Lesson 001 – Investment Philosophy

Lesson 001 – Investment Philosophy

Investment Philosophy

Foreword

This lesson starts the course of lessons related to investing. The lessons here were learnt by me, but of course I cannot pretend that I invented all the theories, techniques, approaches, practices and advices. So, from time to time I will refer to the wisdom of some other people (and, of course, I will name them).

The lessons will contain problems of rather practical nature. I would recommend to go through them. This will be your first step to practicing all this. Later on I will add a page with answers to all those problems (where applicable). And please remember, that only practice turns your knowledge into skills, and skills (not knowledge itself!) will change your life.

There is a lot more I would like to say, but I cannot stick all this into the foreword… Let’s start the lesson.

Philosophy of investing

There are three main roads to social success: the road for smart people is named career, the road for brave people – business, and the road for rich people – investments. But please don’t be disappointed by the fact that you are not rich as of now: first you have to start thinking like a rich person, and then later your fortune will grow accordingly (I promise, that later on in this blog I will delve into this topic deeper, but for now just believe that tweaking your thinking is the fastest way to change your reality).

So, what do you need to start investing? An intention to think like rich people plus some more: time, patience and self-discipline. You don’t have to be extremely smart, but if you don’t have enough of self-discipline, this road is not for you. If you cannot wait and refrain from impulsive actions and frenzies, this road is not for you. If you have a delusion to become rich overnight, this road is not for you.

There are two more secret components which I didn’t named yet. Some bravery ¬†since you will risk your own money and you will have to be fully responsible for your own actions. If you cannot do that, this road is not for you. That was one. And another one is your ability to change your worldview by learning on your mistakes.

Assets

To describe the philosophy of investing we need to know what assets are. If you read Robert Kiyosaki, you know that an asset is something “that puts money into your pocket”. I like this definition – simple and to the point.

In investments you buy assets (oppose to business, where you create your assets). This is the nature of investing: by buying assets you make your money to work for you.

Quick money vs Slow money

And a little bit on why you need patience and self-discipline. If your activity to make money quickly turns into the money in your pocket, I call this quick money. As an employee, you make quick money – each our of your work turns into the cash at next paycheck, typically twice a month.

Slow money kicks in significantly slower. If you found a business, your money start coming after this business breaks even – typically it takes at least a year before you see the first dollar of net profit. Same with investments – you first go to work, earn your money, then buy your investments, and only next quarter you will see first dividends (and yes, I know that there are some companies which pay dividends monthly; and also you can make capital gains much quicker etc.)

So why would anybody opt for slow money ? The reason is that “slow” and “quick” refer not only to how fast you get the money but also to the inertness of the cashflow: after you got an asset (bought or built), it will bring you money for decades after that without your significant efforts. Compare this to quick money: 1 hour of your work turned into money quickly, but it’s gone. You are paid once. And if you want more money, please go and work again.

As an investor you should prefer slow money.

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