Category Archives: Long-Term

Long-term Investing Perspective

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Warren Buffett once said, “Someone is sitting in the shade today because someone planted a tree a long time ago.”

One tried and true investment philosophy is investing with a long-term perspective. In essence, the time-arbitrage approach gives long-term investors an edge. Most investors are focused on the short term, basing trading decisions on factors that may have little to do with business fundamentals, such as quarterly earnings beat or miss or overall market volatility.

Long-term investors often adopt a long-term perspective while taking advantage of the shortsightedness and noise of the market. They tend to conduct extensive research and conduct a deep dive into the fundamentals of every company in which they are considering an investment.

Their extensive research allows them to develop an informed and thorough understanding of the longer-term secular advantages of these companies. Ultimately, they are more interested in the duration of a company’s growth opportunity rather than being overly focused on its timing.

They like to invest early before a company is on the market’s radar because they believe it’s impossible to pinpoint precisely when the market will notice and start trading the stock up to reflect its growth opportunity properly. This is a vital part of the engine that drives alpha for us.

Low turnover is an outgrowth of this investment process rather than a goal in and of itself. If they find and invest in the right companies, they believe that it makes little sense to replace these companies with new and relatively untested ones. Wsupported remain invested throughout the duration of the growth trajectory of our highest conviction companies. We also believe this is a more tax efficient approach to managing a portfolio and one that is often attractive to company management who are aware of our reputation as long-term holders of stock.

Your primary goal must be capital appreciation, and you should stay involved as companies grow and flourish as long as your investment thesis holds true.

The best risk management starts with knowing the companies in which you invest. By conducting extensive research prior to initiating a position in a company and continuing to conduct due diligence will keep you apprised of the company’s growth story.

Will Higher Interest Rates Tame Inflation?

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Interest rates don’t determine inflation; the amount of money circulating in the economy determines inflation.  At this point, there are over $5 trillion in excess money in the system. Brian Wesbury

While inflation roars at its highest level in four decades, President Joe Biden tried to downplay skyrocketing inflation, insisting it was only up “just an inch” in the short term.

“Well, first of all, let’s put this in perspective. Inflation rate month to month was just– just an inch, hardly at all,” President Joe Biden on Sixty Minutes

Despite the fact that consumer prices rose in August by one-tenth of a percentage point to 8.3 percent, economists had expected inflation to go down. Additionally, median inflation hit the highest level ever recorded.

The median CPI, which excludes all the large changes in either direction and is better predicted by labor market slack, is extremely ugly at 9.2% annual rate in August, the single highest monthly print in their dataset which starts in 1983 (second highest was in June).

The Federal Reserve has been raising interest rates since March to slow the economy in a bid to tame America’s worst bout of inflation in four decades. However, the data suggested that their efforts have not yet had much of an effect.

The Federal Reserve raising interest rates may reduce economic growth, make capital more expensive and may throw the US economy into recession, however there is no guarantee that these actions will tame or fix inflation, opines Brian Wesbury, Chief Economist, First Trust Advisors L. P. Interest rates, supply disruptions or Russian’s war in Ukraine don’t determine inflation; the amount of money circulating in the economy determines inflation.  

“Inflation is always and everywhere a monetary phenomenon.” ~ Milton Friedman

The Fed’s balance sheet held $850 billion in reserves at the end of 2007.  Today, the balance sheet is close to $9 trillion.  Most of these deposits at the Fed are bank reserves which the Fed created by buying Treasury bonds, much of which was money the Treasury itself handed out during the pandemic.  At this point, there are over $5 trillion in excess money in the system.

Technically, banks can do whatever they want with these reserves as long as they meet the capital and liquidity ratio requirements set by regulators.

  • They can hold them at the Fed and get the interest rate the Fed sets, or
  • They can lend them out at current market interest rates.  

In turn, the big question is whether the Fed can pay banks enough to stop them from lending in the private marketplace and multiplying the money supply.

The Fed has never tried to stop bank lending in an inflationary environment by just raising the interest rate on excess reserves (IOER). Moreover, the Fed is now losing money on much of its bond portfolio because it bought so many bonds at low interest rates. At some point the Fed will be paying out more in interest than it is earning on its securities.

Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today.

References:

  1. https://www.ftportfolios.com/Commentary/EconomicResearch/2022/9/19/will-higher-interest-rates-tame-inflation
  2. https://www.breitbart.com/economy/2022/09/13/underlying-inflation-reaches-scorching-new-record-high/

“Taxes now impose a greater burden on the average American household than the combined cost of food, clothing, education, and health care.”

