Last night I taught an investment class to students at High Point University.
My son, David, recently accepted a presidential scholarship to the school.
On a recent trip to High Point, I gave a copy of my new book – a revised and updated edition of my bestseller The Gone Fishin’ Portfolio – to the university president, Dr. Nido Qubein, a successful entrepreneur and philanthropist.
He passed my name on to the head of the school’s investment club… and so I ended up on a Zoom call last night with dozens of curious students.
I knew these kids wouldn’t be nearly as knowledgeable or experienced as the men and women who read our investment letters or come to our conferences.
So I thought back to my own college days…
What do I wish someone had told me then that would have saved me a lot of time, money and trouble?
Then it dawned on me. Here are the basics that every investor – or would-be investor – should know:
- Capitalism is the greatest wealth creator and anti-poverty program ever devised. (Socialism has been tried in 41 countries and failed 41 times.)
- The quintessence of capitalism – the private ownership of the means of production – is the stock market, where even those with a modest amount of money can take an ownership stake in the world’s most profitable companies.
- A share of stock represents fractional ownership in a business – and gives the shareholder the right to share in the dividends and capital appreciation of the company.
- A diversified portfolio of equities is less risky than a concentrated one.
- Yet each year 3 out of 4 equity fund managers don’t outperform their unmanaged benchmark, like the S&P 500. Over periods of a decade or more, 95% of them don’t.
- For that reason, your funds should be primarily index funds.
- History shows that equities are the highest-returning investments. But there are various asset classes: growth and value, foreign and domestic, small cap and large cap, and so on. To lower your risk and increase your returns, you should invest across all of them.
- Stocks are volatile and subject to sudden and substantial declines in value.
- For that reason, you should also own bond funds. They, too, come in various asset classes: high-grade, high-yield and inflation-protected, to name just a few.
- Spreading your investments among different types of stocks and bonds is called asset allocation. It is responsible for 90% of your long-term return.
- The future value of your portfolio will be due to six factors – and six factors alone. Each of them is under your control: The amount of money you invest. The length of time it compounds. Your asset allocation. Your security selection. Your investment costs. And your annual tax bite.
- To maximize your returns, you want to save as much as you can, let it compound as long as you can, asset allocate properly, diversify broadly, minimize your investment costs and tax-manage your portfolio.
- Investing is essentially the transfer of wealth to those who have a process and can execute it from those who do not or cannot. (In other words, use a proven system and stick to it.)
- Most investors are their own worst enemies. They succumb to market timing, performance chasing and panic-selling, thereby lowering – if not decimating – their returns.
- The greatest investors of all time – men like Warren Buffett, Peter Lynch and John Templeton – didn’t just maintain a positive long-term outlook. They had an optimism about the future that didn’t have an off switch.
- The mainstream media – with its sensationalism and pervasive negativity bias – will not help you develop or maintain this mindset. (Fear sells, and the most tragic or depressing news is the most widely read, viewed and shared.)
- For that reason, you must broaden your perspective with objective data – found here regularly – that reveal the many positive trends that bode well for the economy. (Yes, the pandemic was a once-in-a-century setback. But over time, human life spans get longer. Standards of living get better.)
- So follow the trend lines, not the headlines.
I wish someone had told me these things as a college student. I would have reached financial independence a lot sooner… and with fewer hard lessons learned.
Of course, it’s almost impossible to chat with someone for an hour or read a column and have it change your fundamental investment approach.
There are details to learn. Principles to follow. It requires time for digestion and reflection.
That’s why I wrote The Gone Fishin’ Portfolio.
The book allows me to describe the easiest way to achieve and maintain financial independence.
And while the book makes the case for a particular portfolio, the philosophy itself should be understood by everyone. And applies to all my stock trading strategies.
(My friend Bill O’Reilly was kind enough to provide the foreword, detailing his own rise to affluence from modest circumstances.)
The book will be out Tuesday. However, it is available for pre-order on Amazon now. You can find it here.
The Gone Fishin’ Portfolio is the distillation of the best things I’ve learned in 36 years as a portfolio manager, research analyst and financial writer.
I hope you enjoy it – and please share copies with family, friends, and your own high school and college graduates.
They don’t know this stuff. But they should.
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