Why do you want to be an investor? Many are interested in investing because it serves to make money without working or because it would be cool to generate wealth by merely out-thinking others or because they want to be wealthy enough to quit their job and the boss for themselves. Investing can do that for you, but if you only think about what the money generated from investing can bring you, you need to include a bigger point. Investors win both in life and the markets by finding ways to improve the odds of success. If you act like this, you are not likely to get richer than most or be wiser and happier. We are looking into the top five takeaways on how to be richer, wiser, and happier as investors by William Green, a Swedish investor bringing you the best tips and tools for reaching financial freedom through stock market investing.
Here Are the Tips on How to Be Richer, Wiser, and Happier as Investors
Invert, Always Invert
Charlie Munger is popular for saying, “All I want to know is where I’m going to die. I’ll never go there”. It is funny to know that Munger was ninety-nine when he said this, so he must have discovered something important here. So what does it mean to invert? It means turning a problem on its head. Instead of asking, “How can I be a great partner?”, ask “How can I be a terrible partner?” Then try to backtrack what might get you there and avoid it. How do we find an excellent investment in the stock market? Wrong question! How do we avoid a poor investment in the stock market? Now, imagine the whole stock market as a block of marble. You could invest in an index fund and be satisfied with the whole block. Still, for those willing to put in the effort, we can transform this block into a beautiful sculpture by removing bad investment ideas and chipping away at them individually. For starters, many great value investors remove anything outside their competence circle. That means they say bye-bye to everything that cannot be understood. Then we kick out businesses with incompetent or dishonest management. After that, we look at the business prospects and check if it is something we want to invest in even in ten years. Finally, insist on a reasonable price when purchasing this company. There are no strict rules here; the cheaper, the better.
Decisions Made Under Uncertainty
Investors are faced with a particular problem, we are playing a game of guessing the future, and the rules of this game are elusive and uncertain. Nature, the economy, markets, industries, companies, everything constantly changes. Yet, investors must bet authentic money on these unknowable circumstances. At first glance, this may seem like some nasty traps set up, but there are good and bad ways of playing this game. Here are three rules for making decisions under uncertainties. First is that we must be honest about our limitations. Secondly, use history as a rough guide for the future. As a company, it is more likely to continue to grow than a declining one. A cyclical company is more likely to continue to be cyclical than not. A product that has been around for a long time is more likely to stay around than something that just recently became popular. Number three, understand potential vulnerabilities and actively try to minimize them. In investing and life, it is simpler to realize that a risk exists than it is to predict when an event might come along and expose this risk. For instance, driving on an icy road is risky in the middle of the night. You don’t need to predict exactly when or where you might slide off. You only need to lower your speed.
The keyword here isn’t predicting but preparing. This is super easy to apply in the world of investing too. You can identify friends doing the equivalent of driving fast on an icy road by observing if they: have a very low number of stocks, for example, less than five. Are they concentrated on just a few industries? Have a portfolio with a very high average P/E ratio; something over twenty-five uses much leverage. If these friends boast high returns, you can congratulate or warm them; the choice is yours. Please don’t join them in the car because they may be sliding off the slope soon.
Focus On The Ultra Long Run
Another tip on how to be richer, wiser, and happier as investors are to focus on the ultra long run. The investor Nick Sleep and his partner, Zack, started their Nomad Investment Partnership in September 2002. Others have started their investment journeys during less volatile circumstances, but Sleep and Zack succeeded. During fourteen years, they beat the MSCI World Index by around 800 per cent points, and their secret sauce focuses on the Ultra long run. Nick thinks that all the information has a shelf-life. He’s only interested in learning stuff that is useful for a very long time. One thing that neither he nor Zack thinks of as useful information is price fluctuations. Therefore, they have placed their only computer with a Bloomberg Terminal, an expensive service that most Wall Street views as a status symbol, on the short side of a table without a chair. This minimises the time they can spend there, which is very smart. Instead, they allocate most of their time to thoroughly reading annual reports, and interviewing people at companies, Phil Fisher style. They are seeking answers to many questions: Where does the company want to be in ten or twenty years? What must management do today to reach that destination? What could hinder the business from reaching that destination? This approach is a world apart from the generally accepted on Wall Street to focus on the earnings of the next quarter. It’s an obvious way to get ahead in the long run. Also, Sleep and Zack had a truly free fee structure. They only made money as long as their investors did, which has made them maintain great personal relationships with their investors, which has been working in their favour.
Be A Copycat
A wise man ought always to follow the paths beaten by great men and to imitate those who have been supreme so that if his ability does not equal theirs, at least, he will savour it”. Someone in the investment world who lives by this wisdom is the Indian investor Mohnish Pabrai who has been able to beat the stock market by about 6 per year, net of fees, since the inception of his Pabrai investment fund 2. He did it by never coming up with anything smart himself but simply copying smart ideas from others, such as using the hashtag moneytok to get investment advice. He studies their every move and follows them like a shadow into Tesla, FTX, Luna, and Warren Buffett. When Monish started in the investing field, he realised the most bizarre thing is that it is only a limited number of fund managers on Wall Street that were imitating Warren and his Berkshire Hathaway. They didn’t follow the equivalent of his ten commandments of the investing world which was like having a group of physicists who didn’t believe in gravity. However, Pabrai chose to follow Warren’s opinion by thoroughly studying and cloning his values and strategies right down to his structure of partnership which Warren copied from Benjamin Graham. So there are some inceptions here; Pabrai even paid $650,000 in an auction to go to lunch with Warren, and of course, he has visited Berkshire Hathaway’s annual meetings many times to get inspiration.
A Non-Perfect, Perfect Strategy
According to Joel Greenblatt,” the best investment strategy is not the highest returning one, but the highest returning one that you can stick with”. You might hear this and think, ” well…it doesn’t matter”, but from personal experience, I must say that it is harder to apply than expected on numerous occasions within investing and within areas such as working out, friendship, and productivity. I have been stuck in the starting blocks because I have been obsessed with optimising. It’s all or nothing. If I can’t do it the best way, why bother at all? Here’s an example from the investment world; I started this YouTube in the middle of 2018. For about a year, I was finishing my master’s degree and building this channel simultaneously. I didn’t have much time to think about individual stocks. When I couldn’t build individual companies, I paused investing altogether and allowed all my money to sit in cash. This is a stupid decision because I should have invested my money in an index fund. My goal is not to invest in stocks P/E. It is to snowball my saved capital, and investing in an index would have satisfied that, too, and being satisfied is the keyword here. Mostly, you want to strive to be a satisfied person rather than an optimizer. Mathematically speaking, if you see a ten and an eighth, but for some reason, it is impossible to get the ten right now, you don’t just abandon the eight; eight is good as long as you are directionally correct, you will get ahead. Keep putting one foot before the other, and you’ll get some fantastic results in the long run. This mindset will not only increase your chances of success, but it will also make you happier on your way toward your goals. Being dissatisfied while getting eight is a horrible way to live. Sometimes, a non-perfect is your perfect strategy.
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Recommended books for further reading:
- Built to Sell: Creating a Business That Can Thrive Without You by John Warrillow
- Traction: Get a Grip on Your Business Paperback
- Principles: Life and Work
- Intelligent Investor: The Definitive Book on Value Investing – A Book of Practical Counsel
- Smarter Investing: Simpler Decisions for Better Results
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