I often write on Quora.com, where I am the most viewed writer on financial matters, with over 245.4 million views in recent years.
In the answers below I focused on:
- Somebody asked me “as a stock trader how much attention should I pay to the news?”. I explain why the answer is zero!
- How can people build a wealth mindset? From reading, a social network or doing something more radical like emigrating?
- Has the economic crisis caused by CoVid-19 and associated lockdowns affected rich or poorer people more, or is it more complicated than that? I explain how we need to look at this from numerous angles, including what sectors people work in.
- Do people who earn higher grades at school, and indeed university, become millionaires more often than not? Many people assume this, but do some people peak too early?
Some of the links and videos referred to might only be available on the original answers.
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Imagine you are a farmer, or own farmland. Would it make sense to sell your farm based on:
- A particularly warm or cold winter?
- The economic crisis in 2008–2009?
- 2020 and COVID-19?
- The oil price going up?
- Short-term GDP growth forecasts?
- Unemployment news?
Of course not. If you are a sensible, long-term, investor you don’t care about these short-term trends.
You likely only care about the long-term and understand that cash flow won’t be that affected by these events.
The same thing is true of a great business. A great business won’t be affected by these things long-term.
If it is affected, then it wasn’t a great business to begin with, as that shows that it wasn’t prepared for black swan events.
The same is true about the stock market. The Dow went from 60 in 1900 to 2,000 in the early 1990s, to 33,000 today…..and that isn’t calculating the dividends.
The Nasdaq went from 200 in the early 1980s to just over 5000 at the 2000 peak to 14,000 this year.
So for all the “scary” headlines about the huge 75% falls in the Nasdaq from 2000 until 2002, the patient investor has done well in that space.
By the same token, if you are 25, 30, 35 or 40 today, i doubt it will make much difference if you buy the Dow at 31,000, 32,000, 33,000 or 34,000 in 2050 or 2060!
The average stock investor shouldn’t care about the following things:
- The news
- Short-term valuations
- Short-trend trends
- Noise in general. The average opinions out there.
- The financial media and their sensationalism
Remember that accounts of dead people outperform the living – even the living who are experts in finance. They outperform even PHDs in finance and portfolio theory!
The point is, doing nothing, buying and holding, is affective. That is the way generational wealth is acquired as well for people who want to pass on assets to kids.
I once spoke to a person who said, many years ago, that “you can’t put in a DVD called entrepreneurship and suddenly have that mentality”.
This view holds that investors, and entrepreneurs, are born and not made. I don’t complete buy that.
It is true that some people seem to take an interest in these subjects early on.
We all probably knew “that person” who sold yo-yos or something else in the street playground, to kids who used their pocket money to pay for these items.
Yet I have seen several people change their mentality with experience.
The biggest reasons tend to be:
- Changing your environment. If all your friends, family and wider social circle thinks similarly, it is likely that will rub off. That is especially the case for younger people. When people move to another city, or emigrate, it can change their way of thinking fundamentally. Travel can also help here, but not as much as emigrating or moving cities in your home country.
- Changing your circle – Partially linked to the first point, but this one can be done without moving. When people meet people in-person or online who are just like them (similar age, social class etc), who have made it and think differently, it can rub off. Many of the most successful people accredit having a mentor with their success.
- Reading and other influences. Podcasts. Knowledge. Reading as much as possible can help as well, because it gives people new influences.
- Considering how other great people think. It is easy to just think like everybody else and be obsessed with what is normal, but that isn’t always productive. This is a great article on the subject from Inc.
For me personally, I have been lucky enough to live in several countries, social circles etc.
I have noticed the following differences in mentality between those who end up making it
- Abundance vs scarcity. People who eventually make it have an abundance mindset. In other words, there is plenty to go around. Social media is a great example of this. People with a scarcity mindset won’t “give away information for free because I won’t get paid”. People with an abundance mindset will realize that giving things away, long-term, will bring more in, even if some people take advantage.
- Linked to the last point, giving away value first, and asking for something later, makes more sense. Plenty of people try to extract without giving anything away
- Risks are essential. That doesn’t mean taking silly risks. It means taking calculated risks. Taking no risks is impossible and ironically, when people take no risks, they are indirectly taking more. Putting money in the bank, for example, isn’t safer than investing long-term. It is only safer than speculating, which people don’t need to do. Money needs to be put to work, rather than saved.
