Category Archives: Stock Market

Peter Lynch’s five rules to investing

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“If I could avoid a single stock, it would be the hottest stock in the hottest industry, the one that gets the most favorable publicity, the one that every investor hears about in the car pool or on the commuter train—and succumbing to the social pressure, often buys.” Peter Lynch

Legendary American investor Peter Lynch shared five rules everyone can follow when investing in the stock market.

Within his 13-year tenure, Lynch drove the Fidelity Magellan Fund to a 2,800% gain – averaging a 29.2% annual return. It is the best 20-year return of any mutual fund in history. He is considered the greatest money manager of all time, and he beat the market for so long through buying the right stocks.

No one can promise you Lynch’s record, but you can learn a lot from him, and you don’t need a billion-dollar portfolio to follow his rules.

https://youtu.be/6oYc3RbLO3Q

Lynch’s five rules for any investor in the stock market are listed below.

1. Know what you own

The most important rule for Lynch is that investors should know and understand the company they own.

“I’m amazed at how many people that own stocks can’t tell you, in a minute or less, why they own that particular stock,” said Lynch.

Investors need to understand the company’s operations and what they offer well enough to explain it to a 10-year-old in two minutes or less. If you can’t, you will never make money.

Lynch believes that If the company is too complicated to understand and how it adds value, then don’t buy it. “I made 10 to 15 times my money in Dunkin Donuts because I could understand it,” he said.

2. Don’t invest purely on other’s opinions

People do research in all aspects of their lives, but for some reason, they fail to do the same when deciding on what stock to buy.

People research the best car to buy, look at reviews and compare specs when buying electronics, and get travel guides when travelling to new places – But they don’t do the same due diligence when buying a stock.

“So many investors get a tip on a stock travelling on the bus, and they’ll put half of their life savings in it before sunset, and they wonder why they lose money in the stock market,” Lynch said.

He added that investors should never just buy a stock because someone says it is a great buy. Do your research.

3. Focus on the company behind the stock

There is a method to the stock market, and the company behind the stock will determine where that stock goes.

“Stocks aren’t lottery tickets, there’s no luck involved. There’s a company behind every stock; if a company does well, the stock will do well – It’s not complicated,” Lynch said.

He advises that investors look at companies that have good growth prospects and is trading at a reasonable price using financial data such as:

• Balance Sheet – No story is complete without a balance sheet check. The balance sheet will tell you about the company’s financial structure, how much debt and cash it has, and how much equity its shareholders have. A company with a lot of cash is great, as it can buy more stock, make acquisitions or pay off its debt.

  • Year-by-year earnings growth
  • Price-to-earnings ratio (P/E) – relative to historical and industry averages.
  • Debt-equity ratio
  • Dividends and payout ratios
  • Price-to-free cash flow ratio
  • Return on invested capital

4. Don’t try to predict the market

Trying to time the market is a losing battle. One thing to keep in mind is that you aren’t going to invest at the bottom. Buy stocks because you want to own the business long-term, even if the share price decreases slightly after you buy.

Instead of trying to time the bottom and throwing all your money in at once, a better strategy is gradually building your stock positions over time.

This approach spreads out your investments and allows you to buy into the market at different times at varying prices that ideally balance each other out versus investing one lump sum all at once.

This way, if you’re wrong and the stock continues to fall, you’ll be able to take advantage of the new lower prices without missing out.

“Trying to time or predict the stock market is a total waste of time because no one can do it,” Lynch said.

Corollary: Buy with a Margin of Safety: No matter how careful an investor is in valuing a company, she can never eliminate the risk of being wrong. Margin of Safety is a tool for minimizing the odds of error in an investor’s favor. Margin of Safety means never overpaying for a stock, however attractive the investment opportunity may seem. It means purchasing a company at a market price 30% or more below its intrinsic value.

5. Market crashes are great opportunities

Knowing the stock market’s history is a must if you want to be successful.

What you learn from history is that the market goes down, and it goes down a lot. In 93 years, the market has had 50 declines; once every two years, the market declines by 10%. of those 50 declines, 15 have declined by 25% or more – otherwise known as a bear market – roughly every six years.

