I often write answers on Quora, where I am the most viewed writer for investing, wealth and personal finance, with over 223 million views in the last few years.
On this article, I will use my answers to reader questions on Quora to answer the following three questions:
- How can somebody invest in the US stock market from Kenya and do it productively?
- What makes a good stock investor? Emotional control or technical knowledge?
- If somebody is worth millions in their 30s, can they really become a billionaire before they die? What is the likelihood?
- How can the stock market grow more quickly than GDP?
If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me, email (email@example.com) or use the WhatsApp function below.
How can I trade US stocks in NYSE from Kenya?
There are two questions here:
- How to invest in US Stocks from Kenya and many other places
- How to do it productively.
For the first question, it is the same globally.
You need to
- Find a broker who can accept for Kenya. You need this regardless of whether you want to DIY invest or use an advisor or firm to help you
- Give your proof of ID and address for anti-money laundering requirements
- Complete needed application forms online
- Once approved fund the account and pay
The only thing which is different about Kenya from say an EEC country or other developed markets, is that most international players don’t accept.
Therefore, you need to find a boutique and specialized DIY or advisor-lead provider which can do this, or contact one of the few big names that might accept for Kenya.
Now in terms of the last point.- how to invest in US Markets productively. There are many people who invest in US, and other, markets all around the world.
Few do that well……despite the fact that the asset class has gone up for over 200 years!
There are loads of reasons why that is the case. I won’t bore you with all the reasons.
All I will say is look at the last 12–13 years. People panic selling or not investing due to:
- The 2008–2009 financial crisis
- Worries about a second crash in 2010
- Worries markets were too high in 2013
- Worries markets were too high in 2014
- Worries markets were too high in 2015
- Worries markets were too high in 2016
- Worries about Trump getting elected in 2016
- Worries markets were too high in 2017
- Worries markets were too high in 2018
- Worries about the trade war with China and North Korea in 2018
- Worries about the 20%-25% falls (a “mini crash) in late 2018/early 2019
- Worries markets were too high in 2019 after the recovery
- Worries markets were too high in early 2020
- Panicking when markets crashed in February/March 2020
- Worries markets were too high in mid-2020
- Worries about the US election in 2020!
- Worries markets were too high in 2021!
If you have been doing what I have been doing for any length of time, you realize that the same people, have the same worries, again and again.
The same people who are worried about markets being overvalued at 31,000 are the same people who worried about markets at 14,000 in 2013–2014.
The same people who worried about a market crash in 2016 due to the election were the same people who worried in 2020, and they will worry again in 2024!
The same people who worried that markets would never recover from 2008 worried about the same thing in 2018 and 2020.
So, emotional stability and long-term outlooks are key.
What makes a good stock investor in your opinion?
I remember speaking to a financial advisor who works in a bank back in 2016.
He mentioned to me that “he doesn’t blame people who don’t want to invest”.
This was due to the facts that markets had gone up a lot in the previous few years and the uncertainty of the upcoming US Election in 2016.
I have encouraged this issue several times. People, who supposedly have a lot of knowledge, come out with statements which contradict the academic evidence on investing.
Anybody who has ever done any proper reading on investing understands the following concepts
- Markets rise over time. Yet nobody can time the perfect time to come in and out of markets. Therefore, time in the markets beats timing the markets. Being in the market long-term also means that you can reinvest dividends which are one of the keys for total returns.
- The media has called 100 of the last 3 crashes. It is best to ignore them.
- Being 100% in stock markets forever doesn’t make sense. Having a sensible allocation between stocks and bonds makes more sense. Bonds don’t beat stocks long-term, but they outperform during some moments like market crashes. That gives you an opportunity to rebalance.
- Investing sooner rather than later ensures you can take advantage of compounded investment returns.
Yet like fat doctors or lawyers who get into legal trouble, there are countless financial professions who don’t practice what they preach.
I was reading a book recently on behavioural finance which illustrates this concept in a startling way.
An academic on portfolio theory was found to not be following his own advice on asset allocation.
The reason was simple – emotional. It felt uncomfortable to follow his own thesis even though he knew it was right.
That is because following his own findings would have resulted in a more volatile portfolio which was likely to perform better over time than a less volatile one.
Remember the following facts
- The dead outperform the living in investing – even most of the knowledgable living people like people with PHD’s in portfolio theory. The dead can’t panic sell, listen to the media and so on.
- Some of the best performing accounts for the living are those accounts which people have forgotten about. The kind of accounts where your parents put a little aside, or you did decades ago, and you somehow forgot about it, maybe because it was a small account. Again, I have run out of the number of finance professionals whose best performing accounts have been those dormant accounts which they have just been reminded of.
For me, then, the top two attributes of a good investor are:
- Emotional control. This is especially important during extreme moments like market crashes, when everybody always streams that “this time is different” and fear paralyses people.
- Taking action. Somebody needs to invest to begin with to actually get good returns. Once the account is set up though, it is better to take no action and just leave it sitting there.
