Why the Trade War Doesn't Matter

Remember that scene in Forrest Gump? He's rocking on his front porch in his sneakers and khakis. And he decides to start running. He ran to the end of the block. To the end of town. Through Alabama to the Pacific Ocean. Then back to the Atlantic. He ran through Maine and Montana and Arizona and on and on and on.

"When I got tired, I slept. When I got hungry, I ate. And when I had to go…you know…I went."

He ran through winters. He ran through summers. He ran through rain and he ran through sunshine. He just ran. He…was…run-iiing!

Marky Market is a huge Forrest Gump fan. He loves to run. He's run through trade wars. He's run through actual wars. He's run through recessions and expansions. He's run through all sorts of presidential administrations. He's run through economic disasters. He's run through natural disasters.

And sometimes he gets tired. So he sleeps. And sometimes he gets hungry. So he eats.

Don't worry about whatever Marky Market is going to run through next. There's nothing he hasn't already run through.

And don't worry when he needs a break. He'll keep running when he's done.

It's just sometimes…you know…you gotta go.

Just Let It Go, Man.

It was day 6 of our trip.   We had walked an average of 5 miles per day in 95 degrees.  We had spent the last 5 hours shouldering our way through a sea of red and white, the traditional garb of San Fermin festival-goers.  And as we slumped onto the couch in our hotel, we were utterly exhausted. 

We just wanted to grab a quick bite and go to bed.  But we had prepaid $200 for a dinner reservation which we learned was back in town in the densest part of the party. 

We called to cancel.  "No refunds," they replied.

I’m cheap by nature, not just profession.  So the thought of spending $200 for nothing made me twitch violently.

As I spasmed on the couch, my wife in her infinite wisdom pointed out the flaw in my thinking. 

"The $200 is already spent.  That has nothing to do with our decision.  The only question is will you be happier going back into the madness or getting pizza downstairs and going to bed?"

My monkey brain flipped off, and I realized I was committing the sunk-cost fallacy.

That's when we continue down a path - regardless if it's still the best option - simply because we've already invested time or money in it.

Like finishing your meal until you get sick to "get your money's worth."  

Or like finishing a terrible book because you're halfway through it.

Or like holding on to a bad investment until "it gets back to even".

The right way forward may or may not be the path you’re already on.   And taking into consideration the time or money already spent is just your monkey brain at work. 

Forget what you've spent.   What will make you happiest from here?

 

Editor's note: a very astute Financial Zen member pointed out the bias I wrote about last week is actually the endowment bias, not the anchoring bias (future blog to follow).  Thanks, Tom!

Is a Recession Coming?

Yes. Without a doubt.  Most definitely.  100%.  For sure. 

But I'm no Bran Stark.   I only know because there is ALWAYS a recession coming.  

Recessions are a natural part of the economic cycle, which is as fundamental to our existence as sunrise and sunset.  

Here's how it works (starting with the good stuff):

1.       Expansion (morning)
2.       Peak (high noon)
3.       Recession (night)
4.       Trough (midnight)

Rinse and repeat.

We know sunrise will follow sunset will follow sunrise.   We know expansions will follow recessions will follow expansions. 

The difference is we can't set our watches to the economic cycle.  The sequence is reliable, but the timing is unpredictable.   (Thankfully recessions only last about 11 months.  Expansions usually go on for 5 years.)

So instead of guessing when the next recession is coming, we just own investment portfolios that don't depend on the time of day.

Is it 11:59am?  Maybe. 

Is it 12:01pm?  Maybe. 

Does it matter?  Not at all. 

What’s the Difference Between Investing & Trading?

Warren Buffet invests.

Jim Cramer trades.

 

Investing is predictable-ish.

Trading is speculative.

 

Investing is simple, but hard to stick to.

Trading is complicated, but easy to screw up.

 

Investing will earn good returns.

Trading will earn amazing returns. (Or lose it all).

 

Investing might earn negative returns over the short-term.

Trading might earn negative returns over the long-term.

 

Investing will earn positive returns over the long-term.

Trading might earn positive returns over the long-term.

 

Investing is boring.

Trading is exciting.

 

Investing is a marathon.

Trading is a sprint.

 

Investing is the tortoise.

Trading is the hare.

 

Investing uses a compass.

Trading uses a crystal ball.

 

Investing is a systematic way of profiting from the positive contributions of publicly traded companies' goods and services.

Trading is educated gambling.

 

Warren Buffet: 1.