“All you need to know is that the market is going to go down sometimes, and it’s good when it happens,” Lynch said.

“For example, if you like a stock at $14 and it drops to $6 per share, that’s great. If you understand a company, look at its balance sheet, and it’s doing well, and you’re hoping to get to $22 a share with it, $14 to $22 is terrific, but $6 to $22 is exceptional,” he added.

Declines in the stock market will always happen, and you can take advantage of them if you understand the company and know what you own.

References:

  1. https://dailyinvestor.com/finance/1921/peter-lynchs-five-rules-to-investing/

Dow Jones Industrial Average

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The Dow Jones is a terrible measure of the U.S. economy

Created by Charles Dow in 1896, the Dow Jones Industrial Average was intended to act as a “proxy for the broader U.S. economy.” Currently, it’s purpose is to provide a big-picture view of whether stock prices are generally moving up, down, or sideways from moment to moment, and by how much.

For the past 126 years, the Dow Jones Industrial Average (DJIA) has served as a barometer of the stock market’s health. The index is composed of 30 highly profitable, multinational companies.

In many respects, the Dow Jones is home to mature and generally slower-growing businesses. Although, “mature” businesses can make patient investors wealthier and long-term investors financially independent.

All components of the DJIA are household names like Johnson & Johnson (JNJ), Coca-Cola (KO), Disney (DIS), and Microsoft (MSFT).

Dow Is Weighted

The DJIA is price-weighted. Rather than using a simple arithmetic average and dividing by the number of stocks in the average, the Dow Divisor is used.

This divisor smooths out the effects of stock splits and dividends. The DJIA, therefore, is affected only by changes in the stock prices, so companies with a higher share price or a more extreme price movement have a greater effect on the Dow. 

Many financial pundits argue that the DJIA has lost its relevance as a barometer of U.S. stocks. the Dow is deeply flawed. Professor Jeremy J. Siegel at the Wharton School summed it up. Today, no one would build a stock market index that contains only 30 companies, with some sectors of industry completely excluded (like utilities). Worse, the index is weighted by share price instead of market capitalization, which means one company, Boeing, has a wildly outsized sway on the entire stock market.

Yet, DJIA continues to serve as a market and economic indicator. As long as it contains the stocks of companies that reflect the major industrial areas of the U.S. economy during any given period, this 30-stock index will likely remain the standard of financial indicators.

References:

  1. https://www.msn.com/en-us/money/savingandinvesting/the-dow-jones-industrial-averages-5-fastest-growing-stocks/ar-AA103dnv
  2. https://www.investopedia.com/articles/stocks/08/dow-history.asp
  3. https://www.investopedia.com/ask/answers/difference-between-dow-jones-industrial-average-and-sp-500/

Purchase Price Matters

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“If you think about the environment we’ve been in for the past 10 years, purchase price has not mattered.” Marc Rowan, CEO & Director, Apollo Global Management, Q4 2021 Earnings Call

The profit of an investment is often determined by the purchase price since “Price is what you pay; value is what you get”, quips billionaire investors Warren Buffett.

The price of a stock is determined by human characteristics and emotions, such as fear and greed, market tendencies and other factors. All of these things affect the price of a stock, sometimes to a large degree but rarely do they significantly affect its value.

“If you think about the [stock market] environment we’ve been in for the past 10 years, purchase price has not mattered”, said Marc Rowan, CEO & Director, Apollo Global Management. “The more risk you took, the more outrageous, generally the higher the pay off.”

Rowan and Apollo Global Management has consistently followed the investment philosophy that “purchase price matters”. Although, over the past decade in the equity stock markets, their strategy of “patient, value-oriented, disciplined approach to capital deployment” had not been consistently rewarded.

Share Price and Intrinsic Value

“Losing money can happen when you pay a price that doesn’t match the value you get. Look for opportunities to get more value at a lower price.”

Before purchasing a stock, it’s essential to compare the market price of a stock to its fair intrinsic value. When you find a company whose stock’s price is trading lower than the company’s intrinsic value would mark the opportune moment to purchase the company. Since value investors believe that an undervalued market priced stock will eventually climb to reach its fair, or intrinsic, value.