- Taking personal responsibility and taking actions. Did you notice what happened after lockdowns? Many people called for government intervention. Plenty of other people rolled up their sleeves and innovated. Innovative airlines offered flights to nowhere. Others seemed to give up. Some people, who previously relied on face-to-face communication with clients, said “I can’t do business as I can’t meet people”. Others adapted even before COVID-19, with others being reactive after. You see there are three different mentalities there. First, proactive. Those who saw we were going into a digital world in the 2008–2020 period. Reactive- those who reacted to Covid-19. And finally those who just gave up and didn’t even try!
- Wealth and income aren’t always related. Generating money (income) isn’t as important as wealth. If somebody earns loads, but spends loads, they are poor. There are plenty of people like that in the world. This related to the long-term thinking mentality and not being complacent.
In the majority of countries it has affected wealthier people less, regardless of their income, as asset prices have risen, especially in the stock market.
In comparison, wages have not risen in most sectors, stagnated or fallen. Yet there is a wider trend.
Unlike previous recessions which affected almost all industries, this one has hammered down, and benefitted others.
The majority of digital, online or technology companies have benefitted from the pandemic, regardless of whether they are a small company or Zoom.
It has been a boom for online lawyers, language teachers and graphic designers alike.
In comparison, most businesses in hospitality, spirts and entertainment have suffered, again regardless of the size of the operation.
The only difference is big firms can rely on cash flow, or in some cases government handouts.
So, the net effected have been worse for richer people, yet richer people in affected industries have been affected a lot.
Yet it is a reality that, unfortunately, a lot of poorly paid people rely on the face-to-face economy for a living. That has been the area affected the most from the pandemic.
Going forward, Covid-19 will have a lasting impact. This report from McKinsey showed that the crisis accelerated an existing trend towards digital interactions.
As yo8 can see the percentages of interactions going digital was skyrocketing before the crisis.
From the late teens/early 20 percent to 32%-41% or just two or three years. A doubling of digital interactions as a total percentage in 2–3 years, even before the pandemic, is huge.
The crisis just put the world where it would have been in 2025 or 2028 in any case.
This trend could increase inequality, but it will also give smaller, digital, companies a way to compete against larger firms which are bricks and mortar.
Either way, the trend we have seen since 2008, which has been close to 0% interest rates, with probably ensure that owners of asset prices continue to outperform people who only rely on income increases.
So, future crisis are likely to affect the asset poor more than those who are merely income poor.
I have run out of the number of income rich, but asset poor, people who have needed to rely on furlough schemes to pay the bills during this crisis.
Let’s look at this from two aspects here:
- My own anecdotal experience
- What the wider data shows
My own anecdotal experience is that people peak too early, too often
I am not saying getting ahead early isn’t good. It can be. If you want to become a doctor, or many other professions that require very high academic attainment in most countries, it is better to peak early.
Yet many of the most successful business people I know didn’t do that well at school.
Many did badly, OK or above average. More did well at university. More still started to peak later on.
This could be a coincidence, it could be a sign that people who didn’t peak early feel more motivated to prove other people wrong.
In any case, almost everybody I know who has become a millionaire, regardless of their educational level, focuses on buying assets (wealth accumulation) rather than income.
Or in other words, they have educated themselves about personal finances, or outsourced the process to advisors.
If we look at the wider data, better educated people tend to earn more, according to the tax foundation
But earnings and wealth aren’t always linked in 100% of cases as plenty of highly paid people just spend it all, and there could be many reasons for the above statistics.
So, I think the bottom line is, being very well-educated is good, but it won’t make somebody a millionaire in isolation, if they don’t learn financial education, or they peak too soon.
The benefits of being highly educated also starts to even out above a certain level.
Many people wonder why Harvard graduates tend to earn a lot. One reason is that it is difficult to get in to begin with, rather than only being about what they learn.
Therefore, we shouldn’t be surprised when Harvard dropouts do almost as well as those who completed the degrees.
The mindsets and other attributes needed to get in to begin with are useful later in life.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 245.4 million answers views on Quora.com and a widely sold book on Amazon
The article below, taken from my online Quora answers, spoke about the following points:
- What is better a long-term or short-term investment?
- Is Kuala Lumpur (Malaysia) or Bangkok the better place to live in Asia?
- Is the average person really poorer than before the pandemic, if we look at income and wealth?
- What are some of the biggest misconceptions about the global stock markets? I made a detailed list which includes the (false) idea that the Japanese stock market has fallen compared to the peak on all measures.
To read more click on the link below.