The investing articles have two primary objectives: 1. To learn to invest from the best and, 2. how to implement an effective investment plan. Investing is a way to make your money work harder to help you achieve financial independence. Let’s get started.
Learning to Invest
Learning to invest while working full time is like making a new year’s resolution to get in shape. You might start out with a lot of enthusiasm, work yourself daily to exhaustion. Then you do not see a visible difference in your body even after a month of soreness.
I started my career spending 9 hours working, 1-hour commuting, 4 hours traveling to class for an MBA degree, 2 hours studying, and 2 hours on all else.
That left me exhausted and about 6 hours of sleep to start all over again the next day. There was little time or energy for anything else. I had to place my original objective of investing on hold and learn to invest when more time was found.
I eventually graduated and found more time to discover the MBA really didn’t help that much. In fact, in hindsight, it hurt, at least for a while.
That’s because the Efficient Market Theory (EMT) was taught to almost all MBA students at the time. It basically says “you can’t beat the stock market by investing so don’t try.” Fortunately, it did help with my career but not much with investing.
Investing for a Purpose
The truth is even if you are working and saving it is probably not enough for independence or retirement in the 60s let alone at 50.
Those setbacks didn’t stop me from trying. I was on a mission. We had what we called the “freedom plan.” It consisted of saving and investing so I could “retire” early, at fifty years old, which I did.
I knew of people making good money, some a fortune, through investing. My “Plan B” was to learn to invest from the best. What are their secrets?
I bought books, investment subscriptions, and hired money manager “helpers” who would show me the way. Still, there were many wrong paths that made little or lost money. This turns out to be a common story with the self-taught investor.
Learn to invest from the best turned out to be easy. Because, there are no secrets. Many of the best freely share “how they do it” although “what they do” can remain a secret, at least for a while.
Looking back, I began to realize what was going on and learned three other very important lessons.
The first lesson was the Efficient Market Theory has just enough truth to gain some credibility but not enough to be useful.
The problem is it discounts human nature; emotions, fear, and greed. People have different perspectives, perceptions of the future, and abilities to analyze impacts on investments.
Further, it assumes everyone knows what exactly to do with the information. They are capable of acting on it immediately in a totally rational manner. Does that sound like the real world to you? This just doesn’t always happen in the world where I live.
How does the Efficient Market Theory explain the success of Warren Buffett, Charlie Munger, and other very wealthy long term investors?
The second lesson was no one cares more about your money than you do. The results were disappointing based on Wall Street’s and helper’s advice. The advice was often based on efficient market theory. And, because there are other influences on how our money is handled by others.
Before our long term, well-being is fully considered there are fees and commissions paid to the “helpers.” Don’t get me wrong, there are excellent money managers and advisors out there but most of them don’t want to fuss with us “retail” investors.
After trying different investment strategies, and becoming my own money manager, the results became better.
Eventually, by studying successful investors and learning from my own mistakes, the merits of their approach became apparent. That led to a third lesson, never stop learning and learn from the best.
A Different Way to Invest
Beginning investors are often given investment options and strategies on how to invest their money. This is a challenging task for experienced investors let alone someone just entering the field.
That’s not needed for an effective investment plan and when you learn to invest from the best. A better approach is to narrow these choices to the few important principles and methods used by the best investors in the world. Their outstanding track records over long periods built enormous wealth for themselves and others.
Why spend time and money sorting through all the choices when world-class investors already did the hard work and willingly share, if we just listen?
Paradoxically most of their principles and methods are straight forward and take less effort. They produce better results than the alternatives promoted by those trying to sell solutions.
We start here by building a solid investing foundation based on the principles and methods used by the best. A related goal then is to avoid the investment nonsense, noise, and distractions. These just divert your attention (and money) to less effective methods.
In the next article “Stocks are the Best Investment” we dive right in to greatly simplify the “how” part of investing.