So why should anyone listen to me about investing? You shouldn’t.
The most important three words in investing is: “I don’t know”.
When you go into a job you NEVER lose money. If you show up for two weeks, you get paid. You might get fired but they won’t take your money. The stock market TAKES your money on bad days.
Sometimes it takes a lot of your money. We’re not used to the brutality of that and it can destroy a person psychologically, which makes one (me) trade even worse.
I told you about: #1. Pick some stocks and hold them forever. Since “I don’t know” applies, it’s almost impossible to pick the right ones.
E) What stocks should I hold?
( A friend of mine who knows Buffett told me my book was the only book that Buffett thought was accurate about him).
I would add to that, based on what Warren does. It seems to me he has five criteria:
- A company will be around 20 years from now.
- At some point, company’s management has demonstrated in some way that they are honest, good people. If you can get to know management even better.
- The company’s stock has crashed for some reason.
- The company’s name is a strong brand: American Express, Coke, Disney, etc.
- Demographics play a strong role.
G) SHOULD I PUT ALL OF MY MONEY IN STOCKS?
No, because you’ll never know everything about a company.
So use this guideline:
- no more than 3% of your portfolio in any one stock.
- no more than 30% of your portfolio in stocks
M) WHAT ARE SOME GOOD DEMOGRAPHIC TRENDS?
- The internet. Yes, it’s still growing.
- Baby boomers retiring. They need special facilities to live in. They need better cancer diagnostics and treatments.
- Energy. The more people we have, the more energy we will consume. Go for energy sources that are profitable and don’t need government subsidies. Whenever you depend on the government, you could get in trouble.
- Temp staffing. Every company is firing people and replacing them with temp staffers.
- Batteries. If you can figure out how to invest in Lithium, then go for it.
G, PART 2) WHAT IF WE ARE IN A BUBBLE?
Some hedge fund manager (David Einhorn) just said we might be in a tech bubble. Back to rule #1: He doesn’t know. It’s just a headline.
Bubbles don’t mean anything. We had an internet bubble in the 90s. Then a housing bubble. And if you just held through all of that, your stock portfolio right now would be about a percent from all-time highs.
So ignore cycles and bubbles and ups and downs.
H) MY FRIEND HAS A BUSINESS IDEA. SHOULD I INVEST IN IT?
Probably not. But if you want a checklist, make sure these four boxes can be checked:
- The CEO has started and sold a business before.
- • The company has revenues and/or profits.
- You are getting a really good deal.
- I can say this: every time I have invested with this approach it’s worked miracles. And every time I have not invested in this approach it’s been a DISASTER.
J) WHAT ABOUT METALS AS A HEDGE AGAINST INFLATION?
No, they have zero correlation with inflation. The best hedge against inflation is the US stock market since about 60% of revenues of the S&P 500 comes from foreign countries.
K) WHAT ABOUT METALS LIKE GOLD? DON’T THEY HAVE INTRINSIC VALUE?
No. But if you’re going to pick a metal, wait until the gold/silver ratio gets higher than it’s historical average and buy silver.
L) WHAT ABOUT MUTUAL FUNDS?
No. Use the criteria I describe above, pick 20 companies and invest.
O) IF NO HOUSING AND ONLY 30% OF MY PORTFOLIO IN STOCKS, THEN WHAT SHOULD I DO WITH THE REST OF MY MONEY?
Why are you in such a rush to put all of your money to work? Relax!
Cash is a beautiful thing. You can pay for all your basic needs with it.
You can sleep at night knowing there is cash in the bank.
I love a stress-free life. When I look back, the times when I’ve been most stressed is when I’ve been heavily invested and the times when I’ve been least stressed is when I had cash in the bank.
Forget about it. And finally, write down 10-20 bad ideas a day.
Every day give the world at least one more reason to whisper “thank you” to you.
- Say you own a painting you bought for $20K, and due to rosy conditions in the art market, it is now worth $40K. If you owned no painting, would you still acquire it at the current price?
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