Warren Buffett Investing Lessons

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“Most people get interested in stocks [or assets like Bitcoin] when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” – Warren Buffett

Warren Buffett, Chairman and CEO, Berkshire-Hathaway, the Oracle of Omaha, has been the most successful investor of the 20th Century and is considered by many to be one of the greatest investors of all time.. His investment track record is simply remarkable with compounded annual returns over 20% over the last 55 plus years.

Essentially, if you had invested $10,000 USD in his investment firm Berkshire-Hathaway in 1965, that $10,000 USD would today be worth over $280 million US dollars.

What follows are several investing lessons all investors can learn from Buffett:

Investing Lesson 1: Risk Comes From Not Knowing What You are Doing

Many first-time investors have started trading in stocks and cryptocurrency without really understanding how these asset classes work. Buffett has advised investors to not chase everything that is new and shiny, and instead to only focus on the opportunities that they painstakingly researched and understand.

Stick to your circle of competence. Try not to be good at all things, and instead try to be great at one thing and give it all you`ve got. It`s better to be known for one thing than nothing.

“Never invest in a business you cannot understand.” Warren Buffett.

Investing Lesson 2: System Overpowers the Smart

Buffett advises that retail investors use a low-cost index fund. Investing via index funds gives you the advantage of a system, it allows for a disciplined investing cycle via SIPs and keeps emotions away from corrupting that framework. In other words, Buffett wants retail investors to follow a system over everything else.

And the system and a clear investing framework finding great business at good reasonable prices that have powered Berkshire Hathaway for the last five decades.

Change the way you see setbacks. You will make mistakes, probably lots of them, as long as you choose to swing for the fences. Buffett believes you can do well if you program your mind to see opportunities in every setback.

“A low-cost index fund is the most sensible equity investment for the great majority of investors.” Warren Buffett.

Investing Lesson 3: Have an Owner’s Mindset

Buying a stock is effectively buying a business and investors should follow the same kind of rigorous analysis and due diligence as one would do when buying a business.

The lesson here is that instead of getting too caught up in the recent movement of the stock price, you should spend more time analyzing the business fundamentals behind the stock price.

You can only genuinely value a business if you can accurately predict future cash flows. This is impossible without an understanding of the company’s operating environment and fundamentals.

And once you have answers to the pertinent questions, invest in a business that you would like to own for the next 10 to 20 years.

On how to invest in stocks. His response is a simple five-word answer: “Invest in the long term.”

“That whole idea that you own a business you know is vital to the investment process.” Warren Buffett

Investing Lesson 4: Be Fearful When Others are Greedy and Be Greedy When Others are Fearful

The stock markets work in cycles of greed and fear. When there is greed, people are ready to pay more than what a business is worth. But when fear sets in, then great businesses are available at huge discounts for anyone who is ready to keep their gloomy emotions aside.

In Berkshire’s 2018 shareholder letter, Buffett wrote, “Seizing opportunities does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period — or even to look foolish — is also essential.”

In other words, Buffett encourages investors to not follow the herd. And strip away emotions when making investment decisions, which is likely to open up more profitable opportunities.

“What investors need is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals.” Warren Buffett

Investing Lesson 5: Save and Preserve Capital for A Golden Rainy Day

Warren Buffett goes by the philosophy – hold onto your money when money is cheap and spend aggressively when money is expensive.

Financial expert criticized Buffett for holding onto billions of dollars in cash and not deploying it in stocks. But Buffett was saving all that cash to be used when companies come down from the then astronomical valuations to more reasonable prices.

“Every decade or so, dark clouds will fill the economic skies and they will briefly rain gold. When a downpour of that sort occurs. It is imperative that we rush outdoors carrying washtubs and not teaspoons.” Warren Buffett

Investing Lesson 6: Never Invest Just Because a Company is Cheap

A cheap business may be cheap for a very good reason, but may not be a profitable or favorable investment.

His investing approach is to look at a business’s competitive advantage, intangibles like brand value, cost superiority and its strong growth prospects.

This goes hand-in-hand with his Buffett’s first rule of investing is “don’t lose money.” His second rule is “never forget rule number one.” In short, investors should try to avoid significant losses at all costs, but avoiding all losses is impossible.

“It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” Warren Buffett

Investing Lesson 7: Time is The Friend of The Wonderful Business

Patience and time are important in investing and has investors can reap the benefits of compounding.

Additionally, “cash is king” and investors must avoid debt at all costs. Buffett has always had a strong net cash position. Cash gives optionality and means you’re unlikely to have to make hard decisions when the market becomes volatile and eventually turns.

Considering volatility, Buffett said, “There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions are not immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”

Buffett is not a fan of the kind of debt that can leave consumers broke and helpless, especially when the markets go down.

