just meant to be that way.
When I see Saul still talking, listening, reading about companies — after all that success and years in the game — it must be something more than money. It must be about the game too. It must be about enjoying the process. It must be about discussing with fellow investors. It must be about all that knowledge that comes with it. And much more (please correct me if I’m wrong).
Some lessons I learned in this short period:
What I learned in this very short (so far) experience is that it takes great testicular fortitude to stick to what you know. Everybody is happy when the sun is shining but most would run for cover when the first cloud appears.
I try to borrow the knowledge of others instead of coming up with my own theories and I think this is good for every beginner unless you are super smart and I believe only a few would fall under this category. I know I am not.
I try to force myself into taking a bite of great companies and do my own research. The process teaches me more than simply borrowing the conviction of someone else no matter how successful they are. Because when you own even 1% of something and have that ownership feeling it will force you to dig deeper and learn more.
Be careful though not to let your conviction get too high so that you go all-in on a single company. I know we live in a YOLO era but treat your money with respect. Going all-in could cause downfalls pretty fast. And you can turn around a -10%,-20%,-30%,-40%, and even a -50% return. But if you bust your entire account it will take you down both mentally and physically unless you have balls of steel and earn a shitload amount of money.
Hide your portfolio balance if you can or don’t even see it on a daily basis. Once a week or monthly is enough so that you don’t get glued to your screens. Personally, I only look at it once a month when I have the cash to add. Of course, if there’s a major selloff or you have fresh cash coming in sooner than that you can do whatever but as a beginner, overmanaging might do more harm than good.
I like this Buffett quote when it comes to hiring: “hire well, manage little.” I see investing as hiring CEOs. We choose our companies but in essence, we are choosing CEOs and management teams because in reality, these are the people who make the decisions and make things happen. A company is a live thing with a bunch of people together. It’s not a thing that just sits there.
Greed and envy will cause more downfalls than anything else. I like the quote from Munger that the first rule of a happy life is low expectations. And by having low expectations for your portfolio, you don’t worry all the time if someone else is doing better or if you are not getting an exact number on your investment as you initially planned. Just do your best with what you have, what you know, and what you can learn.
As a beginner, it will have a greater impact on your portfolio the amount you manage to save than your actual returns. If you are starting from zero, as I did, and just add as much as you can, even if you get 100% it won’t be meaningful. Think of it as a small company. When they are small, they start off a small base and it’s easier to double their revenues but in reality, they are just adding a very small amount in dollars. Of course, if you keep growing your portfolio with good returns it will compound crazy fast just like Saul and others have already done.
If you build consistency by saving every single month, in a few months’ time you will look forward to your paycheck and not for all the wrong reasons. Others will talk about buying the new iPhone 69 but you’ll still be using your old iPhone 68 doing as well as the rest. Or, ok maybe you’ll be missing a 7th lens on your camera but who’s counting anyway.
Success leaves clues. And by listening to the earnings calls you can get a lot of info. Like from Zscaler’s call you could listen to all the analysts commenting how this was a great quarter and congratulating the management team for doing so. This alone can tell that there is something good going on.
As a beginner, stay away from anything risky like avoid using leverage, margin, options, crypto, meme stocks, etc. If you must do it for whatever reasons, try to stick to a small fraction of your entire portfolio like 5% max and treat this part of your portfolio as an experiment. Maybe you want to be the cool kid that mints their own NFTs or that you want to be part of a meme stock. It’s ok as long as you limit your risk. But remember that this is not the way to properly invest. But if that’s an itch that you must scratch then do it with a minimal amount.
Treat investing like a game, the greatest of all games. And by doing so you will learn and earn more than if you were stressing over it. Make no mistake, if you want to be good at anything there are no free meals. You need to do the work. Every single person who gets results like this — year in, year out — needs to (let me quote Buffett again) “read, read, read” and apply what you learn.
And the reason that portfolio management is not discussed here is that it is very personal and by personal, I mean it’s got to do with your own needs, preference, skills, experience, time horizon, whether you work or not, if and how many dependents you have as well as risk appetite. These things are not the same for everyone. Go easy on yourself and stick to the process. It works. Start here: https://docs.google.com/document/d/1yF_lLGs3pI4SPcYOfIvpO5FY…
Nothing but love,