Chapter Three: Wealth Creation

1. Day trading, or any activity of remotely similar ilk, is not investing. It is gambling. The whole notion of cheap, even free trading, somehow leading to a pot of gold is a fallacy. Of course we’ve heard about that person who turned $5,000 into millions in less than three years. Got it. People win the lottery too. Our goal is to think as owners of companies. Markets exist solely to increase ownership when cheap, and sell when dear.

2. Real investing is hard work. It takes a serious time commitment. It can be pleasurable and meaningful work if you have time and passion in abundance. I suppose it also helps to be able to make quick decisions, without emotion, including a willingness to realize small losses when wrong. The vast majority of individual investors can’t check all the boxes, and that extends to a fair number of investment professionals as well. If you don’t have a reasonably strict investment discipline, your odds of success are significantly diminished.


4. I bear no grudge against passive investing via low-cost index funds. If you’re not going to retain an experienced and reputable advisor, by all means, index. But understand you are fully exposed to the downside risk of the index and may very well be more concentrated in a handful of expensive stocks than assumed. By the way, stop assuming. That can be very costly.

5. Most investors have no sell-discipline. (see #2)

6. Active management can add value, particularity active risk management, but too many so called active managers are not much more than glorified asset gathers, (more assets under management equals more revenue) and/or “Benchmark Huggers.” Further, “career risk,” or the risk of getting a pink slip for daring to think differently, prevents active managers from thinking beyond quarterly results or drifting too far from their benchmarks.

7. Read annual reports. Especially Berkshire Hathaway’s.

8. Attend a Berkshire Hathaway annual shareholder meeting. Soon. Put it on your bucket list.

9. Start investing young. Compounding is the Eighth Wonder of the World.

Any opinions are those of the financial advisor and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Next Chapter