“Head’s I win, tails I don’t lose much.....”
I love this quote from the famous Indian investor, Mohnish Pabrai: 'Heads I win, tails I don’t lose much'.
This is the approach that the best investors of all time have adopted. The not so secret formula of successful long term investing isn't a few massive win's; it's consistent, low risk gains that compound over a long period of time.
The best investors, are the ones that are looking for consistent returns, around the 10-20% range annually. They aren’t looking for 100 baggers'; they would rather make a small and low risk gain, then to put their hard earned capital into an extremely risky venture.
Warren Buffett's famous rules are:
Don’t lose money
Remember rule 1
The best investors value their money to the highest degree, they respect every cent they have, because they know that through conservative and wise investing, every dollar they earn can be put to work to earn another dollar.
Warren and Mohnish both attribute their success to the powers of compound interest. Their success wasn't borne overnight, it took decades of consistent and reserved investing.
It's possible for us all to do; say you are able to achieve a 10% return per year, through a diligent and conservative investing approach, here is the result.
$5,000 invested, in 40 years time, growing at 10% per annum equals $226,296.
A 4,426% return.
Do the same with $100,000, and you will receive $4,525,926.
This seems so simple. Just aim for a 10% return every year for the rest of your working life, and you'll be very comfortable financially by the end.
The ASX All Ordinaries index from 1900 to 2018 returned an average of 13.1% per annum. Market index
We can't rely on historical data, but nonetheless this is a positive sign. If you invest all your money into stock market indexes and reinvest the dividends, you'll do well in the long run.
Fly too close to the sun, and you will get burnt
Most people play the game another way, they go out searching for 'the next big thing'. They cannot resist their impulses, they would rather invest in a company that's 'going to be the next Amazon', than one that is a consistent and profitable earner.
People will buy stocks that burn through capital they’ve raised, in the hope that one day favourable outcomes will fall their way, and exponential profits will be made. Stock such as:
Exploratory mining stocks
New technology stocks
Biotechnology stocks- new and experimental drugs awaiting approval
It's usually the same scenario. A young person may have $500-$1,000 to invest, and they think why not buy a stock that could double, triple or even increase ten-fold. They aren't interested in achieving a 10% return, on a small amount of money.
This pattern will repeat itself, over and over. People will make the same mistake, every time they have a little bit of money to invest.
It may seem like an innocent thing to do, but it is showing a disrespect towards your money. Any money you have to invest, your number one goal should be to protect it, your number two goal should be to grow it slightly and let compound interest work its magic.
From now until your retired/old, if you approach every investment with care, and respect the money you have earned, you will be in a much better place than if you continue to essentially gamble away money all the time.
People often get lucky, but luck always runs out. If you consistently invest in companies like this, the ones with massive upside fraught with risk, you will eventually lose in the long run.
Even when one does eventually have a win, most people fail to sell out and take profits, as they succumb to greed and the desire for more, they haven't got any investing related discipline.....
So, now we know which approach to take. It sounds so easy and simple, so why doesn't everyone do it?
The number one hurdle, and failing point for anyone trying to become a master long-term investor isn't what it seems. You would think it's:
Market crashes? Nope
Lack of mathematical skills? Nope
Lack of university degree? Definitely not
The number one reason for failure is that humans cannot control their emotions......
In this age we live in, people have forgotten about the benefits of 'delayed gratification'; everybody want's everything right now.
More on this enough day.......
Bullsh*t of the week
The research I've been doing into climate change and its use as a fear mongering tool, has seen me develop even more of a disdain for Hollywood. It has always defied logic in my eyes why society looks up to them, actors and singers are literally corporate products. Their whole life is about bullshitting people.
(Don't get me wrong, their movies and songs can be fun to consume. Yet art has long left cinema and music....)
I came across a song by a so called 'singer' (not really the word to describe him) named 'Lil Dicky; and his recent song 'Earth'.
If you haven't heard it, the song is a bunch of Hollywood celebrities and singers preaching their moral superiority over us all, in regards to how the worlds population is destroying the Earth.
I'll ignore the fact that all these individuals would have higher carbon emissions than the everyday person. I'll ignore the fact that movies and concerts are notorious for wastage and resource use. I'll ignore the fact that they live in Western countries, with abundant power and shelter (unlike billions).
What I won't stand for, is that Lil Dicky thinks he and his cronies are so morally superior they have the right to lecture us about climate change, yet are willing to collaborate with a convicted felon and serial women bashing scumbag, Chris Brown. Check out Chris Brown's rap sheet, it's astonishing that this bloke isn't in jail, or hasn't been extradited from the public spotlight.
This is why I despise Hollywood, and it saddens me when people refer to them as role models. They will lecture us on social issues, but let guys like Chris Brown and Harvey Weinsten thrive and have successful careers. Let those blokes out in the real world, they would last two seconds, before they would be served the justice they deserve.
Investing and self-help/improvement have many parallels with one-another, they share many of the same principles.
Becoming a better investor means you need to be disciplined, patient and be able to control your emotions. You need to be able to stand out from the crowd, and back yourself even when everybody may be against you.
Self help essentially boils down to:
'If you sacrifice today for tomorrow's benefit, you will be able to achieve freedom later in life, that will allow you to do things you never dreamed possible'.
The same thing goes with investing as well. Sacrifice the short term gains, and be disciplined and patient; in the long run your portfolio will be so much bigger than you could have ever imagined.