Investing - The Basics

[winston]

The Key to Getting the Most Out of Your Savings By Dr. Steve Sjuggerud

So you're saving and investing. How do you take the most of your efforts?

The simplest answer is this... you don't have to be an investment expert. And you don't have to find a complex strategy to beat the market. You need to find safe and simple investments that charge the lowest fees possible.

You see, fees are like spending that extra $2,000 on the new car. They don't seem like much at first. But over time, they cost an enormous amount. Consider this...

You and I both save $10,000 a year. We each make 10.8% on our money – the stock market's long-term return – but I do it with no fees and you pay 2% a year. (Mutual funds often have fees this high while exchange-traded funds, or ETFs, can charge close to 0%.)

After just five years, our returns are nearly identical... I've got $79,000 and you've got $75,000. Fees ate up $4,000 of your savings. That probably won't change your standard of living... But over time the spread gets crazy.

Twenty years in, I've got $150,000 more than you – $705,000 versus $555,000. And after 40 years, I've got $2.6 million more than you.
My $6.1 million savings is nearly DOUBLE the $3.5 million you've accumulated. And the only difference is a seemly small 2% annual fee.

This might seem crazy, but it's true. Over the long term, fees are one of the most important criteria in investing. If you're saving and investing for the future, I urge you to hunt for the lowest fees possible. It could save you millions.

Source: ETR

[winston]

Five Questions Wall Street Hopes You’ll Never Ask

by Keith Fitz-Gerald

http://totalwealthresearch.com/2015/01/ ... /#deeplink

[winston]

Eight Unusual Rules to Help You Become a Better Investor By Chris Mayer

Where do great investors come from?

I'm not sure what the hurdle rate for greatness is, but Guy Spier has put up impressive results.

His Aquamarine Fund has returned 463% since inception in 1997, versus just 167% for the S&P 500 (a broad proxy for the market). Put another way, $1 million invested at the fund's inception is worth about $5.6 million today, versus $2.7 million for the market.

In his new book, The Education of a Value Investor, Spier gives you his eight rules for better investing. Unlike with most such advice, Spier is qualified to give it. Below are some thoughts on the book.

As the title hints, Spier is a value investor, which doesn't tell you much. It's a vague term, but in general, it conveys the big tent of ideas normally associated with its ringmaster, Warren Buffett. Your editor is from the same troupe.

I saw Spier speak recently at the Value Investing Congress, and I just finished reading his book. Spier takes you through the early trials and wrong turns of his own career. The subtitle of the book is My Transformative Quest for Wealth, Wisdom and Enlightenment, which goes to show you it's about more than just stock picking.

Instead, the focus is more on thoughtful advice about how to become a better investor. Much of this is not at all conventional advice, such as the discussion about creating an ideal workplace and controlling your interactions with other people. There's also just a lot of thinking about thinking. Investing is a game that goes on largely in your head.

Spier does offer eight concrete rules, which are worth a look:

1) Stop checking stock prices so much. You probably check your stocks every day – probably several times a day. The problem with checking stock prices so frequently is the effect it has on your brain. It's a call to action. It makes you impatient.

Spier checks his stocks no more than once a week! "It's a wonderful release to see that your portfolio does just fine when you don't check it," he writes. Instead, he can focus the limited resources of his brain on more productive ends.

This is also a matter of style. Spier, like us, invests in long-term outcomes that seem inexorable. In that case, it's not important to know what's going on every day.

2) If someone tries to sell you something, don't buy it. This is an attempt to ward off all sales reps and ads. "I soon began to see that I made lousy decisions when I bought things that salespeople were hawking to me," Spier writes.

The reason, he says, is again about the limits of our poor brains. They have a hard time resisting a "detailed pitch from a gifted salesperson." So he simply adopts the rule that he doesn't buy anything from anyone who has a self-interest in him buying.

3) Don't talk to management. This one is something I've wrestled with for years. CEOs are often charismatic people. This is part of why they are where they are. They have the gift of charm, the ability to win over audiences. This is not to say they are bad people. It's just to recognize their skills and the effect they can have on your brain.

As investors, we want to get a realistic look at a stock. It can be harder to be impartial if you like the CEO. Spier does make an exception to this rule. There are a small number of investor-CEOs he cites as worth talking to, including Warren Buffett at Berkshire. I would second that. I've found talking with managers who are investors and have a close-up view of what's going on in their markets helpful.

4) Gather investment research in the right order. The basic idea here is to start your research with the most impartial information. Look first at public filings – 10-Ks, 10-Qs, etc. After he digests those, Spier works his way toward "less objective corporate documents" – such as press releases and transcripts of conference calls. His analogy for doing it this way is that it's like eating your meat and vegetables before you eat dessert.

