The volume of financial commentary suggests there’s much to think about when it comes to investing. But the truth is only a tiny slither is worth our attention. Distilling the noise into sensible, simple actions takes skill and discipline.
After reading THIS ARTICLE from Collaborative Fund, I realised that most of the noise is nothing to do with “investing” and everything to do with “speculating”.
Investing and speculating are wildly different activities taking place in the same financial arena. They are chalk and cheese, vinegar and oil – superficially alike but very different in substance.
What you hear or read about Bitcoin, GameStop, oil, gold, the S&P500 or FTSE100 being expensive, etc., is speculation.
But it is presented as investing – it’s a masquerade, a deceit. Making investment decisions based on speculation is a critical mistake.
Investing is a long-term activity, speculating short-term. We are, now and forever, long-term investors – not short-term speculators.
Here are some quotes from the article:
When it comes to investing your money…. “… returns, like margins, don’t matter; generating wealth does.”
Therefore…“the most important question to answer as an investor is not, “How can I earn the highest returns?” It’s, “What are the best returns I can sustain for the longest period of time?””
The failsafe way to generate wealth? “Everything worthwhile in investing comes from compounding. Compounding is the whole secret sauce, the rocket fuel, that creates fortunes. And compounding is just returns leveraged with time.”
Here’s some proof …. “The time component of compounding is why 99% of Warren Buffett’s net worth came after his 50th birthday, and 97% came after he turned 65”…. “Buffett’s secret is that he’s been a good investor for 80 years. His secret is time. Most investing secrets are.”
Charlie Munger is Warren Buffett’s business partner. He’s very clear that….“the first rule of compounding is to never interrupt it unnecessarily.”
Compounding is boring and slow, there’s not much action, it requires discipline. Speculating is exciting, there’s action, you’re doing something and that feels good.
We avoid speculating and nurture compounding by only acting when compelled. We focus on avoiding mistakes. The big investment mistake to avoid is becoming a speculator, deliberately or by stealth.
For us, deliberating on each of the following is speculation:
- Geographies, e.g., US vs EU vs Far East vs UK, etc.
- Strategies, e.g., value vs growth, defensive vs cyclical.
- Sectors, e.g., utilities, infrastructure, financials, technology.
- Assets without an inherent value, they are not an investment, e.g., gold, bitcoin, whisky.
- Complexity over simplicity. Complexity = costly.
At any given moment there are arguments for and against each of the above. That is the proof there is no right or wrong. Just opinions, just speculation.
Indolence and sloth-like reactions are key to compounding and therefore investor success. I feel blessed with both; I think it comes from being a farmer’s son. Farming is sitting and waiting.
The harvest – maximising long-term wealth – is the reward for you and your family if we can help you do that.
This is a long-term gig and we want to start passing it on more effectively in 2021.
If we can get your children and grandchildren, your nieces and nephews into better investing shape it will serve them and their children for eternity.
In the same way we need healthy eating habits, we need to get into healthy investing habits.
Let us help you and the people you love.
future proofing your finances
Town Close are expert financial planners. Our goal is the same as yours – to help you do the things that are important to you in the time you have remaining.