Jim Cramer: 0.

How Should I Invest for My Financial Goals?

Investing is like using your kitchen sink.  The right water pressure depends on what you're doing. 

 Are you filling a bucket or an iron?  Dripping water into a bucket will take forever.  Blasting the faucet into an iron will make a mess. 

 If your financial goal is 10+ years away, you're filling a bucket.   If your financial goal is next year, you're filling  an iron. 

 Your portfolio's water pressure is determined by the mixture of stocks (equities) and bonds.    The more equities you own, the stronger the water pressure.

 Investing mostly (80-100%) in equities is good for your long-term goals.  You're filling a bucket.

 Investing mostly in bonds (or cash or CD's) is for short-term goals.  You're dripping into an iron.

 Use your kitchen sink responsibly.

 (If not sure how to use your sink responsibly, contact us.   We'll take the pressure (ha!) off of you.)

Should I Sell After the Market Drops?

Remember when the market tanked from September 17 to December 17?

It dropped 18% in 3 months. Eeek! Over the last 6 weeks, it's bounced back 9%.

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And that's why we never, ever, ever sell. Because after big drops, come big gains. 

 (Pro tip:  you'll only get the big gains if you're still invested.) 

 Let's look at a few recent ones.

 1/26/2018 - market dropped 10% in 3 weeks.   Bounced back 6% over the next two weeks. 

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6/8/2016 - market dropped 6% in 3 weeks.   Bounced back 9% over the next 3 weeks.

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9/17/14 - market dropped 7% in 4 weeks.  Bounced back 11% over the next 5 weeks

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And the granddaddy of them all….

 3/9/2009 - market dropped 57% in 5 months.   Bounced back 82% over the next 12 months.

image012.jpg

If you're silly enough to sell, then you'll most likely sell in a moment of extreme, irrational and emotional stress….like at the bottom.  

 And if you sell at the bottom, you will miss the sharp (and unpredictable) reversal back up.

 Ride it to the bottom.  Sell.  Lock in  your losses.  And then sit on the sidelines while the market returns. 

Better to not predict the future and stay invested through it all.

DISCLAIMER:  This publication is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.

Rest In Peace, Jack Bogle

"Don't look for the needle in the haystack. Just buy the haystack."

- Jack Bogle

The founder of Vanguard Funds and the father of indexing passed away last week at the age of 89.

Jack Bogle influenced modern investment strategy more than anyone in history. He single-handedly created the demand for low-cost index funds.

It was 1975 and the investment community universally believed in stock picking - buying low and selling high. Jack disagreed.

He was part of a small (and unpopular) pocket of investment professionals who believed paying high fees for a portfolio manager to pick "winners" is a loser's game.

Instead, they believed in buying ALL the stocks and hitching your wagon to the forward progress of mankind in the form of corporate earnings.

So Jack created Vanguard Funds. His first index investment, aptly named - The First Index Investment Trust - tracked the S&P 500.

The investment community was unimpressed. And after a few slow years post-launch the fund was lovingly referred to as "Bogle's folly".

But Jack had the last laugh. Today Vanguard is the world's largest mutual fund company with $4.5 trillion in assets (Fidelity is a distant 2nd with only $1.97 trillion).

Jack didn't just create the world's biggest fund company. He revolutionized the way we invest.

Ask any personal finance guru (myself included) and they will tell you to invest your serious money in low-cost index funds. Leave the stock picking for your gambling….err…play account. That wasn't an option before Jack came along.

And he was selfless in his pursuit of helping us little people. He structured Vanguard as a mutual company meaning his customers owned the company, not faceless, absent shareholders. That allowed him to keep the fees low. But it also prevented him from making Zuckerberg/Gates/Bezos type wealth.

Our lives are either warnings or examples. And I'd say making real, positive changes for your fellow man at the expense of your own self-interest puts you in the “Examples Hall of Fame”.

Thanks, Jack. Rest in peace. Ya done good.

DISCLAIMER:  This publication is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.

Should I Worry About Market Drops?

Happy New Year! Hopefully 2019 is a better year for the markets.

It's been rough since October, and yet I haven't gotten a single frantic call about how the sky is falling.

In fact, I've received just the opposite - clients reaching out me telling me that they aren't worried because I taught them that market downturns are always temporary.

So if you're a client of The Financial Zen Group, pat yourself on the back for being the calm, educated few instead of the frantic, uneducated masses.