"These ideas about the sequencing of information may seem trite," Spier writes. "But minor shifts in how we operate can have a major impact." The idea again is to try to manage the influences hitting your brain. "I don't want my mind's chain being yanked," he writes. It's all an attempt to stem the bright lights and candy-colored lures that distract sober analysis.

5) Discuss your investment ideas only with people who have no ax to grind. If I had to sum it up, I'd say this rule is about sharing your knowledge with a circle of people you trust. And these should be people who won't tell you what to do. You just want to have reliable, like-minded people in your circle who will help clarify your thinking about your ideas.

6) Never buy or sell stocks when the market is open. Well, I can hear you saying, "When the hell am I supposed to buy or sell stocks?" Here, Spier really means don't make the decision while the market is open. Cooler heads prevail and all that. Detach yourself from the market and give it a good think.

The idea is similar to not watching your stock prices. It's a way to calm down and act less. As Spier says: "What I need to do is simply invest in a handful of great but undervalued businesses and then stay put. Wall Street is rewarded for activity. My shareholders and I are rewarded for inactivity."

7) If a stock tumbles after you buy it, don't sell it for two years. It sounds weird and arbitrary, but Spier swears by it. He got the idea from fellow investor Mohnish Pabrai, a good friend of Spier's and a fine investor in his own right.

The rule makes you much more careful about what you'll buy, because you know if it drops, you'll have to sit with it for years. "In fact," Spier writes, "before buying a stock, I consciously assume that the price will immediately fall by 50% and I ask myself if I'll be able to live through it."

Most of Spier's rules, as you can tell by now, are essentially mental circuit breakers. They aim to get you to stop doing anything impulsive.

8) Don't talk about your current investments. Again, it is because of the effect this has on our low-wattage brains. If you talk, you become more invested in the idea than you would otherwise. Spier writes about doing an interview and giving out a stock tip. He felt more committed to it afterward, which prevented him from selling it when he should have.

As a newsletter writer, I believe I've mastered the weakness this one aims to cover. I have no problem changing my mind. I have done so many times before. But you should be aware that when you talk about your investment idea, it could have an undesirable side effect in changing the way you look at the stock.

Of course, I've given you just the basic summaries of Spier's rules. The book has more to offer. There is an interesting discussion on the use of investor checklists, for example. Spier also doesn't hide from writing about his own inadequacies. My main criticism is that he lays on the praise of Buffett and Pabrai way too thick.

I also have to say Spier comes across as kind of neurotic and weak-minded. He is a guy who is a blue blood all the way, a product of privilege. He screws up in unsympathetic ways early on, only to get bailed out by daddy's money. It's not easy to relate to him or feel sorry for him when he stumbles.

Nonetheless, if you enjoy reading about the art of successful investing, you'll like Spier's book. It's a quick read and quite accessible.

Source: ETR

[winston]

The ONLY Person Who Cares About Your Money By Dr. Steve Sjuggerud

Nobody will care more about your money than you do.

This is critical for you to embrace, immediately. Nobody is going to care more about your finances than you. You simply can't just find somebody smart and hand your money responsibilities off to them.

You can't just hand off your life and hope it goes okay – this is your life we're talking about! How many rock stars and sports stars have you read about that are broke today because they handed off this responsibility? Don't do it.

The quicker you take control and ultimate responsibility with your money, the quicker you will start building your legitimate fortune. And you can't ever give up that responsibility.

Let me be clear… It is alright – even smart – to work with smart people, and to delegate some of your money responsibilities to carefully chosen people. The important part is, you just can't "check out." You have to be the team captain here… the captain of your money ship.

Source: True Wealth

[behappyalways]

Here's how a janitor amassed an $8M fortune
http://finance.yahoo.com/news/heres-jan ... 59317.html

[winston]

The Simplest Long-Term Investment Strategy You'll Ever See By Dr. Steve Sjuggerud

Is your goal as an investor to beat the market?

If your answer is yes, I have news for you…

Not every investor can beat the market. And in many cases, trying to beat the market can shatter your long-term gains…

The truth is, most investors don't come anywhere near beating the market. The chart below tells the story. It shows just how bad returns have been for the typical investor over the past two decades…

While U.S. stocks increased 8.2% a year over this period, the average investor saw less than a third of those gains… just 2.3% a year.

That's actually much worse than it seems over two decades of investing. After 20 years, a $10,000 investment at 8.2% turns into $48,367… a 384% return. The same investment at 2.3% a year turns into just $15,758… a 58% gain.

Said another way, the average investor earned just 15% of the long-term gain on stocks over this 20-year period.

There are plenty of reasons why the typical investor underperforms… High fees, lack of diversification, and trading in and out of the market at the worst possible times are culprits.