This is a process known as value investing, a type of investing that puts the utmost importance on the valuation of a company and uses various metrics to determine whether the valuation is low, high, or where it should be.

Some of the most important metrics include:

  • Price-to-Earnings Ratio (P/E Ratio). The P/E ratio compares the price of a stock to the company’s earnings per share (EPS).
  • Price-to-Sales Ratio (P/S Ratio). The P/S ratio compares the price of the stock to the annual sales, or revenue, generated by the company.
  • Price-to-Book-Value Ratio (P/B Ratio). Finally, the P/B ratio compares the price of the stock to the net value of assets owned by the company, divided by the number of outstanding shares.
  • Price-to-Free-Cash-Flow Ratio (P/FCF Ratio)

Before buying a stock, you must attempt to compute the intrinsic value of the company. If you’re following the value investing strategy, you’ll want to make sure the stocks you buy are undervalued compared to their peers.

Even when following other investing strategies, it’s important to avoid purchasing overvalued stocks because the market has a history of correcting overvaluations with price declines. Because in the long term investing, purchase price does matter.

Growth at a Reasonable Price (GARP)

Overvaluation will ultimately matter. In the short run, stock prices are based on hype and current news. Over the long term, valuations will ultimately matter when the hype declined and the market will correct the price.

When a stock is falling in price, it’s difficult to purchase a stock when it’s out of favor and widely being panned by the crowd.

References:

  1. https://www.apollo.com/~/media/Files/A/Apollo-V3/documents/apo-q421-earnings-call-transcript.pdf
  2. https://www.moneycrashers.com/factors-buying-stock-price-value/
  3. https://www.forbes.com/sites/forbesfinancecouncil/2018/01/04/the-important-differences-between-price-and-value/

Mindset, Discipline, Patience, Opportunity

  • It’s about process and being contrarian to current market sentiment and the crowd’s emotion
  • Why the hype: Optimistic vs. Pessimistic

When you purchase a stock, you are buying a Piece of a Company, not just a Ticker Symbol.

Every Investment is the Present Value of all Future Cash Flow.

Do you understand how the company makes its money (e.g., revenue, profit and free cash flow)

If the share price is surging; but the company’s corresponding fundamentals correlating and are skyrocketing.

Free Cash Flow – the true life blood for a company :

  1. Pay down debt
  2. Buy back stocks
  3. Pay shareholders’ dividends
  4. Acquisitions
  5. Organic growth

Inflation Swindles Almost Everybody

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“If you feel you can dance in and out of securities in a way that defeats the inflation tax, I would like to be your broker — but not your partner.” Warren Buffett

During 2022 Berkshire-Hathaway’s annual shareholders meeting, chairman and CEO Warren Buffett stated, ‘Inflation swindles almost everybody’. Inflation is the decline of purchasing power of the U.S. dollar, the U.S. unit of currency. The rising prices of goods and services, often expressed as the inflation rate, means that a unit of currency effectively buys less than it did in prior years.

Buffett commented that inflation “swindles” equity investors. He elaborated that: “Inflation swindles the bond investor, too. It swindles the person who keeps their cash under their mattress. It swindles almost everybody.” Since inflation is largely a result of loose fiscal and monetary policy. This policy artificially inflated demand and effectively caused a supply/demand imbalance — the cure for which was rising prices to try and lower demand.

He stated that inflation also raises the amount of capital that companies need and that raising prices to maintain inflation-adjusted profits is not as simple as it may seem.

In Buffett’s opinion, “only gains in purchasing power represent real earnings on investment. If you (a) forego 10 hamburgers to purchase an investment; (b) receive dividends which, after tax, buy two hamburgers; and (c) receive, upon sale of your holdings, after-tax proceeds that will buy eight hamburgers, then (d) you have had no real income from your investment, no matter how much it appreciated in dollars. You may feel richer, but you won’t eat richer.”

Additionally, “High rates of inflation create a tax on capital that makes much corporate investment unwise – at least if measured by the criterion of a positive real investment return to owners”, states Buffett.

In a 1977 Fortune magazine article, Buffett conveyed his views on inflation: “The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital.”