If you're NOT a client, then let me tell you why the last three months are NBD (or maybe even to your advantage).

If you are still in the accumulation phase of your life (i.e. more than 5 years from retiring), then market downturns are an amazing opportunity to buy investments at a discount. Even if you're not saving any more than what you're putting into your 401k, every dollar you put in is getting invested near the bottom.

If you are in the distribution phase of your life (i.e. retired), then market downturns are a nonevent. We know market downturns happen, which is why the money you need for groceries isn't invested in the market. Instead you should have 10-15 years of living expenses set aside in boring (but predictable) bonds. The money you have in the stock market is the money you need for groceries in 10-15 years. And there has never been a time in history (not even the Great Depression) where the markets were down for 15 years.

If you're a client, you knew all that.

If you're not a client, then welcome to the calm and educated club.

DISCLAIMER:  This publication is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.

Should I Sell When the Market Tanks?

Every movie ever made has the same basic beginning, middle and end.

In the first 10 minutes, our hero is blissfully ignorant of the trouble that awaits before… her son is kidnapped…. his love leaves him… people declare Santa Claus is nuts.

For the next hour and 50 minutes, you watch our hero attempt and fail to…. track down the kidnappers… win back the girl… prove that he really is Santa Claus.

Then in the climactic last 20 minutes, our hero emerges battered but victorious. Cut to the last scene as our hero…. hugs her child…. embraces his lost love…. dumps thousands of letters addressed to Santa Claus on the judge's bench.

As the moviegoer, we're safely along for the ride. The dramatic 110 minutes in the middle doesn’t scare us. We know how the movie will end. We've seen other movies just like it a bazillion times before.

Most of us haven't seen a bazillion movies about the markets though. So when the market tanks, we might panic and walk out of the theater before the climactic happy ending. If only we knew how it would end….

Did you know the market is down 5% three times per year on average?

Did you know the market is down 10% once a year on average?

Did you know the market is down 20% every 3-5 years on average?

And yet, over the last 100 years, the average annual return is 10%. Connect those dots, and you'll see that despite all the drama in the middle, it always ends well.

You just have to sit in the theater long enough to get to the climactic, happy ending.

DISCLAIMER:  This publication is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.

How Do ETF’s Work?

The world's not short on articles about the benefits of investing in ETFs (aka prepackaged fruit). Google "ETF benefits" and you'll find countless publications about:

1. Diversification

2. Low costs

3. Tax efficiency

4. Passive investments

5. Transparency

But the benefit that's most important to your financial success is never written about…

Predictability.

How are ETFs predictable? They take out the human factor. By buying all the stocks in the S&P 500, you remove the portfolio manager who's trying to pick the "best" stocks (or worse, a financial advisor (or you) picking the "best" stocks. Eeek!).

When you take out the humans, you no longer rely on a crystal ball for your success. Instead, you hitch your wagon to the ongoing (but faltering) forward progress of humankind.

When you invest in an ETF, you aren't investing in a few hand-selected companies. You are investing in ALL of the companies.

And buying all of the companies gives you a looooong history with a MASSIVE sample size to forecast your long-term returns. No, it's not guaranteed. Even if you do the smart thing and stick with it through thick and thin, you may get a little less or a little more. But the key word is "LITTLE".

The variance your target long-term return will be small. So you can safely rely upon it in your financial plan to predict your long-term investment returns.

Only if you can predict your long-term returns, will you know if you're on track to your achieve financial goals.

ETFs are wonderful for all sorts of reasons. But the most important to your financial success is their predictability.

DISCLAIMER:  This publication is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.

What's an ETF? Prepackaged fruit.

ETFs. Index funds. You've read about them in personal finance columns. You've heard they're the investments you should own. And if you’re a Financial Zen client, you actually do own them. But really, what the ____ is an ETF?

Very simply, it's a basket of related stocks. Related how? Let's look at an example.

Take 500 of America's largest companies - Apple, JP Morgan, Chevron, Kraft Heinz - and throw them in the same basket. That's the Standard & Poor's 500 basket (aka S&P 500 Index).

Then log into E*Trade and buy one share of each. Your portfolio would mimic the S&P 500 index.

But buying one share of 500 companies would be a complete pain in the butt. And expensive. They would charge you a $7 commission for each trade. That's $3500.

Instead, you can just buy an S&P 500 ETF. Big financial institutions like Vanguard and iShares and Schwab have done all the work for you.

