1. Face your front
You versus me. We are all playing different games.
Investing in property is a profitable venture. There are two types of investors.
Short term investors can afford to buy property for exorbitant prices because they intend to sell within a few months. This is their game.
Long-term investors buy cheap property and sit on it for years or even decades. This is their game.
Most times market price is grounded by these long-term prices.
When long-term investors get distracted by short-term gains of short-term investors and begin to play their game the beginning of doom is spelled.
The market becomes driven by short-term prices and like all bubbles, it will eventually burst.
An 9 to 5ver and a celebrity are playing different games. They are not expected to handle their finances the same way. The glit and glamour that comes with celebrity lifestyle is required to fuel the celebrity status and drive more income.
Indulging in the same way of extravagant living might come costly for a 9 to 5ver, one with a modest income.
No path is neccessarily better than the other. It's all up to how you play the game you've chosen for yourself.
Coat your coat according to your size.
2. Tails and you can still win
Heads or tails? You can consistently fail and still win. how? COMPOUNDING
7 out of 10 startups fail, 2 do averagely well and 1 makes a massive success. Failure is common than success but that is fine. That's nature. It's not a fault on anyone's part.
Warren Buffett bought his first stock at age 11 and kept at it before retiring at 60. That is five decades straight of consistent investment! No stops, no breaks. If he had started at let's say 30, he would not have made as much money as he has. Compounding is the magic trick.
Jim Simons, another great investor, with an outstanding 66% annual return on his investments has a net worth 72% less than that of Warren Buffet as of 2020. Warren Buffett makes a 22% annual return.
Why isn't John Simons richer?
COMPOUNDING.
To grasp the effect of compounding even better, 10 out of 400 to 500 stocks invested in by Buffet as of 2013, drove most of his profit. Only 10! Those 10 are the big winners, the tail events that drove his success. Tail events are all that matter in the long run.
So it follows that you can fail and fail but hanging on long enough to meet the tail events sporadically cancel out previously seeming massive failure.
It is easy to grasp simple linear probability. That 10+10+10=30. That's easy. The power of compound probability on the other hand often goes unnoticed by. That 10³=1000?. From 10 to 1000. That's a huge difference. Now compare the addition of ten 10's to 10¹⁰. The difference is simply mind-blowing.
In finance, the little things you keep at, come rain come sunshine, come economic boom or recession compound beyond the grasp of your imagination. If only you would just keep at it.
3. Luck vs Risk
The line between luck and risk is non-existent. No one can tell it.
There are so many factors outside personal action that affects financial outcome.
You launch a new skincare line with modest capital and it is a bestseller. Remember, there are millions of other competitors. some have been in the business for decades with a huge chunk of the market. Some are founded by influencers that have tremendous followers. Lots of scientific research went into others and they are superior in quality. Others have crazy advertising campaigns that are shoved down everyone's throat on social media.
What were the chances that your skincare line would do well? You worked hard yes, did your research and your products are of great quality but how much of your success can be attributed to your hard work alone?
What if the popular skincare
brand conveniently goes bankrupt at the exact time you launch or that favorite influencer said something nasty and is being canceled?
Even if a business has a 90% chance of success. How do you accurately predict you won't end up on the 10% downside? Nobody remembers investors that made good decisions that didn't work out. However, investors that make okay or even reckless decisions that work out will be noticed and praised.
What if Warren Buffet cashed out on his investment earlier? What if he didn't buy into the 10 major ones that drove most of his profit? How could he have predicted they were gold mines? How much of his success can truly be attributed to genius?
Elon's Space X succeeded only after the fourth rocket launch attempt. First three failed. If the 4th launch had not worked, that would have been the end of the company. Would anyone praise his genius then? Did he take the right risk or was just lucky?
The line between luck and risk is blurred and too many factors out of personal action control financial outcomes.
4. The stories we tell ourselves.
Stories control the world. Stories move people. Little wonder rival parts of the media constantly struggle to control narratives. The one who controls the narrative, control the world.
In the same way, the stories we tell ourselves also control how we see the world. That includes finance. No one has a complete view of how the world works. The gaps are filled in with intuition, and personal experience, which are mostly flawed.
A 2-year-old does not understand that playing with a knife is dangerous. When mummy collects it from her, she cries. What story does she tell herself? Mummy does not want me to play. She makes a fuss because she doesn't understand.
We possess this innocent ignorance in a lot of matters than we would like to admit. The more you want something to be true the more you overestimate the odds of it being true.
For instance, buying bitcoin gives a tendency to believe every story that says its value will rise. Selling off in a bear market gives a tendency to believe any story that says the market will keep crashing so you feel like you made the right choice.
Financial decisions and analysis are more often subjective than objective even from the best investors and financial analysts.
Awareness of this bias help to screen the stories you believe in and the stories you tell yourself.
5. Whatever helps you sleep at night.
They say facts don't care about your feelings. But guess what. Your feelings also don't care about facts!
During bear periods in the crypto market, you are told to hodl, don't sell.
You might be watching your life investment go down the drain but you'll recover it back. Be patient.
You wake up the next day, check again with faith. It dips even further. Your heart sinks. You know the facts but your feelings are not catching up.
Facts don't tell you how you'll feel when you look at your loved ones knowing you might be screwing up their future.
"It always goes back up" won't tell you how you'll feel looking at your investments painfully vanishing slowly as days go by.