He opined that the best protection against inflation is investing in your own skills.

During the shareholder’s meeting, Buffett observed that massive fiscal and monetary economic stimuli during the COVID-19 pandemic are the major reason for high inflation today: “You print loads of money, and money is going to be worth less.”

Buffett views inflation as a necessary consequence of the massive fiscal and monetary stimuli, which “artificially inflated demand and effectively caused a supply/demand imbalance”, to get the U.S. out of what could have been a COVID-19 induced depression.

“In my book, Jay Powell is a hero,” Buffett stated. “It’s very simple, he did what he had to do.”

References:

  1. https://www.investopedia.com/berkshire-hathaway-2022-annual-meeting-and-q1-earnings-5270362
  2. https://www.nasdaq.com/articles/3-lessons-from-what-buffett-didnt-say-at-berkshire-hathaways-shareholder-meeting
  3. https://www.investopedia.com/terms/i/inflation.asp
  4. https://www.fool.com/investing/2022/04/04/warren-buffett-secret-to-getting-rich-is-simpler/
  5. https://www.fool.com/investing/2022/03/27/3-timeless-warren-buffett-lessons-to-apply-right-n/
  6. https://www.cnbc.com/2018/02/12/warren-buffett-explains-how-to-invest-in-stocks-when-inflation-rises.html
  7. https://www.msn.com/en-us/money/topstocks/worried-about-inflation-heres-what-warren-buffett-says-berkshire-hathaway-is-doing/ar-AAWNjq6?ocid=uxbndlbing

Blackstone Group

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The Principles that Matter Most to Blackstone Group

Accountability • Excellence • Integrity • Teamwork • Entrepreneurship

Blackstone Group is the world’s leading alternative asset manager. Alternative asset investments refer to financial assets that don’t fall under the conventional categories like stocks, bonds, and cash. An alternative asset manager invests in things that average investors typically don’t have access to, according to Entrepreneur magazine.

Blackstone contends that everything they do is guided by these principles, which define their character and culture . These enduring qualities are the shared convictions that they bring to their professional and personal conduct. They are a fundamental strength of their business.

Some examples of alternative assets include private equity or venture capital, hedge funds, distressed debt, commodities, and real estate. Since they are complex investments that are not regulated by the SEC and can be illiquid, alternative investments are usually held by institutional investors or high-net-worth individuals.

Blackstone operates in four different segments:

  1. Private equity,
  2. Real estate,
  3. Hedge fund solutions, and
  4. Credit & insurance.

Many investors and institutions are looking to take advantage of alternative investments in the current low-interest-rate economic environment. With Blackstone, you have a team of financial asset management experts hunting down undervalued assets and making deals to generate returns for your portfolio. The company is known for delivering excess returns.

“Blackstone reported the best results in our 36-year history”, Blackstone CEO Stephen Schwarzman stated. “Earnings increased dramatically, and all of our key financial and capital metrics reached record or near-record levels.”

They can include private equity, hedge funds, venture capital, real estate, and derivatives contracts, which are investments that are typically intended for institutional or accredited investor. It’s an area of financial services that can be incredibly lucrative for investors.

References:

  1. https://www.entrepreneur.com/article/392789
  2. https://www.marketbeat.com/originals/blackstone-group-nyse-bx-stock-a-buy-after-posting-record-profits/

Don’t Fight the Fed

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“We continue to believe that the S&P will see a correction of at least 20% over the next one to two years as the Fed is more aggressive than expected to deal with inflation running higher than expected and easy money begins to decrease.” Dan Niles

“The markets are in a volatile and dangerous place as of now,” writes Dan Niles, founder and portfolio manager for the Satori Fund.

In his article entitled “Market Thoughts Following Q1”, Niles contends that investors heed the warning: “Don’t Fight the Fed”.

He states that “Investors are forgetting that it [Don’t Fight the Fed] works on the way down as well as the way up. The Federal Reserve (The Fed) expanded their balance sheet by $4.8 trillion since the start of the pandemic while the US government added ~$5.5 trillion in stimulus. Combined stimulus of roughly half of US GDP of $20.5 trillion is the major driver of why the prices of stocks (along with homes, cars, boats, crypto, art, NFTs, etc) all went up over the past two years during a global pandemic. Now, the Fed dot plot shows 10 rate hikes in less than two years and they will be cutting trillions off the balance sheet probably starting on May 4th along with a 50 bps rate hike.”

“The #1 concern for investors in 2022 should continue to be that the Fed is so far behind the curve on dealing with inflation that they will have to be much more aggressive than in prior tightening cycles despite high inflation & geopolitical risk.” Dan Niles

“We [Satori Fund] continue to believe that the S&P will see a correction of at least 20% over the next one to two years as the Fed is more aggressive than expected to deal with inflation running higher than expected and easy money begins to decrease. Since World War II,

  1. Every time Inflation (CPI) is over 5% a recession has occurred
  2. Every time oil prices have doubled relative to the prior 2-year average ($54 in this case) a recession has occurred
  3. 10 of the 13 prior recessions have been preceded by a tightening cycle by the Fed
  4. 10 of the last 13 recessions have been preceded by the 10-year yield going below the 2-year yield”

For retail investors, Niles recommends “cash until inflation, Fed tightening and economic slowing run their course over the next one to two years. He writes that “most of the time, cash is a terrible investment especially in a high inflationary environment, but it is better to lose 6-7% to inflation this year than 20%+ in a stock market drop. With the Fed being this far behind the curve on inflation, we will find out how much froth is in valuations as the Fed starts tightening as growth continues to slow.”

Satori Fund likes companies that

  1. Benefit from economic reopening (not pandemic beneficiaries);
  2. Are profitable with good cash flow;
  3. Have growth but at a reasonable price;
  4. Benefit from higher-than-average inflation;
  5. Benefit from multi-year secular tailwinds. 

They foresee investing tailwinds in:

  • Datacenter, office enterprise, and 5G infrastructure.
  • Reopening plays such as airlines, cruise lines, travel, rideshare, and dating services as people adjust to covid becoming endemic.
  • Banks which should benefit from higher interest rates.
  • Alternative energy as geopolitics and fallout from the Russia-Ukraine War drives investment in the space.

References:

  1. https://www.danniles.com/articles

How the Economy Works by Ray Dalio

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“Credit is important because it means borrowers can increase their spending. This is fundamental because one person’s spending is another person’s income.” Ray Dalio

Ray Dalio is one of most successful hedge fund managers and founder of Bridgewater Associates. He credits much of his success to guiding principles that he has used to make decisions both in his professional and in his personal life.

How the Economic Machine Works – “The economy is like a machine. At the most fundamental level it is a relatively simple machine, yet it is not well understood,” explains Ray Dalio.

Economic principles discussed:

  • Economy – The economy is simply the sum of all transactions repeated again and again over a long period of time. Money and credit account for the total spending in an economy.
  • Transactions – the exchange of money or credit between a buyer and seller for goods, services or financial assets.
  • Markets – “All buyers and sellers making transactions represent the market. For example, we have wheat markets, stock markets, steel markets, oil markets and so on.The combination of all of these sub-markets is the entire market, or the entire economy.” Ray Dalio
  • Governments – the biggest buyer and seller of goods, services and financial assets. The government consists of two parts: the central government that collect taxes and spend money; and, the central bank which controls the amount of money flowing through the economy. It does this by influencing interest rates and printing more money.
  • Central Bank – The Central Bank can only buy financial assets, not goods and services. To support the economy, the Central Bank buys Government bonds which gives the Central Government the ability to buy goods and service.
  • Price – the result of total spending / quantity sold.
  • Credit – Credit “is the most important part of the economy because it is the biggest and most volatile part”. Credit can be created out of thin air — in fact, in 2016, the US$50 trillion of the US$53 trillion in the economy was credit, as opposed to ‘real’ money. Credit is important because it means borrowers can increase their spending. This is fundamental because one person’s spending is another person’s income. Credit is bad when it finances over-consumption and borrowers are unable to pay the debt back.
  • Lenders – lend money to make more of it. When lenders believe borrowers will repay, credit is created.
  • Borrowers – borrowing is pulling spending forward which relates to borrowing money to buy something you can’t afford, such as a house, a car, a business or stocks. Borrowers promise to repay the amount borrowed (the principal) with interest. Borrowing creates cycles.
  • Debt – Debt allows you to consume more than you produce when it is acquired, and forces you to consume less when you have to pay it back. “When credit is issued it becomes debt. It’s a liability for the borrower, and an asset for the lender. It disappears when the transaction is settled.
  • Interest Rates – When interest rates are high, borrowing is low. When interest rates are low, borrowing is high.
  • Spending – one person’s spending is another person’s income. Total spending is the sum of money spent plus of credit spent.
  • Income – one person’s spending is another person’s income
  • Monetary Cycles – economy expansion and recession cycles.
  • Inflation – inflation is when prices rise. When spending is faster than the production of goods, it means that we have more demand than supply, which results in inflation.
  • Deflation – when spending decreases, prices tend to decline.
  • Expansion – growing markets and increasing transactions
  • Recession – Economic activity decreases, and if unchecked this can lead to a recession.
  • Bubbles – when the price of assets far exceed the value of the assets
  • Debt Burden – When incomes grow in relation to debt, things are kept in balance. But a debt burden emerges when debt growth exceeds income growth. This debt to income ratio is the debt burden.
  • Productivity – innovation and hard working raises productivity, which equates to the amount of goods and services produced.

Three rules of thumb for life

Source: Ray Dalio

According to Dalio, there are “three rules of thumb” with which to navigate the economy, be it in your own businesses, organisations you work at or your personal finances.

  1. Don’t have debt rise faster than income (because debt burdens will eventually crush you).
  2. Don’t have income rise faster than productivity — it will eventually render you uncompetitive.
  3. Do all you can to raise productivity — in the long run that’s what matters most.

References:

  1. https://www.nofilter.media/posts/ray-dalios-economic-machine-12-minute-summary
  2. https://www.amazon.com/gp/product/1501124021/ref=as_li_qf_asin_il_tl_nodl?

Staying Invested Matters

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Investors are more likely to reach their long-term goals if they remain invested and avoid short-term decisions that may take them off course.

Staying the course during market volatility is often difficult for many investors. Some choose to move to cash investments, while others try to time the market. Regrettably, these investors are often buying high and selling low—and miss the rallies that follow the challenging periods.

Yet, staying invested through market ups and downs can help you stay on track to reach your investment goals.

Once you’ve determined how much you want to invest, setting up automatic transfers to your investment account or periodic investments can help you stay on track.

For example, investors often make suboptimal investing decisions when emotions take over, tending to buy out of excitement when the market is going up and sell out of fear when the market is falling. Markets do ultimately normalize, and when they do, those who stay invested may benefit more than those who don’t.  Consider this:

  • By missing some of the market’s best days, investors can lose out on critical opportunities to grow their portfolio. Market timing can have devastating results.
  • Seven of the best 10 days occurred within two weeks of the 10 worst days.
  • The second worst day for the markets during the early days of the COVID-19 pandemic, March 12, 2020, was immediately followed by the second best day of the year.

Trying to time the bottom is never considered a sound strategy for long-term investing.

Staying invested during periods of heighten market volatility is an important strategy as, historically, six of the ten best days in the market occur within two weeks of the ten worst days; those who miss the best days miss out on performance.

Thus, the decision to stay invested during market turmoil is often better than timing
when to sell and buy.

References:

  1. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/principles-for-investing/
  2. https://www.pimco.com/en-us/resources/education/the-benefits-of-staying-invested/

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/

Build Wealth in 2022: Dave Ramsey

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According to a recent survey, eight out of 10 of everyday millionaires invested in their employer’s 401(k) plan, and that simple step was a key to their wealth building. Not only that, but three out of four of those surveyed invested money in brokerage accounts outside of their company plans.

Moreover, they didn’t risk their money on single-stock investments or “an opportunity they couldn’t pass up.” In fact, no millionaire in the study said single-stock investing was a big factor in their financial success. Single stocks didn’t even make the top three list of factors for reaching their net worth.

The people in the study became millionaires by consistently saving over time. In fact, they worked, saved and invested for an average of 28 years before hitting the million-dollar mark, and most of them reached that milestone at age 49.

