What stock do you recommend? Got any hot tips?
Those are questions I get asked a lot.
My answer is always the same – “Sorry, I don’t provide stock tips or recommendations”.
And I don’t. Not even to loved ones!
You see, my stock purchases are based on me. They’re based on my age, investment time frame, financial position, goals and most importantly my temperament.
And the reason temperament is important is because of what happens after a stock is purchased.
Can you imagine if I suggested that someone buy XYZ stock?
I would be inundated with questions afterwards, like these….
“The stock went down 5%, what should I do?”
“The stock went up 5%, what should I do”?
“It was just announced that ABC is going to start competing with XYZ, what should I do?”
By giving stock tips, the only thing I would accomplish is teaching someone how to be helpless.
And that’s the point of today’s essay…
We live in a give-it-to-me-now, microwave fast world. The internet has essentially collapsed time. Two day delivery is passé. Many want their information, merchandise, and ideas given to them now. There’s no patience to read, study and reflect.
This has given rise to the terrible habit of letting someone else choose your investments. Letting someone else do your homework. Of letting a stock “guru” on TV, magazines, podcasts, blogs, wherever, choose stocks for you.
The idea sounds great. Who wouldn’t want to skip all the work for investment success and just be helicoptered to the front of the line by some guy/gal who’s been successful with stocks?
But that type of mentality often spells disaster on Wall Street.
Here’s a few reasons why:
1. The “gurus” make mistakes. Hard for some to believe that their hero is infallible but we’re reminded of it all the time. In fact, Warren Buffett, the greatest investor of all times, recently admitted to a big blunder – paying too much to purchase the Kraft company. It’s hardly the first mistake he’s made. He’s admitted to many goofs over the decades he’s been investing. Heaven knows how many investing mistakes I’ve made. Several of them. The point is, you’re not getting “mistake free” investing when you outsource your investment decisions to someone else. They’re most likely going to make mistakes with your money. Maybe they won’t be the same mistakes you’d make, but they’ll make mistakes nonetheless.
2. You miss the “golden lesson” inside every investment mistake. We all want to be more wise. Well, there’s wisdom in every mistake. With our mistakes, we literally learn what not to do. I don’t like making mistakes either. But I’m a much better investor for the mistakes I’ve made. And here’s the thing – If you don’t own the choices with your money – you can’t own the mistakes either. When you abdicate the decisions, you also abdicate the responsibility. It will be the guru’s fault. Or the broker’s fault. Or the crazy, talking-head guy on TV’s fault. Not yours. And guess what? The golden lesson won’t be yours either.
3. Sometimes gurus turn out to be liars, cons and/or idiots. Bernie Madoff and Allen Stanford were revered for their investment prowess until they were discovered as frauds. Many investors (some with recognizable names like Kevin Bacon), outsourced their investment decisions to Madoff with the idea that he would look after their hard-earned money just as closely as they would. But history shows that some gurus are more interested in using their client’s money to inflate their own bank accounts and egos, even crossing the line into illegal activity. Give that some thought. Many investors saw their retirement nest eggs blown away by the illegal activities of these individuals.
4. You probably won’t follow the guru’s advice anyway. I have a friend that outsources a small amount of his money to a broker for investing. His reason for doing so? He doesn’t have the time to read and study stocks to make the decisions on his own. But what’s ironic is what he does every time there’s a down day or glitch in the market – he sells out of his portfolio and then waits for things to “calm down” and then he buys back in. This is all against the advice of his broker who typically tells him to just be patient and ride things out. You see the dilemma? He wants the impossible – the good days he thinks the broker brings and also to avoid the bad days he thinks the broker misses. It’s an impossible scenario and as you guessed it, he’s failed miserably in the market.
Friends, successful investing requires your presence. It requires you to be involved. It also requires experience and knowledge.
Charlie Munger has referred to his investing knowledge as a “latticework”. In other words, he’s built, and continues to build, investing wisdom over decades from reading, investing, studying and research. It’s literally like a web of information he draws upon. Here’s what he had to say:
“Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience both vicarious and direct on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.”
I too look at my investment knowledge as something of a latticework. It’s been developed over years, and it’s still being developed! That’s why it can’t be distilled down to a stock pick for someone. It’s taken me years to build the knowledge of what works for me with my investing.
I always say that Wall Street is a great mover of wealth. It literally transfers wealth from people who don’t know what they’re doing to those who do. I see too many people enter the market and invest large sums of money with less than $5 worth of education. It’s a recipe for disaster.
If you’re going to invest your hard-earned dollars in something, make yourself a student of that something first. Make it your duty. Here’s Munger again on this…
“Wisdom acquisition is a moral duty… I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than when they got up and boy does that help, particularly when you have a long run ahead of you… Nothing has served me better in my long life than continuous learning.”
Think of your investment knowledge like the computer adage of “garbage in, garbage out”. What you put into it is what you’ll get out of it. And that’s true for most things in life that are worthwhile…
You can’t have a successful marriage without doing the work to make it successful.
You can’t have a trim, lean body without exercising and eating right.
You can’t have a great business without putting your blood, sweat and tears into it.
As Jim Rohn used to say, “Don’t wish things were easier. Wish that you were better.”
Wish you were better – because this is what life is about…..learning, growing, adapting. If we stay at the same level all our lives….we will become stale, and eventually flounder…we need to grow. Keep challenging ourselves. Our mind is our greatest asset. Use it to think and grow rich. That’s my very best stock investing tip.
Be free. Nothing else is worth it.
P.S. Why aren’t you wealthy yet? It’s because of something you don’t know. Otherwise you’d already be rich. Isn’t it time to learn what you don’t know? Consider signing-up for my newsletter below, to help you build wealth faster.
P.S.S. Looking to make an overnight fortune? Don’t sign-up to receive my newsletter below. There’s no magic secret. Becoming financially free takes time and dedication. But learning professional-grade money skills can have a life changing effect. If you’re ready to put in the work and learn, I can show you how to achieve financial freedom faster than normal.
P.S.S.S. There’s nothing for sale on this blog or in my newsletter. That’s right. Unlike other sites who claim to help people achieve financial success, I’m not trying to sell you anything. In fact, I find it a little disgusting that some sites insist that you buy something before they teach you how to become rich. Here on my blog and in my newsletter, I just provide actionable advice for free. It’s my way to give back. What do you have to lose? Subscribe today.
Ready for more tips on how to achieve the free life? Check-out more articles from the blog archives below: