Stock Market Wealth
Become A Wealth Machine
CHEW Through Walls: NAIL This NOW!
Warren Buffett used to be a 6th gear investor, but not anymore. Today, Warren wishes he could go back to the days of being like a racing motorbike that slides in between cars and trucks, surpassing all others and delivering big results, but he can’t.
This is true of many billionaire investors. Over the years, the motorbike grew to be a car, then a mini-van, and now Warren owns a truck, a semi-trailer, which can’t turn and maneuver that easily. Managing hundreds of billions of dollars doesn’t allow much flexibility, like the one he had when it was just his friends and family money to work with.
You see, he grew to be so prominent and successful that the challenges he faces today were not present for him 30 or 40 years ago, when his company was smaller.
The reason I tell you this is because, in some respects, you have an advantage over Buffett, over billionaires, and over large institutional investors.
They have many advantages as well, which are above your scope of ability, such as access to advanced software, an army of talented analysts, and a sea of experience, but one thing they can’t do is invest in “fringe industries.”
You can, in many regards, emulate and mimic the returns of the best investors alive.
One thing you must pledge to do is never to earn less than the index, which is what 93% of investors end up doing.
It’s horrible, but it’s reality.
Millions of would-be investors, which never go through the trouble of studying investing, as a profession, are nothing more than gamblers and speculators.
They invest funds, without regard to risks, only a constant focus on what is known as “Blue Sky Potential.”
This term is the same dangerous language, which brought the current president, Donald Trump, from billionaire status to billions of dollars in debt.
When he stopped thinking and obsessing about the risk, he fell hard. From now on, make sure you think of the downside first. “Blue Sky Potential” thinking is the wrong habit to form, because it give much more weight to the upside than to the downside.
The reason most people generate sub-average returns is that they time markets. This is what the best investors avoid doing. They invest in businesses, not trade tickers.
As I said on Sunday, this month is going to be devoted to introducing the habits, which work for me, with the hope that they will work for you as well.
Today, I’m publishing three practical habits of investing, which I use now. Do these and I albeit guarantee that your brokerage accounts will have outstanding results. These principles work.
INVESTING HABITS: MONEYMAKING ACTIVITIES
- P&C Insurance, Brand Names, and Strong Moats: Investing is not a new profession. We know exactly what we can expect to make. The U.S. economy can generate annual total returns of 7.6%, over time, by simply investing in the S&P 500. You can do even better by investing in a different index fund, which is like the S&P 500 on steroids.
The Invesco High Yield Equity Dividend Achievers Fund (NASDAQ: PEY), for example, tracks the companies, which are poised to become blue-chip names in 20 years. Over time, these businesses bring in better results than their more established counterparts, so I own both.
You see, the first habit of a successful investor is having broad exposure to a winning strategy, before making any specific stock picking decisions.
My core investments circle (1) the P&C insurance business, (2) brand name bargain hunting, and (3) highly competitive advantaged operations.
One of the results of focusing solely on these is that they tend to be phenomenal dividend-payers. In fact, they belong to a small club of stocks, which are raising their dividends, while growing Earnings per Share (EPS) at the same time. They generate so much profit that by giving back to shareholders an ever-growing piece of it, the management is still able to have enough cash to meet their goals.
Every month I allocate a portion of my income and invest in these companies, either by purchasing individual stocks or ETF positions.
Make this your No.1 habit, from now on, to either invest in individualDividend Achievers and Dividend Aristocrats companies, if the opportunity presents itself, or to gain additional exposure by indexing.
Do this with 50%-60% of your investible portfolio. It’s what many of the billionaire investors do.
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- Reinvesting Dividends: The surest way to become wealthier in the markets is to implement the power of compounding, so make sure you do not spend the dividend payments distributed to you. Instead, use them to acquire more shares.
Over the course of 20 years, reinvesting dividends will make the difference between $50,000 turning into $550,000 or growing into only $230,000.
The difference this habit makes is like night and day. Commit never to pull out money you allocated towards investing until you have met your financial goals.
No matter what happens, your portfolio is sacred, which is why Albert Einstein called compounding one of the eight wonders of the world.
- 6th Gear Investing: Yesterday, we celebrated my daughter’s 2nd birthday on the Greek Island of Corfu. The world’s most luxurious sailing yacht, worth over $250M, docks at the port currently. Over 100 crystal clear beaches, countless authentic tavern restaurants, and a variety of watersports and outdoor activities to choose from cover the tiny paradise, which attracts an international crowd.
The way I was able to short-cut the asset accumulation phase of my life and be able to reach location-independence was to (1) start early, by working at the age of 13, saving money, due to my father’s bankruptcy, and (2) investing and compounding since I was 16, which was 18 years ago, and (3) building only online businesses, which don’t require a physical office space.
But, as I showed you above, even starting with $50,000 at age 13, for example, using the first two habits I introduced would have resulted in $550,000 today, 21 years later. Investing alone rarely makes one earn more than his career does.
Buffett, when he was a 6th gear investor, was generating over 20% a year, which turns $50,000 into $1.8M in 20 years. This is life changing, but our Holy Trinity can trounce it: Natural Resources, Blockchain tech/Crypto, and Cannabis Legalization.
You see, what the billionaires can’t do is invest in these types of sectors, but that’s where I made a killing over the years. They have too much cash to take positions in small businesses or with ones that haven’t gone through all the regulatory processes yet.
Before blockchain was around, it was biotech for me. Before cannabis, it was sports betting. At any given moment, there’s a stealth bull market happening. Sometimes, like in 2016 with gold stocks, we nailed the timing and doubled our money every three weeks. At other times, like in 2017, we turned symbolic sums, placed into obscure cryptocurrencies, into hundreds of thousands of dollars, in months!
However, some of the time, we have to sit and wait, sometimes for years, for theories to become legendary stories. We can dollar-cost average, hedge by shorting other sectors, or trim losses and enter back into investments, but we can’t turn a bear into a bull.
All we can do, as 6th gear investors, is stick with the winners, the management teams and key figures, which take advantage of these bust periods to prepare their companies to reap during boom times and give their shareholders the opportunity to share in the results.
This is where the third habit comes in.
A 6th gear investor builds the Wealth Core using the first two habits, putting himself in a position to become a multi-millionaire in 30-40 years, as he keeps adding to his portfolio of world-class companies every month, maintaining a healthy lifestyle in the meantime, so he can enjoy his decades of luxurious retirement, and leave a legacy behind, if he chooses to.
But he takes it one step further by also making an effort to shortcut this process by attaching himself to proven winners in “fringe industries.”
The ultimate way to do it is to allocate 50%-60% into the Wealth Core basket, 15% to always hold in liquid cash, 15%-25% to invest outside the public markets, be it in real estate, private businesses, or peer-to-peer lending, 5% to have in chaos hedges, such as physical precious metals, collectibles and art, and to have 5% invested in the Holy Trinity of mining stocks, blockchain/crypto, and cannabis.
Of course, these three industries could change or be added to, if new groundbreaking boom/bust industries emerge, but these remain the lion share for now.
The 5% rule of allocation towards them is also fluid because when the times are right, more cash out of the 15% basket will provide fuel for the fire, as well as some of the funds devoted to assets outside the stock market, so the speculative portion of the portfolio could reach as high as 20%-25%, when the trend is strong.
Think of these three habits. Understand their logic and their reasonable flowchart.
The first two will make sure you generate at least as much as the S&P 500, which will put you in the top 7% of investors worldwide (93% barely gain more than the inflation rate).
The third one can make you wealthy.
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Legal Notice: This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.
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