This quote sums it up:
Investing is one area where you can get higher returns by doing less. Trying to be too cute or clever just causes issues longer-term.
If someone is a multi-millionaire by the age of 30, how long do you think it’ll take them to become a billionaire?
Believe it or not, the answer is “never” for most people, especially in inflation-adjusted terms
The main reasons are
1. There are only a few billionaires in the world. Yet there are loads of millionaires and multi-millionaires, including those who are young:
If it was so easy, everybody would do it.
2. Loss aversion. A certain type of person wants more and more as they taste success. Others get more conservative and try to preserve what they have.
3. Complacency and laziness. You also get some people, typically those in preservation mode, who become less motivated. They stop expanding as much. They don’t chase new clients in business. I think this is the same reason why many inheritance wealthy people become broke too.
4. The opposite end of the extreme. On the opposite end of the extreme to the second and third points, we have some people who don’t just take calculated risks which is sensible, but try to take bigger risks as they have more. This can be due to greed or many reasons. I know somebody who was worth $2million at 32 and many times more by 37. He leveraged himself in real estate. His ego grew. He took bigger and bigger chances. Then a Lehman happened. He needed to sell off stock to pay his staff and rent, as the banks stopped lending. A vicious cycle meant that he was down to only having one house (worth about $400,000-$500,00) and no other assets. If Lehman didn’t happen he could have been one of the richest people in Europe.
5. Getting 20%, 30% or even 80% growth on a start up business is much easier than getting 15% growth on a mature business, in many situations and industries.
6. The maths. Let’s say somebody is worth $3m at age 30, and they add $200,000 a year on average to their investment accounts or their business account. Now let’s say they manage to also get a return of 12% per year, which few do forever, as per the fifth point. Even in this rosy situation, they would be worth $143m at age 60 and 450m at age 70, and that isn’t counting inflation. So, the only way to become a billionaire, even with multi-millionaires, is very rapid and sustained growth, which allows you to either sell out or IPO on a stock exchange.
7. Sometimes unexpected events, such as ill health or the economy, can affect people. This is especially a problem for people who haven’t planned for “black swan” events like that. We have seen that during Covid. Most businesses were reactive to the crisis and didn’t go online soon enough, even though we were rapidly going into a digital world for decades. This is partly linked to the previously mentioned points of complacency though. Somebody who isn’t complacent models these unexpected events.
There are many other variables as well which I didn’t cover above. The point is, becoming a billionaire is statistically unlikely.
It depends on the stars lining up. The billionaire Mark Cuban once said that if he had his time again, he knows he could be a multi-millionaire, but not a billionaire.
Why? The latter requires some luck. The former just requires you to start investing small amounts from a young age.
With that being said, with rising age expectancies and people staying healthier for longer, I do expect more people to reach the milestone.
Buffett didn’t reach it until 55 and then peaked at $100billion in his 80s due to compounding.
If the average person one day stays healthy past 90, and average life expectancy climbs to 100, as many expect, then the number of billionaires will skyrocket.
How can the stock market grow faster than GDP?
The stock market isn’t the economy, and the economy isn’t the stock market.
The stock market is the cream of the crop. The Dow Jones is 30 of the biggest firm in the US and for that matter globally as they sell across the world.
The S&P500 is 500 of the biggest firms in the US and globally. The FTSE 100 is the 100 biggest firms in the US.
Those firms change over time, as some companies get added to the list, and others are removed.
Those firms, in turn, can grow more quickly than the economy. Look at last year.
GDP was down in most countries, yet some technology firms saw revenues increased by hundreds of percentage points or more.
Look at a firm like Zoom:
Remember the following facts as well:
- The S&P500 has increased by 11%, and 7.5% since 1950, if dividends are reinvested. US GDP has risen by about 3%-4% on average.
- The Shanghai Stock Market is down on 2006 yet Chinese GDP growth has been rapid.
- There have been regular periods of stagnation during periods of economic expansion in the US – for example from 65 to 82.
- Emerging markets haven’t beaten developed stock markets long-term, despite superior growth.
- These days most firms are international as well, so can tab into global markets.
- Most stocks are owned by institutional investors not individuals. So, it isn’t true that higher unemployment will result in lower stock prices because people will sell out to cover living expenses.
- There are so many variables that move stock markets short-term and even long-term.
There has never been a strong correlation between GDP and stock market growth.
That is why so many people were surprised by the 2020 strong stock market performance.
In the answers below I speak about:
- Which investments seemed great decades ago but are now worthless or doing extremely badly at least? What can we learn from this? Why are technology and collectables high-risk in some situations and how can people deal with this?
- Given how highly tech stocks are valued, should people avoid the sector, or increase allocations due to the increased use of online e-commerce stores? How about world-wide tech firms – are they undervalued compared to companies listed on the New York Stock Exchange in the US?
- Is investing in real estate, and specifically rental properties, superior to stock market investments? I use the UK as an example and look at all factors including taxes, time costs, hassles and maintenance costs. Are there any alternatives to direct real estate for investors who like the idea of investing in real estate?
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