Making Mistakes

Making Mistakes

One of the most unheralded advantages of hiring a professional is that you are paying for mistakes they have ALREADY made, and more importantly, hopefully have learned from...which is kinda disconcerting when professions like medicine and law are termed "practices."

Obviously the financial world is also a practice, one in which when you hire a professional, whether you realize it or not, you are also paying for their past mistakes...mistakes that SHOULD be very lucrative for you to profit from in the future.

Much of the "hustle" of modern retail investing has been a colossal marketing effort, well int the billions, to convince the investing public that: 1) Anyone can invest on their own, and 2) As long as you Index with Low Cost you can "beat the market."

Just like "free" may be the most expensive word in the English language, "Low Cost" has its problems too. Big Problems. But the former point deserves just as much, if not more attention. The combination of "anyone" and "low cost" has created a windfall for behemoth financial institutions like BlackRock (iShares), Vanguard (S&P 500 Index), and Fidelity (Mutual Funds) 

The unkown unknowns. Those are what new investors should be concerned with, along with the known unknowns of course. But what "big money" does not provide for the average retail investor, and what a seasoned professional in finance DOES, are answers and strategies for both of those scenarios.

There is a reason why 100% of large-scale dynastic wealth is professionally managed, and not typically by the heirs themselves with "low cost" solutions. Although paying a higher fee may not garner a higher return, it should most assuredly include "lessons learned" from said advisor(s).

One of the most important questions an investor should ask a portfolio manager he is thinking of hiring is: "What mistakes have you made investing?" Pay attention to that answer, and especially how that PM has learned from those lessons in running the practice.

Longevity

 Longevity

There is an old saying that "youth is wasted on the young, and wealth on the old." That presents a true quandary, because for many of us wealth does not appear until there is gray in the hair and we are on the pickleball courts! So barring a tectonic shift in altruism, the only other option is for investors to internalize a truth: time is the most valuable commodity. It deserves to be considered its own asset class.

If time is truly the most valuable commodity, then investors need to embrace longevity as one of their key tenets in creating dynastic wealth. Along with creating value (the more the better) and buying assets (once again, the more the better), living long allows for many opportunities for both creating wealth and compounding it. The latter factor is vital. Compounding alters lives.

Even a grub stake over time can become princely wealth. A vital factor is correct asset selection which results in compounding. Much of the asset selection process can be learned, and it is often quipped "lessons are expensive and good ones dear." Continuous (yes "Dollar Cost Averaging") of proper asset selection (read that as "real growth," defined as growth in excessive of inflation) over time (and here we want AS MUCH TIME AS POSSIBLE) can result in magnificent wealth. 

Of the three components of #CVBALL (Create Value, Buy Assets, Live Long), Live Long is the most important. You can have many, many failures in life, but generally the older you become you learn from mistakes and try not to repeat them. You may have new mistakes and never exhaust the total "pool" of mistakes possible, but generally you get better at the game as you age.

New Year, same plan! #CVBALL! Concentrating on the "LL," there have been many studies done on longevity. Increasingly it has moved from the fringe to mainstream, especially with widespread adoption of "miracle drugs" like Ozempic. These semaglutides decrease the urge to eat and help jumpstart a virtuous cycle that combined with exercise and a modified diet often results in significant weight loss, improved cardiovascular fitness, and better cognitive functionality. Bottom line, semaglutides along with changing behaviors will result in collectively MILLIONS of years in longer lifespans.

Longevity, whether obtained from pickleball, Ozempic, and/or a reboot of the traditional food pyramid will have massive effects on wealth. Adding just one (1) more doubling cycle to your wealth can drastically improve your quality of life and potentially that of your heirs. Adding two (or more!) doubling cycles is almost hard to fathom...an estate saved over a lifetime for someone in their early 60s worth say $3M potentially becomes close to $25M if they can live into their 90s. And that is becoming increasingly possible. The centurion is one of the fastest going age demographics.

So ILAF (Invest Like A Farmer) offers a solution to those who may feel they are priced out of the real estate market, or don't earn enough to compete, or who have perhaps just suffered a big financial or life loss...hang in there. Longevity offers a myriad of outcomes and forgives many mistakes. Create Value. Buy Assets. Live Long. (#CVBALL).

Dynastic Wealth

Described as "monetary inheritance that is passed on to generations that didn't earn it," dynastic wealth gets a bad rap. It is so "burdensome" that most billionaires feel compelled to increase it and disperse it via a number of nonprofits controlled by their heirs to maintain it without having to "pay their fair share." Please. Let's be honest, dynastic wealth is an enviable goal and one which most investors strive to obtain, if not fully in their lives, then at least in the lives of their children and grandchildren.

Dynastic wealth, in terms of monetary abundance, offers many significant advantages to poverty; better access to health care, education, safety, etc. It has, and will always be, one of the primary goals of our species. It is fundamentally Darwinian. In many ways, dynastic wealth is the American Dream; an increasingly better quality of life for generations to come with the ability to pursue one's own happiness.

Those who wish to Invest Like A Farmer are particularly well-suited to accomplishing this goal. It is a worthy goal and one that is obtainable. Here are the basic elements that I have seen succeed:

1) Longevity is key as both time and health are vital assets to establishing dynastic wealth.

2) Self-Discipline to repeatedly contributing to compounding investments, rarely taking distributions.

3) Financial Savvy; a lifetime hunger for knowledge about investing in a number of asset classes.

That's the quick 3-step process; there are undoubtedly thousands of ways to become wealthy. But mastering the above elements are always a significant part of the equation when establishing initial education, income, passive income, starting a business, owning equity, leveraging equity, tax-advantaged investing, developing multiple cash flow streams, strategically passing along assets to heirs, and ultimately establishing dynastic wealth.

Very few of us (suspiciously enough, probably around 1%) have privileged connections. And although that definitely matters, particularly the influence which can be wielded by those connections, almost anyone can lay the seeds for dynastic wealth in his or her own generation. 

There is an old adage of "From shirt sleeves to shirt sleeves in three generations," implying that many a family struggles, builds a some wealth, and it is subsequently lost by the third generation. There is a flip side to that coin though, dynastic wealth creation that is lasting. Strive for the latter.