“It is insane to risk what you have and need in order to obtain what you don’t need,” Warren Buffett

Investing Lesson 9: Keep It Simple

An element of simplicity is important. Buffett himself follows a simple to understand investing framework, which can best be defined as buying stakes in a business where the price you pay is far lower than the value you derive. He wants investors to invest in simple and understandable instruments only and using a process that one can easily digest.

For example, if you don’t understand cryptocurrency, don’t invest, trade, or speculate in Bitcoins or glamorous-looking investment vehicles we are exposed to every year.

“If you are uncomfortable with the asset class that you have picked, then chances are you will panic when others panic,” Warren Buffett

Finally, treat your body and mind like the only car you could have. If someone offered you the most expensive car in the world with a single condition that you never get another one, how will you treat this car?

With this analogy in mind, Buffett urges you to treat your body and mind the same way you treat your one, and only car. If you don’t take care of your mind and body now, by the time you are forty or fifty you’ll be like a car that can’t go anywhere.

Investing Bottomline

Buffett’s lessons are simple and straightforward. He submits to keep it simple, improve upon what you know, stay within your circle of competence and comfort zone, and there are enough opportunities for one to thrive in investing.

References:

  1. https://www.etmoney.com/blog/9-lessons-in-investing-by-warren-buffett/
  2. https://thetotalentrepreneurs.com/business-lessons-warren-buffet/
  3. https://addicted2success.com/life/5-lessons-we-can-all-learn-from-the-life-of-warren-buffett/
  4. https://finance.yahoo.com/news/5-warren-buffetts-most-important-224429018.html

Recession…recessions always come with significant increase in unemployment. It’s basically definitional. Employment and gross domestic product fall together during a recession.

Ten Critical Investing Lessons

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Investing in assets is a great way to grow your money or to put your capital to work.

If there’s any lessons investors relearned in 2022, when investing in stocks, bonds, derivatives and real estate, it’s that the markets will be unpredictable, defy logic and offer unexpected surprises.

Sometimes investors can correctly anticipate what’s coming based on our past investing experience and macro economic information. Other times, investors are reminded no matter what they thought they knew, the market always knows better.

For these reasons, it’s important to remember you can always become a better, more patient and disciplined investor, whether you’re learning lessons the hard way, reminded of lessons you previously learned, but forgot, or learning from the good or bad experiences of others.

Here are 10 Critical investing lessons you wish you could teach your younger, novice self:

1) Personal finances first – Master and manage your personal finances first and foremost. Dealing with volatility is never easy, but it’s so much easier when your personal finances are rock-solid (no bad or debilitating debt, positive cash flow and net worth, emergency fund established). Know and strengthen your personal balance and cash flow statements. And, always have some cash on hand to take advantage of market dips and pullbacks.

2) Expect to be wrong often when investing – You’re going to be wrong when investing. You’re going to be wrong a lot. Your goal isn’t to bat 1.000 (that’s impossible). Your goal is to increase your odds of success. Even the best investors are wrong approximately 2 out of 5 times.

3) Sell slow – Don’t be in a rush to sell – It’s tempting to book a profit quickly or sell when you get scared. One investor sold MSFT at $24. Current price: $268. Selling a mega-winner early is the most expensive investing mistake you can or will make. And, don’t forget about taxes when you earn income or sell assets. Any income (or profit) you earn from selling assets is taxable. Before you sell any appreciated asset or take any income, make sure you have enough money for the taxes so that your gains will not be wiped out by taxes alone.

4) Watch the business – Watch the business, not the stock. The two are not linked at all in the short-term. But are 100% linked in the long-term. Always remember, you’re buying a piece of a business, do understand the business and how that business generates cash flow.

5) Buy quality – Capital is precious. Making money and putting money to work for you are hard. Saving it and growing it are harder. Buy the highest-quality investments you can find. Avoid everything else. When you focus on buying quality, opportunities can be found in any market whether it be up (bull) or down (bear). Thus, stick to your long-term plan of buying quality companies every month and forget about how everybody else is performing.

6) Add to winners, not losers – Add more capital to your winners, not your losers. “Winners” means the business is executing. “Losers” means the business isn’t. Add to the best companies you can find at better and better value points.

7) Patience above all – Your biggest edge and investing super power is patience. Don’t waste it. Compounding over the long term is the greatest power of investing. Your holding period for an investment asset should be measured is in decades, not days.

8) Do nothing is usually correct – “Do nothing” (being a long term investor) sounds easy, until you start investing your capital. Investing should be more like watching paint dry than a Las Vegas casino. More often than not, it’s the correct thing to do. Ninety-nine percent of good investing is doing nothing. It’s essential to ignore the noise and the hysteria of Mr. Market. Never Let Short-Term Volatility Dictate Your Long-Term Investment Decisions.