They bought a bunch of shares of all the companies in the S&P 500 and repackaged it into something you can purchase. If you buy one share of an S&P 500 ETF, you buy into fractional shares of all the companies in the S&P 500.

It's like the cellophaned fruit at Safeway. You could collect all the fruit and slice it up yourself, or you can buy the fruit in the cellophane that has already been collected and sliced up for you.

Just like the fruit, you'll pay a small premium to have someone else do the work for you. Most S&P 500 ETFs charge you about 0.10% per year.

So what the ______ is an ETF?

Prepackaged fruit.


DISCLAIMER: This publication is for educational purposes only and should not be considered financial, tax or legal advice. These statements have been simplified for illustration purposes. Consult your financial planner or tax advisor for help with your specific situation.

Should You Freak Out?


The market was down over 5% in October. Eek!

You should be in full-on freak-out mode if one of the following situations describes you…

1. Your rent is due tomorrow and your rent payment comes out of your long-term portfolio

2. You are retiring tomorrow and your living expenses come out of your long-term portfolio

3. Your kids' tuition is due tomorrow and your tuition payment comes out of your long-term portfolio

If you are dumb enough to use your long-term portfolio as a checking account you pay short-term expenses from, then you should not get a wink of sleep.

If you are smart and keep your short-term cash needs set aside safely in cash or bonds, then October was NBD - for you non-millennials, that means "No Big Deal". (I married one, so I can say that.)

Your money should be matched with its "purpose".

Long-term money is long-term, so who cares about a 5% down month?

And short-term money is safely set aside, so a 5% down month doesn't even affect it.

Should you freak out about October? Nah. If you're doing things right, it was NBD.

DISCLAIMER:  This publication is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.

Watch Spike, Not Chester

Remember that Looney Tunes cartoon with Spike and Chester?

Spike, a big, lumbering bulldog, calmly and confidently strolls down the sidewalk with a toothpick in his mouth.

Chester, his annoying beagle sidekick, bounces all around him irritatingly asking, "So whadda ya wanna do today spike? Huh? Wanna play ball? Whadda ya say Spike? How 'bout we chase cars? Does that sound like fun? How 'bout beating up a cat? Wouldya like that Spike? Wouldya?"

Spike is the economy.

Chester is the stock market.

Where Spike goes, Chester goes. Where the economy goes, the market goes.

Just like Chester bouncing around Spike, the market bounces around the economy.

This month the market's down, while the economy calmly and confidently strolls down the sidewalk of growth.

Corporate earnings are at an all-time highs. Unemployment is at historic lows. Wages continue to grow. I'll spare you more positive economic indicators, but they are there.

Chester is annoying and distracting. Don't pay attention to Chester.

Watch Spike.


DISCLAIMER: This publication is for educational purposes only and should not be considered financial, tax or legal advice. These statements have been simplified for illustration purposes. Consult your financial planner or tax advisor for help with your specific situation

65 mph in Your Driveway

If you're 200 miles from your destination, you're likely on a highway driving 65(ish) mph.

If you're 2 miles from your destination, you're likely on a city street driving 30 mph.

And if you're pulling into your driveway, 5 mph or slower feels right.

As you get closer to your destination, you drive slower and slower until you come to a safe stop.

Smart financial planning is just like safe driving. The closer you get to your financial goal (retirement, college, down payment), the slower you should be going.

The "speed" of your portfolio is determined by the ratio of stocks and bonds. Stocks are fast, bonds are slow.

A 30 year-old driving down the highway should have 90% stocks and only 10% bonds.

A 60 year-old driving down the city street should be around 50/50.

And an 80 year-old pulling into the driveway should be closer to 25/75 stocks to bonds.

(To be clear, I do not mean buying stocks of individual companies. Your "serious" money should be invested in low-cost, index stock or bond funds.)

You can drive a little faster or a little slower. Just make sure you’re driving at a speed appropriate for the road you're on.

Pulling into your driveway at 65 mph is not a great idea.

Disclaimer: This article is for educational purposes only and should not be considered financial, tax or legal advice. These statements have been simplified for illustration purposes. Consult your financial planner or tax advisor for help with your specific situation.

The Only Three Times You Should Sell

Assuming you're already invested in a well-diversified portfolio of low-cost index funds, the only 3 times you should sell...EVER...is:

1.      Your financial goals change
2.      Your risk tolerance changes
3.      You portfolio needs rebalancing

That's it.  (And in that order.)  

