WWII 002: The Four Investing Choices You Need to Make Early in Life, Investing in Hot Stocks, What a 30 Year-Old Should Do with Cash Now
Here are the four choices as I lay them out:
- You are the client - This option is best for those of you who find investing boring, are fearful of it, and want someone else to do it for you. I would much rather you find an investor to manage money for you than for you to try to half-ass it.
Investing is a profession, and requires the same 10,000 hours as anything else you try to get good at and do on a professional level. If you already have a good career, or are passionate about something else, then you should focus on being the best client that you can be.
Your time should be spent understanding what makes a good money manager and what makes a bad one, so that you are prepared when you hand your money over to a professional.
Please don't just go to a broker. They are salesman, not investors. They will turn around and ask you what you want to buy.
You can give money to professional investors who run wealth management firms, mutual fund managers by buying into their mutual funds, or hedge funds (if you are already loaded).
- You are happy with market returns - This option is for those who want to manage their money themselves, but they don't want to do the extensive work to become the investor. Simply put, if you are happy with market returns, you can buy no-load (no sales charges) index funds over a long period of time and achieve whatever returns the market provides.
- You decide to coat-tail - Coat-tailing is a time honored tradition in investing. This option requires you to do a ton more work the either option 1 or option 2. You will have to learn to understand investing well enough to analyze the constellation of investors that you can coat-tail from. These can range from well-known investors like Warren Buffett to the virtually unknown outside of investing circles such as Seth Klarman or Marty Whitman.
Coat-tailing requires you to pour over Securities and Exchange Commission (SEC) filings by these great investors and figure out how their holdings have changed over time.
This style of investing still requires enough knowledge to analyze the coat-tail investments yourself to figure out if you want to put your own money at risk in the other investor's ideas.
- You become the investor - Get ready for your 10,000 hours. This podcast will largely be about choice number four. This was the choice I made in my early twenties and came with great sacrifice of free time and a ton of energy, but was worth it. Although not every investment I make works out, enough of them have worked out well enough that I now do it professionally.
There are three considerations if you want to become the investor. First, is the lifestyle of an investor for you? Second, is your personality a good fit for investing? Third, are you willing to enter a career that lends itself to investing?
The lifestyle of the kind of investing that I do requires long hours of reading in isolation. Basically, I get paid to read and think, and that means being alone much of the time. I don't run a hedge fund with a bunch of traders screaming at each other. I sit alone in a room and read all day. Does this sound good to you?
If you need a lot of people around you all the time, then you may want to consider options 1 or 2. There are plenty of great careers available to people who want to be surrounded by other people. In my opinion, investing is not one of them.
Danny asks: Should I buy the hot stock that everyone is talking about?
Jessica asks "I'm turning 30 this year and have been able to save up some money. Should I keep it in cash, or should I invest it?
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