9) Learn valuation – Know what valuation metrics matter and when they matter. P/E Ratio is great, but it’s not universally applicable, and it only works when a company is in mature (stage 4). Consider ROIC, P/FCF, and P/Sales. Remember: Every investment is the present value of all future cash flow.

10) Network with others – Connect with other trusted long-term investors and experts. A good community is worth its weight in gold. Especially when bear markets appear.

Final thought: Have a plan – A financial plan is paramount to your financial success. During periods of volatility, you often hear that investors should “stay the course”, but there is not a course to stay without having a comprehensive financial plan.

The plan should be based upon your goals, values, purpose and dreams for the future, short and long term. It is a roadmap for your financial future and it should provide a guide for how you invest. The plan should also address other areas such as retirement planning, estate planning, risk management, asset allocation review, and cash flow planning.

In all things, be grateful! Appreciate and be grateful for all aspects for your current life and the abundance of opportunities. Gratitude influences your state of mind, your behavior, your relationships and your perspective on the world.

Roman philosopher Cicero said that, “Gratitude is not only the greatest of the virtues but the parent of all the others.”

Source: Brian Feroldi, 10 Critical Investing Lessons, Twitter, June 25, 2022.

Long-Term Investing

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“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” — Paul Samuelson

Everyone is a long-term investor up to the moment the stock market correction or crash occurs. “During bull markets, everyone believes that he is committed to stocks for the long term,” opines Billionaire investor William J. Bernstein. “Unfortunately, history also tells us that during bear markets, you can hardly give stocks away. Most investors are simply not capable of withstanding the vicissitudes of an all-stock investment strategy.

Yet, successful investing is a long game. It takes “time, patience and discipline”, says Warren Buffett. When you put money to work in markets it’s best to set it and forget it. Billionaire investor Warren Buffett quipped, “Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a fly epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Myopic Loss Aversion

Investors must manage the battle between fear and greed in their heads and stomachs to be successful in building wealth in the long term. Unfortunately, the fear of loss is generally a more powerful force that overwhelms many investors during periods of steep losses in stock prices.

Even though they don’t plan to liquidate the investment for decades, many investors panic during market corrections and bear markets; causing them to miss out on the often sharp recovery in prices that follows.

Being a long-term investor is more about inner attitude, about positive mindset and about behavior then the asset holding timeframe. Being a long-term investor requires a confidence based on clarity of purpose, rigorous research, and insightful analysis.

Long-term investors should invest in sustainable and growing companies – companies that are likely to be around and that are increasing their intrinsic value for the long term.

Behavior is an essential value of a long-term investor since behavior drives results. Thus, staying calm during a downturn is indeed a critical quality of any long-term investor,

For long-term investors, if you are clear about your investment principles, confident in your investment’s thesis, and genuinely believe in your investment strategy, a market downturn is the best time to invest in companies.

Overall, investing is all about focusing on your financial goals and ignoring the noise and mania of the markets and the financial media. That means buying and holding for the long term, regardless of any news that might move you to try and time the market. “There is only one way of investing, and that is long term,” says Vid Ponnapalli, a CFP and owner of Unique Financial Advisors and Tax Consultants in Holmdel, N.J.

Investor, Mohnish Pabrai, says it best, “You don’t make money when you buy stocks, and you don’t make money when you sell stocks. You make money by waiting.”

“Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.” Warren Buffett

References:

  1. https://www.forbes.com/advisor/investing/tips-for-long-term-investing/
  2. https://www.institutionalinvestor.com/article/b18x07sykt3psy/What-Long-Term-Investor-Really-Means
  3. https://www.forbes.com/sites/forbes-shook/2022/05/10/an-investors-mind-6-ways-it-can-block-the-path-to-long-term-wealth/?sh=7ca749405f7c

Systems are Best for Long Term Success

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“Goals are good for setting a direction, but systems are best for making progress.” James Clear

James Clear, author of Atomic Habits, spoke at a conference I attended about ‘goals and system’. During his insightful talk, he explained that “Goals are good for setting a direction, but systems are best for making progress. ”

Furthermore, he said that, “I began to realize that my results had very little to do with the goals I set and nearly everything to do with the systems I followed.” To explain, he writes that “If you’re an entrepreneur, your goal might be to build a million-dollar business. Your system is how you test product ideas, hire employees, and run marketing campaigns.”

Moreover, goals are good for setting a direction, but systems are best for making progress and reaching your destination.

Goals can become too limiting, says Scott Adams, the nationally syndicated cartoonist of Dilbert. Systems, in contrast, habits are things that people regularly do and that increase the odds that an event ends up creating an experience that leads to an eventual success, even though that success might not be immediately apparent.

