The speculative return. Anything above, or below, the fundamental return.<\/li>\n<\/ol>\n\n\n\nFor example, last year, some major stock markets rose close to 30%. Were most businesses getting more profitable to such an extent? No.<\/p>\n\n\n\n
Likewise, this year, most stocks are down, even though profitability is increasing in many cases.<\/p>\n\n\n\n
The second aspect of the return – the speculative return – is also based on human emotions. People are likely to become overly optimistic or pessimistic.<\/p>\n\n\n\n
Sometimes that becomes extreme optimism and pessimism. Here is Buffett making a point about buying non-listed private businesses compared to publicly-owned businesses (stocks).<\/p>\n\n\n\n
As he mentions, you will never buy a private business as cheap as some stocks get, for example, during panics like 2008\u20132009.<\/p>\n\n\n\n
Would the farmer in your hometown sell their farm for 1\/3 of the price as last year, just because the economy is down a little?<\/p>\n\n\n\n
Would your next-door neighbour sell their house, or business, for half the price for the same reason?<\/p>\n\n\n\n
And would a direct competitor or most firms sell out just because of one bad year for a vastly undervalued price?<\/p>\n\n\n\n
The answer is almost always no. In comparison, people are sometimes prepared to sell their stocks for vastly undervalued amounts due to fear and other reasons.<\/p>\n\n\n\n
As more people sell at undervalued prices, the price goes down until an equilibrium is found, and then prices rebound and eventually hit record highs again, at least in terms of the actual stock market index.<\/p>\n\n\n\n
So, some big companies have artificially low stock prices for the same reason as smaller companies.<\/p>\n\n\n\n
There is either a fundamental reason for it, or it is linked to an artificial reason, which gets rectified in due course.<\/p>\n\n\n\n
Ultimately, we can\u2019t outwork people forever. We can\u2019t outthink them forever. But being street smart and unemotional about money is one way of sustaining ahead, without taking on any additional long-term risk.<\/p>\n\n\n\n
Just look at the price to earnings ratio, a key valuation matrix, for a major firm like Coca Cola over time:<\/p>\n\n\n\nYou can see how overvalued it got in say 2000 versus say 2008.<\/p>\n\n\n\n
Why are immigrants usually more successful?<\/h2>\n\n\n\n Not all immigrants are more financially successful. Plenty work in low-salary jobs, especially if they don\u2019t learn the language well.<\/p>\n\n\n\n
What is true is that many immigrants, and sons and daughters of immigrants, do very well. Take the UK or US, for example.<\/p>\n\n\n\n
Many immigrants, or local people from immigrant heritages, outperform those who have been native for a few generations.<\/p>\n\n\n\n
White British people, on many measures, even less than British Indian, Chinese and mixed race people:<\/p>\n\n\n\nThere are many possible explanations for this.<\/p>\n\n\n\n
The main ones are<\/strong><\/p>\n\n\n\n\nPeople who leave home in the first place are either more likely to have financial means or have nothing but are risk-takers by nature. A cautious, poorly educated, a person is less likely to emigrate, to begin with.<\/li>\n\n\n\n Those risk-taking and other positive attributes are passed down to the second generation. For instance, saving and investing are a bigger part of the culture, passed down the generations.<\/li>\n\n\n\n Immigrants are less comfortable, as a generalisation, even if they earn more because they have a smaller support group, might have a prejudice against them etc. That further encourages motivation to prove others wrong and further risk-taking.<\/li>\n\n\n\n They invest in education, which eventually pays off.<\/li>\n\n\n\n If they aren\u2019t the risk-taking type, they encourage their kids to go into careers that have a more \u201ccertain\u201d payoff, rather than studying whatever they are interested in.<\/li>\n<\/ul>\n\n\n\nThere is another aspect here. It is one that the Canadian academic Malcolm Gladwell spoke about on a recent interview:<\/p>\n\n\n\nGladwell made the point that most native people won\u2019t move as often for jobs and business opportunities, even when they are young.<\/p>\n\n\n\n
A migrant who has come to the US, Canada or any country is more likely to move for more significant opportunities, at least whilst young.<\/p>\n\n\n\n
This makes a huge difference, even if the online world has lessened this importance over time.<\/p>\n\n\n\n
Suppose you are in technology and will refuse to move to California, that puts you at a significant disadvantage. Likewise, if you are in finance and don\u2019t want to leave your small hometown, it makes things more difficult.<\/p>\n\n\n\n
Ultimately, getting out of your comfort zone and taking risks can have huge upsides, especially when young.<\/p>\n\n\n\n
Too many people are risk-adverse during periods of their life when they don\u2019t need to be.<\/p>\n\n\n\n
Is this decade the easiest to become a millionaire or a billionaire?<\/h2>\n\n\n\n Many people will say things like, \u201cin my day, it was easier\u201d.<\/p>\n\n\n\n
Yet consider a follow-up question. If it was so straightforward back then, why didn\u2019t the person making such statements take advantage of that opportunity?<\/p>\n\n\n\n
One reason is that it wasn\u2019t immediately apparent that such an opportunity was available. Take the 2010-2020 period as an example.<\/p>\n\n\n\n
Something huge changed. The trend was apparent just two years earlier. Social media has been around since the mid-2000s or before, but Barack Obama\u2019s election in 2008 signalled a change.<\/p>\n\n\n\n
His team used Facebook, which had previously been seen as something for kids or only for social things, to reach out to the electorate:<\/p>\n\n\n\nFacebook and Twitter are now dominated by people who are 30\u201365, with loads of middle-aged people on the platform.<\/p>\n\n\n\n
The last decade (2010\u20132020), was a great decade to get organic traction from firms like Facebook for brands – including private businesses and political parties.<\/p>\n\n\n\n
Look at Trump and his use of Twitter in 2016. He beat a better-funded person using organic social reach.<\/p>\n\n\n\n
Yet how many people took advantage? Very few, and now it is harder to do well with organic posts, as a business, on those platforms, as their algorithms push people towards paid posts.<\/p>\n\n\n\n
That is simply one example of many I could have used. Likewise, investing after 2008 and 2020 was a great opportunity due to the market falls, but most people with money panicked or held cash.<\/p>\n\n\n\n
In 2050, there will be plenty of people who will say the 2020s were a golden period for this or that reason.<\/p>\n\n\n\n
That doesn\u2019t mean it will be immediately apparent where those opportunities are. That is why making money in business consistently<\/strong> is never easy.<\/p>\n\n\n\nThis makes reading, learning and networking with the right people important, otherwise, you become irrelevant even if you had previous success.<\/p>\n\n\n\n
The ability to think outside the box is also key, because the vast majority of great business ideas force you to get out of your comfortzone.<\/p>\n\n\n\n
It is harder to make money if you just do what everybody else does. Normal actions will result in normal results, regardless of the decade you are in.<\/p>\n\n\n\n
I see no reason why there won’t be an increase in opportunities and threats in a changing world in this decade, with a larger global population who are connected online, making becoming rich or losing money easier, depending on how you play your hand.<\/p>\n\n\n\n
That isn\u2019t to mention the growing middle-class in emerging markets in Africa, ASEAN and beyond, and larger inheritances.<\/p>\n\n\n\n
Private investing, in some ways, always stays the same or at least similar. You are investing for the long-term, diversifying once you are older, reinvesting dividends and many other things.<\/p>\n\n\n\n
What has changed is how easy it is to invest now. You no longer need to be rich to invest.<\/p>\n\n\n\n
So, I would say that the coming decade won\u2019t be any harder to make money than any other period unless we hit a global depression, provided the right cards are played.<\/p>\n\n\n\n
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