How to invest like a big-time, Cristal guzzling, yacht cruising, hairy-chested hedge-fund manager — on a teachers salary. AKA The StockGuilt manifesto.
The name of the game is: Beat the S&P. The S&P 500 is an index, a lump, of the largest 500 companies on the Dow-Jones market. And we have to beat them! Beat them?
How the heck can we beat the biggest companies in the world? Do we really have to beat them? Why?
Well the answers are, in order: You probably can’t, and no. Why? Why, is because that is the baseline everyone else is trying to pass. You may have heard this, or, if you are serious about investing in the stock market, you will hear about it: the S&P grows (or declines) in a given amount of time, and you compare your portfolio to it. If you are better than the S&P, you polish up your trumpets and sell seats to your carnival show. If you don’t, you just don’t mention it.
But, here is the truth: The line in the sand is arbitrary (why not every other company listed on the NYSE, numbers 103 till 2175?). Clearing the hurdle is based on chance (i.e., luck) and really doesn’t mean anything. It is — (get ready for a swear word) — bullshit.
Let me tell you right now, you may beat the S&P for one year. You may beat it for two. You may beat it for 10 years. You may throw heads on a quarter 14 times in a row. But it ain’t skill, its dumb luck.
So get the image of the swaggering, uber-intelligent, market savvy stock trader out of your mind. You aren’t her, just like you aren’t Beyonce or Jessica Flecher (Murder She Wrote reference … I lost a bet. ).
What we want to do is about as lucky and glamorous as making a brick out of mud. We take the ingredients, use a system someone else taught us, slap it together, and build a house. We don’t really think too much, because we know we can’t outsmart the market. We just build bricks and make a strong foundation, and shore up walls, and build a future. It’s slow, boring, messy and unglamorous, but, fortunately, it’s pretty foolproof, and it makes more money, and is nearly as safe as your savings account or a CD (or even Bonds). Besides, we don’t have time for this crap. The reason we are doing this is for our families; it would be pretty dumb to ignore them while you are planning for their futures!
So, here are the basics, no messing around. Each of these will be expanded and explained in detail later, but for now, just make a checklist:
- Buy individual stocks!
- Keep fees down!
- Do your own financial planning!
- Don’t move your money around, plan to buy and hold for at least 10 years.
- Use an online brokerage … and if someone wants to give you $600 for putting your money in there, do it.
- Save as much as you can — remember, $1 today is $100 when you retire! Every penny counts.
Now, the moment you’ve all been waiting for: How to invest like a super-smart, Ivy league educated, platinum TAG-Heuer watch wearing mutual fund managing superstar!
- The secret is you simply buy the companies listed on their prospectus (a document they make for number’s geeks, that tells all the financial voodoo, wizardry and statistics; this document shows what their mutual fund is buying). Why pay them, when they are giving you their expertise for free?
So, about that S&P. The funny thing is, the S&P does just fine. So fine, in fact, there are funds you can purchase (which we discourage, due to fees) that do nothing but mimic the S&P. You would do well to come close. Everything else is luck and should be cherished like gold found on the sidewalk.
Now, send me $1000 every year until you retire, like a financial planner. Yeah, I didn’t think so. Still think people that invest have to be super-smart? You are now smarter than 90% of them.