You Will Never Be Rich If You Invest Like The Rest
Legal recipe to achieve it
Before you start reading I would like you to do a reflection exercise for 20–30 minutes and answer the following questions as honestly as possible:
What are the origins of your investing style?
Do you invest actively or passively?
What is your risk tolerance?
Have you ever experienced declines of more than 40%?
If you are a passive investor,
What is the rationale for the indices you have chosen and what is the weight of each index in your portfolio?
What are the management fees?
In what currency are they quoted?
Are they equity or bond funds?
Do you invest all at once or do you make periodic contributions?
*Reflection: If you have answered all these questions, your investment style is active, because there is some thought behind the choice of passive indices and therefore your style could be active.
In case you are active,
How many assets do you have in your portfolio?
Where did you get your investment ideas/strategies from?
The investors where the ideas come from, could they be biased?
Could you be biased by the type of investors you follow in social networks, newsletters…?
Is there a study/thesis done by you on the assets you invest in?
Do you change your investment style when there are assets with higher returns?
Do you invest based on FOMO?
If you answered yes to any of these last two you should read this article, to realize that you are losing money.
If you were now 80 years old and could not change your investment style/actions during all this period, would you still invest in the same way?
And finally, why do you invest (preserve capital, get rich…)?
If the answer to this last one is to get rich this is your post, but before starting I think that all these questions are key to realizing that we have countless biases when investing and that, lately I keep seeing on the internet theses that in most cases are plagiarism of other investors and are ideas that have not been discovered randomly but come from other people who in turn were also biased, and, let me tell you, if you do the same as the rest, you will get mediocre results, because the market it is not a sum zero returns, but it is distributed totally asymmetrically.
What I mean by this is, if you copy others, you will never become rich (unless your parents are millionaires). And, why do I say this, because the 10 people I know with more than 20% annualized returns in the last 10 years none of them was biased and the main investment style of each of them is as follows:
😇 3 Start-ups Business Angels
💥 3 Crypto Traders
👶 1 Small Caps
🏤 1 Real Estate Investor
📉 0 Traders Intra Day
📉 0 Long Term Index Investors
📉 0 People with more than 4 different stocks in the portfolio
All of them are aligned with an investment style based on strange events, where I recommend one of the best economic books out there: ‘The Black Swan’. If you have never read it, I don't know what you are waiting for, I tell you from the bottom of my heart.
That is why we must rethink the purpose of the investment and act in relation to it. Of course, if we had to bet on any of them, we would advocate having large hedges, because it is the one that most closely aligns with our philosophy.
Our investment style is characterized by having a large part of assets (up to 60%) in very low-risk assets (cash, bonds, gold…) and the rest in higher-risk assets, in order to have a portfolio as asymmetric as possible, which benefits from market anomalies. We know it is complicated, but getting it right once would be enough (very low risk/reward).
Large Price changes, of more than five standard deviations from the average, happened two thousand times more often than expected. Under Gaussian rules, you should have encountered such drama only once every seven thousand years; in fact, the data showed, it happened once every three or four years. — Mandelbrot (‘The (Mis)Behaviour Of The Markets’)
In addition, the monetary policies of the central banks are making that when a fall occurs, perhaps less frequently, it has much greater consequences. We share our portfolio with all its movements on a weekly basis, if you want to know more, do not hesitate to subscribe.
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This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions. We sometimes use affiliate links in our content. This won’t cost you anything but it helps us. Under no circumstances would we recommend a product that we had not previously purchased.