It doesn't matter if your portfolio drops 20% in a month.    It doesn't matter who gets elected president.  It doesn't matter if another Great Recession happens.  It doesn't matter if an asteroid is heading for the planet.  YOU. NEVER. SELL...  


...Unless:

1. Your financial goals change.  If were planning to retire in 15 years, but woke up today and decided you will retire next year, then your financial goal has changed.  You need to adjust your portfolio to make it more conservative.  That will involve selling some of the aggressive investments and buying more conservative ones.

2. Your risk tolerance changes.  Risk tolerance is a finance-y way of describing what kind of rollercoaster ride you're comfortable with. Some people love the "Demon Drop from Hell" and other people prefer the merry-go-round.   But if "younger you" invested in the Demon Drop and "older you" now prefers the merry-go-round, then you need to adjust your portfolio accordingly.   That involves selling some aggressive investments and buying more conservative ones.

3. Your portfolio needs rebalancing.  Let's say your target portfolio is 50% stocks and 50% bonds.    Recently the stock market has done really well and the bond market has not.   As a result your portfolio is now 60% stocks and only 40% bonds.   So you need to rebalance back to 50/50.  That means you sell some of the stock investments and buy more bond investments.

As Warren Buffet said in his 1990 Shareholders letter:  "Lethargy bordering on sloth remains the cornerstone of our investment style."

And as Rick Valenzi said in his weekly newsletter July 26, 2018:  "Your portfolio is like soap.  The more you handle it, the less you have." 

 

DISCLAIMER:  This blog is for educational purposes only and should not be considered financial, tax or legal advice.  These statements have been simplified for illustration purposes.  Consult your financial planner or tax advisor for help with your specific situation.

Are You Committing the Gambler's Fallacy?

From the perennial classic - A Random Walk Down Wall Street

Each year a statistics professor begins her class by asking her students to write down the sequential outcome of a series of one hundred imaginary coin tosses.  One student, however, is chosen to flip a real coin and chart the outcome. 

The professor then leaves the room and returns in fifteen minutes with the outcomes waiting for her on her desk. She tells the class that she will identify the one real coin toss out of the thirty submitted with just one guess. With great persistence she amazes the class by getting it correct.  

How does she perform this seemingly magical act?  She knows that the report with the longest consecutive streak of H (heads) or T (tails) is highly likely to be the result of the real flip.

The reason is that, presented with a question like which of the following sequences is more likely to occur, HHHHHHTTTTT or HTHTHTHTHTT, despite the fact that statistics show that both sequences are equally likely to occur, the majority of people select the latter "more random" outcome. They thus tend to imaginary sequences that look much more like HHTTHTHTTT than HHHTTTHHHH."

Your monkey brain at it again. It tricks you into thinking that what just happened has an impact on what's about to happen.  

Like if you flip a bunch of heads, then a tails is surely coming, right? Your monkey brain feels like that's right.  It’s not.

It's called the gambler's fallacy. It often pops up when investors think that recent market performance has an impact on what will happen next. Like if the market's been up a bunch recently, surely it's going to come back down.    

Sound familiar? We've heard the expert talking heads (and neighbors and friend and family and coworkers) blab about how the market's going to drop just because it's been up for 9 years.

The thing about monkey brains is we've all got one, even the market "experts".

Of course, there are economic reasons hot markets usually precede short-term corrections and longish-term recessions. But those reasons have nothing to do with the mere fact that the market's flipped heads 9 years in a row. Correlation is not causation…but that's another topic for another day.

You vs. Your Monkey Brain

Our monkey brain.  Super helpful when we need to run from a saber tooth tiger.   Not so helpful when we need to make rational decisions.

This morning I cracked open a book on behavioral finance - Finance for Normal People: How Investors and Markets Behave..

Behavioral finance is a relatively new field.   It acknowledges that we are not rational beings driven by logic and critical thinking.  Rather we are we are irrational beings driven by emotions and shortcut thinking. 

The point of behavioral finance is to understand how your mind works, so you can prevent your monkey brain from making your financial decisions for you.   Like G.I. Joe said "…and knowing is half the battle."

Let's play a game.  Answer the following instinctively.  Without thinking.

“If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets?”

Was your answer 100 minutes?   Me too. 

Now think about it and answer again.   Ahhhh.  See it?  The answer is actually 5 minutes.

How about another one?  Quick!  Don't think!

"Consider a deck of twenty well-shuffled down-facing cards. You know that ten are black and ten are red. You win if you draw a red card. Now consider a second deck of twenty well-shuffled down-facing cards. You know that all twenty are either black or red. You win if you draw a red card. Which deck do you prefer to draw a card from?"

Did you choose the first deck?  So did I!!!

But reread it.  Ah-ha!.    You've actually got a 50% chance with either deck.  Your monkey brain at work.  (That one's called "ambiguity bias")

The reason your monkey brain can sabotage you is we make decisions with behavioral biases - assumptions our brains make to quickly fill in the missing gaps.

Again - super helpful if a saber tooth tiger is coming at you.   Let's not utilize the scientific method to determine if it wants to eat us.

But not so helpful when you hold on to an investment that's tanked because you lost all that money.  It only matters where it goes from here.  What you already lost already isn't part of the decision.  (That one's called "anchoring bias".)

People make financial decisions with their monkey brain every day.  Let's find out how that damn monkey works, so we can get it off our back and back to the ice age with its feline friend.

More to come….

Only Two Ways to Invest

Picture a little boy running around a cruise ship.   Little Johnny runs up the slide, then down the slide.   Dives into the pool, then runs over to look over the edge of the ship.   

Around and around little Johnny goes.   Where he'll run next is anyone's guess.  If you're not his parents or in the wake of destruction it might even be mildly amusing. 

Little Johnny is like the short-term fluctuations of the market.  He's all over the place and just when you think you know where he'll run next, he does the opposite.  Trying to keep up with him or predict his movements will be an exercise in frustration and futility.

The cruise ship is the long-term market returns.  We know it will arrive at its destination no matter where little Johnny runs. 

As an investor, you only have two choices.  You can either chase around Little Johnny or you can sit back, relax and sip your daiquiri. 

Chasing Johnny means you chase returns, get in and out of the market and bet on stocks.

Sipping your daiquiri means you buy and hold low-cost index funds and just enjoy the ride.

Your choice.

Money's Like Soap...

…the more you handle it the less you have.

The unspoken secret to long-term investment success is…ironically…to do nothing.  Buy...and then hold.

Wall St. doesn't want you to know this.   Wall St. doesn't make money if you buy and hold. 

They make money from the transaction fees you generate for them when you buy and sell and then buy and sell again.

If you truly want to beat the system, don't try and beat the system.

Your future, happily retired self will thank you.

The Wisdom of Warren Buffet

After the Berkshire Hathaway shareholders' meeting last weekend, CNBC interviewed Warren Buffet, Charlie Munger and Bill Gates this past Monday. 

Here are some valuable takeaways.

On buy-and-hold, low-cost, index investing:

…this time I went back to 1942 when I bought my first stock as an illustration of all the things that have happened since 1942. We have had 14 presidents. 7 Republicans. 7 Democrats. We have had world wars, 9/11, Cuban Missile Crisis. We have had all kinds of things. The best single thing you could have done on March 11th, 1942 is buy an index fund and never look at a headline... If you put $10,000 in an index fund that reinvested dividends… It would come to $51 million now.
— Warren Buffet

On "investing" in Bitcoin vs. stocks:

“When we buy a business [buy stocks or stock index funds]…we are buying something that at the end of the period we not only have what we bought in the first place but we have something that the asset produced. When you buy non-productive assets [like Bitcoin] — all you’re counting on is whether the next person is going to pay you more because they’re even more excited about it. But the asset itself is creating nothing. 
— Warren Buffet

Rick's note: This can be applied to any commodity - oil, natural gas, gold, silver, pork bellies…or GASP!…your house.   Don't "invest" in something that's only potential return is the next guy paying more for it.  Invest in things that produce - like companies in the form of stocks or stock index funds.

More on Bitcoin: 

And—it’s better if they don’t understand it. That’s the other thing about non-product— if you don’t understand it you get much more excited than if you understand it.
— Warren Buffet

Rick's note:  That thing you heard about that's too good to be true?  Educate yourself and truly understand it before you buy into it. 

On the company you keep: 

It’s very important in life to associate with people that are better than you are. It’s the most important decision — you will go in the direction of the people that you associate with.
— Warren Buffet

Rick's note: Amen.

 

Lastly, some reading recommendations from Warren and Bill:

Warren Buffet recommended: The Intelligent Investor by Benjamin Graham
Bill Gates recommended: Factfullness by Hans Rosling
Both recommended: Enlightenment Now by Steven Pinker