Dreams of trips to visit grandkids, travel adventures, and family celebrations at your paid-for home. That’s the kind of retirement many Americans dream about. You don’t have to earn six figures to turn this dream into a reality. But you do have to live and plan today with that goal in mind.

It’s important to get started building wealth no matter how old you are. Depending on your income and current financial circumstances, it might take some folks longer than others. But the fact is, you will get there if you do these five things over and over again.

Here are the five keys to building wealth:

1. Have a Written Plan for Your Money (aka a Budget)

No one “accidentally” wins at anything—and you are not the exception! If you want to build wealth, you have to plan for it. And that’s exactly what a budget is—it’s just a written plan for your money.

You have to sit down at the start of each month and give every dollar an assignment—and then stick to it! When our team completed The National Study of Millionaires, we found that 93% of millionaires said they stick to the budgets they create. Ninety-three percent! Getting on a budget is the foundation of any wealth-building plan.     

2. Get Out (and Stay Out) of Debt

According to Dave Ramsey, the only “good debt” is paid-off debt. Your most powerful wealth-building tool is your income. And when you spend your whole life sending loan payments to banks and credit card companies, you end up with less money to save and invest for your future. It’s time to break the cycle!

Trying to save and invest while you’re still in debt is like running a marathon with your feet chained together. That’s dumb with a capital D! Get debt out of your life first. Then you can start thinking about building wealth.

3. Live on Less Than You Make

Proverbs 21:20 says that in the house of the wise are stores of choice food and oil, but a man devours all he has. Translation? Wealthy people don’t blow all their money on stupid stuff. The myth that millionaires live lavish lifestyles that include Ferraris in their garage and lobster dinners every night is just that—a foolish myth. 

Here’s the truth: 94% of the millionaires we studied said they live on less than they make. The typical millionaire has never carried a credit card balance in their entire lives, spends $200 or less on restaurants each month, and still shops with coupons—even after reaching millionaire status!1 So ask yourself: Do you want to act rich or actually become rich? The choice is yours.

4. Save for Retirement

According to The National Study of Millionaires, 3 out of 4 millionaires (75%) said that regular, consistent investing over a long period of time is the reason for their success. They don’t get distracted by market swings or trendy stocks or get-rich-quick schemes—they actually save money and invest!

Being debt-free and having money in the bank to cover emergencies gives you the foundation you need to start saving for retirement. Once you get to that point, invest 15% of your gross income into retirement accounts like a 401(k) and Roth IRA. When you do that month after month, decade after decade, you know what you’re going to have in your nest egg? Money! Lots of it!

5. Be Outrageously Generous

Don’t miss this, y’all. At the end of the day, true financial peace is having the freedom to live and give like no one else. When you write a plan for your money, get rid of debt, live on less than you make, and start investing for the future, you can be as generous as you want to be and help change the world around you.

But when you make giving a part of your life, it doesn’t just change those around you—it changes you. Studies have shown over and over again that generosity leads to more happiness, contentment and a better quality of life.3 You can’t put a price tag on that!

How to Build Wealth at Any Age

That’s some big-picture financial advice that works no matter how old you are or how much money you make. It’s also true that each decade of your life will have specific challenges and opportunities. So let’s break things down decade by decade to see what you can do to maximize your savings potential.

In fact, the majority of millionaires didn’t even grow up around a lot of money. According to the survey, eight out of 10 millionaires come from families at or below middle-income level. Only 2% of millionaires surveyed said they came from an upper-income family.

The National Study of Millionaires showed a dramatic difference between how Americans think wealthy people get their money and how they actually earn and spend their money.

The salaries wealthy people make is not as much as you might think. The majority of millionaires in the study didn’t have high-level, high-salary jobs. In fact, only 15% of millionaires were in senior leadership roles, such as vice president or C-suite roles (CEO, CFO, COO, etc.). Ninety-three percent (93%) of millionaires said they got their wealth because they worked hard, and saved for the future and invested for the long term, not because they had big salaries.

References:

  1. https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research
  2. https://www.ramseysolutions.com/retirement/how-to-build-wealth
  3. https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research