Investing as a Long Game

My friend and I were talking about new camera gear: how pricey it is and how much we want it really.  Later that day he messaged me about some stocks he had bought a while ago – in marijuana cultivation companies in Canada.  As I had already heard from a colleague, they were up that day quite a bit.  In fact, some of the most popular marijuana-related stocks in Canada were up that Friday.

My friend messaged later that evening to describe how one could have paid for their new camera gear with those gains.  And this is true, but I tried to point out to him that investing really needs to be considered a long game in order to have any real success at it.  Sure, the stock was up a bunch that day and, in that snapshot, it’s easy to appear and feel like a genius.  But that was after around 2 years of investing.  And that’s his entire portfolio.  And the chances of duplicating that success, let alone triplicating and beyond, are microscopically small, even for those who ‘know what they’re doing’ (i.e. ‘hedge-fund managers).  And, don’t forget, you haven’t really earned a dime until you sell.

So, again, don’t forget that we’re here to change the way we think, particularly about money.  And in this case, specifically, investing.  If you still think the big idea here is to save $10,000, invest it something really savvy and turn it into $100,000 ‘overnight’, then repeat enough times that you can ‘retire’ and live lavishly forever after then you’ve got it all wrong.  Start from the beginning my friend.

First, the goal should never be to live lavishly.  One, it’s bad for the planet and all of its current and future inhabitants, and two, it’s setting you up for failure if you actually want to retire early also.

Second, THAT’S NOT HOW INVESTING WORKS!  It really isn’t.  If you can make 10% per year (after fees, inflation, etc) on your invested money, you are doing splendidly.  So if you have $100,000 invested, you’re bringing in $10,000 per year.

So can you live off $10,000/year?  And do you even have $100,000 to invest?  My guess is you’ve probably answered ‘no’ to at least one of those two questions.  So you’re either going to have to invest more, or live on less, or work longer, or some combination of all these things.  This isn’t meant to discourage you, it’s meant to make tangible the things you’re really going to have to achieve if you want to start living your life on your terms, as we have discussed.  Also, don’t assume you’re gong to earn 10%, this was just a nice round number chosen to demonstrate to you what we’re dealing with here.  The number I assume for myself is 7%, based on the logical advice of Mr. Money Mustache himself, but am also aware that I can earn less (or more) on any given year, and so this number should only be used for longer-term financial planning (i.e. 5 years and more).

So where should I invest my money?  How do I pick stocks?  What if I lose my shirt (and then some)?  Well we’re going to get into all that soon.  Index funds, ETFs, stocks and bonds.  All that fun stuff.  But for now I suggest you wet your whistle and prime yourself with this amazing half-hour summary of how the economy functions by Ray Dalio, author of Principles (2017) and one of the most successful financial investors and hedge-fund managers of all time.  And as always, let me know what you think in the comments!

Ray Dalio – How the Economic Machine Works (YouTube)


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