Facts say that getting a mortgage is a great way to buy a home. Very low initial deposit, fixed interest, and payment over many years. Still, not everyone is comfortable with owning a house on mortgage. What if something happens to my income and I default on monthly payments?
Buying a house upfront is a reasonable decision if you belong to this category of people even if it is expensive. If you will only feel secure knowing that your home is paid for, go for it.
Making investments involve being rational AND reasonable. The two extremes are equally bad. A middle ground should be sought after. Taking risks is great. Just make sure you can sleep at night with the ones you choose. The goal is to stay long enough in the game to withstand the several unpredictable losses that come your way so you'll be around when the tail events, the big winners, arrive.
6. Fee vs. Fine
Getting pulled over for overspeeding results in paying a fine. It's the punishment for committing an offense. A fee is what you pay when you renew your Netflix subscription. It doesn't leave an ill feeling.
The distinction between the two is very important. Why? Every financial decision has a price. But not all prices are as obvious as a Netflix sub.
The price of being a doctor is spending a good time of your life, often more than a decade in school and the learning continues even after.
The price of being an investor is the constant rise in blood pressure when there is a bear market.
Recognizing the price you have to pay in whatever endeavor you want to embark on and perceiving it not as a fine but a fee, a necessary sacrifice that will yield bountiful rewards helps you persevere and not despair.
7. Room for error
Most often than not, nothing ever goes exactly according to plan, even when it goes well. Knowing this, giving room for error is still not intuitive to many people.
Planning and expecting said plan to work out to the finest detail gives a sense of security. It lessens the anxiety that comes with uncertainty.
Stock market predictions are false 9 times out of 10. Does that keep people from seeking them, however? No.
People need security. People need to fill the holes in the incomplete story. Financial analysts are great at giving reasons why the stock market moved the way it did only in hindsight. Predicting exactly how things will go in foresight is simply impossible.
Little variables lead to completely different outcomes. History is mistakenly used as as prediction for the future. Maybe in some areas of human life but not in finance.
Things that have happened before are not always accurate predictions of what is to come. How the stock market moved over the last 20 years can not accurately predict how it will move today. All that data, and not an accurate prediction can be drawn. Only in hindsight do "analysts" claim to understand why the market moved the way they did. Tail events drive markets because they are unexpected.
Making room for the element of surprise lessens disappointment and lengthens your lifespan in the game.
8. Not one person is crazy
People make bad financial decisions all the time that seem so obvious. The sheer randomness of where and when a person is born into this world determines how they make these decisions, regardless of Ivy league education or not.
James born in Nigeria in 1970 and James born in Nigeria in 2000 will make very different financial decisions.
1970 James experienced a Nigeria where teachers were given a house and car immediately after graduation. Teaching for him was wise to go into.
2000 Tunde, a student now, is in his 6th year of school for a 4-year course because of frequent university strikes. He will not ever dream of becoming a teacher.
To understand even better, Most Nigerian parents want their children to become doctors, engineers, or lawyers simply because they were the"it" courses of their time.
Even with the constant owing of salaries of doctors and meager salary offers to lawyers now, they are unrelenting in their efforts to make their children study these courses. Times change but people are slow to catch up.
Trades like plumbing, carpentry, and mechanic work pay poorly in Nigeria. In the US, the pay rivals those of the "prestigious courses". It is reasonable to expect different attitudes towards these professions in these two countries.
Before and during world war 2, the attitude of the average American to
saving was positive. An extremely high savings rate was common among people. This is no surprise as the war and lack of economic activity made it necessary to manage resources.
After the war, a different story birthed. Interest rates were reduced to a great extent to stimulate economic activity. It was easy to borrow to buy a house, or a car, to start a business, and pay back. The attitude towards debt was significantly different. People didn't mind accruing debt and as opposed to saving a consumer economy was born. A pre-war American who would be horrendously shocked by this "carelessness".
Is it expected of people who have only experienced times of economic plenty to approach finance in the same manner as those that have experienced only times of economic low?
Is it expected of people born rich to approach finance in the same way as those from poor homes?
Outliers exist but outliers are not the norm. No one is crazy.
9. Wealth is what you don't see
The man in a car paradox. A valet admires the different high-end cars he gets to park. From Ferraris to Bugattis to Ranger Rovers. He says to himself, "If I had that car people would think I'm cool, it will signal that I've made it"
Later on, he realizes that he wasn't looking at the owners of the cars but at the cars. He thought the cars were cool not the owners, the irony dawned on him.
People buy expensive stuff to be admired and respected for being rich but don't notice that their stuff is what is admired and not them.
In 2009, famous musician and beauty mogul, Rihanna sued her financial advisor after almost going bankrupt. She lost 82% of her wealth. He said, " I didn't think I needed to tell her that spending money on stuff results in getting the stuff and not the money".
Wealth is what you don't see. The money in the bank, the investments that no one knows about by just looking at you.
The flashy houses, cars, Jewelry, and clothing are riches, converted wealth.
Wealth gives you options. Wealth allows you to wait for the right opportunity instead of having to take whatever life throws at you. Wealth gives you back control over your time.
Building wealth is not about skill but behavior. The act of saving is an integral part of this behavior. Saving is not just putting some money away. It is the difference between your ego and income.
One can argue that finding ways to increase your income brings in more wealth. True, but your savings is the only variable you can completely control. Your income might rise or fall, business might not move well sometimes, crypto might experience a bear market, the economy might experience a recession or boom that might affect your income. No one can predict these things. Your savings however, are in your total control.
Wealth is what you don't see.
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