A system, says Adams, contributes to a positive attitude that widens a person’s field of perception, which he contends is what makes some people luckier than others in that they can see more opportunities.

Build a system for getting 1% better every day.

In Clear’s opinion, “a handful of problems arise when you spend too much time thinking about your goals and not enough time designing your systems.”

https://twitter.com/atomichabitss/status/1498825041835823105

According to Clear, several problems arise when you focus on goals and ignore the system, such as:

Problem #1: Winners and losers have the same goals.

Successful and unsuccessful people often share the same goals, thus the goal cannot be what differentiates the winners from the losers. It wasn’t the goal of winning the Tour de France that propelled the British Cyclists to the top of the sport, states Clear. Presumably, they had wanted to win the race every year before—just like every other professional team. The goal had always been there. It was only when they implemented a system of continuous small improvements that they achieved a different outcome.

Problem #2: Achieving a goal is only a momentary change.

To truly have meaningful and long-lasting change, you must change your habits that led to the problem or challenge in the first place. Achieving a goal only changes your life for the moment. That’s the counterintuitive thing about improvement. You think you need to change your results, but the results are not the problem. What you really need to change are the systems that cause those results. When you solve problems at the results level, you only solve them temporarily. In order to improve for good, you need to solve problems at the systems level. Fix the inputs and the outputs will fix themselves.

Problem #3: Goals restrict your happiness.

The problem with a goals-first mentality is that you’re continually putting happiness off until the next milestone. Happiness should not be just something for your future self to enjoy.

Furthermore, goals create an “either-or” conflict: either you achieve your goal and are successful or you fail and you are a disappointment. You mentally box yourself into a narrow version of happiness. It makes no sense to restrict your satisfaction to one scenario when there are many paths to success.

A systems-first mentality provides the antidote. When you fall in love with the process rather than the product, you don’t have to wait to give yourself permission to be happy. You can be satisfied anytime your system is running. And a system can be successful in many different forms, not just the one you first envision.

Problem #4: Goals are at odds with long-term progress.

Finally, a goal-oriented mind-set can create a “yo-yo” effect. When all of your hard work is focused on a particular goal, what is left to push you forward after you achieve it? This is why many people find themselves reverting to their old habits after accomplishing a goal.

The purpose of setting goals is to win the game. The purpose of building systems is to continue playing the game. True long-term thinking is goal-less thinking. It’s not about any single accomplishment. It is about the cycle of endless refinement and continuous improvement. Ultimately, it is your commitment to the process that will determine your progress.

Fall in love with systems

James Clear surmises that “goals are good for planning your progress and systems are good for actually making progress. Goals can provide direction and even push you forward in the short-term, but eventually a well-designed system will always win. Having a system is what matters. Committing to the process is what makes the difference.”

The next time you think about a goal, something you deeply desire to achieve, think of the system that you will follow — and how often — in order to reach it.

References:

  1. https://jamesclear.com/goals-systems
  2. https://www.cioinsight.com/careers/dilbert-creator-focus-on-systems-not-goals/
  3. https://jamesclear.com/good-habits
  4. https://medium.com/swlh/thinking-in-systems-not-goals-2b9a4105d0d3

James Clear is the author of the #1 New York Times bestseller, Atomic Habits.

“The most useful form of patience is persistence. Patience implies waiting for things to improve on their own. Persistence implies keeping your head down and continuing to work when things take longer than you expect.” ~James Clear

Benjamin Graham

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Every investment is the present value of all future cash flow.

Benjamin Graham, colleague and mentor to billionaire investor Warren Buffett,  is widely acknowledged as the father of value investing. His timeless book, The Intelligent Investor, is considered the value investor’s bible for both individual investors and Wall Street professionals.

Many of Benjamin Graham’s concepts are deemed fundamental for value investors, and his concepts should be studied and followed for anyone who plans to invest long term in the stock market.

For example, “Margin of Safety” is the famous term coined by Ben Graham. In simple terms, an asset worth $100 and bought at $80 has a better Margin of Safety than the same asset purchased at $95. In other words, “A great company is not a great investment if you pay too much for the stock”,  according to Benjamin Graham.

The 10 Benjamin Graham quotes, all of which are valuable in today’s market, tell us that::

  1. “A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.”
  2. “People who invest make money for themselves; people who speculate make money for their brokers.”
  3. “While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street, it almost invariably leads to disaster.”
  4. “Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.”
  5. “Obvious prospects for physical growth in a business do not translate into obvious profits for investors.”
  6. “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”
  7. “To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”
  8. “The intelligent investor is a realist who sells to optimists and buys from pessimists.”
  9. “The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.”
  10. “Weighing the evidence objectively, the intelligent investor should conclude that IPO does not stand only for ‘initial public offering.’ More accurately, it is also shorthand for: It’s Probably Overpriced, Imaginary Profits Only, Insiders’ Private Opportunity, or Idiotic, Preposterous, and Outrageous.”