The last point is key… investors tend to buy into stocks at the top and sell at the bottom. It crushes their long-term returns.

ETFs can't solve that psychological barrier. But they do offer an easy way to make long-term investment decisions.

Whether you'd like to build a simple portfolio of 60% U.S. stocks and 40% bonds or a complex portfolio with a dozen asset classes, ETFs are a great tool.

You see, ETFs are easy to buy and sell. And more than 1,000 trade in the U.S. So you can invest in just about anything you'd like.

Take a look at the table below. It shows a mock long-term portfolio… And how you could build it in just a few minutes with just a few transactions fees using ETFs…

Now, I'm NOT saying you should invest in this portfolio. Or that this is the right portfolio for you over the long term.

But I will say that if you bought this portfolio today, and held for 20 years, you'd likely beat the average investor (who earns just 15% of the market's performance).

The great thing about ETFs is that they allow you to find the portfolio mix that's right for you. And they allow you to build that portfolio quickly and easily.

http://thecrux.com/the-simplest-long-te ... -ever-see/

[winston]

Two Reasons Rich People Continue to Make Money By Dr. Steve Sjuggerud

How do rich people continue to make money?

What do they do differently that allows them to keep making money?

On my latest Inside True Wealth podcast, I asked two guys who would know – David Hall and Van Simmons. (They're mentors to me… I told you about them yesterday.)

David and Van talked about two distinct reasons rich people make money investing…

David Hall: They do their homework. And I've found that a lot of the real wealthy people are very much contrarians. Maybe it's the sense of self-confidence that helped them be successful in business or whatever they were successful in.

There's such a herd mentality… We had people [when gold was] at $1,900 screaming on the phone that they had to have their gold today, and where are these people [now]?

Steve Sjuggerud: The phone's not ringing at $1,300 and the phone's ringing off the hook at $1,900.

David Hall: Yes, at $1,900. I've found that wealthy people have the self-confidence to buy when there's blood in the street. Now it's not that bad. But, you know, when things are a little out of favor, and they're high-quality (in terms of both the quality, the condition, and in terms of their importance), that's the time that you want take a position.

Steve Sjuggerud: That's exactly right.

Van Simmons: That's the hardest thing to do. For example, in 2010-2011, I called a couple of real estate friends of mine. I said, you know, I'm interested in buying real estate.

They go, "Oh, you're out of your mind." And I said, "Okay, well, find me something."

I looked at one condo, which I bought, and I paid $160,000 for the condo on a short sale… Now the thing's worth about $300,000, $325,000; so it has doubled in the last four years, plus you collect 10 percent rent based on my investment.

It was really hard to get even friends of mine who are real estate guys interested. I'd say, "Well, what about building things? What about doing this?" and they're like, "You're insane. I wouldn't do this now. You're smarter than that." And I'm going, "Okay, well if the guy selling real estate is a friend of yours and he's telling you not to do it, you're probably pretty close to the bottom."

According to David and Van, rich people…

1. Do their homework. They understand their investments. And they…

2. Avoid the herd mentality. They are good contrarians.

These ideas might seem simple. But they're harder to put to work than you might think.

Buying against the crowd is tough. From personal experience, I've learned that it's unsettling when you're the only one buying like Van was when he bought that condo. But that's often when you have the most upside potential. You have to trust your experience and your homework in those situations.

These are two ways that rich people continue to make money.

If you want to continue making money like wealthy investors do, then follow David and Van's advice.

Source: Daily Wealth

[behappyalways]

Irving Kahn, the world's oldest investor, dies at 109
http://www.telegraph.co.uk/finance/pers ... t-109.html

[winston]

The Wealthiest Gas Jockey Ever By Chris Hunter

Reuters recently profiled a Vermont gas station attendant, Ronald Read, who amassed an $8 million investing fortune by the time of his death last year, at age 92.

How did Read – who for almost 25 years worked at a gas station and then as a janitor at JCPenney – build such a large fortune? Two simple steps…

First, he kept his investing simple. As Read’s attorney, Laurie Rowell, told CNBC last week, Read “only invested in what he knew and what paid dividends. These included names such as AT&T, Bank of America, CVS, Deere, GE and General Motors."

Second, he consistently spent less than he earned. Read didn’t live an extravagant lifestyle. He didn’t dip into his portfolio for fancy holidays, cars or other status symbols.

According to the report in his local newspaper, the Brattleboro Reformer: Read was a quiet and private man, a lifetime resident of Windham County who grew up in Dummerston and who lived on Spruce Street before he died.

Not only did he refuse to flaunt his wealth – his estate included a 2007 Toyota Yaris valued at $5,000 – but also his closest friends and family members did not know he had even a tiny sliver of the fortune he left behind.

Source: Bonner and Partners

[winston]

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”

- Albert Einstein