Everyone wants to be financially independent, but few are acutely aware of what it means to them, and the principles that need to be followed to achieve it. Investor Ian Cassel has some amazing insights that can lay the foundation for a roadmap.
- Don’t be a chicken, be a hawk. Be picky about your investments. Be focused about your goals.
Don’t be afraid to say no to 99.9% of investment opportunities. You only need to find one great company, before others, to change your life. Extraordinary returns follow extraordinary discipline. An investor’s goal should always be to make as few investment decisions as possible. Keep your hurdle rate high and embrace inaction.
Chickens will eat anything you put in front of them. They will eat insects, bugs, meat, fruit, vegetables, fish, and, yes, even chicken. They have no self-control and will even eat their own eggs and faeces.
A hawk can see up to 8x more clearly than the sharpest human eye. To put in comparison, if you had a hawk’s vision you could see an ant on the ground from on top a 10-storey building. A hawk’s eye is so large that it occupies a big portion of its skull. The hawk knows what it’s looking for.
The visual capabilities let the hawk distinguish the size, shape, and speed of the potential prey so it can recognize, target, and capture it quickly. As you fly above the investment landscape looking for opportunities, develop tools, strategies, even statements, that you can apply quickly to evaluate opportunities. Know what you are looking for so you can develop the vision to recognize an opportunity quicker.
8 insights on getting wealthy
- You achieve financial independence by saving more than you spend and investing those savings in an area where you have an advantage.
No one gets rich keeping their money in a savings bank account. For me, the advantage was microcap stocks, the smallest public companies in the world. For you, it might be another area of the public markets or maybe even real estate, or some other area of expertise. Through skill and prudence, you get to a point where you finally have a choice.
There is a reason why I exclusively invest in the microcap arena. It’s one of the only places in the public markets where a small, astute investor has a clear structural advantage. It is impossible for larger institutions to invest in these small companies until these stocks rise and become more liquid. Great investors don’t follow the institutions; they invest where they are going to go. (Did you know that Warren Buffett, Peter Lynch, and many other great investors started in micro and small cap stocks as well?)
Individual investors have an edge over investment managers, advisers, analysts, or anyone forced to prove how smart they are to others. You don’t need to have an opinion on everything. You don’t have distractions. All you have to do is focus on making a few good investment decisions per year.
3 investment hacks for young people
- You will never achieve financial independence if you cannot differentiate between business performance and stock performance.
On my 16th birthday, my parents presented me with $20,000. It could be for my college education. They had also co-signed paperwork so that I could open an account with their financial adviser. The choice was mine.
I had always been interested in money and the stock market. Technology stocks were starting to make daily headlines in the business section of newspapers. I called the financial adviser and he sent me a few analyst reports to review. I bought $5,000 worth of one technology stock. It doubled in two months.
I filled out applications to a few private and public colleges. I realised I could spend all my money on one semester at a private college or attend a less expensive public university, live at home and commute, work part time, and continue to invest. I chose the latter path.
I worked part time for a financial adviser with over 1,000 clients. The money I earned was sufficient to pay for my college tuition. The $20,000 from my parents turned into $120,000 by riding the technology bubble. When the bubble burst, so did my portfolio. By 2001, my portfolio of mid and small cap technology companies fell so much they turned into microcaps. The $120,000 was now $8,000. I was financially and emotionally bruised.
It dawned on me that I was not skilled, just plain lucky.
When you are holding onto a position ask yourself – Is this business growing and making more money per share than it did a year ago, two years ago? Successful investors can differentiate business performance from stock performance and can take advantage of those investors who can’t. Even great businesses get overvalued. It’s important to make investing decisions based on business performance, not stock performance. It’s also important to know the distinction between external stock market forces driving a stock price versus business reasons.
Learning and evolving is a big driver of long-term success as a full-time private investor.
How to combat these 6 investing demons
- Money is about freedom, not consumption.
A lot of people incorrectly assume that they need enough money to do nothing. You just need enough to do whatever you want. The power is having a choice. The choice might be to work less to spend more time with family, to go back to university, to start your own business, to travel, or perhaps even take a job that pays you less but gives you purpose when you wake up in the morning.
One of my mentors is a successful private investor. He works his day job not because he has to, but because he likes it. His non-financial job offers him lots of autonomy, so he can focus on his investing when he needs to. His job also shields him from questions from family and friends if he were to quit his job and ‘retire’. What most don’t know about him is he has grown his portfolio from $100,000 to over $50 million over 20 years. You would never know it. He still lives in the same house, still has the same friends, still has the same life. One of his biggest worries is people finding out what he’s done and looking at him differently.
As you grow your capital you will reach a pivot point when you feel you finally have a choice to do what you want in life. Some of you will choose to keep your day jobs because you love them. But some of you will choose to finally break free from a job and routine that have been holding you back.
6 questions that will get you excited about saving
Larissa Fernand is Senior Editor at Morningstar India. You can follow her on Twitter.