See the source image“I never ask if the market is going to go up or down because I don’t know, and besides, it doesn’t matter. I search nation after nation for stocks, asking: ‘Where is the one that is lowest-priced in relation to what I believe it is worth?’ Forty years of experience have taught me you can make money without ever knowing which way the market is going.”—Sir John Templeton

“Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.” – Benjamin Graham

“Successful investing is about managing risk, not avoiding it.” – Benjamin Graham

References:

  1. https://cabotwealth.com/daily/value-investing/benjamin-graham-quotes-to-improve-your-investing-results/

9 Good Financial and Wealth Building Habits

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Developing good financial habits is pivotal to maintaining a healthy financial life. It can be the most important tool you have to reach your goal of eliminating personal debt. Regardless of any bad money habits you’ve had in the past, there’s always time to make changes for the future.

When adjusting your approach, don’t hesitate to learn from others. This could be the difference between success and continuing down the same old path.

Below are nine good financial habits.

1. Create a budget.

The median household income in the United States in 2019 was $68,703. Whether you earn more or less than this, a budget can help keep your finances on track.

When you know how much you earn, it’s much easier to determine how much you can comfortably spend each month.

2. Avoid or consolidate higher-interest credit card and personal debt.

Unexpected expenses can come up and we don’t always have the cash to pay for them. So we might swipe a credit card or take out a loan.

The good news is you may be able to consolidate your higher-interest debt with a fixed rate personal loan, saving time and interest costs.

If you’re paying a high interest rate on debt, and you had the opportunity to pay a lower rate that might lessen your monthly payment, why wouldn’t you?

3. Understand your financial circumstances.

You need to understand every aspect of your financial situation. From how much you earn to how you’re spending your money, every last detail is important.

With an understanding of your finances, you’ll always know what makes the most sense for you and your money.

4. Learn from past mistakes and failures.

Learning from you past mistakes is one of the most critical money habits you can form. Even the most successful people make financial mistakes from time to time. For example, maybe you buried yourself in store card debt. Or maybe you “bit off more than you could chew” with a car loan.

It’s okay to make financial mistakes, as long as you learn from them and use what you learn to manage your debt.

5. Set goals and create a plan .

Have you set both short- and long-term financial goals? Are you tracking your progress, month in and month out?

Taking this one step further, you can do more than think about goals in your head. See where putting your goals to paper takes you. You could get a new sense of clarity and focus with everything written out in front of you.

According to a research study completed by Gail Matthews at Dominican University, people who write down their goals accomplish “significantly more.”

6. Ask questions.

Although you know your financial situation better than anyone else, there are times when it makes sense to ask questions.

For example, a CPA can provide guidance related to your tax situation. With more than 658,000 of these professionals in the United States alone, there are plenty of options for advisement.

7. Save for retirement.

Many Americans carry debt and find it difficult to save money. These challenges can make it hard to pay attention to retirement savings. In fact, a recent Employee Benefit Research Institute survey found a majority of people saying debt may be a hindrance to their retirement plans.

You won’t be alone if you opt against saving for retirement, but if comfortable retirement is one of your goals, look towards the future. Putting a bit of money away for retirement is a good financial habit; consolidating higher-interest debt so that you save money on interest may be one way to find more savings opportunities.

8. Automate your savings.

There are many reasons why people may not save as much money as they should. For example, they may touch every bit of money they earn, meaning it never ends up in the right place.

Protect against this by automating savings. Think about it like this: you can’t spend money that you don’t see or touch.

9. Pay down debt.

Taking on debt can be a successful strategy as long as you’re comfortable with two things:

  • The monthly payment
  • Your ability (and willingness) to pay down the debt.

The longer you let debt linger the more you’ll pay in interest. Furthermore, debt can hold you back from reaching other goals, such as saving for retirement.

If you implement these nine good financial habits, you may end up feeling better about your current situation and what the future will bring.

Creating a wealth plan

A well thought out wealth plan rests on three essential pillars:

  • Save
  • Invest
  • Repeat

These are the core principles of every wealth plan. Disregarding even one will render a wealth plan useless. An important aspect to consider is that a wealth plan should be tailored to each individual’s needs and goals. So pay attention, and make sure that these simple steps are followed in order to create a wealth plan that allows individuals to achieve their dreams of building wealth and financial freedom.

A wealth plan is a resource to help you achieve your financial goals. As it allows you to plan, and use it as a guide throughout your journey. However, having a wealth plan is not a guarantee of anything.

Achieving wealth is like building a house. Thus, having the best architectural design will not ensure that the final product will be outstanding. This is why execution is the differentiating factor in achieving wealth. There are certainly several advantages to having a well-thought-out plan to help you in this process, such as:

  • Clear vision over goals
  • Easily control expenses and estimate savings
  • Automate investments
  • Define a strategy to achieve wealth
  • Adapt your strategy over time

In essence, a wealth plan acts as a roadmap to financial freedom. The main difference is a map usually has a clear path towards a destination. A wealth plan, on the other hand, is filled with unknowns and obstacles that may lay ahead.

In essence, a wealth plan acts as a roadmap to financial freedom.

References:

  1. https://www.discover.com/personal-loans/resources/consolidate-debt/good-financial-habits/
  2. https://goodmenproject.com/featured-content/how-to-create-a-wealth-plan-get-started-now/

Being a Patient and Wise Investor

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“You don’t make money when you buy a stock, you don’t make money when you sell a stock, you make money by being patient and you make money by waiting.” Charlie Munger

Successful investing in stocks and building wealth does not have to be a complex or difficult personal financial enterprise. Focusing on a few “tried and true” investing rules and behaving rationally is effectively what it takes. And, keep in the forefront that, “Every investment is the present value of all future cash flow.” The rules or universal investing laws to follow are:

  1. Think and hold for the long-term, view investing as a compounding program
  2. Create and follow a plan
  3. Invest early and consistently, be discipline
  1. Buy what you understand and do your research
  1. Understand that when you buy a stock, you’re purchasing a portion of an existing business
  1. Maintain an emergency fund
  2. Save more than you spend
  3. Track your income and expenses, and calculate your net worth regularly
  4. Pay attention to how much you pay for assets, buy with a margin of safety
  5. Have a healthy contrarian view and don’t follow the crowd
  6. Don’t predict or time the market
  7. Behave rationally and ignore the financial market noise
  8. Practice investing risk management
  1. Be patient, Be patient, Be patient.

Given the above investing rules, many successful investors repeatedly proclaim that the most important virtue with respect to long term investing is ‘patience’. As a tree takes time to grow, similarly investing will also take time to grow and build wealth. So, stay patient! Essentially, you should think of investing as a long term compounding system.

In contrast, impatient investors let anxiety and emotion rule their behavior and decision-making. They often succumb to the ever present tendency towards “doing something”.

Investing is the practice of leveraging one’s patience and exploiting the market’s impatience when it comes to seeking long term value. As Warren Buffett explained, “The stock market is a device for transferring money from the impatient to the patient.”

“Investing is one of the only fields where doing nothing — sitting, being patient — is a competitive advantage.” Motley Fool

Nothing should be a rush or expedited with respect to investing. If there isn’t a good investment opportunity now, there will be a better one in the future. It’s just a matter of believing that there is a great investment around the bend.

Thus, it’s essential that you have patience and inherently understand that opportunities exist as long as you’re not buying assets just for the sake of being in an investment or succumbed to the “fear of missing out”.

Here are three quotes that express concisely the sentimant of a being patient investor:

“We agree with Warren Buffet’s observation that the stock market is designed to transfer money from the active to the patient. By only swinging at fat pitches and avoiding curveballs thrown far outside the strike zone, we attempt to compound your capital at an above average rate while incurring a below average level risk. In investing, patience often means the accumulation of large cash balances as we wait to purchase ‘compounding machines’ at valuations that provide a margin of safety.” — Chuck Akre

“The single most important skill set that you can bring to value investing is patience. You have to have a temperament where you’re very happy watching paint dry. I would say that is the most difficult thing for investors and you can trade lot of IQ points for patience. You don’t need a lot of IQ points but you need a lot of patience. That’s the piece that usually gets missed.” — Mohnish Pabrai

And finally…

“The key rules are don’t swing the bat unless it’s a slow pitch right down the middle of the plate, and don’t be bullied by the market into doing something irrational, whether buying or selling. This may sound obvious or clichéd to some, and perhaps confusingly ironic to others, but the ability to sit and do nothing may be the most rare and valuable investing skill of all. Inevitably, extreme price dislocations occur that create real opportunities for action, and only the patient and prepared investor can recognize such ideal situations and take full advantage.” — Chris Mittleman

Patience and discipline are the keys to successful investing and building wealthy through the magic of compounding. Thus, a key takeaway…investing in stocks is a long term game of patience, patience, patience!

References:

  1. https://www.nasdaq.com/articles/why-patience-is-crucial-in-long-term-investing
  2. http://mastersinvest.com/patiencequotes
  3. https://pranav-mahajani.medium.com/richer-wiser-happier-how-the-worlds-greatest-investors-win-in-market-and-life-by-william-green-c907a3396faa

Long-Term Planning

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“In preparing for battle I have always found that plans are useless, but planning is indispensable.” General Dwight D. Eisenhower. U.S. Army and Supreme Allied Commander

Dwight Eisenhower once said, “In preparing for battle I have always found that plans are useless, but planning is indispensable.” In simple terms, great investors, same as great leaders, are proactive in building wealth and they follow a plan.

Most retail investors don’t plan and just react to market volatility and events. Instead, investors should engage in long-term financial planning from the beginning with the intent to anticipate problems and come up with solutions.

“Nobody ever created a plan to be broke, bankrupt, behind in monthly payments, drowning in insurmountable credit card debt, or a financial failure. Those things are what happen when you don’t create or follow a plan.”

Planning helps you prepare for the potential challenges and keep you on track. And with an effective action plan, you can boost your productivity and keep yourself focused. The benefits of an action plan are:

  • It gives you a clear direction. As an action plan highlights exactly what steps to be taken and when they should be completed, you will know exactly what you need to do. 
  • Having your goals written down and planned out in steps will give you a reason to stay motivated and committed throughout the project.  
  • With an action plan, you can track your progress toward your goal.
  • Since you are listing down all the steps you need to complete in your action plan, it will help you prioritize your tasks based on effort and impact.

Failing to plan means planning to fail. That’s why you should create a action plan before making any financial or wealth building decisions, and then stick to the plan.  Whether you are deciding on investing in cryptocurrencies or acquiring real estate for your business,  it’s smart to do so with a list or plan of action that has your budget in mind.

“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” – Pablo Picasso

A well-designed action plan can make it easier for you to track and realize your goals. For your personal goal, you can use an action plan to create a clear path to success.

An action plan is a document that lays out the tasks you need to complete in order to accomplish your goal. It also breaks up the process into actionable assignments based on a timeline. A good action plan will outline all the necessary steps to achieve your goal and help you reach your target efficiently by assigning a timeframe—a start and end date—to every step in the process.

Step 1: Define your end goal 

If you are not clear about what you want to do and what you want to achieve, you are setting yourself up for failure. Start by defining where you are and where you want to be. Analyze the situation and explore possible solutions before prioritizing them. 

Then write down your goal. And before you move on to the next step, run your goal through the SMART criteria. Or in other words, make sure that it is 

  • Specific – well-defined and clear
  • Measurable – include measurable indicators to track progress  
  • Attainable – realistic and achievable within the resources, time, money, experience, etc. you have
  • Relevant – align with your values and other wealth building goals 
  • Timely – has a finishing date or deadline

Step 2: List down the steps to be followed 

Once the goals are clear, the next step is to list all the tasks that you must perform to realize your goals and due dates. 

It’s important that you make sure that each task is clearly defined and is attainable. If you come across larger and more complex tasks, break them down to smaller ones that are easier to execute and manage. 

Step 3: Prioritize your tasks and add deadlines

It’s time to reorganize the list by prioritizing the tasks. Some steps, you may need to prioritize as they can be blocking other sub-steps. 

Add deadlines, and make sure that they are realistic. Consult with the person responsible for carrying it out to understand his or her capacity before deciding on deadlines. 

Step 4: Set Milestones 

Milestones can be considered mini goals leading up to the main goal at the end. The advantage of adding milestones is that they give you something to look forward to.

Start from the end goal and work your way back as you set milestones. Remember not to keep too little or too much time in between the milestone you set. It’s a best practice to space milestones two weeks apart.  

Step 5: Identify the resources and time needed

Before you start working on your tasks, it’s crucial to ensure that you have all the necessary resources at hand to complete the tasks. And if they are not currently available, you need to first make a plan to acquire them. 

This should also include your budget, any advisors and determine the cost of each task if there are any.  

Step 6: Visualize your action plan

The point is to create something that you can understand. Make sure that your action plan clearly communicates the elements – tasks, deadlines, resources, etc. This should be a working document that is kept updated and adjustable. 

Step 7: Monitor, evaluate and update

Allocate time to evaluate the progress you’ve made. You can mark tasks that are completed on the final action plan, bringing attention to how you’ve progressed toward the goal.

An action plan can also make it easier for you to monitor your progress toward your goals, allowing you to keep your projects on schedule and, if applicable, within budget.

“Have a bias towards action – let’s see something happen now. You can break that big plan into small steps and take the first step right away.” – Indira Gandhi

References:

  1. https://www.lifehack.org/900263/reactive-vs-proactive
  2. https://resources.franklincovey.com/blog/paradigms
  3. https://creately.com/blog/diagrams/how-to-write-an-action-plan/
  4. https://www.indeed.com/career-advice/career-development/how-to-write-an-action-plan